Envestnet - Q3 2021

Transcript

Operator (participant)

To the Envestnet third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Brian Shipman, Head of Investor Relations. You may begin.

Brian Shipman (Head of Investor Relations)

Thank you and good afternoon, everyone. Welcome to Envestnet's third quarter 2021 earnings call. Before we begin, I'd like to point out that our earnings press release, supplemental presentation, and associated Form 8-K can be found under the Investor Relations section of our website at envestnet.com. This call is being webcast live, and a replay will be available for 1 month on our website. During the call, we will be discussing certain forward-looking information which is not a guarantee of future performance, nor are we obligated to update our commentary to reflect subsequent material developments. Before we discuss our results, I encourage you to review the cautionary statement on slides two and three for our customary disclosures. Further information can be found in our regular SEC filings.

In addition, please refer to the appendix in our slide presentation for a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures, which is also posted to the Envestnet Investor Relations website. Joining me on today's call are Bill Crager, Envestnet's Chief Executive Officer, and Pete D'Arrigo, the company's Chief Financial Officer. Bill and Pete will provide a company update as well as an overview of the company's third quarter 2021 results. After our prepared remarks, we will open the call to questions. During the Q&A please limit yourself to one question plus one follow-up. You may get back into the queue if you have additional questions. With that, I'll now turn the call over to Bill.

Bill Crager (CEO)

Thank you, Brian, and thank you everyone for joining today. Envestnet achieved strong adjusted revenue growth of 20% for the quarter and 18% year to date. Our new guidance reflects an improved outlook for the full year 2021. You'll hear more about our results from Pete following my opening comments. Our commitment to our vision and strategy continues as we create the financial wellness ecosystem that enables the future of advice and makes possible an intelligent financial life. There's excitement about what we're doing inside the company and in the marketplace. We are driving innovation. We are threading technology into everything we do. We are using data to elevate incredible insights to our clients and our partners. We are continuing to add to our industry leading marketplace of solutions.

You see, Envestnet is differentiated from every other provider as a fully connected, open architecture, hyper-personalized partner that is paving the way for the future of our industry. We are executing on our roadmap and it is absolutely resonating with our clients. We previously shared our strategy with you and outlined the steps to accelerate growth by first capturing more of the addressable market. We're already a market leader with $5.4 trillion in platform assets, but we can deliver consistently higher revenue growth by deepening our relationships and offering new and better solutions to our over 108,000 financial advisors and our growing roster of more than 625 fintech firms. Secondly, we're modernizing the digital engagement marketplace. Envestnet continues to innovate and implement meaningful enhancements to our cloud-based, API-driven platform.

This will improve user experience and create new opportunities for revenue growth. Finally, establishing our open platform as the driver of the ecosystem. There are more connections to more developers and more firms continue to expand and vitalize our environment. Over the past quarter, we saw an increase in participants across both our data business and our wealth business. Envestnet is also capitalizing on a number of compelling trends that accelerate our progress. Let's start with demand for technology and automation that is absolutely increasing across the board, and this is all ages, all generations, from baby boomers to Gen Z. Another very important trend has to do with open banking. Open banking leverages technology to deliver consumer permissioned, highly personalized services and solutions. Every fintech and financial institution will need open banking capabilities to compete in the future.

We believe that Yodlee powers the most advanced global functionality for open banking. This is an accelerating advantage for our clients and their consumers. We also continue to benefit from the growth of fee-based advice and the even faster growth of managed accounts. We are outpacing the industry. Over the last five years, Envestnet AUM&A organic growth rate has exceeded the managed account industry each and every year by approximately 500 basis points. We're also seeing a meaningful growth of personalized services like direct indexing, like impact investing, and a heightened interest in tax services. Last trend, clearly, data is incredibly valuable. Envestnet has assembled a significant data set. We have also strategically built data solutions that bring insight and actionable intelligence, which is a unique and substantial advantage for our company. These trends create a remarkable opportunity for Envestnet, and we are well-positioned to take advantage of them.

We now have $5.4 trillion in assets across 108,000 advisors, an increase of $240 billion in assets over the last quarter. We continue to see assets moving from AUA to AUM. We also continue to see new account opening accelerate. We are now opening more than 20,000 new accounts every week. We've also added several new large financial institutions over the quarter, which has helped us reach a total of 17.3 million accounts that we serve. In addition, the average number of accounts per advisor on our platform grew 9% year-over-year. Advisors are serving more and more of their clients using our technology and our solutions. We're also leading in areas that are super important, and they're growth drivers for our clients today.

These are personalized services like direct index portfolios, like sustainable investing strategies, which have grown by 86% year-over-year, showing the increasing focus on ESG and impact investing. There's also tax management services, and let me just spotlight our offering here. We are using our rich, internally generated data to identify advisors with accounts that would specifically benefit from our tax overlay offering. 19 new firms have enabled tax overlay to their advisors, and several hundred advisors used tax overlay for the first time since June 1st. This includes several new large enterprises using our tax services. There are also emerging activities that are exciting, like our embedded investing effort. This opens up access to our capabilities for millions and millions of additional consumers.

These services are promising, are making promising progress as we engage more deeply with our clients in a bevy of new prospects. We are investing in our leading technology to connect the best of Envestnet, enabling advisors to serve the entirety of their clients' financial lives. There are many exciting developments making their way to market. In September, we piloted our next generation proposal tool with over a hundred clients of ours. The feedback has been overwhelmingly positive. The result of taking a customer-focused approach and working with them to design an even better technology solution. We continue to expand the industry-leading set of solutions we provide, powered by and integrated into our technology and data. We recently announced a partnership with YieldX. YieldX is a fintech that offers cutting-edge tools to advisors, helping them build more efficient fixed income portfolios.

This partnership complements the capabilities of Envestnet's Insurance Exchange. By combining YieldX and the Envestnet Insurance Exchange, another really important steps that we are taking, we are assembling the industry's leading marketplace of income and protection solutions. We are creating the centralized source that enables advisors to offer the most comprehensive end-to-end solutions for income and protection, which is an essential need for retiring individuals. There's real momentum in our efforts, as the Envestnet Insurance Exchange recently surpassed $1 billion in insurance assets served. You may have noticed Envestnet in the media this past quarter. We recently launched a new campaign aimed at our industry with a tagline, Fully Vested. The initial response has been significant, with a tenfold increase in digital traffic, validating our alignment with our clients and how they see the future of advice and how Envestnet is powering it.

We are growing awareness of the solutions we offer, creating familiarity with our brand, and setting the stage for future offerings. As I stated at the beginning of this call, Envestnet had a very strong quarter. We have made progress on our strategic roadmap. We are executing in all areas of our business, and we are delivering strong financial results. Pete is gonna provide more detail for you now. I'll be back with some closing comments and take your questions following that.

Pete D'Arrigo (CFO)

Thank you, Bill. Today, I'm going to review our third quarter results and then provide an update on our guidance for the fourth quarter and revised guidance for the full year. Our third quarter results continue to demonstrate the strengths in our business model. We expect the momentum from the first nine months of the year to carry through the fourth quarter. Adjusted revenues for the third quarter grew 20% to $303 million compared to the third quarter of last year. Adjusted EBITDA was down 2% to $66 million compared to the third quarter of 2020, outpacing our expectations for the quarter and at the same time reflecting the impact of our investment initiatives. Adjusted earnings per share was $0.61.

Quickly on the balance sheet, we ended September with approximately $394 million in cash and debt of $860 million. Our net leverage ratio at the end of September was 1.7 times EBITDA. Turning to our investment initiatives, I want to reiterate the expectations we've set forth earlier in the year. We continue to expect the investments to account for roughly $30 million of operating expense this year. We are making good progress on the hiring front, the impact of which is reflected in our third quarter results and our updated guidance. We expect the impact of the investments to step up in the fourth quarter.

We continue to expect the accelerated investments to annualize to a run rate of approximately $45 million in 2022, at which point they should be completely in our expense base and grow at the same rate of our operating expenses thereafter. Additionally, we continue to expect sustainable, faster organic revenue growth over the longer term as we create a better, more streamlined ecosystem which elevates our value proposition to existing clients and expands our total addressable market. Now turning to our fourth quarter and full year outlook. You can find our complete guidance in the earnings release and in the earnings supplement. To summarize, for the fourth quarter, we expect adjusted revenues to be between $310 million-$312 million, up 17%-18% compared to the fourth quarter of 2020.

Adjusted EBITDA to be between $54 million and $55 million as we further ramp up the investments, and EPS to be $0.49. For the full year, we are again raising our outlook to reflect the strength of the first nine months of the year and improved outlook for the fourth quarter. We expect adjusted revenues to be between $1.177 billion and $1.179 billion, up approximately 18% compared to 2020. Adjusted EBITDA to be between $259.5 million and $260.5 million, representing growth of 7% for the full year, when the midpoint of our initial expectation for EBITDA was to be down around 5%.

EPS for the full year to be $2.41, which is $0.40 higher than the midpoint of our original guidance back in February. Adding some detail about our revenue outlook for the fourth quarter of the year to highlight some of the drivers. First, our wealth business has performed well year to date. Net flows into assets under management and administration, excluding conversions, in the first three quarters of the year were the highest in our history, nearly double the flows from the first three quarters last year. Further, our significant asset base benefited from favorable capital markets valuations, adding to our forecast of revenue growth. Second, our data and analytics segment has grown subscription revenue around 4% in the first nine months of the year compared to the same period last year.

We expect this business to see improving revenue growth in the fourth quarter. As we continue to execute on our strategy in the coming years and benefit from the investments we're making now, we will capture more of the opportunities we've identified, positioning us to attain our longer-term targets of $2 billion in revenue and adjusted EBITDA margin expanding into the 25% range by 2025. Thank you for your support of Envestnet. With that, I'll turn it back to Bill for his closing remarks.

Bill Crager (CEO)

Thank you, Pete. Our year-to-date results are strong and we intend to close out the year capitalizing on this momentum by leveraging our scale, our technology, our market position, and another incredible asset that we have, Envestnet's people. Envestnet has a team of dedicated individuals who deeply understand the needs of our industry and the needs of our clients. This team has leaned into our mission and leaned into the work we are doing to establish Envestnet as the ecosystem that connects data, technology, and solutions to enable the intelligent financial life. As the industry leader, we continue to innovate and drive the digital transformations that our clients want. Our strategy remains clear. We will capture more of the addressable market opportunity with our data and solutions. We are modernizing the digital engagement marketplace, and we are opening up our platform to accelerate future growth.

I am very pleased with the progress Envestnet is making. Envestnet is differentiated from every other provider as a fully connected, open architecture, hyper-personalized partner that is paving the way for the future of our industry. We will continue to execute, and we will create greater value for each and every one of our company stakeholders. Thank you for your support of Envestnet. We will now open it up to your questions.

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from the line of Devin Ryan with JMP Securities. Please proceed with your question.

Devin Ryan (Head of Financial Technology Research)

Great. Good afternoon, Bill and Pete. How are you?

Bill Crager (CEO)

Devin, how are you? Good to speak with you.

Devin Ryan (Head of Financial Technology Research)

Doing very well. You as well. I guess the first question I want to dig in a little bit around is the slide in the presentation where, you know, you're just seeing tremendous momentum and uptake of the, you know, impact overlay and direct indexing as you highlighted, you know, 30,000 advisors or over that, utilizing those. You know, even if we assume that, you know, a number of advisors are using, you know, multiple solutions here, so there's maybe some double counting, it still seems you're at a meaningful kind of penetration of, you know, the overall 108,000 advisors connected to Envestnet. I'm just trying to think the bigger picture and longer term, you know, what percentage of that 108,000, you know, I guess, have access to these solutions today?

How should we think about, you know, the potential penetration where that could go over time just as you get, you know, more traction with the overall advice?

Bill Crager (CEO)

Thank you, Devin, and great question. You know, these are today we're serving $49 billion in assets in these services. If you took a step back and you looked at the growth areas of our industry, you know, they are about creating personalized portfolios, index-type portfolios for individuals. They are about enhancing the performance of those portfolios with additional services like tax overlay. They absolutely are, you know, from a trend standpoint, ESG and impact investing. We're serving $49 billion in assets, which I think is substantial, but ultimately will be a drop in the bucket for what I believe this it presents as an opportunity for Envestnet. Over the last quarter, for instance, we introduced our tax overlay solution to 19 new firms. Those are enterprises.

Two of those would be very significant brand names that everybody on this call is very familiar with. We are growing the distribution and availability of these solutions to more and more advisors. The uptake from the number of advisors who are engaged in these solutions is growing quarter-over-quarter. Then from that, you'll see the asset growth really continue to elevate. We think we're making tremendous progress, Devin, and it's early days for the opportunities here. Again, if you take a step back, you want to be in Envestnet's position to have the addressable market of $5.4 trillion, and then to have the depth of capabilities in these solutions because they are going to grow, and they're going to grow rapidly in the asset management arena over the next quarters.

Devin Ryan (Head of Financial Technology Research)

Terrific. Great color. Thanks so much. A real quick follow-up here for Pete. Appreciate the guidance as you always give. For the fourth quarter, I know it's a little bit scientific, but there's also some assumptions that are in here. I mean, the markets are up a lot quarter to date, you know, 9% for the S&P 500. Is there any of that baked into the guide, or is it all just based on kind of organic trends?

Pete D'Arrigo (CFO)

No, there's nothing in the guide. The main driver of the asset-based side of revenue is going to be the September 30 asset values. The impact of the market so far quarter to date will have more impact potentially, assuming it holds, and I'm not going to forecast that it holds, but if it holds, it would impact Q1.

Devin Ryan (Head of Financial Technology Research)

Right. Exactly. There's still a small portion of higher markets that could impact 4Q, I guess, technically, but I guess you're saying that's not, you know, as you guys tend to not include that in the guide, that's not in the guide for this quarter.

Pete D'Arrigo (CFO)

It's not included, typically not included, and no difference from our usual presentation this time.

Devin Ryan (Head of Financial Technology Research)

Yep. Okay. Terrific. Just wanted to make sure. Thanks very much.

Pete D'Arrigo (CFO)

All right. Thanks, Devin.

Operator (participant)

Our next question comes from the line of Alex Kramm with UBS. Please proceed with your question.

Bill Crager (CEO)

Hey, Alex.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Yeah. Hey.

Bill Crager (CEO)

Good work.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Hello. Follow-up to Devin's question on the asset-based solution slides. A little bit more technical maybe, but I think last quarter you didn't give the total numbers, but you gave them at the end of March. If I compare your presentations, you know, the number of advisors went from 20,000 to 30,000, the number of accounts went from 40,000 to 285,000. Just wanna make sure that's apples to apples, because that seems to be a very big step up, not only in advisors, but in the number of accounts. Just wondering if you're counting something differently now. Then maybe related, on the $49 billion in assets, what's the pricing that you're capturing right now?

Because I think it's supposed to be premium to what you're capturing elsewhere.

Bill Crager (CEO)

Yep. Thanks, Alex. There's no change. I mean, the data is presented this in the same format as it was after that first quarter. There is no change. We've continued to add significant business in these solutions, continue to have momentum and continue to find a conversion type of assets that will find their way into these programs. You know, it ranges per solution. Our direct index portfolio will be, you know, roughly 15-20 basis points, depending on the index and what we're customizing on behalf of the client. Overlay is ten. Tax overlay is 10 basis points, and then the impact overlay is also 10 basis points.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Blended somewhere in excess of 10 basis points, I guess. You don't have a blended number for the quarter?

Bill Crager (CEO)

We haven't blended that number, no.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Okay. Then just a quick one. I don't know if I missed it, but on the expense ramp, you said $30 million by the end of the year, I think, or still catching with the. Where's the run rate right now, that's supposed to go to $45 million next year?

Pete D'Arrigo (CFO)

Yeah. We're ramping this quarter into about the $12 million range, $12 million-$15 million range. That's what should go on in the first quarter of next year. Then the difference there between the you know, if it's north of $15 million here, again, as we bring more individuals on for our cash spend, it wouldn't affect our adjusted operating expenses next year. As we forecasted it, again, with the engineering folks, where some of the salaries are capitalized as part of the internally developed software, that piece, you know, again.

If this quarter is $12 million-$15 million, I would expect that the actual operating expense next year is somewhere in that $11 million-$13 million range, and that kinda gets you right around $45 million.

Bill Crager (CEO)

Alex, we'll be on that, you know, $30 million. The expectation that we set in the beginning of the year, I believe we will spend this year, and that will project to a run rate between $40 million and $45 million for next year. I think it's important to note that the investments are accelerating our progress and our ability not only to deliver enhanced product to the marketplace, but how we're going to market and how we're raising visibility for Envestnet. It's also about driving a step function in our capabilities with a key around personalization and how our efforts here are driving more and more personalization into the platform. While we serve $5.4 trillion in assets, we can also serve individuals and families in a very unique way.

We're doing that through technology in the way we're able to engage not only advisors and firms, but their end consumers with technology. We're doing it in our solutions business. Again, if you look at the M&A market and valuations around tax overlay or direct indexing or impact overlay, we're leaned in in those areas and making material progress, which is all about personalization. Then on the data side of the business, it's generating by year-end will be $10 million recommendations that are providing individualized suggestions for every account that's on our platform. The investments are accelerating our ability to do that and distribute that more fully.

Alex Kramm (Managing Director and Senior Equity Research Analyst)

Great color. Thanks, guys.

Operator (participant)

Our next question comes from the line of Surinder Thind with Jefferies. Please proceed with your question.

Bill Crager (CEO)

How are you, Surinder?

Surinder Thind (Equity Research Analyst)

Hi.

Pretty good. Yourselves, guys?

Bill Crager (CEO)

Very good. Good speaking with you.

Surinder Thind (Equity Research Analyst)

Excellent. I'd like to start a question also following up on some of the expenses. I noticed there was a material step down in some of the restructuring costs that you guys typically have. Any color you can provide there? Is this kind of, we're starting to see a trend down here versus what they've kind of been for the last couple of years at this point, or how should we think about where you guys are on that part of the transformation journey?

Pete D'Arrigo (CFO)

Yeah. You know, that line and the reason we think about it as more one-time or non-recurring is that it's kinda unpredictable and sort of one-off activity based. We just didn't have as much activity in the restructuring area last quarter as we have had in prior quarters.

Bill Crager (CEO)

Surinder, I think what you're seeing is that organizationally, we've done a lot of work to bring the company together to integrate the parts of Envestnet. We're doing that from a technology standpoint, from a data standpoint. We've also done it from an organizational standpoint. As part of that, we eliminated some redundancies, and cleared the path to be able to bring the parts of the organization together. We're through that. You know, the organization is aligned the way we want it to be, and now we're just adding talent into the organization in areas to push growth.

Surinder Thind (Equity Research Analyst)

That's helpful. As a follow-on, there was some really strong growth organically on the AUMA segment. Can you perhaps talk about a large percentage of that came from growth at existing advisors adding assets versus you guys adding new advisors to the platform.

Bill Crager (CEO)

Yeah.

Surinder Thind (Equity Research Analyst)

Can you maybe talk about those two trends a little bit?

Bill Crager (CEO)

Absolutely, Surinder. It is both. It's a combination of those things. We've had an excellent quarter, lots of activity. You're seeing two efforts kind of play out here. One is how we're going deeper with our existing clients and introducing more and more to the full suite of solutions that Envestnet offers. A couple of bullet points. I cited that the 19 new firms for tax overlay. We've had a large number of firms that have adopted Impact Direct Indexing as well. You're also seeing our RIA clients begin to adopt our fiduciary solutions, primarily in the UMA and investment strategist portfolios. They're utilizing our fiduciary or product infrastructure quite a bit.

We also have seen, you know, conversion activity that we've been working on, financial institution conversions, large firms, but also a very good number of smaller and RIA-type clients who have brought assets and accounts onto the platform. Again, a very solid quarter when we look at it from a distribution standpoint. The numbers look great. The way that we're kind of engaging in the market and getting more and more footprint or shelf space for some of these important solutions is also really important to note, and I think that just, you know, creates the case for more penetration focused in on going deeper as we highlighted, you know, at the beginning of the year.

Surinder Thind (Equity Research Analyst)

Thank you, and congratulations on the acceleration in organic growth.

Bill Crager (CEO)

Great. Thank you, Surinder. Appreciate that.

Operator (participant)

Our next question comes from the line of Peter Heckmann with D.A. Davidson. Please proceed with your question.

Peter Heckmann (Managing Director and Senior Equity Research Analyst)

Hey, good afternoon. Thanks for taking my question. I was wondering, can you give us an update on how you're feeling about the data segment and its ability to kind of continue to re-accelerate, encouraging comments about the fourth quarter. Do you think that business, you know, based upon the current opportunity set, can get up to the high single digits, if not the mid-teens in growth rate here with some of the investments that you're making? Would you care to estimate, you know, the timing for that?

Bill Crager (CEO)

Yeah. Thank you. Hope you're doing well. You know, it's encouraging. You know, this has been something that we've been talking to you about over the last several quarters with headwinds in that business that we knew that we needed to address and begin to really restore the way that we were positioned in the market and the way that we were gonna grow the top line. A lot went into that, Peter. Part of that was to bring our professional services revenue down substantially so that the cost to leverage us became, you know, really frictionless. The second one was to make it more easy to access our developer environment.

You know, year to date, developer activity on our portal is up, you know, significantly, and we continue to see really good activity there. We're seeing a restoration of growth in the analytics business. We believe that, you know, as we get through the year and into 2022 and beyond, our FI business, the financial institution business, will also begin to gain more accelerated traction. Then lastly, it's not a big story or a big part of the revenue mix at the moment, but we're very encouraged with the activity that we're seeing internationally.

Yodlee has got a pretty significant footprint in the international market, and a dynamic that we're recognizing is that the large U.S.-based fintechs want to become global companies, and we're the service provider that can help them power that distribution ambition of theirs. You know, it's a meaningful transition from where we were, meaning we were flat. We're beginning to build growth. We're beginning to see light at the end of the tunnel in a variety of areas for that business. I think as we get into 2022 and beyond, you know, you look at high single digits and then beyond. You look at restoration back into the mid-teens type growth for that business.

In the meantime, we're utilizing the Yodlee asset to power the wellness strategy. As you connect people's daily financial lives to their long-term goals, we can fire more and more recommendations because we have a full understanding of activity, where they wanna go, where they are today, and where they wanna get to. By doing that, we just become such a competitively differentiated partner to advisors, and it's a powerful element of our strategy. Overall, you know, the change of tone is one of encouragement. A lot more work to do. We're not, you know, where we need to be, but we're making progress towards it.

Peter Heckmann (Managing Director and Senior Equity Research Analyst)

That's really good to hear. Then, as a related question then, you know, just in terms of the insurance and credit exchanges, you know, are we starting to see some of that trickle through the numbers, or are we still pretty early on those initiatives?

Bill Crager (CEO)

You know, it's too early in the revenue numbers to really have an impact. That said, the activity is beginning to become more meaningful. Let's start with the Insurance Exchange, which topped, you know, $1 billion to roughly $1.3 billion in assets over the last quarter. You know, over the last couple of weeks recently, we really cleared that milestone. We have grown the number of contracts that we've underwritten on the Insurance Exchange by seven times so far this year. We've grown the number of active advisors by 10 times this year. This is while doubling the size of advisors who have access to the platform.

We're not only doing, I think, a very good job of finding more shelf space, we're also doing a much better job of activating. I'm encouraged. The Credit Exchange also is seeing similar, you know, multiples in the assets that we're lending on. It's grown by about four times this year. The number of advisors who are live on the platform has grown by eight times. Then there was a very significant client who turned the Credit Exchange on in the last quarter, and the activity is kinda very meaningful. We're getting there. A couple of quarters from now, I can't wait to circle those numbers for you, Peter.

Peter Heckmann (Managing Director and Senior Equity Research Analyst)

Very good. I look forward to the update.

Bill Crager (CEO)

Yep.

Operator (participant)

Our next question comes from the line of Ryan Bailey with Goldman Sachs. Please proceed with your question.

Ryan Bailey (Investment Research VP)

Hi, Bill, Pete, and Brian.

Bill Crager (CEO)

Hey, how are you?

Ryan Bailey (Investment Research VP)

Good, thanks. Pete, you mentioned progress on the hiring. I was wondering if you could speak to whether you've seen any impact from inflationary pressures at all, both in terms of sort of new hiring and also in your existing workforce, potentially seeing, you know, outside bids or anything like that.

Pete D'Arrigo (CFO)

Yeah, well, you know, I mean, we're part of the market, but we are taking a very proactive approach to our hiring and employee retention. You know, we're mindful of what's going on in the marketplace and, you know, we're looking to, you know, make sure that we're competitive. I don't know, Bill may wanna add a little thought on that.

Bill Crager (CEO)

Yeah. Yeah. Thanks, Ryan. We are part of the market, so of course, you know, the labor market is strong, as you know. Particularly if you think about the areas Envestnet operates in, you know, what we're out hiring is data individuals, modern API kinda technology engineers, and what I'd say modern asset management or fiduciary services individuals. You know, those are, you know, all competitive areas. I highlighted this in my prepared comments. We also have an incredibly talented, deep organization here. First and foremost, we wanna make sure that we are addressing the people that are in the shop, because they're doing a tremendous job. I think we've done a good job, Ryan.

I look at the numbers, year over year from a retention standpoint, and we're kind of right where we were in 2019, in 2020 with regard to retention. I think that's a good signal. You know, nobody went anywhere during the COVID months, and now, you know, post-COVID, people are picking their heads up. We do a good job, I believe, from a compensation standpoint. We do a good job from a benefit and support standpoint. We do a good job from a company to work. Importantly, and I note this 'cause it really matters to me quite a bit, is our mission, what we're doing is to really enhance the financial lives and help make people's money more powerful. Everyone has an emotional attachment to that.

As we're successful at this, people that are working here are moving the needle. Our mission is key, and communicating that mission is absolutely imperative. Living that mission and delivering on it, I think is so important. We're making progress. We're investing in this. We're moving fast. We are making progress against a roadmap that is, frankly, very exciting. Our employees get fired up about that. To recruit with that narrative is an advantage we have. We comp well, we have a great culture, but we have this purpose and mission, and we're making progress against it. You know, that's a proposition that we have, and it's something that hopefully you can tell I care a lot about.

Ryan Bailey (Investment Research VP)

Hmm. Yeah. Thank you. Thank you for all the color.

Operator (participant)

Just as a quick reminder, if you have any questions, you may press star one to join the Q&A session. Our next question is from the line of Michael Young with Truist Securities. Please proceed with your question.

Bill Crager (CEO)

Hey, Michael. Hey, how are you? Excellent. How are you doing?

Michael Young (Director of Equity Research)

Doing well. Wanted to just ask, you know, I know you guys aren't talking a lot about next year, but just kinda more high level, you know, how you're thinking about managing the business. You've got kind of the roadmap ahead of you. You know, revenue continue to sort of outperform expectations driven by market and maybe accelerated adoption. You know, does that mean that you're gonna press harder on some of the initiatives to move faster, and so we should think of kind of EBITDA and EBITDA progression as being similar despite revenue upside? Or should we think that, you know, more of that's gonna drop kinda to the bottom line? Just kinda trying to think through the puts and takes as you manage through that, as we have some volatility around revenue over the next year or two.

Bill Crager (CEO)

Yeah. You know, I think the expectation that we set is not going to change. The investments that we're making, we believe are moving the needle, and we're making the progress that we expect to make. Throughout next year, you know, we'll roll into 2022 with a full year of expenses that are on the books, but then they're gonna normalize over time. To me, the expectation that we set is not something that we're going to modify at all. We're focused on it. We believe that it's appropriate. We believe it helps provide the accelerated growth that we are very focused in on delivering. Our confidence in delivering on that growth is something that, you know, as we make progress here, we feel very good about.

There will be no modification to the investment that we intend to make next year.

Michael Young (Director of Equity Research)

Okay, thanks. That's helpful. You know, my follow-up question is just sort of as you go through some of these new products, you know, maybe the impact portfolios and overlay solutions and direct indexing, just trying to think qualitatively around kind of the drivers since those are performing quite well in adoption. You know, is it just getting trial and kinda marketing time with advisors and with the companies turning those on? Or, you know, what do you feel like are kind of the key drivers that are supporting those growth rates? What should we kinda be paying attention to understand, you know, progress from here through 2022?

Bill Crager (CEO)

Yeah, it's a great question. I think the macro trends are there, right? I keep on using the word, and I used it in my prepared remark, hyper-personalized solutions at scale. Those are going to be a core theme, and we're really well-positioned to deliver because we have the fiduciary solutions, impact overlay, direct indexing, other areas around planning where we can craft for each and every family a strategy and a solution that meets their needs. We're using data. Data really understands people very well and can recommend the personalization that family is looking for. Those are the elements, those are the ingredients. Now, how do you introduce it? How do you roll it out to the market?

I think there's a macro tailwind that is helping us. What we're offering is very impressive, right? The team that's representing it, the capabilities, how they're technology-enabled, how they're proven, and then with an asset base of just shy of $50 billion, we're not a startup. We've been doing this for a long time. Lastly, what I would add is that we are. You know, the way that we're engaging is modernizing. I noted in the prepared remarks around our marketing campaign. Our marketing campaign is focused on an understanding of how we're delivering. We're Fully Vested with our clients, we're so aligned and moving in step and helping kinda them step into the future. We're also, you know, delivering types of solutions that matter to our clients.

Our marketing effort has generated tremendous awareness. Our statistics around the marketing have been, you know, really impressive. You know, whether it's the 10 times kind of engagement that I noted, but there are other metrics there from a marketing standpoint where the traffic on return traffic and asking for more and more information in the thousands of individuals, I think is beginning to grow the awareness of what Envestnet is capable of and what we're doing in these areas particularly. Then lastly, modernizing the sales force.

In the past, you'd have your typical wholesaling environment, and we have people in the field, they're getting back out on the road, they're visiting with advisors, but we're supplementing that or complementing that with what I would say is a very modern approach. Our data insights are being surfaced on this team's desktops with suggestions not for the advisor, but for the advisor's clients, and all the supplemental marketing and engagement tools to help them go close the business. The numbers that we're experiencing, the data, the early data, we've been at that since June full force. The data that's supporting that effort, I would say is very promising.

Michael Young (Director of Equity Research)

Okay. Thank you for all the color, Bill.

Bill Crager (CEO)

Yep. Awesome. Good to speak with you.

Operator (participant)

We have reached the end of the question and answer session, and I'll now turn the call over to Bill Crager for closing remarks.

Bill Crager (CEO)

Thank you. Thanks, everybody, for joining. Just wanna thank you for joining today and for all your questions. I also wanna thank the Envestnet team. You know, we're making tremendous progress here, and it's exciting and there's very good energy behind it. It doesn't happen without the incredible team that we have. Thank you, everybody. I look forward to our next conversation. Thank you again, and this ends the phone call.

Operator (participant)

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.