The Operating System for Financial Wellness - Seeking Alpha
Transcript of The Operating System for Financial Wellness - Seeking Alpha
The Operating System for Financial WellnessInvestor Presentation
Spring • Summer 2020
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Safe Harbor Disclosure
This presentation contains forward-looking statements. These forward-looking statements include, inparticular, statements about our plans, strategies and prospects. These statements are based on ourcurrent expectations and projections about future events. The words “may,” “will,” “should,” “expect,”“scheduled,” “plan,” “seek,” “intend,” “anticipate,” “believe,” “estimate,” “aim,” “potential” or “continue” orthe negative of those terms or other similar expressions are intended to identify forward-lookingstatements and information. You are cautioned not to place undue reliance on these forward-lookingstatements, which speak only as of their dates. These forward-looking statements are based onassumptions and estimates by our management that, although we believe to be reasonable, areinherently uncertain and subject to risks and uncertainties that could cause actual results to differ fromhistorical results or those anticipated or predicted by our forward-looking statements. These risks anduncertainties include those described in our filings with the SEC. In light of these risks anduncertainties, the matters referred to in the forward-looking statements contained in this presentationmay not in fact occur.We undertake no obligation to update or revise any forward-looking statement after the date of thispresentationas a result of new information, future events or otherwise, except as required by law.We qualify all of our forward-looking statements by these cautionary statements.
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The Operating System for Financial Wellness that empowers clients with actionable intelligence to
attain improved financial outcomes and better lives
Market-leading operating system for wealth
management in large and growing $20 trillion advisor
marketplace
Integrated technology platform for all mission-
critical advisor applications, including secure, seamless
connectivity to third parties
Next-generation enterprise data management solution,
leveraging leading data aggregation and analytics
capabilities
Envestnet (NYSE: ENV)Envestnet is the Market Leading Financial Wellness Network Offering a Comprehensive Suite of Solutions That Serves More Financial Advisors and Consumers than any other Platform in the Industry
76%
24%
Wealth Data & Analytics
55%42%
4%
Asset-BasedSubscription-BasedProfessional Services
$901M2019 Revenue
$193M2019 Adj. EBITDA
$3.3T+Total Platform
Assets
+12.3MInvestor Accounts
26M+End Client Adopters
4,900+Enterprises
500+of the Largest
RIAs
22,000+Data Sources
Next-generation enterprise data
management solution, leveraging leading data
aggregation and analytics capabilities
Integrated technology platform for all mission-
critical advisor applications, including
secure, seamless connectivity to 3rd parties
Revenue by Segment Revenue by Type
96% recurring
Envestnet is the industry leader in high growth segments of financial technology
Market-leading financial
wellness network in large and growing $20
trillion advisor marketplace
5As of 3/31/2020
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$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Proven Record of Innovation and Growth CONSOLIDATING ACQUISITION STRATEGIC ACQUISITION PLATFORM MILESTONE
NAM
First web-based wealth management platform for fee-based advisors
First integrated Advisor-as-Portfolio Manager Program
FIDUCIARY SOLUTIONS ENVESTNET UNBUNDLES ADVISOR TECHNOLOGY
First “TAMP” to unbundle technology and services from asset management
First Sleeve-based UMA
GOES PUBLIC JULY 29, 2010
Begin Consolidation of TAMP industry
Broaden focus from Investment-centric platform to Advice-Centric platform
First fully mobile wealth management platform
WMS
Reve
nue
($ m
illion
s)
Advisor services
7
i
Best-in-Class Solutions Drive Industry Leading Position
RIAs and National Advisory Platforms
Broker DealersFinTech
Banks and Financial Institutions
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Virtuous Cycle Has Created Significant Competitive Advantages in Accelerating Growth
• Benefit from increased data and scale• Higher post-consolidation adjusted
EBITDA and expanded margins from operating synergies
• Slower top line growth
CONSOLIDATING ACQUISITIONS
WMS
• Businesses and technologies that benefit from complementary capabilities
• Expand and improve product offerings and addressable markets
• Synergy potential
STRATEGIC ACQUISITIONS
CAPABILITIES AND
OFFERINGS
Rich Data Set to Leverage across Markets and Products
Network Partners Provide Valuable “Finapps” to Advisors and Their Customers
SIGNIFICANT ADDRESSABLE
MARKET EXPANSION
ENTERPRISE AND ADVISOR
ADOPTION
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Our Unique Network was Built Through a Multi-Pronged Strategy Including Organic Initiatives, Smart Acquisitions and a Core Tenant of Integration. Envestnet's Market Position, Scope of Capabilities and Strategic Roadmap Set the Stage for Further Disruption
Envestnet Has Led the Industry Through Wealth and Data Innovation
Product Distribution NetworkTechnology Platform and Data
1.0 2.0 3.0
Wea
lthD
ata
& A
naly
tics
Wealth Management Platform Financial Wellness NetworkManaged Account Platform• Turnkey advisor solution for
access to stocks, bonds, funds and managed accounts
• Advisor solution for access, back-office administration and reporting
• Investment advice = asset allocation and product selection
• Data-centric planning tools enhance platform
• Deep integration to all relevant wealth technology applications
• Advice = balancing short-term objectives, long-term goals and investment portfolios
FinAppsData Aggregation• Account verification• Online personal financial
management• Screen scraping
• Reconciliation• Normalization and quality• Data enrichment
• Leverage one-of-a-kind network to empower clients with technology, data and solutions beyond “wealth management”
• Advice = comprehensive planning and seamless integration of ALL solutions, driven by data
• Intelligent data, AI enabled through a user friendly developer experience
• Wealth• Credit• Payments • Analytics
Data Intelligence
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Financial Wellness Defined
• Developing plans for short and long-term goals
• Spend patterns relative to income (where and when)
• Short-term savings
PLANNING & BUDGETING
• Have sufficient long-term investment assets
• Hard assets (real estate, etc.)
INVESTING
• Credit balances, loans, mortgages for education, real estate and business
MANAGING CREDIT
• Insurance• Identity protection
PROTECTING CAPITAL
ADVISOR
Managing Credit
InvestingProtecting Capital
Financial Planning & Budgeting
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The Envestnet Difference: Scalable Platform Powered By Data
Envestnet Wealth + Data & Analytics = Data Powered Financial Wellness Network
• Industry leading TAMP at scale and growing
• Comprehensive marketplace of Exchanges for all financial needs (insurance, credit, health, etc.)
• Scaled cloud infrastructure, API enabled, from back office to client
• Financial Planning as the gateway to client engagement
• Enterprise data management• Wealth analytics and benchmarks
1,300+Companies
22K+Data Sources
26M+End Client Adopters
• Credit• Payments• Wealth • Analytics
• FinApps and Developers Portal• Standardized APIs • Cloud infrastructure
• Data aggregation• Data enrichment• Security
103K+Advisors
12.3M+Investor
Accounts
$3.3T+Total Platform
Assets
Integrated Financial Wellness Network Leveraging Scaled Infrastructure
Integrated Data and Tech Capabilities Fueled By Massive Scale of Financial Data
Wealth Data & Analytics
Financial WellnessNetwork
Solu
tions
Plat
form
Dat
aSolutionsPlatform
Data
Metrics as of 3/31/2020
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The Envestnet Vision: Deliver Financial Wellness for All Advisors and Clients by Integrating Technology, Data, and SolutionsEnvestnet’s Financial Wellness Network has Disrupted the Wealth Management Sector Successfully; Now Ready to Disrupt the Broader Financial Services Industry, Creating a Massive Opportunity
ExchangesINV INS Credit Future
Advisor Portal
Enterprise Portal
Support
Client Portal
Financial Wellness Scorecard
Vision
PortfolioMix
RiskProtection
ImpactTax
Fin Apps
Financial Planning
APIs Data Management Account Administration and Service Clearing, Custody, Trust
Optimization Engine Advisor Services
EnvestnetData
Capability
EnvestnetConnect
Data Aggregation Data Intelligence Security Data Management Solutions Money Movement
Digital Wealth Experience -Open APIs
Digital / Mobile Client Experience
Dynamic Configurations Predictive, Complete
Financial Wellness Recommendations
Financial Planning
Highly Configurable Integrated Account Opening and
Proposal Sophisticated Trading,
Rebalancing Multi Custody Integration Compliance Oversight for Advisor
/ Sponsor Comprehensive and Flexible
Billing
Performance Reporting Comprehensive View
Integrated Across the Full Solution Set
Accurate, Reconciled Data Customized Reporting
Marketplace of Exchanges Research and Consulting Services Portfolio Administration and Overlay
Services Portfolio Management and
Rebalancing Integrated Insurance Network Integrated Lending and Financing
Solutions
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Envestnet to Power the Next Phase of Advice
ImplicationsThemes driving change
Redefining what it means to be prepared
Understanding the trade offs and “what-if” scenarios will be the underpinning of advancements and usage of planning
Digital becomes more “human” Hybrid is the only engagement model and the “fidelity” will need to be the same across every medium
The fusion of health and wealth Behavioral, holistic wellness across all assets and liabilities will be the mandate, supported by an integrated tech platform
A new level of trust and relevance are the currency of valued engagement
Family and communities lead the way forward
Creating a new playbook for a sustainable business
Transparency, authenticity and logic supported by predictive analytics will be the baseline for how a client values the information and advice provider they engage with
The new mutuality, “we’re all in this together” drives the connectedness and strength of communities
The need for scale (digitizing, analytics, outsourcing, and strategic partnerships) will be the focus over product selection
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Fundamental Trends Support Growth Opportunity
Increasing reliance on technology to support evolving relationship between advisors and investors
Commission-based accounts transitioning to fee-based accounts ($Trillion)
Increasing advisor and enterprise dependence on data and analytics
Integrated technology delivers massive gains in operational efficiency.
75%
67%
64%
60%
55%
54%
Big data & smart analytics
Open architecture & APIs
Central data master mgt
Agile way of working
A.I. & machine learning
Intelligent workflows
$3.6 $4.7$6.8 $7.9 $9.7
$16.7
2009 2011 2013 2015 2017 2021E
Source: BCG Global Wealth Report, 2017 Source: Cerulli Managed Accounts Quantitative Update 2018
Source: Aite Group, September 2016 “Technology Integration Turbocharges Advisor Productivity: Making Time for Clients” survey of 330 advisors in
April 2016
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Integrated Data and Technology Turbocharges Productivity
57% more clients served78% larger book of business46% higher practice revenue/production
44% more clients servedDoubled their book of business73% higher practice revenue/production
20% more time for client management76% higher practice revenue
RIAs
IBDs
Bank BDs/Trust
Source: Aite Group, September 2016 “Technology Integration Turbocharges Advisor Productivity: Making Time for Clients” survey of 330 advisors in April 2016
Advisors+
IntegratedData & Technology
=Better Outcomes
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Delivering Long-Term Growth
Leadership position in growing and evolving advice-centric wealth management industry
Emerging network to leverage power of data and analytics to deliver better financial outcomes
Substantial organic and strategic growth opportunities
Highly recurring, visible revenues; strong free cash flow generation and operating leverage
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Add New Enterprises
Growth Strategy
Increase Number of Use Cases
Gain Advisors / Users Leverage Data for Analytics
Broker Dealer Firms
RIA Firms Banks Insurance Companies
Other Financial Institutions
FinTech Companies
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Wealth Solutions Total Addressable MarketEnvestnet’s Wealth Business Plays in a Large and Attractive Total Addressable Market of $39 billion
Note: Represents projected 2023E Total Addressable Market and current Envestnet penetration measured by revenue. Per company research.
Org
anic
Adj
acen
t
$9.6bnTAMP
$6.3bnOptimization
Engine$5.5bn
Custody$3.7bn
Trust$2.9bn
Credit$1.2bn
AdvisorServices
$0.5bnRobo
$4.6bnWealth Tech $1.9bn
Insurance $0.6bnRetirement
$0.5bnWealth Data
$1.6bnAlt / Impact
Organic TAM: $19 billion
Adjacent TAM: $20 billion
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Data & Analytics Market Trends Fueling Greater DemandEnvestnet’s Data and Analytics Operates in a Rapidly Growing Total Addressable Market of $6 billion
FAANG Increases Pressure on FI
Broad Adoption Compels Omni-
Channel Provision
Chatbot | Mobile
Leverages AI to Produce
Actionable Insights
Increasing Demand for
Incumbent FIs to Deploy FinTech
Capabilities
Enables consumer access to financial data
AI Big Tech FinTech Open BankingFinancial Wellness
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Multiple Vectors for Long-Term Growth in Data & Analytics
Expand End User Usage
with Existing Customers
Grow Number of Customers
Increase International
Market Penetration
Big Data Opportunities
Enhanced Value
Offerings
New Channels New Markets
GROW NUMBER OF USERS GROW REVENUE PER USER GROW MARKETSHARE
• Mobile, FinApps, Integration of Financial data into core offerings, Segmented Experiences
• Rapidly Expanding FinTech EcoSystem
• FI increasing demand for FinTechoptions
• Establish Deeper Presence in UK, Australia, Canada, India
• Marketing Insights• Vertical Insights• Research
• TDE• Investment Data
Enrichment• Credit Products• Insights
• Small Business Insights
• Investment Managers
• Consumer Marketing
• Credit/Payments• InsurTech• RegTech/
BlockChain• Healthcare
• EU• Asia
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Compelling Financial Model
Growth - Expanding addressable market with broader access to FinTech, financial institutions and advisors
Visibility - Asset-based revenue billed quarterly in advance and subscription revenue on multi-year contracts
Recurring – 96% recurring revenue, long-term subscription agreements based on high level of customer retention
Significant operating leverage - Margins benefit from scalable business model and long-term market appreciation
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Revenue Model
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Asset-Based Recurring Revenue
55% of revenue
37% of adjusted net revenue (1)
Subscription-Based Recurring
Revenue42% of revenue
59% of adjusted net revenue (1)
RECURRING REVENUE BASED ON VALUE OF PLATFORM ASSETS• More than 90% billed quarterly in advance• Client AUM/AUA mix is approximately 45% U.S. equity, 15% international equity, 30% fixed
income, and 10% commodities, alternatives and cash
REVENUE FOR CURRENT QUARTER IS HIGHLY PREDICTABLE• Timing of net flows drives partial impact • Intra-quarter market fluctuations impact arrears-billing accounts only
REVENUE FOR FUTURE QUARTERS IS PREDICTABLE• Net flows in the previous quarter take effect the following quarter• Recurring revenue base updates for quarter-over-quarter market fluctuations
Typically earn software- and services-based fees in multi-year agreements
Subscriptions agreements primarily with large RIAs and enterprise clients
Fees are based on the level and types of investment solutions and services provided
Within contract term, revenue not subject to asset or account volatility
(1) Adjusted net revenues represents adjusted revenues less asset-based cost of revenues. Under GAAP, we are required to recognize as revenue certain fees paid to investment managers and other third parties needed for implementation of investment solutions included in our assets under management. Those fees also are required to be recorded as cost of revenues. This non-GAAP metric presents adjusted revenues without such fees included, as they have no impact on our profitability.
As of first quarter ended March 31, 2020.
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Track Record Of Solid Top- And Bottom-Line Growth Strong organic growth, accelerated by disciplined acquisition strategy
Earnings growth > organic revenue growth demonstrating scale, operating leverage
Revenue ($M)
Asset-Based Fees (%of Rev.)73 78 80
Adjusted EBITDA ($M) (1)
Note: Numbers may not sum due to rounding.(1) Adjusted EBITDA is a non-GAAP financial measure. See Appendix for additional information.
83
11 18
27 24 39
56
76
99
139
158
193
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth Rates (%)2009 – 2019 (CAGR)28%2019 vs. 2018 (YoY) 11%
84
Growth Rates (%)2009 – 2019 (CAGR)34%
2019 vs. 2018 (YoY) 23%
Subscription-based
Asset-based
79 61
Professional services and other
6081
36
379
484
78 98123
157
243
349
421
578
684
812
900
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
59 54
LONG-TERM GROWTH TARGETS
Organic Growth Rate in Stable Markets at a Premium to Publicly-Traded FinTech Peer Group
REVENUE
• Growth rate at or above 1.2x Organic Revenue Growth Rate
ADJUSTED EBITDA
• Subscription-based recurring revenue: mid- to high-teens
• Asset-based recurring revenue: low double digits
• Selective acquisitions can further accelerate growth
• Example: 15% revenue growth should yield at least 18% growth in adjusted EBITDA
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APPENDIX
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Wealth Management Growth Opportunity
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Envestnet
+$3.3 Trillion
+103,000 Advisors
304,000 advisors ($19.9 trillion)Total Advisor Market
23,000 ($1.4 trillion)BANK BROKER DEALERS & TRUST
69,000 ($0.8 trillion)INSURANCE BROKER DEALERS
64,000 ($4.8 trillion)REGISTERED INVESTMENT ADVISORS
59,000 ($2.8 trillion)INDEPENDENT BROKER DEALERS
43,000 ($3.3 trillion)NATIONAL AND REGIONAL BROKER DEALERS
Grow Existing Relationships
Opportunity for 87,000 additional advisors
~$4 Trillion
Add New Relationships
Opportunity for 114,000 additional
advisors
~$12 trillion
Source: Cerulli Associates U.S. Intermediary Distribution 2019 (using 2018 data), Company estimates.
46,000 ($6.8 trillion)WIREHOUSE FIRMS
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Subscription-Based Revenue Growth Drivers
• Wealth Management Technology Offerings– Enterprise platform technology used by broker-dealers, insurance and
banks– Tamarac platform used by high-end RIAs– Client portal, financial planning and data aggregation, and enterprise
data management offerings• Data and Analytics Offerings
– Financial Enterprise data aggregation and data management solutions– Personal Financial Management Apps– Aggregation and analytics platform for FinTech innovators– Data Analytics
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Illustrative Growth Model for Asset-Based Revenue
Advisors AccountsAdvisors
AssetsAccount
RevenueAsset
Revenue
“average account size”
“effective fee rate”
1.07 1.09 1
1.166, or 16.6% asset growth 0.95
(5%)mix impact
10.8% revenue growth
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Illustrative Market ImpactAssuming +/-10% market change
(1) Non-GAAP financial measure. Please see appendix for reconciliations to the most directly comparable GAAP information.Amounts represent annualized impact applicable to subsequent quarter following assumed market change. Amounts based off of 1Q2020 actual revenue.
See additional information on slide 32 which provides calculations and other statements.
~$32M
Asset-based revenues
Management has visibility into expected performance allowing operating decisions that may impact hiring plans, variable compensation and other spending initiatives.
~$16M
Cost of Revenues
~$16M
Adjusted EBITDA(1)
unmitigated
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Illustrative Market Impact Calculations
• Given Envestnet’s high degree of subscription-based revenue and limited exposure to equity markets, a 10% equity market decline would have a 3-4% impact on our revenue.
• Approximately 90% of our asset-based revenue is billed quarterly, in advance. As such, the majority of any market impact would be seen in future quarters. Example: March 31 asset values drive our second quarter asset-based revenue.
• Approximately half of our asset-based revenue is paid to third party managers and strategists. This naturally reduces the impact on our profit from a market decline. In the above scenario, a 10% equity market decline would have a 7-8% impact on our adjusted EBITDA.
• This represents the unmitigated impact. Depending on the severity of the impact, management may choose to offset a portion of this impact through lower variable compensation, and changing its discretionary hiring and spending plans.
(1) Non-GAAP financial measure. Please see slide 32 for reconciliations to the most directly comparable GAAP information.
Illustrative Market Impact Model Assumptions
Total revenue 1Q20 revenue, annualized $986 x % asset-based ~55% of total revenue 55%x % exposure to equities Approximate 60% equity allocation 60%x % market change Assuming 10% equity market decline -10%
= revenue impact ($33) 3-4% impact on total revenue
- impact on asset-based cost of revenue Currently 51% of asset-based revenue ($16)
= impact on adjusted EBITDA(1) Unmitigated impact ($16) 7-8% impact on adjusted EBITDA
(in $millions)
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Reconciliation of Non-GAAP Financial MeasuresThree Months Ended
March 31,(in thousands) (unaudited) 2020 2019
Total revenues $ 246,539 $ 199,666Deferred revenue fair value adjustment 439 6
Adjusted revenues 246,978 199,672Asset-based cost of revenues (68,592) (53,842)
Adjusted net revenues $ 178,386 $ 145,830
Net loss $ (7,190) $ (18,268)Add (deduct):Deferred revenue fair value adjustment 439 6Interest income (391) (1,510)Interest expense 7,134 7,096Accretion on contingent consideration and purchase liability 599 240Income tax provision (benefit) (1,964) 3,768Depreciation and amortization 27,683 19,517Non-cash compensation expense 13,470 12,864Restructuring charges and transaction costs 2,820 7,366Severance 13,982 2,480Non-recurring litigation and regulatory related expenses 703 —Foreign currency (494) (1)Non-income tax expense adjustment 188 210Non-recurring gain (4,230) —Loss allocation from equity method investment 2,030 203(Income) loss attributable to non-controlling interest (201) 31
Adjusted EBITDA $ 54,578 $ 34,002
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Reconciliation of Non-GAAP Financial Measures32
Note: Numbers may not sum due to rounding.
Year ended December 31,(in millions, except share and per share information) (unaudited) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Net income (loss) 23.94 5.26 (0.87) (0.63) 7.61 0.47 3.66 13.98 4.44 (55.57) (3.28) 4.01 (17.20)
Accretion on contingent consideration and purchase liability - - - - - - - - 0.89 0.15 0.51 0.22 1.77Bad debt expense - - 0.38 2.67 - - - - - - - - -Contract settlement charges - - - - 1.18 - - - - - - - -Customer inducement costs - - 0.02 3.24 4.57 - - - - - - - -Deferred revenue fair value adjustment - - - - - 1.25 0.16 - 0.32 1.27 0.13 0.12 9.27Depreciation and amortization 2.92 3.54 4.50 5.70 6.38 12.40 15.33 18.65 27.96 64.00 62.82 77.63 101.27Fair market value adjustment on contingent consideration liability - - - - - - 0.50 (1.43) (4.15) 1.59 - - (8.13)Foreign currency - - - - - - - - - (0.72) 0.49 (0.59) (0.07)Impairment of customer inducement assets - - - - 0.17 - - - - - - - -Impairment of equity method investment - - - - - - - - - 0.73 - - -Impairment on investments - 0.68 3.60 - - - - - - - - - -Imputed interest expense on contingent consideration - - - - - - 0.79 1.47 - - - - -Income tax provision (benefit) (14.15) 4.61 1.81 1.53 2.98 2.60 2.05 8.53 4.55 15.08 1.59 (13.17) (30.89)Interest expense - - - 0.56 0.79 - - 0.63 10.27 16.60 16.35 25.20 32.52Interest income (1.15) (0.81) (0.22) (0.15) (0.08) (0.03) (0.02) (0.14) (0.34) (0.04) (0.20) (2.36) (3.35)Litigation related expense - - 0.60 1.93 0.13 0.27 0.01 0.02 0.07 5.59 1.03 - 2.88Loss allocation from equity method investment - - - - - - - - - 1.42 1.47 1.15 2.36Loss attributable to non-controlling interest - - - - - - - 1.23 1.64 1.08 0.32 1.79 0.11Non-cash compensation expense - 0.45 0.78 1.73 3.06 4.04 8.92 11.42 15.16 33.28 31.33 40.25 60.44Non-income tax expense adjustment - - - - - - - - - 6.23 0.35 (0.59) 0.37Other - - - - (1.10) - - (1.83) 0.07 (1.38) - - -Re-audit related expenses - - - - - - 3.11 - - - - - -Restructuring charges and transaction costs - - - 0.86 1.05 2.72 3.30 2.67 13.50 5.78 13.67 15.58 26.56Severance - - - 0.67 0.70 0.28 0.79 0.74 1.70 4.34 2.32 8.32 15.37
Adjusted EBITDA 11.56 13.73 10.60 18.11 27.44 23.99 38.59 55.94 76.07 99.44 128.89 157.55 193.29