Jud Bergman - CEO Pete D'Arrigo - CFO Anil Arora - CEO Yodlee.

Peter Heckmann - Avondale Jeff Houston - Northland Securities William Blair - Chris Shutler.

Good day, everyone welcome to the Envestnet Conference Call. Today's call is being recorded. At this time I'd like to turn the conference over to Mr. Pete D'Arrigo, Chief Financial Officer. Please go ahead, sir..

Thank you operator and good afternoon everyone. With me on today's call is Jud Bergman Chairman and Chief Executive Officer of Envestnet and Anil Arora the Chairman and Chief Executive Officer of Yodlee. Today's call is going to primarily focus on the business combination we announced today.

We will also briefly discuss our second quarter earnings our second quarter 2015 earnings press release yearly acquisition announcement and yearly acquisition presentation and associated Form 8-K can be found at envestnet.com, under the Investor Relations section.

During this conference call we will be discussing certain non-GAAP information, including adjusted revenues, adjusted EBITDA, adjusted net income, and adjusted net income per share. This information is not calculated in accordance with GAAP and may be calculated differently than other companies similarly titled Non-GAAP Information.

Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release. During the call we will also be discussing certain forward-looking information. These discussions are not guarantees of future performance and therefore you should not put undue reliance on them.

These statements are subject to numerous risks and uncertainties that could cause them to differ materially from what we expect. Please refer to our most recent SEC filings as well as our earnings press release which are available on our website for more information on factors that could affect these matters.

This call is being webcast live and will be available for replay for one month on our website. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments. We will take questions after our prepared remarks. And with that I will turn the call over to Jud..

Thank you, Pete. I want to thank everyone for joining us this afternoon I will begin my remarks with the review of the second quarter. To which Pete will provide additional thoughts and then Anil Arora, the Chief Executive of Yodlee and I will provide our own remarks on the business combination.

During the second quarter we continue to execute on our platform in business development strategy investing in technologies solutions which strengthen the engagement between advisors and their clients.

On our last quarter's call we talked about how our multi-portal platform strategy seek to unify and fortify the end-to-end application stack that advisors and their enterprises use.

Sometimes we develop the applications internally, other times by acquiring the capability and still other times by integrating tightly with other market leaders all in an open architecture environment.

Our combination with Yodlee is an example of our executing on this approach and I'm thrilled to be able to discuss the business combination in more detail in a few moments.

During the second quarter we experienced decent results as investment on-boarded 46 billion in new assets from primarily licensed based conversions, reflecting strong continuing demand for our unified platform offerings from large institutions, registered investment advisors.

We continue to see meaningful opportunities to convert large books of business to our platform across all channels. Registered investment advisors, independent broker-dealers, insurance broker-dealers, regional broker dealers, bank broker-dealers, and now more recently bank trust departments.

One of which represented a very significant part of this past quarters licensed conversion activities. Our on boarding teams are fully engaged in the largest and most complex conversions in our company's history. As these conversions are completed we expect to see the benefits meaningfully in the later part of 2015 and beyond.

In the second quarter we grew our top line by 21% when compared to a year ago and we grew adjusted cash flow or adjusted EBITDA by 37% over the same period. Gross sales during the quarter were 22 billion, including 7 billion in assets under management or administration, new client conversions.

All told, by quarters end more than 42,000 advisors representing some 793 billion in advisor assets are support by our company. Account growth per advisor was again slower in the second quarter than it has been in the past 12 or so quarters which ended the past December. We think this is due primarily to two factors.

One the overall market is experiencing some headwinds and investor behavior is effecting the growth rates in most advisors practices. Second, unified managed to counter UMA technology that we were pioneered and inventors in is resulting in more new account containing multiple sleeves and multiple investment options within the portfolio.

This is now being done within a single account, within a single registration more and more. While this theoretically should be revenue neutral, the unified managed accounts structure can be more cost effective and it means a slower rate of growth in accounts.

With respect to the market decline in capital markets prices have a direct drag on our revenue growth while over redemption rate increased growth rate to net flows decrease, even though our organic gross sales are up year-over-year some 25%. Net sales growth has soften to about 8% year-over-year.

So these are the effects of the markets uncertainties and recent price declines in the equity and fixed income market. Even so advisors leveraging our unified technology appeared to still be growing at a significantly faster rate than the industry in general and faster that those advisors who do not use a unified platform.

I'd also like to provide an update on our consolidating acquisitions first with respect to WMS we are on track with our previously provided schedule, though it's a much slower ultimate conversion than we originally expected we still expect to complete the WMS conversions the last one in mid-2016.

Following the conversion we expect EBITDA to increase by incremental $6 million to $8 million on an annualized basis which we expect will in total exceed the $12 million annual increased in adjusted EBITDA that we originally planned.

And regarding Placemark we continue to be on track to complete the integration by the end of 2016 and we may see some transition benefit earlier than that financially. Before leaving consolidating transactions I would like to provide some additional general comments.

Consolidating transactions take time not only to convert in train advisors on the new platform, there can be some extended cycles of ramping up the new advisors to learn the system to fully leverage the platform.

Going back to the fund quest conversion that was completed several years ago even though the actual conversion was straight forward and fairly efficient from beginning end it about six to eight months.

It still took us about three years in total for those legacy clients to then increase their productivity and gain growth rate internally that were similar to investments core clients and what they had experienced over a longer period of time.

The primary motivations in pursuing consolidating transactions again to remind you is the increased scale we get and that increased scale can meaningfully affect our cash flow and we're looking for cash flow accretion.

With consolidating transactions like WMS and Placemark, we're expecting to see the benefits of scale and deliver adjusted EBITDA in excess of 25% of the purchase price. The primary motivation is cash flow and not necessarily revenue growth. That said, we're pleased with the additional capabilities acquired in each of these companies.

For WMS, it was access to the bank’s trust channel and to the Canadian market, access to the bank trust channel and the regulatory reporting capabilities we were able to build out, enabled a very large conversion of bank trust assets that I alluded to earlier, just completed in the second quarter.

With Placemark, it is the enhancements of our UMA technology and the meaningful improvement in our tax overlay capabilities. Anil and I will discuss the Yodlee transaction in a moment but first I'd like to turn it over to Pete to discuss our financial performance in greater detail..

Thank you, Jud. Turning to the second quarter results, I'm going to cover just a few highlights today. I'll start with components of revenue. Revenue from assets under management or administration grew 19% to $83.8 million compared to $70.7 million in the second quarter of 2014.

Licensing and professional services revenue in the second quarter was $18.8 million, an increase of 34% from $14.1 million a year ago. In total, adjusted revenue increased 21% to $102.7 million, from $84.8 million in the second quarter of last year. Our cost of revenue increased to $42.5 million for the quarter from $38 million last year.

As a percentage of revenue from assets under management and administration, cost of revenue was approximately 51%. The second quarter includes the impact of our advisory summit, which was approximately $2 million excluding this amount cost of revenue as a percentage of AUMA revenue was approximately 48%.

Adjusted EBITDA was $17.6 million for the second quarter, 37% higher than the 2014 second quarter and adjusted earnings per share was $0.24 in the second quarter, increasing 33% from $0.18 last year.

Looking forward, we expect our revenue from assets under management or administration to be up 13% to 14% in the third quarter compared to the third quarter of last year. This reflects an effective fee rate of approximately 13.1 to 13.2 basis points on our beginning AUMA asset base of $258 billion.

Licensing and professional services revenue for the third quarter of 2015 should be up approximately 31% to 33% year over year and adjusted revenues for the third quarter should increase between 16% and 17% year over year. We expect third quarter cost of revenues to be between 48% and 49% of AUMA revenue.

With these assumptions we expect our adjusted EBITDA to increase 24% to 26% in the third quarter compared to the third quarter of last year. These expectations translate to adjusted earnings per share of $0.24 to $0.25 for the quarter.

For 2015 in total we're maintaining our outlook for full year performance although given the impact of the market and the trends Jud discussed we expect to be tracking towards the lower end of the ranges of revenue growth at 20% to 22% and adjusted EBITDA growth of 33% to 38% compared to 2014. With that I will hand it back to Jud..

Thank you, Pete. In light of today's announcement I'd like to take a step back and frame where we see the current state of wealth management industry and how Envestnet is positioned. We've been saying for some time that we believe we are uniquely positioned to both lead and benefit from the continuing transformation of the wealth management industry.

We believe that we are in the middle of a profound transformation in financial technology. Almost every major industry has been disrupted and altered by the progressive growth of information technology and platforms.

The financial services sector and particularly financial advisors has lagged many others in integrating these trends, in part because of the complexity, extensive regulatory framework and legacy systems that are in place. But these are all changing and it must change more rapidly for the industry to stay relevant.

Because investment has gone to technology platform and to service provider that aims to meet the multiple needs of our clients, we believe we are uniquely positioned to help advisors and all of our clients navigate this historic transformation. Now we are at the next phase of our own evolution.

I’ve spoken in previous calls about the ever larger amount of data that flow through investment platform. This data is itself a key resource for advisors, investment managers, enterprise and indeed for the entire wealth management, space. We have positioned our company at the juncture of advisors, clients, managers and information.

The advisor portal that represent a key component of our platform is always been conceived as a digital cloud base platform that empowers and enables advisors to better serve their clients provide better outcomes, helping to deliver improved financial health for their end investors.

We believe we are building the financial technology firm of the future and in some ways helping to empower the advisor of the future. From very early on human builders and architects have relied on the geometric strength of triangle to uphold our most important construct and evenly distribute force, balanced that with tension.

Examples throughout civilization include the pyramids of Egypt bicycle frames, and the largest suspension bridges of modern times. And we too are looking to strengthen our own business triangle.

We started the firm as a turnkey asset management platform web based in how we delivered technology, that’s how we got started and then in around 2005 we begin to sell our license our technology directly to advisors and enterprises who wanted to manage those assets themselves or have an outsider third party as a fiduciary.

The third side of this triangle is the client permission data aggregation that the industries need to understand holistically the big picture of their client's financial lives.

Together the three size assets under management, enabling technology and client permission to data aggregation provide full service basis foundation for an integrated end-to-end solution for the wealth management industry.

I believe that the major step forward in our evolution is the technology and service provider and that’s why we are so excited about Yodlee. Earlier this year we became convinced that we needed to enhance our platforms data aggregation capabilities as I’ve mentioned in several of our previous call.

In order to provide a holistic financial planning and investment management process providing client permission online real time access to an investor’s disparate holdings an assets.

We begin looking at deep integration of Yodlee's data capabilities and as we begin to look at the benefits of this integration we became increasingly positive about how transformational a merger could become.

We became increasingly positive about the culture and the capabilities of Yodlee and we determine that it would be more valuable to our long term interest to merge with Yodlee versus partnering with them commercially. We expect this merger to provide a number of long term benefits to investment shareholders.

First the combination accelerates the transformation of financial technology by delivering better relationships and greater life time value by connecting financial advisors individuals and service providers and helping advisors to cross what we call the digital divide. A divide that separates many advisors from their best prospects and clients.

We are marrying Envestnet' leading unified wealth management platform that serves over 42,000 advisors with Yodlee's leading financial technology platform that services over 20 million paid users across 850 financial institutions and financial technologies innovators globally. Second, we see powerful cross selling opportunities.

The combined company's cloud base networks can create an unprecedented level of engagement between financial advisors and their clients. Enabling them to access and make better sense other than disparate and complicated financial lives.

We believe this represents a quantum leap and accuracy and knowledge that will deliver better outcomes that improves the financial help with investors. The transaction is also expected to widen the company's reach, research analytics and strategic partnership potential. Also importantly this transaction accelerates our long term growth profile.

As many of you know we have a history of acquiring and integrating important technology and services that have been complementary to our business and long term growth rate. In fact this will marked the eighth acquisitions that we have done in the last six years and the most significant transaction in our history.

It epitomizes what we call a strategic acquisition and we expect Yodlee to exceed our own long term growth target. When we think about all of these we see not only significant addition business opportunity and revenue synergy but -- and this is important we think this combination will enable opportunities that we can't even imagine at this point.

Unlike our consolidating transactions the combination with Yodlee will not require a conversion of accounts which I discussed earlier can be lengthy. We expect significant revenue synergies in the long term and modest expense synergies in the short term but these are not dependent on a time consuming account conversion.

Allow me to make a few specific points regarding the financials. We expect to acquire all of the shares in Yodlee in a cash and stock transaction valued at $18.88 per share which consists of $10.78 per share in cash and $8.10 per share in investment stock.

We expect the acquisition of Yodlee should accelerate our revenue and adjusted EBITDA growth rates by at least 100 basis points in 2016 and more in 2017 and beyond. Further diversify the revenue base increasing subscription and licensing revenue from approximately 15% to approximately 30%.

It is also expected to be accretive to adjusted earnings per share in 2017 and beyond. With that said and it's my pleasure to introduce Anil Arora, Chairman and Chief Executive of Yodlee. Anil will continue his role as Chief Executive of Envestnet Yodlee..

Thank you, Jud. And good evening to all. We are thrilled to announce this combination with Envestnet. We believe this transaction will transform the financial services industry by bringing two proven disruptive innovators together. We will create a combined company uniquely positioned to improve and simplify financial life all around the world.

Today, Yodlee is the leading digital financial platform and one of the largest software-as-a-service platforms with over 20 million paid users and we are a B2B2C service so, Yodlee users are end users of over 850 entities including eleven of the top 20 financial institutions like Bank of America, Merrill Lynch and Citi and so on and so forth, as well as leading internet innovators like a PayPal, or Personal Capital or Cabbage.

The Yodlee platform powers dozens of used cases like wealth management, personal financial management, online lending, risk management, mobile, small business accounting and many more.

We have some unique capabilities, we have worked step by step over 15 years with key players in the financial services industry to create a 100% user permission Yodlee proprietary data network.

We have structured data feeds with financial institutions for over 75% of all of our data across 14,000 different institutions and a very powerful and proprietary data enrichment process.

We have advanced easy-to-use technology which has enabled us, our customers and third party to develop a very unique and innovative cloud based financial application eco-system. All of this makes us the industry's leading open platform and creates significant network effects.

Yodlee's cloud based operational scale and security with tens of millions of users is highly valuable to the digital, financial services eco-system. Our competitive advantages in the marketplace have continued to grow with increased distribution scale and new technologies. This growth has been driven by three key strategies.

First by leveraging and extending our leading position as a platform of choice for the world's leading financial institutions by increasing our penetration at existing financial institutions as well as adding new financial institutions both domestically and globally.

Second, by powering emerging digital, financial services providers who are disrupting the industry as they modernize traditional financial services and bring to market new used cases. And third by leveraging our unique big data assets and analytic capabilities to further accelerate our subscription revenue.

Next, the Yodlee financial platform has become the de facto industry standard with hundreds of leading customers and tens of millions of users.

Our demonstrated ability to bring financial data together in unique ways will provide critical insights that will enhance Envestnet’s wealth management solutions by providing advisors a holistic view of a client's financial profile, advisors will cross the digital divide and will be able to deliver improved planning and advice that encompasses the entire wealth management process.

This will be incredibly powerful and transformational. Together we will drive better relationships between advisors and their clients and greater lifetime value, together we will accelerate the transformation in financial services and wealth management and together we will simplify and improve financial lives around the world.

Finally together we will accelerate revenue and EBITDA growth for both companies..

Thank you, Anil. The acquisition of Yodlee is a watershed moment in the financial technology. We have long admired Yodlee’s innovative solutions and are excited to bring these two cloud based financial technology pioneers together.

As I said earlier, this union will enable investors and the advisors who serve them to access and make better sense out of there disparate and complicated financial data, representing a quantum leap in accuracy and knowledge that will deliver better outcomes to improve the financial health of investors.

Thank you again for time this afternoon thank you for your support of investment and with the conclusion of this prepared remarks we are happy to take your questions..

Thank you. [Operator Instruction] We'll hear first from Peter Heckmann with Avondale..

Congratulations on a surprising deal. Looks pretty intriguing.

I wanted to know with this deal is there a go shopping petition, or is there a breakup fee related to the pending acquisition?.

There is no solicit provision in the transaction and there is a breakup fee of approximately 3%. .

Okay, thank you.

Would you -- how did you deal with, or did you view any channel conflict potentially as a detractor to the strategic value of the deal with some of Yodlee's biggest clients being the big wire houses, the big capital market firms? Or do you see the combination of the two provides more synergistic value than content conflict?.

We see that the combination of the two businesses has a tremendous amount of complementary clients and opportunities. There is an established use of Yodlee primarily among the large banks I believe of the ten largest wealth management firms in the country six or seven are using Yodlee.

And we expect that will continue and maybe even improve where we see our opportunity is in the independent space within wealth management to bring Yodlee data aggregation capabilities into that space and tightly integrated with financial planning and investment management planning to then deliver the better outcomes.

So our advisor base I think is going to be well served by it and we did not see significant channel conflicts..

Okay. Last question and I'll get back in the queue.

Just as regards to cost synergies, if I'm correct on the data aggregation side with Pfizer's acquisition of CashEdge and Morningstar's acquisition, by all accounts, Yodlee would represent the largest and last independent player of data aggregation, is there the opportunity to generate some cost synergies from eliminating some fees you may be paying to those other vendors?.

We think that there are modest expense synergies Pete. We expect that we'll be able to give -- we're heavily into the financial planning process but we expect overtime we'll be able to give greater clarity on what the exact amounts would be in 2016 and beyond. .

[Operator Instructions] We'll move to Jeff Houston with Northland Securities..

Thanks for taking my questions. First on the quarter.

How much did Placemark and Finance Logic contribute to the quarter? Was it was about $5 million or so of revenue?.

No it was closer to little over $6 million when it combines the two..

Okay. Great. And then separately looking at Yodlee's structured data feed and I think you said 850 financial institutions that it ties in with, which of your solutions do you expect that the functionality will make the most sense for and it sounds like pricing's probably going to be more subscription-based.

Will some of your clients that are used to paying you a basis point of SSR management will pricing be considered in that fashion for those clients?.

It's a good question. First of all, one of the things we highly value is the network effect, if 850 clients but it is access to some 14,000 financial institutions. It's not just an investment solutions but its credit cards, mortgages, credit unions.

So with that base of that network of interfaces that we believe is going to be very valuable to deeply integrate to registered investment advisors, practices, and dependent broker-dealers, insurance regional broker-dealers, banks, trust companies.

And we expect to continue the same business model on pricing for Yodlee's services as they've already perfected and that's a subscription-based, based on the number of accounts that are being aggregated. And so we don't see that as bundled into the pricing. We see it as deeply integrated, but if an optional add-on for additional pricing..

And from William Blair with Chris Shutler..

Maybe first could you talk about the revenue synergies in a little more detail? You mentioned cross sell, improved reach, and strategic partnership potential.

Can you drill down into each one of those in a little more detail?.

We expect to drill down overtime Chris, the revenue synergy we think will add about 100 basis points to our revenue growth profile in 2016, more in the out years 2017 and beyond, but the teams have looked at the combined client base, we've looked at Envestnet clients today that are not using data aggregation and we've made some assumptions about what percent will and that's very encouraging, we like what we see there, we see that the ability to offer enhanced research and data analytics packages to investment managers is also something that we see a lot of -- we see significant potential in.

We're beginning to do that at Envestnet more on the asset manager distribution side and we see now with some of Yodlee's data analytics and ability to also do more business with the investment managers on the portfolio management side.

Again, we believe that the network affects to what we've been able to assemble and the advisor base that we've been able to assemble has the potential for increasing the financial -- improving the financial health of the end investor, but this is done by the advisors delivering better outcomes at the portfolio level.

So, it's taking the Yodlee offering into Envestnet's traditional channels and then leveraging the Yodlee analytics, it's also helping advisors connect more deeply with their end client and establish a more meaningful relationship by having greater capabilities at the digital front..

And this is Anil, might I add that in addition to what Jud said, we've created hundreds of financial applications, we call them FinApps, I think those could be leveraged across all the channels and in addition to that Yodlee today operates in about 15 different countries and that represents as well another expansion and revenue opportunity for us going forward..

Okay, thanks. And then, Jud, why did you -- you mentioned at the outset asset that you were digging into Yodlee and decided it would be better to merge rather than partner.

Why specifically was that the case? Why wasn't partnering good enough?.

So, you're basically asking if you need a quarter of milk, why did you buy the cow, is that what you're asking Chris.

So, as we look at the revenue synergy across, the cross-sale synergy, the footprint that they -- Yodlee had internationally and the market leadership they had in data aggregation which was a very important element of our long-term strategy, we concluded that we were better off owning the technology, the capabilities, the patterns, the interface library with a hub of interfaces because as we seek to deeply integrate this capability into financial planning, investment planning and the investment management process we just have a lot more flexibility of getting the solution right.

We also see that with the synergies on the cross-sales, we wanted to be the full beneficiary of those instead of sharing the benefit of that which a commercial arrangement would have.

So, we see that ultimately, the analytics that comes from data of the tens of thousands of advisors that we have and the millions of accounts that those advisors represent combined with the network of 20 million paid users for Yodlee's financial aggregation capability was a much better profile to own the technology in emerged entity that was to share the technology through a commercial arrangement, an arm's length commercial arrangement..

Alright. Thanks. And then just one quick one on the quarter; actually on the guidance. It does embed a good bit of acceleration of the revenue and EPS into the fourth quarter as opposed to the third.

How good you feel about hitting those implied Q4 numbers? And is it really just predicated on these couple of large conversions that you've been talking about coming through in the back half?.

It's primarily driven by large conversions, for a good chunk of the assets we have high level of visibility in fact the assets are already on the platform we just haven’t launched with the clients. So we do have a high level of visibility into that pipeline but yes to answer in short it's what you said it's those conversion going live in Q3 and Q4..

And one indication you see of that they are live, accounts already on, is the increase in deferred revenue is an indicator of the magnitude and size of the conversion base that we expect to bring on the second half of 2015. .

[Operator Instructions] And at this time I like to turn the conference back Jud Bergman for closing remarks..

Thank you, appreciates the questions and appreciates the insight that’s represented. I know that the number of the analyst are new to the Yodlee story and we only had about an hour to raise some of those questions we do look forward to following up with several of the analyst later on today and tomorrow.

I do want to thank everyone for their participation on the call and we look forward to reviewing the continued evolution of our business and transformation of the industry in calls that are yet to come. Thank you. .

And we conclude today's conference again we thank you all for joining us..