Good day, ladies and gentlemen, and welcome to today's Envestnet Second Quarter 2019 Earnings Call. As a reminder this program is being recorded. [Operator Instructions] And at this time, I'd like to turn the floor over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. Please go ahead..

Thank you and good afternoon. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer; and Pete D'Arrigo, Chief Financial Officer. Our earnings press release and associated Form 8-K can be found at envestnet.com under the Investor Relations section.

During this conference call, we'll be discussing certain non-GAAP information, 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. Specific non-GAAP metrics include adjusted revenue, adjusted net revenue, adjusted EBITDA, adjusted net income and adjusted net income per share.

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, Chris. I add my own welcome to everyone. Thank you for joining us today.

Envestnet continues to expand the ways that advisors and financial enterprises deliver unified advice for their clients whether by leveraging our industry leading wealth management platform, our expanded financial planning tools or implementing solutions via our various exchanges as we work to enable advisors in financial institutions to deliver financial wellness to their clients.

In the second quarter, Envestnet delivered solid growth in adjusted revenue, adjusted net revenue, adjusted EBITDA and adjusted earnings per share. In our Wealth Solutions business, gross sales excluding conversions were $34 billion.

We also completed a $171 billion in conversions, $2 billion of which were asset based recurring revenue and another $169 billion in subscription based revenue conversions. We ended the quarter with $3.3 trillion in platform assets and $11.5 million investor accounts. Nearly 100,000 advisors now use Envestnet's wealth management technology.

And at the end of June, Envestnet Yodlee's data aggregation platform supported more than 24 million active users.

Within Wealth Solutions in the second quarter, Hilltop Securities converted their wealth management assets to Envestnet which will support their goal of creating holistic wealth management for their advisors, correspondence and end clients.

In addition to the Hilltop conversion, we also completed the next stage of a major subscription based conversion with the U.S. subsidiary of a leading global wealth management firm. We also entered into a five-year contract renewal with lowering award.

Envestnet will continue to provide the Silicon Valley based provider of wealth management solutions with our comprehensive platform technology, including financial planning capabilities through MoneyGuide. This agreement is a strong endorsement of Envestnet's unified approach to platform technology and services.

This quarter, we also announced that Merrill Private Wealth Management will access our award winning Tamarac portfolio management and client reporting solution.

Merrill will benefit from aggregated performance reporting, portfolio analytics, a range of interactive reports on performance metrics and a customizable dashboard that includes information held at other financial institution, if the client prefers. These solutions will be available to Merrill teams and their advisors later in 2019.

Our Data & Analytics business signed several new customers across the financial institution, FinTech and wealth markets with a variety of solutions including data aggregation, income and account verification, data enrichment and advanced analytics for advisors and investment managers.

And the early returns are very promising with our two most recent acquisitions. Our existing client base is overwhelmingly supportive of the MoneyGuide acquisition.

We recently signed our first international client from MoneyGuide validating our belief that financial planning is a logical expansion of our global offering beyond that which we already have in our Data & Analytics business.

And the initial conversations with portfolio centered customers have resulted in more than 50 longer-term contracts with Tamarac. Annual subscription revenue will increase meaningfully for these firms once they fully leverage Tamarac's platform offerings.

And while our operating and financial performance has been solid through the first half of the year, we are facing some short-term challenges in the second half.

First, within our Data & Analytics business, we experienced shortcomings in the technology provided by a vendor we relied on to deliver certain credit decisioning analytics to our banking customers. The vendor suspended service causing a disruption that affected several clients and prospects. This vendor also filed a lawsuit against us.

We believe the vendors allegations are false and without merit, and we will respond appropriately and defend ourselves vigorously. However, we continue to see credit decisioning analytics as a big opportunity for Envestnet.

Even though our revenue will be negatively impacted at least through the remainder of this year, as we work to develop a new solution with a new provider. Second, the market for Envestnet Manager Analytics is currently slower than we had anticipated.

As investment managers focused on near-term profitability and many cut back on external research budgets. And although renewals and new bookings continue it is at a slower pace than we expected. We also continue to pursue new use cases leveraging our leadership in data analytics.

Also in Wealth Solutions, a sizable conversion will be on-boarded later than we expected while the on-boarding work is currently under way, we are respecting the clients revised timeline and look forward to serving them later this year and beyond. We believe these challenges are short-term in nature.

We have updated our revenue outlook accordingly while working hard to maintaining earnings expectations for the remainder of 2019. And Pete will go into more detail on our guidance for the rest of the year.

We remain very focused on expanding our unified advice platform, gaining new enterprise and advisor relationships and deepening our existing relationships. Our insurance exchange is live and our credit exchange has attracted significant interest from both lenders and existing clients.

We recently announced a Tamarac digital account opening solution with TD Ameritrade and Schwab Advisor Services. We also recently announced a strategic integration between MoneyGuide and Jackson National and also unveiled MyBlocks. Our next-generation client-facing digital planning tool integrated with Yodlee data aggregation.

These are all examples of the value our financial wellness network is bringing today to our advisors and their clients. I'll turn it over to Pete at this point and be back in a few moments with some closing remarks..

Thank you, Jud and good afternoon everyone. I'll review our second quarter results as well as our guidance for the third quarter and the full year of 2019.

Results for the second quarter include three months of contribution from PortfolioCenter, which was acquired and the transaction closed on April 1 and two months from the MoneyGuide acquisition which closed on May 1. Briefly summarizing Envestnet’s results compared to the second quarter of 2018. Adjusted revenue grew 13% to $227.9 million.

Adjusted net revenues which exclude asset-based cost of revenue grew 16% to $167.6 million. Adjusted subscription-based recurring revenues increased 33% from the prior year period.

This increase came from organic growth, a reclassification of revenue from certain customers moving from an asset-based recurring revenue model to a subscription-based recurring revenue model as well as the contributions from MoneyGuide and PortfolioCenter. Subscription-based recurring revenue was 57% of adjusted net revenues for the period.

Asset-based recurring revenues increased 2% from the prior year period and represented 36% of adjusted net revenues. Professional services and other revenues increased 8% from the prior year period. Adjusted EBITDA was $43.2 million, a 24% increase over last year.

Adjusted earnings per share was $0.46 in the second quarter, $0.05 or 12% higher than the second quarter of last year. With that, I'll summarize our outlook, which is presented in full in our earnings release. For the third quarter, we expect adjusted revenues to be between $232.5 million and $235.5 million, up 14% to 16% compared to the prior year.

Adjusted net revenues between $169 million and $173 million, up 16% to 19% compared to the prior year period. Asset-based revenue between $124 million and $125 million or 4% to 5% higher than last year, assuming a market neutral from June 30.

The implied effective fee rate on our end of June, assets under management or administration is roughly 9.7 basis points consistent with the second quarter of this year. Subscription-based revenue between $101 million and $102 million on an adjusted basis, up 33% to 34% compared to the prior year.

Professional services and other revenue between $7.5 million and $8.5 million, with cost of revenue between $69.5 million and $70.5 million, adjusted EBITDA should be between $54 million and $54.5 million, up 27% to 28% compared to the prior year.

Using a normalized long-term effective tax rate of 25.5% and assuming approximately $54.2 million diluted shares outstanding. This translates into adjusted earnings per share of $0.58. For the full year, we expect adjusted revenues to grow roughly 9% to 10% to a range of $897 million to $903 million.

While we did increase our expectation for asset-based revenue in the second half of the year due to the favorable market in the second quarter, total revenue will be lower than previously expected, primarily attributable to the factors as Jud described earlier.

As a result of these temporary influences, we are managing our operating expenses in a very disciplined fashion for the remainder of the year, enabling us to reaffirm our midpoints and tighten the ranges for adjusted EBITDA and adjusted EPS.

We expect adjusted EBITDA to grow 22% to 23% to a range of $191.5 million to $193 million and adjusted earnings per share to grow 9% to 10% to a range of $2.10 to $2.12 per diluted share. Finally, we ended the quarter with $78 million in cash and approximately $663 million in total debt.

Our gross leverage is 3.4x EBITDA and our net leverage ratio is 3.0x. Priorities for our cash flow for the remainder of 2019 continue to be investing in the business to support our long-term growth, whether it's through acquisitions or new initiatives, paying down debt and ensuring we have capacity to fund the convertibles which mature in December.

Thank you again, for your support of Envestnet. At this point, I will turn it back to Jud for his closing remarks..

Thank you, Pete. We are pleased with our results for the second quarter, but as indicated, we faced some challenges in the near-term.

Meanwhile, we are executing every day on our unified advice strategy which is receiving widespread, nearly universal validation and endorsement buying from our clients, including the additional capabilities we are now offering through Envestnet MoneyGuide.

Beyond this year, we expect our core business organic growth to be strong relative to the industry.

And we expect to maintain the 1.2x or more relationship between the growth rate of revenue and the growth rate of adjusted EBITDA and adjusted earnings for our core business, accelerated from time-to-time, both in the bottom line and the EBITDA to disciplined acquisition activity.

We see a long runway for organic growth as we expand our platform for financial wellness. We also see continued consolidating acquisition opportunities where we further leverage our expertise of completing large and complex conversions for financial enterprises.

We believe that our opportunity to enable advisors and financial enterprises to provide unified advice across all elements of their client's financial life and deliver financial wellness to those clients will create significant value for advisors, financial enterprises, their clients and our shareholders. Thank you again for your time this afternoon.

Thank you for your support and interest in Envestnet. And with the completion of this, our prepared remarks, we are happy to take your questions..

[Operator Instructions] And first we have Devin Ryan with JMP Securities..

Great. Good afternoon..

Hi..

Hi. First question, just, Jud you talked about some of the factors may be affecting business in the near-term and one you mentioned investment manager activity has been a little bit slower as they focus on profitability and are cutting external research budgets.

I'm curious, is that a temporary dynamic that you see, if so why and kind of what are you hearing from those clients?.

So I would say that it is uncertain whether that in itself is temporary short-term or it's the new-new. I believe that the relative slowness in analytics however is short-term and that goes to the additional products that we're introducing.

But the challenges that I outlined and identified with respect to the credit decisioning product was one of our faster growing offerings for analytics and we had expected over time would kick up some of the growth as would the more traditional investment manager analytics that we are pursuing.

But within that the subset of investment manager analytics where the investment manager has an alpha producing thesis and the analytics are an important part of that alpha producing investment management is experiencing relative – relatively less growth than the factor-based strategies or the index-based strategies.

So we expect that the slowdown in analytics revenue is short-term, it's not – it's not a new-new if you will, although I'm not sure if the sub-point with respect to investment manager who are alpha-producing investment managers that may be more than the short-term dynamic. We just don't know yet..

Got it. Appreciate the color there. And then just a follow-up from me on, I guess, the current market backdrop. Just the last even weaker so here, just the extreme level of volatility that we're seeing and you've weathered a lot of different market backdrops and I think kind of some great perspective here.

So I want to just maybe think about how the business performs both kind of short-term and intermediate term when we have pockets of volatility. And typically, I guess the question is how long does volatility have to last words.

It's really kind of extreme beyond normal before you start to see impacts on business? And then I guess on the other side, how long this before volatility does down, does that effectively reverse or stop.

Just trying to think about periods of volatility and how the business performs and what type of lag, it may exist around that?.

So we are coming out of the quarter which was positive of course and not a lot of negative volatility. Therefore, we had below expectation redemptions which is that's all kind of holds true.

In the past, we found that for shorter periods of volatility days or maybe even a couple of weeks, there is not generally speaking, an immediate increase in redemptions nor is there an immediate decrease in gross sales of new onboarding. There is – every market is different and the last three trading days have had volatility.

It's too early for us to draw any conclusions and something that's happened over the – over so recently at a time, but we've seen that – we've been able to grow in virtually every market environment over the last 10 years and we expect that will continue to grow.

Although the growth rates are affected by that market backdrop, a lot less when net revenue of asset-based sources are around actually less than 40% of our overall revenue, where net revenue from subscription-based sources are nearly 60% of our revenue.

So the effect is that both the direct and indirect effect is less than it has been in the past, but it's still a factor yet to be determined with this most recent – this most recent uptick in volatility..

Understood. Great. Well, thank you, Jud. Appreciate it..

And next question will come from Surinder Thind with Jefferies..

Good afternoon..

Good afternoon..

Just following up on the question about some of the near-term challenges, are you guys able to perhaps quantify what the estimated impact of those challenges are at this point?.

Well, I think if you track the guidance from last time to the guidance that we've provided at this time, the delta in that range adjusting a slightly for what would have been the benefit of the market.

So the – without getting too specific the bulk of it is picked up through those major two or three items Jud called out and that's reflected in the adjusted outlook..

Okay, thanks. I'll make those adjustments. And then….

And they are indicated in order of magnitude..

Okay. That's helpful as well. And then in terms of some of the comments around just kind of a bit more on the expense control.

Can you talk about a little bit about the restructuring that's been going on and how you guys are kind of managing that part of the expenses?.

Well, by restructuring, do you mean the forming of two business units from four and then now we've also got MoneyGuide is that what you're talking about?.

I apologize, I guess perhaps I shouldn't have used the term restructuring unless I misheard, I thought that there were some sort of initiatives or a little bit of belt tightening around expenses in relationship to perhaps the short-term challenges?.

So we announced an organization structure early in the year around creating two business units from four, we've since added on Envestnet MoneyGuide as a third business unit. There is ongoing efficiency exercises as we bring what we're four business units into two. And so that's an ongoing part of our overall expense management.

We also – in also in the year when we are not performing with respect to revenue as we had expected. We don't expect compensation levels for incentive compensation to be what had originally been budgeted.

So there is a variable cost to our incentive compensation that if we were performing from a revenue standpoint, like what we had expected the incentive comp would be higher. So there is a – we're benefiting from the variability of that as well.

And then we are being very careful about any discretionary additional expenses given our outlook for the rest of the year. So that's really what you should take away. There is no restructuring going on or a restructuring activity.

We've got the business organizations headed on a path that's been in motion for since the start of the year to become more efficient and given the outlook that we've just outlined. We're taking steps to do all we can to uphold expectations on cash flow and earnings for the balance of the year..

That's helpful. Thank you..

And moving on we have Chris Donat with Sandler O'Neill..

Good afternoon and thanks for taking my questions. Just digging through the numbers, I see that when we look at your AUM, AUA for licensing on a per account basis, a number has been growing pretty steadily and it's now just under $300,000.

I'm guessing what's going on is that you're adding bigger accounts with some of your new licensing relationships, but could you tell me what's sort of going on there with the growth there or is it something organically with the accounts like assets per account in the license accounts growing, just trying to understand..

No, it's pretty clear, what's going on. I'll try to explain it. Looking back traditionally, our subscription versus AUM client base was somewhat barbell. You would have the largest RIAs, registered investment advisory firms and the larger financial enterprises opting for subscription-based pricing.

As in all cases is the case with the Yodlee client base always subscription-based pricing, whereas the asset-based pricing was more the mid-sized or smaller RIA or the mid-sized broker dealer or insurance subsidiary of a broker-dealer. As we continue to gain share with larger RIAs and we've got a very strong share of market with $1 billion RIAs.

There is an uptick in terms of the average yield part of that size of the practice but also a meaningful part of it is the expansion of our product offering. But six years ago, we basically had one product offering to our high-end RIA offering – high-end RIA client base. It was a rebalancing software.

Today, we have rebalancing software, performance reporting, a client portal, CRM, as well as a managed account module. So as we expand the – as we expand the offering set we get a broader opportunity per advisor.

And then the final thing that's happening is that at the enterprise level, as we go from a typical profile client, which would be a smaller broker dealer that may clear at a larger custodian as we evolve to a mix that includes larger self-clearing firms of regional or even national prominence they more often opt for licensing arrangements than they do asset based arrangements.

So this is a – in our view a normal evolution of our business as we move from smaller clients to larger clients..

Okay, thanks for the color on that. And then just to make sure I get it – as it impact fee income statement. So you guys have been talking for a few quarters about the mix of subscription-based revenue increasing what you just talked about Jud, that's one of the factors behind that increase in addition to growth in Yodlee and MoneyGuide.

Is that fair to say?.

I'm sorry..

Just trying to....

Until the last part....

The dynamic where you're – the subscription-based revenue has been growing faster than your asset-based revenue….

It's one factor, it's one factor, but it's happening I believe in all of our businesses, it's happening. Enterprise subscription revenue is growing faster than enterprise AUM, AUA revenue. Okay. And then of course, Tamarac is virtually all subscription-based, Yodlee is all subscription-based and MoneyGuide is all subscription-based..

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

Thank you..

And next from William Blair we have Chris Shutler..

Hi, guys. Good afternoon.

On the investment manager analytics slowdown, what gives you confident that the slowdown is due to the cutting of research budget as opposed to competitor solution is gaining traction or pricing pressure?.

I am not sure I can't say definitively that the investment analytics from investment managers is only a short-term solution or short-term phenomenon. I believe that the slowdown in overall analytics is a shorter term phenomenon, but that's because of the growth of a number of the other offerings that we've got.

What we see is a slowdown in the uptick among alpha producing investment managers. We're not seeing that they're going to competitive solutions. And if we were we'd say that so we've eliminated the competitive piece there may be a new-new as I indicated with research budgets within alpha producing or alpha seeking investment managers.

But we haven't seen – we haven't seen it going to new competitors. And so the area that we look at and why we characterize the three – of the three areas, data analytics, we see as a short-term slowdown. The conversion is just a timing question.

On the investment management piece on the investment manager analytics at this point, our view is that it's a short-term, but we're not certain about for that particular segment..

So we do continue to diversify the markets we are addressing and the products we're offering within that segment beyond just investment managers..

Okay, thanks.

And then regarding the lawsuit piece, just how confident are you that you can get the data from another provider?.

So this is an important market for us, it's a big opportunity and I am highly confident that eventually we will find a new solution with a new provider that enables us to address this market opportunity. Whether that – whether that's months or quarters, I can't say right now, but y expectation is that it's closer to months..

Okay, fair enough. And then lastly Jud, I wanted to ask about the insurance exchange.

Just how should we think about the usage of the insurance exchange evolving recognizing its still early, I'm curious – any sense through your conversations with broker dealers? To what extent do you think those broker dealers are looking to really encourage or push their advisors into using the exchange versus leaving it up to each individual advisor to do insurance on platform versus off platform?.

So the insurance exchange is an important evolution of our platform kind of dynamics. We're already generating some very nice run rate revenue with only – having opened up a few accounts as insurance carriers seek access to the type of advisor that's interested in the offering.

Now among our client base there are going to be a number of the clients that aren't interested in it because they have their own insurance offerings but that's a minority of our client base within the RIA offering space, within the smaller and mid-size independent broker-dealer space, within the regional broker dealer space and within the national broker dealer space.

We expect that there will be a number of advisors within each of those channels that want to have that the use of an integrated insurance product that has the same onboarding technologies, the same building technology, the same performance reporting technology as the rest of their businesses.

So we expect that over a longer period of time, any exchange that we add on has TAMs or target addressable markets incrementally over $100 million in some cases as high as $500 million.

And we expect that over time that we will gain shares of the market that approximate where we are already in our other businesses, so it might be 5% to 10% in the early years, 10% to 20% of that TAM in the middle years and maybe as high as 30% at maturity many years out.

But that's how we think about it and we think about that the insurance exchange and the credit exchange very significant additional addressable markets that that brings to the advisor base that's looking for Envestnet for solutions.

And we expect that we're going to introduce additional exchanges in the relatively near-term because we've got demand for advisors that want the same exchange dynamic around additional services for additional products..

All right, thanks a lot..

Next we have Will Cuddy from JPMorgan..

Good evening.

Tamarac supporting Merrill Private Wealth, how are you thinking about the opportunity to sell Tamarac into more high net worth channels beyond its traditional large RIA focus, more specifically do you think this relationship is kind of a one-off opportunity or are there more opportunities like this for Tamarac expand its client set?.

So what we have – I won't say perfected because that's too strong. What we have refined and battle tested is a reporting solution that works for high net worth individuals and the advisors that support them.

And what we've been able to work through over these last years, our easy to use, easy to read, great user experience interactions that create a digital connection between that RIA or that advisor and their high net worth client and enable them to through a client portal which is hosted by Envestnet, really expand the ways they touch that clients and provide dynamic reporting.

Its integrates very nicely with MoneyGuide on a financial planning basis showing updates on performance, but it also integrates with a five or six of the most common financial applications that Yodlee, FinApps that Yodlee provides which have proven very popular with high net worth individuals things like net worth tracking, budgeting apps, cash flow forecasting and the end client benefits from this unified presentation of their net worth, their investments, their held away holdings including 401(k) accounts, cash value of insurance accounts.

It's presented in a very systematic easy to use way. And what we found is that with the end client base of the users of the portal. First of all around over 90% of RIA is using the solution have adopted it as their primary means of communication with their end client, so that's a very impressive number.

But what's even more impressive is that nearly 80% of the end clients of those advisors are logging on once a week or more to look at things like client accounts, what's happened to net worth, how are they doing, how are they tracking against their big goals and their big objectives, are they on track with their financial plan.

So the use of this capability is powerful and it's a case where the RIA community has really led, they blazed the trail, they've been the early adopters and they've really been able to be the disruptors if you will in this whole wealth management ecosystem.

And as more RIAs use that solution, the high net worth practices in other firms are looking to get the same benefits. So, we're already working with several prominent regional brokerage firms one right here in the Midwest and in their private wealth businesses. We have others in the pipeline.

So we do not expect this to be a one-off thing, we again expect it to be a natural progression of a market-leading capability that we've been able to develop over time working closely with our best clients..

Great. Yes, thank you for walking through that. Switching gears a little bit. We've had a quite good amount of market volatility this year. We've talked in the past on valuations in your space limiting acquisition opportunities.

How are you thinking about the market volatility of this year and the potential for that market volatility to make some of the targets, potentially more attractively valued?.

We find in the M&A space that there is with what's largely privately held companies and private transactions. There is less direct tie to what might be a short-term market swing and what happens with the valuation.

Certainly we would look to do the best we can with that and we've spent a lot of time, which I won't reiterate the return profile that we have for both consolidating and strategic transactions.

So, we would stick to that discipline and if the market volatility impacts one way or the other, either the performance of the business or may affect the valuation, then that would increase the number of opportunities that are available to us. But again, I think it's the overriding discipline that is the top criteria for us..

I'd say it a little differently. I'd be a bit more positive about being able to find opportunities that fit our return on investment threshold in this market than there have been over the last year and a half or so..

Okay, that's helpful. And then just a quick one.

In the press release there's commentary about the $2 million impact from PortfolioCenter and the $6.6 million for PIEtech, is that a GAAP revenue impact or is that adjusted revenue impact?.

That's GAAP..

Great. Thank you for taking my questions..

And next we have Peter Heckmann with Davidson..

Hi, good afternoon and thanks for taking my question.

Jud, can you give us an update on the BlackRock relationship and the integration with their solutions, have we seen anything tangible in the numbers so far yet this year and-or how might we see that manifest in the growth in the back half?.

So, we are making good progress on the technology integration. We've got progress on the iRetire piece and we've got progress on a couple of the other things that we're looking to integrate more closely into the platform.

We are seeing that firms that we do joint product planning with and BlackRock is of course a very important one but they're not the only one do receive the benefits of kind of streamlined on-boarding in the proposal, fund or strategist selection process. And then just going through to the paperwork automation in the on-boarding piece.

And so if you look through the numbers you're going to see some I believe you're going to find it, you're going to find indications of some faster growth within assets under management and some slightly beneficial fee rates because of that.

Not saying that that's directly or even majorly due to the BlackRock relationship, but what we're doing with BlackRock and some other firms has an effect on the type of business that's being on-boarded. And what that means is more unified managed account business and relatively less advisors portfolio manager or APM business.

So we expect that we, we had anticipated that even maybe planned for that and the early results are encouraging from what we're seeing there..

Great. Okay. And then Pete just – I apologize if it's in the press release I'm in transit.

But what is the level of total acquired revenue contemplated in the third quarter and full-year guidance?.

So the contribution is about 5 percentage points to 6 percentage points of growth I think the total per quarter is around $15 million..

And that's on an adjusted revenue basis?.

Adjusted. Yes..

Okay, thank you. I’ll get back in the queue..

[Operator Instructions] And next from Raymond James we have Patrick O'Shaughnessy..

Hi, good afternoon guys.

So embedded within your full-year revenue guide change, is there any chance to your outlook for subscription revenue within your Wealth Management segment in light of the really strong conversion number that you guys did in the second quarter?.

I'm sorry, was the question is there any change? Is it the guidance?.

So there are some moving parts in your full-year revenue guide. You talked about higher asset based revenues because of the market, you talked about lower kind of Yodlee analytics revenues. Any change to the subscription-based revenues within your Wealth Management segment.

I think in particular because you put up a really good quarter in terms of conversions during the second quarter?.

I understand the question, Patrick, it's not material. It's not significant because we expected the conversion, it was contracted, it had been, and it's been agreed upon deployment date everything. So while we're happy that it was a big conversion, it was fully expected..

All right. Got it. Thank you.

And then within the Data and Analytics segment is that going to be where most of your expense management efforts are really focused for the duration of the year given that's where the revenue headwinds tend to be and then I guess, bigger picture what do you see as kind of the acceptable long-term margin for that segment?.

So, those are great questions. The longer-term margin for that business, we expect as we apply, and this is longer term as we apply data science and machine learning to our data normalization, data reconciliation and data integrity efforts. We expect that that could be a 40% EBITDA margin business or more longer-term.

And we've been investing heavily in that business again, since we acquired Yodlee there has been roughly a doubling of revenue in just a little over three years and like a six-fold increase in EBITDA.

So, we expect the growth to be strong, but we don't expect it to be a as strong as it has been, and we expect that there can be the balancing of investing for growth with investing for the markets that are more appropriately ours and by that I mean wealth management, banking and credit are what we are going to invest most mostly in for that analytics business.

Then, more of the efficiencies, relatively more of the efficiencies are coming from analytics than from wealth but wealth also is generating more efficiency as a result of the organization changes we announced in January..

Okay, thank you..

And next we have David Grossman with Stifel..

Thank you. Good afternoon. Just couple of quick clarifications, first on the revenue guidance.

Is that including or excluding the deferred revenue adjustment for the acquisitions? And just second point, does the deferred adjustment materially change in the back half of the year from what you reported in the second quarter?.

So, we provided in the press release, both on a GAAP basis and a non-GAAP basis. So you can see the guidance in both and you will see that it does start to decline toward the second half of the year, slightly..

Right. So, maybe I'm. And I'm sorry if I missed this, but if there's a lot of moving pieces. Obviously, in the back half of the year it looks like obviously the subscription growth rate, the organic growth rate is moderating a little bit.

Is all of that due to the kind of analytics, kind of items that you kind of talked about earlier, or is there more to it than that?.

No, the vast majority of the net effect goes to those three factors and those three factors are the first one is, it’s probably a little over half of what the overall effect is. The second one is – maybe 35% and the third one is the balance of that..

Okay, got it. Thanks for that. And then I guess just kind of a longer-term question just about the model. You've done a lot to expand the breadth of your platform over the last couple of years. Some of it organic and some of it through acquisition. You're clearly signing obviously larger customers with more complex needs.

But is there any sign posts that you can give us to help us think through what the impact is on the revenue per client by virtue of adding this expanded kind of capabilities to the platform?.

Yes, I can give you. I mean we don't report this but we look at it. The average revenue for RIA client six or seven years ago was less than $20,000 per advisory firm per year. Today, the average is north of $90,000 and new clients are coming on at – nicely over $100,000 per advisory firm per year in terms of the subscription revenue per year.

That would be one picture of it over a six to seven-year period. And that's the result of bringing out new products, new offerings and we expect that that's going to continue. We think that there is significant upside in the revenue per advisor on the subscription side. The asset-based side has grown as well.

Over a longer period of time the average asset-based revenue per advisor has gone from around $4,000 or $5,000 to around $12,000 or $13,000 per advisor, but that's asset base. And there are other sources of revenue that we are getting that are subscription based from the firms that employ those advisors.

So, you're seeing that growth coming up in the incremental growth rates, which are higher for subscription revenue that's being derived from the enterprise clients. So, we don't expect to provide metrics on that anytime in the near future.

But, we look at that and we are encouraged by the growth in revenue per advisor and growth in revenue per advisor at the firm..

Great. And just to follow-up, one thing on that.

So when you say over $100,000 on some of the newer clients, is that, is that a pretty good metric to use on the new sales and new clients coming on or coming out at that higher rate?.

If it's subscription based, yes, the new clients are coming. The new clients coming on have ACV equivalents, annualized contract value equivalents of over 100 and that's been trending up very nicely for a long time. And part of that is – the biggest part of that is more, a more dynamic and broad product offering.

It's part of going deeper with existing clients. But there is also a factor that – the size and sophistication of the client is growing as well..

Right. Great, well thanks for those metrics. And then just finally and I can't, I don't know if you covered this earlier, or not.

But the conversions have gotten a little more lumpy in the asset-based business, is there anything to read into that or is that, is that just kind of the typical ebb and flow of conversions that you've always experienced?.

No, I think that there might be some. I think that for the foreseeable future the conversions, the enterprise conversions within the Wealth Solutions business are going to skew more towards subscription base as a function of the size of the conversion..

All right. So as we think about modeling out the asset-based business we should assume the conversions are going to skew down basically and you're going to, just to add on the, you're going to see an uptick in the subscription base conversions is that, I mean we've been seeing that....

We have not, we have not guided on that. We have not thought through that completely, but based on what we know of the pipeline today looking out two, three, four, five, six quarters it's going to continue – over the, let's call that the near to the middle-term, we expect that it will continue to skew toward subscription based pricing..

Okay. And I'm sorry we can take this up offline, but just one follow-up to that is on the gross sales right extra conversions, they seem to have been staying at a reasonable rate in the asset-based business.

So while you're seeing it on the conversion side, if you haven't necessarily seen it on the gross sales side, is that a logical outcome here or am I missing something obvious?.

No, I don't think it is a logical outcome and I'll tell you why. The gross, the non-conversion gross sales are highly reflective of current programs with current advisors. So as we add a new manager a new strategist as we add a new family of impact portfolios to PMC's quantitative portfolio offering.

Then you're seeing that the existing sales are holding up very nicely, because we continue to bring new products in. So that's heavily tied to our existing advisor activity. Subscription based conversions are tied to the kinds of new enterprises will bring on to conversions and that is skewing toward larger conversions..

So then the pricing is and or not pricing but revenue per client or advisor is what's helping to keep that gross sales number up because like I said, it looks like it's trending very nicely relative to the trending conversions?.

Right, revenue, there's two things that are better holding it up. Revenue per, that kind of the share per existing advisor and then getting more advisors with existing customers. So, yes..

Got it..

Yes..

Got it. Great. All right, thanks very much. Jud, I appreciate that..

All right, you're welcome. But I do think it underscores the organic growth strengths of the core business..

All right, great. Thanks again..

All right, ladies, gentlemen. It looks like that does conclude our question-and-answer session. I'd like to turn the floor back to Mr. Bergman for any additional or closing remarks..

I want to thank you for the questions. Very insightful questions and I look forward to our next conversation which will be in about 90 days unless sooner. Thank you and this ends the call..

And once again ladies and gentlemen, that does conclude our call for today. Thanks for joining us. You may now disconnect..