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

Peter J. Heckmann - D. A. Davidson & Co. Rishi Jaluria - JMP Securities LLC Christopher Roy Donat - Sandler O'Neill & Partners LP Andrew Owen Nicholas - William Blair & Co. LLC Patrick J. O'Shaughnessy - Raymond James & Associates, Inc. Surinder Singh Thind - Jefferies LLC.

Good day, everyone, and welcome to the Envestnet Third Quarter 2017 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 2017 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.

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, Chris. I add my own welcome to everyone. Thank you for joining us today. Envestnet delivered solid organic growth in both revenue and earnings in the third quarter during which three key themes emerged.

First, the economic environment remains a positive factor to financial enterprises and advisors as equity markets remain strong amid low volatility. This, of course, also affects indirectly things such as redemption rates, which had a positive effect on results for the quarter.

Second, our customers continue to seek new ways to broaden their end-client relationships and expand their reach through the adoption of smart systems for financial wellness. And third, firms are again focused on growing their businesses.

Reigniting the longer term trends that we have enabled since our founding in 1999 of advisors moving from a commission-based business model to one that's advice-driven and fee-based. And also enterprises increasingly partnering with firms like Envestnet for their wealth management technology needs.

In the most recent quarter, we grew adjusted revenue 17%, adjusted EBITDA by 26%, and adjusted earnings per share by 32% over the prior year's period. All above our long term targets. Results were strong across our business units.

Asset-based revenue grew nicely and was aided by significant conversion activity as well as up sells to higher value solutions throughout the year. Subscription and licensing revenue increased 21% year-over-year to record levels.

Gross sales of asset-based technology and services exceeded $25 billion plus another $10 billion in conversions during the quarter. We now serve more than 59,000 advisors and some 6.7 million investor accounts. Overall, we continue to achieve organic growth by adding new relationships and leveraging cross-sell opportunities.

New customers during the quarter include Interactive Brokers, Principal, Thomson Reuters and Fannie Mae. We're also pleased to see cross-sell synergy success with existing Envestnet customers including Baird, Loring Ward and Hancock Whitney Bank. In a moment, Anil, will provide additional color on these wins.

And in addition to delivering meaningful organic growth, we continue to evaluate acquisitions that broaden our capabilities, expand our industry footprint, and increase the value of the network we are helping to create. During the third quarter, we announced the acquisition of FolioDynamix, an integrated wealth management solutions provider.

To briefly summarize the four key points from the conference call we held at the end of September, first, FolioDynamix adds complementary platform capabilities, specifically enhanced advisor trading tools, and full support for commission and brokerage business allowing us to provide an integrated enterprise solution for trading.

Second, it enhances the value to network partners that are connected through our platform. Third, we expect the transaction will be financially accretive during the first quarter of our operating the business with significant financial benefits recognized over a three-year horizon.

And finally, we have attractive financing for the transaction with a path to deleveraging as we have demonstrated with prior acquisitions. If you haven't already, I would encourage you to listen to the replay or review the transcript from that call and see the presentation available on our website.

Since announcing the transaction in late September, we've been working on various pre-closing activities and also planning for the integration. We look forward to welcoming the FolioDynamix team and their customers to Envestnet once the transaction closes, expected during the first quarter of 2018.

We also look forward to offering a more comprehensive platform technology solution over time to broker dealer enterprises, one that supports both commission-based and fee-based trading. I'll now turn it over to Anil to provide some more color on some of our recent wins..

Thank you, Jud, and good afternoon, everyone. Our Envestnet | Yodlee data solutions continue to gain traction with blue chip firms. Four recent examples include, Interactive Brokers, who will be using Yodlee to further automate the client on-boarding experience.

Principal, the number one provider of defined benefit and non-qualified deferred compensation plans, the number one record keeper of employee stock ownership plans, and ranked as a top 10 provider for service to micro, small, mid and large plans is providing the ability to aggregate held-away accounts to retirement plan participants within their client portal and online retirement planning tool.

Thomson Reuters, who will be using the Yodlee platform to automate processes for their professional tax and accounting customers. And in the emerging area of credit, we recently announced an integration with Fannie Mae through a pilot program to digitally validate borrowers' assets.

Fannie Mae will leverage our Risk Insight Solutions to fuel Day 1 Certainty validation of assets offering, which gives lenders a faster and simplified borrower experience.

In addition, as Jud mentioned, we had multiple cross-sell wins notably Baird, an international wealth management, capital markets, private equity and asset management firm who launched Yodlee WealthCenter earlier this month.

Baird's goal was to develop a deeper understanding of their clients' financial lives, improve their online client experience, allow advisors to get a complete 360 degree view of their clients' assets in order to offer a more holistic financial planning service.

Baird views data aggregation as a key strategic initiative in helping clients achieve these objectives. Loring Ward, a longstanding and important wealth management platform partner of Envestnet, recently signed on to make our data solutions available to hundreds of advisors.

And finally, Hancock Whitney Bank, which we just announced as a new wealth management platform customer last quarter will be using our data aggregation and our financial planning offerings. I'll now turn it over to Pete..

Thank you, Anil. I'm going to focus on three things today. Our third quarter financial performance, our guidance for the rest of the year, and our financial position as we look to complete the FolioDynamix acquisition in 2018. Briefly summarizing Envestnet's results comparing the third quarter of 2017 to 2016, adjusted revenue grew 17% to $176 million.

Recurring revenue was 96% of total revenue during the quarter. Revenue from subscriptions and licensing was 36% of total adjusted revenue, up from 35% last year. All of these trends are consistent with our expectations for growth and for the composition of revenue.

Adjusted EBITDA was $34.8 million, a 26% increase over last year, as we continue to manage the business to balance profitability with reinvestment in growth. Adjusted earnings per share was $0.37 in the third quarter, $0.09 or 32% higher than the third quarter of last year.

Moving on to our outlook for the fourth quarter of 2017, which is presented in full in our earnings release, I'll highlight a few of the items. In the fourth quarter, we expect total revenue to be between $178 million and $180 million for the quarter, up 14% to 15% compared to the prior year.

Asset-based revenue to be between $108 million and $109 million or 15.5% to 16.5% higher than last year, reflecting an effective fee rate of approximately 10.2 basis points on our September 30 fee-based assets. The anticipated sequential decline in our expected fee rates is primarily due to conversions in the third quarter.

Nearly all of this was reporting business, which has a lower-than-average effective fee rate. Adjusted EBITDA should be between $37.5 million and $38.5 million in the fourth quarter, which is a 23% to 27% increase compared to last year.

And using a normalized long-term tax rate of 40% assuming approximately 47 million diluted shares outstanding for Q4, this translates into adjusted earnings per share expected of $0.39.

Despite this non-GAAP assumption on taxes, we do not expect to be a cash tax payer in the near-term utilizing R&D tax credits as well as net operating loss carry forwards to offset taxable income.

Based on our year-to-date results and the fourth quarter guidance, we are increasing our adjusted revenue guidance for the full-year to a range of $679 million to $681 million, which represents growth of 17% to 18% compared to 2016.

We are also raising our full-year adjusted EBITDA guidance, now expecting growth of 28% to 29% compared to 2016 to a range of $127.5 million to $128.5 million. Finally, we ended the third quarter with total debt of approximately $259 million, about 2 times our expected adjusted EBITDA for the year.

As a reminder, in July, we completed an amended credit agreement, which replaced our term loans, expanded our borrowing capacity, and increased our future flexibility. We expect this will be the primary source of funding for the FolioDynamix acquisition. Thank you for your support of Envestnet.

At this point, I will turn it back to Jud for some closing remarks..

Thank you, Pete. As we finish what has so far been a solid 2017 and prepare for next year, our primary focus is to continue to grow our advised and data-centric financial wellness platform.

Our organic growth targets remain at mid-teens revenue growth and adjusted EBITA and earnings growth of 120% or more of our top line growth, accelerated from time-to-time by disciplined acquisition activity. We expect to provide specific guidance for 2018 on our February call, which will also incorporate expectations for FolioDynamix.

Until then, I would encourage analysts to stay within our expected target ranges for revenue and earnings growth. I want to thank you again for your time this afternoon. I want to 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..

We'll go to our first question from Peter Heckmann with D.A. Davidson..

Good morning..

Hey, Peter..

Sorry. Good afternoon. Nice results..

Thank you, Peter..

I wanted to follow up a question on the Envestnet | Yodlee segment continue to see good incremental EBITDA margins and overall EBITDA margin expansion.

Saw a little bit of a slowdown at least the way I'm seeing it versus the first half, and just wondering if there's anything to call out there in terms of a tough comparison or a change in trends that should be noted?.

So, that's a good insight, Pete. And I do think it represents a slight shift going forward. We're trying to balance a number of things. One is we early on indicated that, that we believe that the Yodlee business segment had greater scale potential than was understood in the marketplace.

And so, we had a priority early on to generate a EBITDA margin as quickly as we could following the acquisition to somewhere in the 20% range, 19% to 20% to 21%, and we've done that.

We expect that there's continued scale potential that's significant within the Yodlee business unit given their multiple trillions of dollars of aggregated assets and some $20 million paid subscribers or users.

However, we have continued opportunity to invest in the business in particular in areas like data science, which leads to the very strong growth in our analytics offering, in our data analytics offering, and so we expect to balance that.

And we do not expect the margin expansion going forward to be anywhere close to what it has been since we acquired Yodlee, now, some two years ago.

We expect that it will continue to grow like the rest of the business at or somewhat ahead of the top line revenue growth, but we do not expect there to be such a rapid increase going forward in the operating margin of the business..

Okay. That's helpful. And then just as a follow up on the average fee rate in the investment segment on assets under management/administration.

Would you attribute all of that to mix piece or is there an element of pricing pressure that we should be thinking about?.

Well, there are always those factors that all blend in there. I would say, the bulk of the impact was due to the conversion activity and the mix. But again, there are elements of breakpoints that people hit, and so the fee rates will be moderated. There'll also be sometimes pricing revisions.

So there are multiple factors, but I'd still attribute the primary impact to mix and conversions..

Okay. I'll get back in the queue. Thanks..

We'll go next to Rishi Jaluria with JMP Securities..

Hey, guys. Thanks for taking my questions. It's nice to see some continued margin improvement here. I think, first, let's start with all the different updates we continue to see on the DOL Fiduciary Rule including some delays on the compliance side.

Can you just help us put together all these moving pieces and understand the impact you expect these changes to have on Envestnet and the – and buying environment for software deployment decisions? And then I've a follow-up..

So, yes, Rishi, thanks for the question. It continues to be a factor, but it's probably as it's settling in, it's one of the bigger factors enabling the third key emerging point or theme that identified upfront about firms getting back to business, wealth management firms getting back to business.

The Department of Labor has indicated a delay in implementing, and there's even some question of whether it will ever be implemented as it's currently articulated. There is also increased speculation on the bordering on expectation on the SEC weighing in on some form of or some type of uniform fiduciary standard.

So, there is, from a regulatory standpoint, continued uncertainty.

However, the best practices that are emerging are the majority of compliance-minded wealth management firms, be they insurance or bank or independent broker-dealer or regional broker-dealer or wirehouse or even large registered investment advisory firm have already determined that a fiduciary standard around their IRA and retirement business is a better business practice.

And so, most of these programs now are working their way through as we indicated as early as a year ago, we expected that beginning in the second quarter, we expected to see a renewed activity in the core growth of advisors – per advisor growth in accounts as there were more of the home office enterprises adopting programs that would enable the fiduciary standard to be followed by the advisors.

So this is in part why some of the metrics in terms of advisor activity were strong in the third quarter, and we see no reason to expect that they won't continue to remain strong through the end of this year and into next year.

So that's, in sum, the continued uncertainty at the regulatory level is not keeping – is not impeding firms from adopting fiduciary programs. And that's good for their business and it's also good for our business..

Okay. Got it. That's helpful. Pete, we saw a little bit of a convergence on the growth rates on the subscription and licensing side with AMU/AUA business, Q4 guidance implies the growth rates within these two revenue segments should be around the same.

I mean, going forward, should we expect to see similar growth rates outside of market moves between these two segments putting aside the FolioDynamix contribution or should subscription and licensing be growing faster just given the target mix shift you've talked about before?.

Yeah, I don't think that the results for the quarter necessarily indicate longer term change from what our guidance has been in those areas. I would still say that, overall, we're looking at mid-teens growth rate and a little below that for the AUM/A revenue and a little bit higher than that for the subscription and fee-based revenue.

So we've had some pretty good market conditions and have benefited and have, as we like to think, accelerated the ability for those conditions to exist. And so, we've benefited from that, but again, I would still hesitate to change that expectation given a couple of decent quarters here..

Okay, got it. And I'll sneak one last one in. I know you talked about the credit insights and your integration with Fannie Mae.

Just curious, have you seen any significant increase in interest from customers and prospects for these solutions given the headline breaches that we've all seen?.

There is definitely been an uptick, Rishi, in our ID protection as one example and one use case. I think, previously, I've shared that Yodlee data solutions are used for dozens and dozens of use cases.

The one that is really showing a lot of increase right now is identity protection where services like LifeLock monitor your accounts and your balances as service by Yodlee in the background..

Okay. Great. Thanks, guys..

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

Thanks for taking my question. Anil, I had another one for you related to the four blue chip wins you talked about earlier.

Are those wins that we should expect to see some revenues in coming quarters or do they take a while to phase-in? And then can you give us a sense maybe on timing of like will there be expenses associated with those as you bring on the businesses that ultimately we'll see the earnings pick up maybe later next year.

I'm just trying to get a sense of the timing on revenue and earnings from them?.

Sure. So we sign dozens of new clients each quarter, we've chosen to highlight four of them, four recent examples. The examples that we've listed here, they vary in implementation timing.

The larger the organization, the longer it takes, I would say, the range is anywhere from three months to nine months typically for implementation depending on the specific deal that we sign. That's when revenue starts kicking-in. So that would be a rough rule of thumb. There aren't really incremental expenses associated with launches that we have.

Typically any implementation work that we do it falls under Professional Services that we cover, and that's in a separate line. Our focus tends to be on subscription revenue, which is little over 90% of Envestnet | Yodlee's revenue. And we don't see ongoing expense changes.

We do see some implementation costs that are offset by Professional Services that we provide..

Okay. That's helpful. So, I know you called them out, but I should not think of them as being unusually large in the context of prior announcements..

That's correct..

The four you (37:37)..

And I would just go one step further, Chris, and say that this is a part of our growth. It's part of how we're able to target organic growth that's significantly higher than the Fintech peer group. And this shouldn't be seen as, oh, this is going to ignite core growth rates above what we've indicated are the target growth rates..

Okay. All right. And then, Jud, just on a separate topic, at least as we look at it, the redemption rates were unusually low like as low as we've seen them I think in 10 years. And you mentioned low volatility is potentially a reason for that. Any other color on that? It just seemed notable to me.

And if you could have sustained low redemption rates, it's certainly makes it easier to grow assets, but just anything else going on, on the redemption side?.

No, I appreciate your bringing that up, Chris, because I'll just tie it back to one of the closing comments I made about staying within the – the encouragement to stay within the target growth rates. A strong market has a very real and positive derivative benefit of having lower redemption rates.

And yes, we – you're right in pointing out that this is as low as we have seen as a public company, I believe. We've seen them at this levels when we were a private company, but it was a very long time ago. But this is an example of a derivative, benefit of a strong market that I just don't think we certainly are not going to extrapolate.

It was here in the third quarter, and we're certainly not expecting it's going to continue.

Now, I'm not signaling that it's not going to continue, but I just think it doesn't make sense particularly at looking in 2018, which we're not giving any guidance for, it doesn't make sense to us to extrapolate something like a low redemption rate into the foreseeable future because these things don't last..

Okay. So, it doesn't look like anything fundamentally has changed.

It's just environmental as much as anything?.

Absolutely not. This goes back to the elements that I said, it's a theme. It explains a strong quarter in the third quarter. But I am certain that this is not some new-new that is a sustainable level of low redemption rates..

Okay. Got it. Good. Thanks very much..

We'll go next to Andrew Nicholas with William Blair..

Hi, guys, good afternoon..

Hi, Andrew..

Just a big picture question, where do you think Envestnet's platform is today from an integration standpoint? I know it's, obviously, a continued focus for the firm.

But I'm just curious where you think you are on the journey toward making the platform as integrated as possible and what opportunities you still see for improvement?.

So, a fundamental value proposition of Envestnet for advisors and enterprises is that to the extent that the app stack or the functionality, the applications that are represented are integrated, advisors get a productivity boost. We just completed the third edition of a study by the Aite Group that we had commissioned.

It's entitled Integration Turbocharges Advisor Productivity (sic) [Technology Integration Turbocharges Advisor Productivity]. And I've indicated in the past some of the findings from that advisors that used an integrated wealth management technology have much larger books of business.

They grow their fee-based practices at over twice the rate of advisors that don't have an integrated platform. So, we've invested heavily in making the Envestnet platform – the Envestnet enterprise platform integrated.

Meaning proposal generation, portfolio management tools, billing administration, performance reporting, financial planning, goals-based planning to be integrated. The first version of our integrated data aggregation and data analytics offering with Yodlee is currently available in the marketplace.

And you're seeing that being reflected by some of the cross-sell adoption that we're getting. And that's integrated via RESTful APIs coming into the Envestnet environment for an advisor workstation, but also into the Envestnet hosted client portals, smart client portals that are of course branded for the end client.

So, from an enterprise wealth management standpoint, we have a very solid, and I believe, by far the most integrated deeply and wide platform that exists in the market. What we expect to do in the future is to also offer the integrated Tamarac rebalancer within an enterprise environment.

Tamarac has an integrated platform offering to the registered investment advisor marketplace, and over time, we expect that there will be a blurring between the RIA marketplace and the enterprise marketplace.

And so, we have made great strides in the last year on integrating the UMA and separate account capabilities from the enterprise side into the Tamarac client base, advisor base. We expect we're going to continue to do more of that. And then the – so that's – a very Envestnet-specific on the integration side.

I would also say that the market is rapidly evolving towards a requirement of having applications that are outside of the Envestnet ecosystem.

It might be financial planning applications or it might be a CRM application that the host enterprise wants more and more capability to take an API extract of certain functionality of the Envestnet platform or XYZ financial planning platform and then to bring that within their own hosted user experience, the enterprises' hosted user experience.

And this is more and more a trend for, let's say, the top 50 financial institutions in the country. So if you look at our top insurance or top bank or top broker-dealer clients are more and more creating a user experience of their own. And so integrating into that requires providing the API functionality to make that work.

And I expect that that will continue to work within our largest client base. But beyond those top-50 clients, we have hundreds, actually over a couple of thousands of enterprises that are going to continue to rely on the deep integration that we've got.

So it's probably a little bit longer of an answer than what you had wanted, but that's where we are. We're very pleased with the level both breadth and depth-wise of integration that we've been able to bring to the marketplace..

Great. Thanks. No, that's all helpful. And then just on the Q4 guide, I'm just looking at the math here, it seems to me that the adjusted revenue guide is a decent bit above the prior implied revenue guidance from last quarter, but EBITDA is more or less the same maybe even just a touch higher.

I'm just hoping you could help me tie out what's going on there? Thank you..

We're just refining our forecast as we move forward. The outperformance of revenue in Q3 is driving a lot more of what we think we'll see for the full-year. So I think that's kind of the main impact of the carryover effect..

All right. Thank you. That's all I had..

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

Hey. Good afternoon, guys..

Good afternoon, Patrick..

So, the first question, obviously, Morgan Stanley recently decided to exit the Broker Protocol.

Curious what your views are in terms of what sort of impact that's going to have on advisor movement, and if that impacts you guys at all?.

I think it will have an effect on the velocity of advisors leaving the Morgan Stanley ecosystem. Now, the growth that we've been able to experience has not been wirehouse exits has been a tiny segment of the overall growth of our business over the last 16 years or 17 years. So I expect that that will be – that will have an effect.

And I'm not sure the extent to which that will affect. I think it will still be a fair amount of planned exits that from firms, from wirehouse firms. And I think you'll see that retention levels are probably higher among advisors that they want to retain as a result of this.

But I think it's still pretty early and we don't expect it to have a meaningful effect one way or another on our business. We're doing a fair amount of business now with the large wirehouses and we hope to continue to grow that..

Got it. Thanks for that color. Then I have a question on FolioDynamix. Obviously, you haven't closed the deal yet, but I'm guessing you've started to engage in client conversations about the capabilities that it can provide.

Curious if you have any color you can add in terms of any initial sense from your clients of, hey, they're going to be interested in some of that commission-based functionality?.

Yeah.

So as expected, there is a high degree of interest among existing Envestnet enterprise clients to look at what the FolioDynamix or the FDx trading and portfolio management tools can do to support their – whether it's their APM, their advisors portfolio management business or more of their wealth management, asset manager business, because there is some greater sophistication on the trading tool side for advisors that have more of an asset manager practice than, let's say, the asset gatherer practice.

So we've seen what we expected, I'd say, maybe slightly stronger than what we had hoped, but we've seen a good interest there.

We've also seen, conversely, we've seen interest in the FolioDynamix client base for some of the things that Envestnet has distinguished itself on, which I would say is a very robust unified managed account offering with hundreds of third-party strategists and the largest roster of independent separate account managers.

Also some of what we are doing on enterprise data management through our Vantage offering, our soon to be introduced Envestnet Envision (40:57) offering, which is enterprise data management and our performance reporting across multi-custodial books of business and providing comprehensive dashboards on advisers and home offices books of business are something that we did not guide to in our expectations.

But we do – we just take a step back, we had indicated where we thought we could get in terms of financial accretion via operating efficiencies. But I would say that since we've been out we're a bit more encouraged on the ability to get some cross-sells.

And we probably won't incorporate that directly when we get around to 2018 guidance, but it's going to be some opportunity for I think maybe some continued strength in terms of our overall growth. And then finally, what I'd say is that customers like the complementary capabilities that the two businesses can provide when combined.

And we've got a very clear path to being able to offer that within both native environments. That is Envestnet's capabilities to FolioDynamix within their native environment, which will be complementary, and then FolioDynamix, FDx's trading and portfolio management tools capability within the Envestnet ecosystem. So positive and encouraging, Patrick..

All right. That's very helpful. Thank you..

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

Hi. Good afternoon, gentlemen..

Hi, Surinder..

I'd like to start with some big picture questions here.

We've already touched based on the fee rate, but maybe can you provide a little bit more color around maybe the mix of the business that you're getting in that sense it's – those initial conversations that you're having with clients, it seems like they're dipping your toes in the water to test out the Envestnet's systems here like the reporting functionality.

Any more color that you can provide? is that kind of how we should think about it going forward or is the move towards maybe more open architecture making it harder to sell additional pieces upfront?.

So I think the – what the market is ratifying or confirming is that the big need or the big hurt, if you will, the gap that is in the enterprise world is one on solving for a multi-custodial reporting and enterprise data management problem or gap or issue.

So it's been a number of quarters running now where the majority of conversion business is around reporting solutions, whether it's advisor reporting or enterprise reporting, that's the challenge that Envestnet is uniquely able to address in the marketplace.

And so, I think, that's one of the things you see that – over time, that product mix shift that comes on because it's reporting-oriented and it comes in big chunks with conversions, we think that that's going to continue. And we're good with that. We like it, because it helps in a long-term land and expand the strategy.

And we have proven over the last several years that every quarter, there's a nice bit of business that moves from reporting-only into some higher-value, higher-revenue producing products. Whether it's advisor as a portfolio manager or unified managed account or third-party strategists, we expect that that's going to continue.

But we also think that for the foreseeable future, there's a lot of enterprise reporting opportunities that we can win and we want to win that.

It also points out that, that business, that reporting and enterprise data solutions business, is the closest thing we have to – a pure software or pure software-as-a-service cloud-based software offering we have.

There aren't a lot of services that go with that other than the reconciliation services that we have to provide to – that enables a high level of data enrichment and data integrity. So that's one response.

And the question of open architecture, I think that there is going to be a continued tension, if you will, between having the richest and most robust and deeply and widely integrated wealth management platform, which the market has a strong preference for. And then how do you begin those new relationships in a conversion sense.

So if you look at most of the organic growth coming from enterprise comes from the existing programs whether they are APM or UMA or separate account or third-party strategists or performance reporting. And those have their own initial rate of growth that is – that's that's quite strong.

It contrast the organic same-store books of business, which are growing nicely across all the product offerings, asset-based as well as subscription-based, contrast that with what the pain point is usually for the new enterprises that come on.

So we expect that we're going to continue to benefit from having this deep and wide and an integrated platform for our core organic growth, but as we add new clients, we expect that it's going to continue to skew towards the reporting and probably the APM product offerings..

Understood. That's actually very helpful. And then maybe touching back on a point where you talked to earlier about kind of you're seeing firms going, kind of back to growing the business at this point.

Any more color that you can provide there? Would you characterize it as almost close to business-as-normal at this point or do you think there's still a ramp period that we can see where we're not quite at normality yet, but....

Yeah, I think – that's a good question. And I'd put that in crystal ball territory. I'm not sure. The sense is that, if you look at where we were a year ago, there was a fair amount of tentativeness among the marketplace as advisors waited instructions from home office, from the home offices about what to do with their next IRA account.

Could it be done in a commission-based account or would it need to be in the fee-based account. And then, as these firms conceived of their DOL strategy and began to implement it, we are now seeing all the things that had been on the drawing boards. And they had a checkpoint.

Do we proceed or do we not? Most firms with most of those programs have proceeded. And so I think we're very nearly back to a kind of a business-as-usual rate of change, if you will, for advisor growth within the enterprises. And that means how many are doing fee-based business.

And that's the growth within the existing enterprise base is advisors who are continuing to move from commission-based to fee-based, that drives the same store advisor growth on the fee-based asset side.

And then the account growth per advisor is, I think, kind of going back to more of a normal run rate now that these programs are conceived of and have been rolled out by the home office. I would not expect a lot of increase from these current rates on top.

And I would expect that at some point probably sooner rather than later redemption rates are going to go back to something more or like what they have been on a normal basis..

Understood. And then maybe a question on Yodlee. We're now two years post the closing of the deal.

How should we think about where we are in that cycle of synergies at this point? Do you think you're on track of where you were what you estimated two years ago? Or is there more to go or even then there was talk of discussion of, well, maybe getting into year three and beyond, you might start to think about international opportunities and things like that.

Any color around that versus where the original expectations were two years ago would be helpful as well?.

Yep. So we originally identified four areas of cross-sell synergy. The first was data aggregation and a digital front-end to existing Envestnet clients.

The second one was a combined enterprise data management offering where you look – where you do what Envestnet had done with its Vantage offering and then you add what Yodlee is able to do for held-away data aggregation.

And you add what insights Yodlee and others are able to provide through the data science work that we are doing with respect to analytics. And that second bucket, which is the combined efforts of the firm around enterprise data management and enhanced, enriched and reconciled data aggregation, both of those are making great progress.

The third area was in analytics, just pure analytics as a standalone. And we're getting some nice synergies on that. The fourth was international. And we have not really focused on that yet. We're focused on the first three. We expect that the international will be monetizable.

We're quite certain of that over time, but we are focused still on those first three.

And I would say that if you look at it from an annualized contract value, an ACV value versus actually a booked revenue, we are probably ahead of where I had originally expected we would be for ACV or maybe at or maybe a little behind where I would have expected we would have been in actually booked revenue.

But the target that we had originally laid out of $60 million of cross sell synergy revenue is still something that we are highly confident in achieving over the four year to five year to six year period from when we first acquired the business. And so, all of that, I think is germane to what the question you asked..

Understood. That's really helpful. Thank you for your time..

At this time, I would like to turn the call back over to Jud Bergman for any additional or closing remarks..

I want to thank you again the thoughtful questions and the support. It's been so far a strong, solid year. And we will continue to focus on growing our business and growing our earnings slightly ahead of that business, but we're trying to manage that because mid-teen revenue growth doesn't come without reinvesting in the business.

We expect to see some continued enhancements in our operating margin. And we look forward to giving you a good update in about 90 days, maybe a little more, but about 90 days. So thank you. Thank you very much..

That does conclude today's conference. We thank you for your participation..