Chris Curtis - Envestnet, Inc. Judson T. Bergman - Envestnet, Inc. Peter H. D'Arrigo - Envestnet, Inc. Anil Arora - Envestnet, Inc..

Alex Kramm - UBS Securities LLC Surinder Singh Thind - Jefferies LLC Patrick J. O'Shaughnessy - Raymond James & Associates, Inc. Chris Charles Shutler - William Blair & Co. LLC Peter J. Heckmann - Avondale Partners LLC Rishi Jaluria - JMP Securities LLC Christopher Roy Donat - Sandler O'Neill & Partners LP David Grossman - Stifel Financial Corp..

Good day, everyone, and welcome to the Envestnet Third Quarter 2016 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. Please go ahead, sir..

Thank you, and good afternoon. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer; Pete D'Arrigo, Chief Financial Officer; and Anil Arora, Vice Chairman and Chief Executive of Envestnet | Yodlee.

Our third quarter 2016 earnings press release 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 similar non-GAAP information for other companies. Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release.

During this call, we'll 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 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, Chris. I add my own welcome to everyone on today's call. Thank you for joining us. Today, we will provide an update on our business, share our results from the third quarter, and discuss our outlook looking forward.

Our enterprise and financial advisor clients are turning to Envestnet's integrated offering of automated data aggregation, goals-based planning, data analytics, and advisor-centric wealth management technology in order to leverage better intelligence and deliver better outcomes in support of their clients' best interest.

Our solid third quarter results reflect continued growth. The financial benefits of recent acquisitions are becoming apparent, and we continue to sign agreements with large enterprises, including most recently one of the top wealth management firms in the U.S., as well as a top banking institution.

These enterprises see the value of our unique integrated offering. Some of our largest opportunities result from the fiduciary rule recently adopted by the Department of Labor. Since our founding, Envestnet has empowered fee-based fiduciary advisors.

Today, our platform, which is far more robust and comprehensive than it was, say, five years or 10 years ago, still rests on the foundational value of the fee-based fiduciary expert enhanced by leading technology. We are uniquely positioned to help advisors and enterprises manage the transition of their businesses in a post-DOL world.

This new environment demands access to best-of-breed investment solutions that factor in costs, performance, and client needs. It also demands a more holistic picture of a client's financial life.

At our recent Alliance Conference in September, where we host our largest enterprise clients, there was tremendous validation that our integrated offering is exactly what enterprises and advisors need to leverage better intelligence and deliver better outcomes for their clients. Our integrated offering empowers the future of advice in four key areas.

First, it improves the understanding of the client or KYC requirements. Yodlee data aggregation enables a holistic view of a client's financial situation, dynamically updated in real-time, and when combined with financial planning, supports a more complete understanding of the client.

Second, the offering accelerates client on-boarding, by leveraging automated data aggregation and analytics. Third, it enhances the advisor value proposition through a unified suite of advisor-centric wealth management technology and services.

And fourth, it turbo-charges advisor and enterprise productivity, as evidenced by the recent study published by the Aite Group. These benefits are essential to organizations operating in a post-DOL environment. Last month, we enhanced our integrated offering in two important ways.

First, we acquired Wheelhouse Analytics, a partner that focuses on wealth management analytics, which will enhance our existing analytics business, which focuses more on retail and consumer data. This enhancement enables us to continue to improve our leading and advanced analytics capabilities.

At the Alliance Conference, we demonstrated Wheelhouse's performance and fee benchmarking capabilities, which are available as part of our analytics offering. Our enterprise clients are eager to leverage this tool as part of their compliance efforts.

This acquisition is not material in the short run, although it is an important enhancement to our integrated data analytics offering over the long term.

Second, we improved our open architecture network by furthering the integration of an additional leading financing planning provider, enabling clients to have more choice in a fully integrated solution that includes financial planning, either through Logix, which is our only in-house solution, or through other solutions.

Clients also have the flexibility through our Open ENV initiative to access these and other mission-critical capabilities on the investment platform as part of Envestnet's or their own user experience. Meanwhile, during the third quarter, the business performed well, despite a somewhat weaker industry environment.

Across the industry, advisor head count is up between 1% and 2% year-over-year, advisor adoption for Envestnet was significantly higher as we ended the quarter with more than 52,000 advisors, up 19% over one year ago. Accounts per advisor also grew.

We are beginning to see adoption of our more comprehensive solutions by large, sophisticated financial institutions, solutions that would not have been possible but for the combined efforts and resources of Envestnet and Yodlee. This is highlighted by three new relationships we signed during the third quarter. A top five U.S.

wealth management firm, a top five U.S. bank, and a top global financial services company. These are terrific joint wins for Envestnet and Yodlee and demonstrate the unique value of what Envestnet and Yodlee are able to bring to the marketplace.

The agreement with the global wealth management firm includes Yodlee data aggregation along with consumer-facing digital apps, as well as Envestnet data reconciliation, which represents a validating win for the combined organization.

This particular firm wants a technology partner that could seamlessly aggregate, cleanse and then fully reconcile data using the latest machine learning technologies and innovative applications for use in its core offerings to its clients, and then integrating those into the other vital work flows within the organization.

We are very pleased with this partnership and look forward to building value for their clients with our market leading technology.

This relationship also points to the continued expansion of Envestnet's potential client base, which started with the advisor but now reaches to enterprises and firms that once were at the edge of our imagination and which are now becoming reality. The agreement with a top five U.S.

bank, which is an existing Envestnet enterprise client, will incorporate the Yodlee data aggregation capability and consumer-facing financial apps for their wealth management business. And the global financial services company Envestnet | Yodlee will deliver account aggregation for its new consumer-facing retail banking application.

We expect to win additional new business from across the financial services industry including banks, insurance companies, fintech providers, brokerages in the coming quarters.

But, I will remind listeners again that these relationships often have a long sales cycle, and even once contracted, take time for the revenue to materialize in meaningful levels.

Overall, we are very encouraged by the collective opportunities we have in both the near-term, driven by an increased interest related to DOL regulation and the longer-term, leveraging the financial network we have created with current clients and new ones across financial services. I will conclude with a few remarks in a moment.

But, I'd first like to turn it over to Pete to discuss our financial performance in greater detail..

Thank you, Jud. Good afternoon, everyone. Briefly summarizing Envestnet's third quarter results, comparing the third quarter of 2016 to 2015, revenue and adjusted revenue grew 44% to $149 million. Revenue from assets under management or administration grew 5% to $90 million.

Subscriptions and licensing revenue increased more than 220% to $52 million, up from $16 million in 2015. Professional services and other revenue more than quadrupled to over $7 million and was higher than we expected due to the timing of some revenue we previously anticipated to realize in the fourth quarter.

Growth in our subscription and licensing revenue as well as our professional services and other revenue benefited from the inclusion of Yodlee's results this quarter, as they were not in the prior year. In terms of composition, recurring revenue was 95% of total revenue during the quarter.

I'd also highlight that, revenue from subscriptions and licensing increased to 36% of adjusted revenue from 16% last year, again noting the inclusion of Yodlee in the 2016 period. GAAP net loss was $4 million, compared to net income of $3 million a year ago due in large part to the increase in amortization connected with the acquisition of Yodlee.

Adjusted EBITDA was $27.5 million, a 43% increase over the $19.2 million we reported last year and included the accelerated benefit from further integration with Placemark of about $500,000 for the quarter. Adjusted earnings per share was $0.28 in the third quarter, $0.03 higher than the third quarter for last year of $0.25.

We are still in a position to utilize net operating losses for federal taxes over the next several years, making our affective cash tax rate virtually 0%. However, we will have cash obligations for foreign taxes and state taxes. Our assumptions for adjusted net income and adjusted EPS is a tax rate of 40%.

Moving to our outlook for the fourth quarter and the remainder of the year, which is also included in the earnings release. We expect total revenue to be between $153 million and $155.5 million for the quarter.

This comprises revenue from assets under management or administration of between $92.5 million and $93.5 million, reflecting an effective fee rate of approximately 11.1 basis points to 11.2 basis points on our September 30 AUM/A asset base of $334 million.

Subscription and licensing revenue should be between $55 million and $56 million and professional services and other revenue should be between $5.5 million and $6 million. Cost of revenue should be between $48.5 million and $49.5 million, and adjusted EBITDA should be between $29 million and $30 million, again all of this in the fourth quarter.

Using a normalized GAAP tax rate of 40% and assuming approximately 45 million diluted shares outstanding, this translates into adjusted earnings per share of $0.30. Thank you again for your interest and support of Envestnet. And I will hand it back to Jud for his closing remarks..

Thank you, Pete. Heading into 2017, we expect to continue our track record of solid organic growth ahead of the industry, driven by enterprise and advisor adoption, new business wins with wealth management firms, financial institutions and fintech providers.

The opportunity here is significant, and as mentioned, we are already seeing early signs of success with large sophisticated organizations.

Without getting into specifics for 2017, over the next several years, we target organic revenue growth in the mid-teens, which we broadly define as a range from 13% to 17%, with acquisitions accelerating that growth from time-to-time. As we have demonstrated historically, we expect adjusted EBITDA to grow faster than our organic revenue growth.

The financial network we have created is a culmination of more than 15 years of deliberate innovation and strategic activity.

Now with thousands of enterprise clients, tens of thousands of advisor clients, millions of investor accounts over a trillion in platform assets and multiple trillions of aggregated consumer financial assets and activity, Envestnet delivers value to clients beyond the tangible benefits of our best-of-breed point solutions and beyond the value of our integrated platform offerings.

The result is better intelligence, better outcomes and ultimately better lives. We thank you again for your time this afternoon, and thank you for your support of Envestnet. And with the completion of our prepared remarks, Pete, Anil and I are happy to take your questions..

And we'll go first to Alex Kramm with UBS..

Yeah, hey. Good evening, everyone. Maybe just starting with the updated guidance, I guess this OP (16:48). But, it looks like over the last couple quarters, your full-year guidance has come down a couple of times. I think this quarter or with this quarter, I think you're now looking at the low end of the range you're previously given.

So, if you bring it back to like the big picture and what you've seen out there in the marketplace, what are the biggest items you would point out that kind of have happened here over the course of the year that and in particular in the last three months that are playing out as you thought?.

Well, I'll start it. And Pete, I'm sure will add some. This is not a reduction of the guidance. The full-year guidance is coming although at a lower end, it's coming in within the range that was previously outlined. So, first of all, we point that out.

Second, there were several things that we got right over the last couple of years; products, product strategy, a fiduciary standard becoming more and more adopted.

What we didn't anticipate was some of the, I call it, paralysis or slowdown that has happened as the DOL regs have worked their way through the various financial institutions that are affected by them. So, we did a very good job of identifying what would be needed and have outlined what those things are.

We did a good job of making that available in time for adoption. And we are seeing now that as firms have concluded what was necessary and what they will be needing, they're beginning to reach conclusions on that. We're finding that our strategy is being validated.

As I mentioned, what we didn't see was the time it would take from rolling the solution out until firms identified what their specific needs were. And I think that that's probably a 90-day to 180-day delay that we expect is going to be picked up, and probably accelerate in the first half of next year..

I think that's right, Jud. I would just add that we are again seeing the strength in signing some of these contracts as they're starting to come over. We mentioned a few of them on the call today and there are others not quite as big, but they still keep coming and singing up.

So, the realization of that revenue is or likely to hit in the first part of next year..

All right. All right. Fair enough. But maybe just to go into more detail, I think one of the areas that at least relative to my expectations has been falling short. I think you're much more bullish on conversions in the second half of the year.

Is there still a good pipeline here? Do you feel like that has related to that part of the slippage that you're talking about, particularly on the conversion side or what's your current outlook on those?.

So, that's a point that I understand. There has been some timing slippage in expected conversions. I don't think it's fair to attribute all of that to the DOL paralysis.

There may be some aspect of that, but one particular conversion that the first phase was rolled out in September as planned; the second phase, which includes more assets under management, administration is somewhat delayed into the first part of next year.

This is not new, but we had expected that there was going to be a more significant ramp-up in the second half of the year from conversion activity than we now expect, that's deferred. That doesn't mean that it's going away. And we expect to see the pick-up of that in the first half of next year.

The conversion pipeline is as strong as it's ever been and it's the result of the business development efforts that we have been involved in. It's the result of a leading platform, but we do expect that that conversion activity will be very strong in 2017, enhanced by the DOL consideration and firms looking for a more complete end-to-end solution..

All right. And then just one last one if I may. Since you're talking about the DOL a lot here, they just put out that FAQ document, I'm sure you've looked at it, analyzed it.

Any early reads on particular items that you would point out on a big picture perspective? But then secondly, do you feel that since that document has come out, like there is more clarity that helps you with signings or still a lot of uncertainty out there? That's it for me. Thank you..

Yeah. The more material that's put out, the better the understanding will be in terms of what's necessary. I would point out that the, the know your clients or understand your client requirements in order to render a best advice in accordance with the best interest standard is something that I think will become very clear is necessary.

And I think firms are going to be very thoughtful of the ways to best meet that KYC requirements. But the facts, the frequently asked questions that were put forward, very much confirmed our earlier interpretations of the rule.

Although to your point, while clients and enterprises are very interested in what our interpretation is, they have their own interpretations. And as they get clarity from the Department of Labor, it does help galvanize what the required action steps are going to be.

All of this we expect is going to be very positive over the next quarters, in the next couple of years..

All right. Thanks again..

Thank you, Alex..

And we'll go next to Surinder Thind with Jefferies..

Good afternoon, guys.

I'd like to start with a question on Yodlee, or basically the subscription and licensing revenues, it looks like the Yodlee revenues might be a little bit light versus the expectations at the beginning of the year, is that correct?.

Again, I think, that's related largely to the activity that we thought was coming through some of the synergies and the client signing that we – again, three of those things that we had mentioned during the prepared remarks, contributing revenue more in 2017 than this year..

So (24:13)..

(24:14)..

I would also add that the revenue and the EBITDA through the first three quarters are very much in keeping with what we had expected, and the fourth quarter is not quite as strong as we had expected..

Fair enough.

And then the other part in the core business in terms of the subscription revenues, how is that – how are you guys thinking about that at this point in terms of its trends?.

So, we expect that the subscription revenue is going to – at least in the near-term, the next two years or three years, we'll call it, is going to grow at the high end of the range that I had outlined, maybe even slightly above the high end, but at the high end.

And that's a result of the way some of these larger organizations are preferring to access and pay for the underlying services that we provide..

Understood.

And then just a quick question on the fee rate that seems to continue to grind down a little bit, is that simply kind of a mix of what's currently being sold at this point or anything else that we should be thinking about?.

So it's primarily a factor, the primary factors are one; the mix, and that is the bringing on of more reporting and APM or advisor portfolio manager business, less AUM or third-party strategists business, and that's on the AUM/A side.

It's also somewhat, although less of the factor as our contracts are enterprise-specific and they provide some of the benefits of scale to the largest clients. We've done that for a number of years. And so as our client base gets larger and more sophisticated, this is particularly true on the conversion side.

The unit pricing is somewhat lower at the margin for a $10 billion client that comes on board than say a $1 billion client that comes on board. And if you'll notice, we've been bringing on more larger enterprises that have the benefits of the scaled pricing that we offer to the marketplace..

Understood.

And then just a really quick question on the Open ENV initiative, how's that been received at this point in time in terms of – are you also potentially by going to a more open architecture also while you expand your potential client base, are you also opening yourself up to greater competition as well?.

I don't – let's say, the easier part is, I don't see it as opening yourselves up to greater or more competition. I don't see that. Maybe you can explain that a little bit, your thinking on that in any follow-up, because I think we've got a follow-up question session, later on, tomorrow..

Sure..

But in terms of the marketplace that it opens up, the vast majority of our advisor clients and the majority of the existing enterprise clients tend to want a solution that's more complete. They want a user experience, a client portal and an advisor portal, that's already set and that aids in rapid deployment.

As we have been moving up market in terms of the enterprises and the institutions that we serve, we find that a number of them have their own portals already in place, their own client portals, their own advisor workstations. And so they are looking for solutions that fit into their larger UX, their larger systems.

And so for us to continue to grow and to expand the marketplace working with larger and more sophisticated organizations, if we want to accelerate that growth, we need to deliver our core capability through different user interfaces, through different portals.

And so, being able to deliver the core capabilities for rebalancing or reporting or data aggregation or FinApps or product access or even proposal generation and client on-boarding, it's important that we're able to do that through RESTful APIs, as opposed to a fully formed user experience for us to grow in that very important marketplace.

It's not an essential or have to have for our traditional marketplace of RIAs and small to midsize and even small or large enterprises.

But to get adoption among the very largest and leading wealth management firms, banking firms, insurance companies, we are discovering more and more want – want our capabilities in that environment, and it's an important way for us to meet that demand..

Understood. That's it for me. I'll get back in the queue. Thank you..

Thank you. We'll go next to Patrick O'Shaughnessy with Raymond James..

Hey, good afternoon..

Good afternoon, Patrick..

So I guess kind of going back to your commentary about the DOL, are you seeing any indications yet that advisors who've mixed books of business, so some commission, some fee-based are starting to convert more clients over to a fee-based model or is it still really too early for them to kind of pull the trigger on some of those changes?.

Yeah. We are seeing almost no actual repapering happening at this point. What we are seeing instead is activities at that the enterprise level, sort of above the advisor level, laying out what the various approaches are going to be to ensure compliance and that's resulting in really a checklist of every part of their business.

How much of their business is commissioned based? How much of it is commissioned based within the IRA world, that is directly affected by this? And then what are their small accounts, what are their large accounts and what programs are they going to be putting in-place to ensure compliance? So there is a lot of work done at the planning stage.

Some of the early adopters are now looking to have programs in place by the first of the year, even though they don't expect the mandate change or to accept change till early April of 2017, and there is some grandfather provisions.

We expect that the actual activity at the advisor level won't be meaningful until beginning in the second quarter of next year.

What's happening right now is all of the work that has to be done to make that business actionable during that time, we expect that that business will begin and then ramp up during the 2017 year and will continue through 2018.

So, we have not seen acceptance in very isolated cases, advisor activity beginning yet and we don't expect to see it until the rule actually goes into effect, which is early April 2017..

Got it.

And then in the meantime on those headwinds that you're talking about, it seems to be perhaps weighing on your account provider growth as well as your advisor growth, as people kind of are figuring out their business models and how they're going to approach things?.

That's exactly what it is. This is a full stock. It's a significant change for some of our clients.

It's not a significant change for most of the registered investment advisors, although there are meaningful steps that will need to be incorporated even into the fee-only RIA in order to comply with the new big exemptions for IRA assets, particularly under certain circumstances.

But while that's not highly affected, the regional broker dealer, the insurance business, the insurance broker dealer business, the bank and the bank broker dealer business and the regional firms, large national wire houses are all affected in various degrees by their business and by their business model they are on-boarding.

And so, how they are going to respond to it is what has caused the pause, the full stop, and there are different business models that will emerge out of it.

Some are going to be heavily compliance oriented, others are going to be looking for ways to continue to do business in the way that they have done it in the past, although with additional compliance and people work requirements.

One firm announced recently, not a client of ours, but a large firm announced that they expected to essentially eliminate commission-based business from IRA accounts sometime in 2017. So, there are a number of responses that are happening.

Given the flexibility and the configurability of our platform, we expect that we're going to be able to accommodate a high degree of the numbers of permutations we expect from this..

Great. And then one last one for me. In the past, you guys have talked about your renewals, you contract with Fidelity that I believe comes up in March of 2017 and you've talked about how you don't expect any renegotiation to have any material, unfavorable impact on you guys.

Can you just remind us about the underlying logic behind that statements? And then I think in particular as we look at Fidelity from the outside and certainly they're very multifaceted, but it seems like they have been making a lot of investments in technology and advisor technology.

And so, to what extent might that have any role to play in your renegotiation?.

So, we consider Fidelity to be one of our best partners. We have an agreement that, while it has an end date of March, if the new agreement is not reached, the existing one continues. We expect that there will be some changes as we go forward to that business.

We expect that they will not be materially different than where we are currently operating under. We expect that they will continue to invest in technology as they always have. And we expect that they will have – we will continue to service and seek opportunities that we are best able to realize together.

The underlying business that Fidelity represents with us consists of hundreds of underlying broker dealers who have three party arrangements between Envestnet and Fidelity. We don't expect that to change materially. It also consists – it's comprised of hundreds of RIA firms that have the same kind of three party arrangement.

So, we expect that we will continue to grow that business. That business has grown significantly since the last time that the relationship was "renegotiated" and we expect that it will grow into the future..

Great. That's very helpful. Thank you..

We'll take our next question from Chris Shutler with William Blair..

Good afternoon, Chris..

Hey, guys, good afternoon. So, first, I just want to confirm a couple of things.

First, the guidance that assumes markets as of September 30, right?.

Yes..

Okay. And you're attributing – I just want to make sure I have this right.

You're attributing being at the lower end of the guidance range to basically toward taking longer to onboard the business that you've won, is that right? And I asked that because I look at the markets in Q3, based on my math would have helped the Q4 EBITDA by maybe a couple of million bucks, so I just want to confirm that?.

Look, we won't confirm the EBITDA adjustment on the markets and we haven't looked at what that particular contribution or the traction is.

But I will affirm your summarization of what we're saying that, there has been a couple of fairly large conversions that have – well, one of them was not technically delayed, the first of part that did come onboard in September.

The second part of it, which was an assets under management and administration based variable pricing has been delayed until early 2017, that played a factor. And then the other one was we did expect synergies to not only be signed up, but realized later in the year.

Some of the things that we recently announced, there have been a half a dozen smaller firms that have signed up to the yearly data aggregation that are existing investment clients. We outlined three additional cross-sell synergies that we have signed up during really the last six week period.

Those, we're thrilled with and will result in meaningful revenue for us in the future when we had originally given our guidance for the year. We had expected those to have been reached agreement wise, probably 90 days to 120 days earlier and had expected some revenue impact during the year, the 2016 year, which will now happen during 2017.

So, a delay in one particular conversion and we're not realizing the full benefit of the cross-sell of Yodlee data aggregation into the investment client base that we're seeing the contracts signed. We're seeing the organizational response, and the actual revenue ramp up is going to happen a little bit later than what we originally anticipated..

Okay. Got it. And then just totally a different question, I saw that you guys recently rolled out some more QPs a couple of weeks ago, and I am under the impression that the original QP, despite some of the benefits, maybe haven't taken off as much as expected. I don't know if that's right or not.

Bt so first I guess is that a fair read into why is that the case? And I would just think that you would have an opportunity to move investment – would have more opportunity to move into kind of the asset management world over time than even where you are today. So maybe you just talk about that..

So the QPs, the Quantitative Portfolios as a product set, we're pleased with how those have gone. We have not given metrics in the past, but it would not be far off the mark to conclude or to estimate that we've raised as much as even $0.5 billion of those products to-date.

Now, in the context of $1 trillion platform business, that may not seem like much. But in the context of how a new product gains traction over time, it takes time for it to gain adoption, and we're pleased by the level and extent to which there has been adoption.

We think that in a cost-conscious world, in a fiduciary standard world, we see that an expert advisor or an expert fiduciary surrounded and empowered by great technology is going to offer significant value to clients going forward. And there is several areas that the human expert advisor really has an advantage over just pure technology.

One of them is the wisdom and the guidance that comes from years of tax and estate planning, financial funding expertise and coaching, those are areas that are human advisor specific. Another is tax alpha. We've identified the five main areas that an advisor-centric business model can deliver value on.

Our financial planning and coaching is one, asset class selection and portfolio construction is another, systematically balancing is a third, vehicle selection is a fourth, and tax management is a fifth.

And under a fiduciary environment, having lower cost, rules-based investments like QPs that can replicate indices or replicate segments of the investing marketplace, do so at low cost, but enable the advisor and the investor to have control over the underlying basis of the securities is something that's going to be very strong.

Now, we have been focusing strategically first on gaining more advisor and enterprise adoption of our platform.

At some point in the future, we expect that we will begin to shift focus or balance focus with not just more advisors and more enterprises, more fintech firms in our broader solutions set, but how can we get more adoption at some of the more unique or some of the more value-added services. And we're building that base.

There still is not – QPs or Quantitative Portfolios are still not a household word. It's going to be years before they are. But we are very pleased with what we've done so far, and you wouldn't see this additional investment if we didn't see some real promise in this marketplace..

All right. Thanks a lot..

And we'll go next to Peter Heckmann with Avondale..

Good afternoon, everybody. Most of my questions have been answered. But, Jud, I was wondering if you could comment on those three buckets from Yodlee; the aggregation, the FinApps and then the anonymized data.

How are those buckets growing versus your expectations and some of the slowing, sounds like it's primarily on the aggregation side compared to your expectation?.

So, I understand the question and, of course, I have to say this that while you can think about them separately, they're very hard to separate because there is a virtuous circle or cycle of the business. I think Anil is probably the best to give a response to that. We're very pleased with where analytics is now.

We caught up a bit to where we thought it was going to be, we're very pleased with where it is poised for the fourth quarter. And Anil, I'll let you round that out..

Sure. Thank you, Jud. And hi, Pete. To answer that question, if you break it down to the components, the core business is on track. And by core, I mean aggregation and FinApps. The analytics business is growing at a very robust rate, as expected.

I think the only delta here, Pete, versus our expectations, again, as Jud outlined, is around synergies, where we had anticipated the beginning of synergy revenue to begin in Q4. We have signed the deals. They are exciting deals and large deals, but the revenue recognition aspect of it will fall into 2017.

So, the core business and the analytics business are tracking as planned with the analytics business in particular growing at a very healthy clip..

Great. That's helpful. Thanks, Anil.

And while I have you, can you talk about, in terms of the roll out of expenses that have been there, have there been areas where you've decided to spend a bit more to realize the growth opportunity today versus maybe planned investments for the future?.

Pete, is that question as regards to Envestnet | Yodlee or in general?.

Primarily Envestnet | Yodlee..

Okay. So, year-to-date, while our growth has been on track as we'd expected, our EBITDA has grown at a very healthy rate year-over-year for the third quarter, EBITDA was up more than 2x. So, we are seeing cost synergy benefits.

And to answer your question directly then, in parallel, we have a number of growth initiatives that we are not yet ready to talk about, but as we get into 2017 planning where we are making to – where we are looking to make selective investments and obviously we'll speak more about that as we get into next year..

Great. Thank you..

And we'll go next to Rishi Jaluria with JMP Securities..

Hey, guys. This is Rishi Jaluria. Thank for taking my questions. Just a couple of quick ones. So the first, I wanted to continue the line of questioning around the recent ethic used by the DOL.

I mean, is your sense that financial institutions are maybe waiting for the remaining batches? I believe there is two of FAQs before kind of lifting that uncertainty and resuming some of their enterprise deployment decisions and hiring, or do you maybe have another read on the situation?.

I think that that's exactly what's happening. I think that we're seeing the early adopters and those who are more compliance minded making their decisions now.

We are seeing firms that are balancing all of the various dynamics that affect their business and wanting to make the right decision evaluating and proceeding demonstrations, looking at all of the elements. And I think that the more clarity there is, the easier it will be for these enterprises to make their decisions.

But I don't expect the enterprise decision process to really even be complete even by next April. This is going to be something that's going to affect enterprises and the decision makers within those organizations for at least the next year-and-a-half.

And advisors will follow, advisors will be following once those new programs and new capabilities are set, then there is going to be training and there's going to be a ramp-up in that – in the use cases for that new capability. But I really wouldn't add anything to how you characterized it..

Okay, thanks. That's helpful.

And what impact do you expect to see from consolidation within the brokerage industry, like the Ameritrade's recent acquisition of Scottrade that we saw?.

So, I think that that's a very likely result of the transformation or of the changes that are required by this. So, I expect that this will prompt a wave of industry consolidation and Envestnet will sometimes benefit from that, Envestnet will sometimes not benefit from that.

But on balance – on balance – and there's never a straight path up as we all know, but on balance this will be something that is good for advisors, good for clients, and good for firms like Envestnet that enable a fiduciary standard of service..

Got it. Okay.

And then last one for me, but with the DOL ruling, have you seen any changes in the competitive environment over the past couple of quarters?.

No, I don't expect to see changes – I've not seen it over the last couple of quarters, do not expect to see it through the end of this year. It's going to be very interesting to watch and see which business models, what business paradigms – practice paradigms are most conducive to gaining share in this new environment.

We've got some theories about what that – what those practice patterns look like. They're theories that are backed by data in terms of the – what are the benchmarking best practice – benchmarked best practice standards for certain advisors who follow certain practice patterns. And it is very – it's robust and it's very interesting data.

We have a strong sense of what those emerging and market share-taking practices are going to look like, but we have seen no evidence of that yet. And I don't expect to see any real evidence till probably late next year..

Okay. Got it. Thank you so much..

And we'll go next to Chris Donat with Sandler O'Neill..

Hi. Good afternoon. Thanks for taking my questions, guys..

Sure..

Wanted to ask just two questions related to kind of recent history and then future outlook, and I know you don't want to comment too much on 2017, Jud, but, just historically, you've fully integrated Prudential WMS and there is no more sort of step function expense saves from that, right?.

That's correct..

We're through that process..

Yeah, we're through that process..

Okay..

And most of it – almost all that was reflected – almost all that was reflected fully in Q3..

Okay..

There may be a little bit, but almost all that was reflected in Q3..

Okay..

Thank you..

Go ahead..

Yeah. So, yes..

All right. And then just because I'm trying to extrapolate from what we were looking at for the fourth quarter and then into 2017, it looks like in addition to sort of – if I view the fourth quarter as a run rate, and correct me if that's a dangerous thing to do if there is anything special there or something.

But then in 2017, you get the benefits from potentially more conversions picking up in the second half – or sorry, in the first half of 2017, enterprise client – the revenue that's associated with some of these enterprise client wins starting to come onboard and then some of the Yodlee contracts.

But those are three sort of almost discrete items there should be improving the revenue picture in 2017.

Is that fair to say?.

So, we have incorporated some of that into our guidance for the fourth quarter. We have incorporated none of it into any guidance into 2017. We do expect 2017 to have a benefit from conversions. We expect that it will have a benefit from – a continuing benefit of WMS now fully integrated.

Some marginal benefit for Placemark and some benefit not only for the conversions that are organic-related, the conversions that are DOL-related and cross-sells from Yodlee..

Okay. Got it. Thanks very much, Jud..

Thank you, Chris..

And we'll go next to David Grossman with Stifel..

Hey, David..

Thank you. Hey, Jud. So, I know it's late in the call. So, let me ask just two really quick ones.

The first question is, if I understood what you were saying in response to an earlier question that to sell the larger clients, you're starting to unbundle some of your technology and your services to kind of address the way they would like to operate and to buy.

So, if that's correct, how does that flow through the P&L going forward if those types of relationships become a bigger part of the mix? And I guess what I'm getting at is, we all focus on a narrow sort of metrics that you report each quarter, and I'm just wondering how those metrics may get impacted if in fact I'm understanding what you're saying correctly..

Right. So, I'll take the first crack at that, and I'm sure Pete will add some, and Anil may too. But one thing it means is this relatively higher mixes of subscription or licensing revenue.

When there is an adoption of, let's say, a know your client front-end capability that includes data aggregation, consumer-facing financial apps, financial – consumer-facing financial planning capabilities all flowing into a compliance-oriented front-end for on-boarding.

So as that gets adopted, that's going to most often be realized in subscription fees or license fees on a per advisor or a per-user basis. Some clients have said, well, we may want that same capability, but we'd like it priced in incremental basis points, and they reach that conclusion in part because of what they've read through DOL.

And so we're happy to do it that way, as we're happy to accommodate client preferencing for how to – what pricing works best for them. Now, the other part of it is on the API versus the whole user experience, it still is going to be – it's still going to come down to what the core capability is.

And in fact, core capability is third party strategists or outside managers or QPs or investment product-related, the value proposition there is that these are lower-cost, higher-value adding than traditional vehicles. They will continue to be priced in basis points.

On the advisors portfolio manager level, also we expect that those even whether rendered via our UX or somebody else's UX via an API, we expect that those also will continue to be priced in an asset-based way, because there is trading risk and other kinds of risk that we are absorbing and we're leading from the sponsoring – we're leading the sponsoring organization work.

So, on the API question, we don't expect that to change for the products we're offering. We do expect more uptake on data aggregation, data analytics. Consumer-facing financial apps and financial planning, those with rare exception won't be basis point or asset-based in the pricing. They'll be subscription-based and licensing-based.

And that's why I think we have indicated, although I didn't on the call today, that we expect – let's just say, if the midpoint of that mid-teens range is 15% – and this is not guidance, this is an example, it's just math – we would expect asset-based pricing to grow lower than that rate, we would expect subscription-based pricing to grow faster than that rate factoring in what I've just described.

I hope that wasn't too many words..

No, no. I've got it. Thanks very much. And then the second question I had is related I think to the question that was just asked about how to look at the flow of revenue growth or the acceleration of growth if it happens next year. And you did a good job of articulating.

You've got some Yodlee synergies that came in, in the third quarter were booked and were ramped perhaps a little bit behind where you thought, but will ramped you've got the conversions that were delayed. You've got the impact of the DOL and then on EBITDA, you've got WMS, Placemark.

So without getting into specifics about 2017, I guess, first of all, how much visibility I guess you have on the conversions and the Yodlee cross-sells in terms of the timing of when those may begin? And then, as you think about the DOL – I think this came up in many different questions already – but I think I am still unclear exactly at least from your own perspective when you see the bigger bump, if you will, of growth, if you will, that may come from when – whether they are enterprises or the advisors or whoever start taking actions to implement?.

Okay. So, several elements to that question. I think I'll answer it, but again Pete may have some helpful perspective. We've got – and I'll just remind you, this is not a new dynamic for us. So, we have a high degree of visibility as to contracted business, business that's under contract, whether it's new business or conversion business.

What we get gaining clarity on or over time improved clarity on is the timing.

And so, something that would be announced now, something that was signed under contract within the last 30 to 60 days, let's say, we've got fairly good visibility as to the timing of when that ramps up because there is not, generally speaking, a major conversion of historic data associated with it.

It's basically a new offering that's subscription-based in its pricing. Conversions are a little bit more tricky in terms of the visibility because we have third-party dependencies and we've talked about those in the past. We have a very robust conversion pipeline, stronger than it's ever been, and some of that is DOL related.

But in terms of the timing, if you think about the waterfall that we expect, this is not by way of giving guidance because we expect that there's going to be between now – there's a lot of moving parts prompted by the DOL.

And as we've mentioned, there was some paralysis for a period of time, 90 to 180 days for most of the enterprise clients in this space. We expect that, that will come to a conclusion by early next year, that paralysis. We believe programs will be in place, which we will see.

All of this is very good activity, it's necessary activity, but it's not revenue-generating activity. Most of our revenue, some 60% still is advisor triggered, it needs the home office, it needs programs in place, it needs all things signed up, but it's the advisor that prompts that activity.

We don't expect advisor activity to be – with respect to DOL to begin to ramp up until maybe a little bit at the end of the first quarter of next year, call it, March of next year, but really starting to pick up beginning when the regulation goes in effect, which is early April and then building throughout the rest of the year.

And so that's where we see right now – if I am giving you a very rudimentary sense of when the business is going to have an impact, that's when it's going to have an impact. Conversions that are DOL-specific will happen most likely post that early April date.

There is some grandfathering provision and they will tier (01:04:18) unless they already in – deepen the pipeline or in the red zone, so to speak. We're expecting that most of the pipeline activity on conversions will go in earnest effect once the DOL strategy is complete. We think most of those will also occur after April of next year.

I don't know if that's helpful or not, Pete, what would you add? Is that what you were asking, David?.

Yes, that's exactly what I was asking..

And it appears there are no further questions at this time. Mr. Bergman, I'd like to turn the conference back to you for any additional or closing remarks..

I want to thank you. I am mindful of everyone's time, I want to be respectful of that. We thank you for your being with us today. And I think with that, I will draw this session to a close. Thank you..

This does conclude today's conference. We thank you for your participation. You may now disconnect..