Envestnet, Inc. (NYSE: NYSE:ENV), a leading provider of intelligent systems for wealth management and financial wellness, reported its second quarter 2024 earnings, showcasing continued growth and an upcoming transition. The company declared an 11% year-over-year revenue increase to $348 million, surpassing their own expectations. Adjusted EBITDA reached $78 million, indicating a 22% margin and a significant expansion from the previous year.
However, adjusted EPS of $0.55 fell short of guidance due to non-cash charges. Envestnet's board announced a definitive agreement for acquisition by Bain Capital, with closure anticipated in the fourth quarter, pending regulatory and shareholder approvals. The company's focus remains on deep client relationships and organic growth, evidenced by an increase in advisor count and account growth.
Key Takeaways
- Envestnet reports an 11% revenue increase to $348 million in Q2 2024, exceeding the high-end forecast.
- Adjusted EBITDA stands at $78 million with a 22% margin, nearly 450 basis points higher than Q2 2023.
- Adjusted EPS was $0.55, a 20% increase year-over-year but lower than the provided guidance.
- The company is set to be acquired by Bain Capital, with the transaction expected to close in Q4.
- Advisor count grew to over 110,000, a 3% increase, while account growth was at 4% compared to Q2 2023.
- Wealth solutions segment revenue grew to over $312 million, and asset-based revenue increased by 18%.
- Data and analytics business revenue slightly declined by 1% from the previous year.
Company Outlook
- Envestnet is transitioning to private ownership under Bain Capital, aiming to pursue its strategy and invest in its platform.
- The acquisition is projected to provide immediate value to shareholders and bolster the company's market position.
Bearish Highlights
- Adjusted EPS fell short of guidance due to certain non-cash charges.
- Data and analytics business experienced a slight decline in revenue, with a non-cash impairment charge related to goodwill from a past acquisition.
Bullish Highlights
- Envestnet showcased strong advisor and account growth, with the advisor count surpassing 110,000.
- The company reported structural inflows into wealth solutions asset-based revenue accounts, with total inflows nearing $11 billion.
- Asset-based revenue in wealth solutions saw an 18% increase, bolstered by improving market conditions.
Misses
- Despite revenue growth, the adjusted EPS of $0.55 did not meet the company's guidance.
- The data and analytics segment showed a revenue decline, marking a 1% decrease from Q2 2023.
Q&A Highlights
- No Q&A session was held following the prepared remarks due to the pending transaction with Bain Capital.
Envestnet's second quarter earnings call underscored the company's resilience and growth trajectory. The forthcoming acquisition by Bain Capital is poised to provide shareholders with immediate value and support the company's strategic initiatives. Despite a slight downturn in the data and analytics segment and an adjusted EPS miss, the company's robust advisor growth and inflows into wealth solutions asset-based revenue signal a strong foundation for future performance. As Envestnet prepares to embark on a new chapter as a private entity, stakeholders are watching closely, anticipating the continued evolution of the company's offerings and its impact on the wealth management industry.
InvestingPro Insights
Envestnet's recent earnings report paints a picture of a company in transition, with key financial metrics reflecting a mix of challenges and growth opportunities. According to real-time data from InvestingPro, Envestnet has a market capitalization of $3.42 billion, underscoring its significant presence in the wealth management technology sector. Despite not having paid dividends, the company's revenue growth over the last twelve months stands at a solid 8.01%, indicating an upward trajectory in sales.
InvestingPro Tips suggest a positive outlook, with net income expected to grow this year, and three analysts have revised their earnings upwards for the upcoming period. This aligns with the company's reported revenue increase and could signal confidence among experts in Envestnet's financial future. However, the company has been trading at high valuation multiples, such as a Price / Book multiple of 6.63, which suggests that the market has high expectations for its growth and profitability.
InvestingPro also notes that Envestnet's stock generally trades with low price volatility, which might appeal to investors looking for stability in their portfolio. While the company was not profitable over the last twelve months, analysts predict profitability this year, which if realized, could bolster investor sentiment.
For readers interested in a deeper dive into Envestnet's financial health and future prospects, InvestingPro provides additional tips. As of now, there are 5 more InvestingPro Tips available that could offer valuable insights for potential investors or current shareholders evaluating the company's position in the market.
Full transcript - Envestnet Inc (ENV) Q2 2024:
Operator: Hello, and welcome to the Envestnet Second Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded. There will be no Q&A session following prepared remarks. It is now my pleasure to introduce Josh Warren, Chief Financial Officer. Thank you, sir. You may begin.
Josh Warren: Good afternoon, everyone. I'm Josh Warren, Chief Financial Officer of Envestnet. Thank you for joining us on today's second quarter 2024 earnings call. Before we begin, I'd like to point out that our earnings press release, supplemental presentation and associated Form 10-Q can be found under the Investor Relations section of our website at envestnet.com. This call is being webcast live and a replay will be available for one month under the Investor Relations section of our website as well. During the call, we will be discussing certain forward-looking information. This information is based on our current expectations and is not a guarantee of future performance. I encourage you to review the cautionary statement on Slides 2 and 3 of the supplemental presentation for the potential risks, uncertainties, and other factors that could cause actual results to differ from those expressed by the forward-looking statements. Further information can be found in our regular SEC filings. During this call, we will be referring to certain as adjusted financial measures. Please refer to the appendix in our supplemental presentation for a reconciliation of these as adjusted financial measures to the most directly comparable GAAP measures. Joining me on today's call is Jim Fox, our Board Chair and Interim CEO. On our call this afternoon, we will provide a company update as well as an overview of the company's results during the second quarter. Due to our pending transaction with Bain Capital, we will not be taking questions on today's call and will not be providing guidance for the third quarter. I'll now turn it over to Jim.
Jim Fox: Thanks, Josh. As you know, on July 11, the company announced that we have entered into a definitive agreement to be acquired by Bain Capital and related parties. Earlier today, Envestnet filed its preliminary proxy statement relating to this pending transaction. It includes comprehensive details of the process conducted by our board, and we encourage you to read the filing for further information. As noted in the proxy, the Board and the company's senior management team regularly reviews the company's business and operations, competitive position, historical performance, future prospects, and long term strategic plan with the goal of maximizing stockholder value. As part of these ongoing evaluations, we have from time to time considered various strategic alternatives, including the execution of the company's strategy as a stand-alone public company or the possible sale of the company to or in combination of the company with a third-party. This transaction is the result of a thorough process by the Envestnet board and our advisors and provides certain and immediate value for our shareholders. Our board unanimously concluded the transaction, is in the best interest of the company and our shareholders. We remain on track to close the transaction in the fourth quarter, subject to customary closing conditions, including obtaining approval from Envestnet shareholders and receiving the necessary regulatory clearances. We look forward to engaging with our shareholders in the days ahead. The road ahead is incredibly bright for our clients, our partners and our associates. As a private company and with the support of Bain Capital, we expect to continue executing our strategy through organic and inorganic initiatives and investing in our platform to make it more customized, connected and intelligent. Before handing it back to Josh, I'll turn to this quarter's results, which reflect our commitment to deep client relationships. Our Q2 revenue was $348 million, representing 11% growth over Q2 2023 and above the high end of our range. Our adjusted EBITDA was $78 million, also above the high end of our range, representing a 22% adjusted EBITDA margin and nearly 450 basis points of margin expansion compared to Q2 2023. Our adjusted EPS was $0.55 lower than our guidance in connection with certain non-cash charges that Josh will detail, but nevertheless up 20% from the $0.46 reported in Q2 2023. With that, I'll turn it back to Josh.
Josh Warren: Thanks, Jim. At our Annual Envestnet Elevate Client Conference in May, nearly 2,000 advisors and professionals experienced first-hand the growth and productivity made possible by our leading wealth management platform. Consistent with other second quarters, this conference caused slightly higher professional services revenue, which offset the associated direct expenses incurred. During Q2 2024, our advisor count increased to over 110,000, representing 3% growth year-over-year. We reported 4% account growth compared to Q2 2023. Accounts on our platform declined during Q2 to over $19.4 million, driven by a programmatic effort to reduce unfunded, dormant accounts among certain clients that won't have a meaningful revenue impact. In our Wealth Solutions segment, across diversified client channels, the extent of our platform and both asset and subscription based pricing constructs provide the breadth of solutions to fit the industry's needs. Traditionally, we have defined asset based revenues as primarily consisting of variable fees for providing access to our platforms. Our asset based revenues include both fiduciary and technology services, and our offerings range from consolidated performance reporting to higher touch tailored solutions, such as full discretionary portfolio management that blends traditional indexing with the customization of managed accounts to improve after tax and risk-adjusted results. We have experienced structural inflows into wealth solutions asset based revenue accounts. During Q2, our total inflows of nearly $11 billion reflects expanded relationships with existing clients. While there are always specific events in any quarter that impact flows, strong and consistent growth with our clients is at the center of our strategy. We delivered over $13 billion of AUM flows in Q2. Our $26 billion of AUM flows during the first half of 2024 compares to approximately $30 billion of AUM flows for all of 2023. During Q2 2024, total asset based revenue generated by wealth solutions was over $219 million, an 18% increase from Q2 2023, supported by improving market conditions. Our subscription based revenue represents our software-as-a-service-oriented offerings. During Q2, we delivered wealth solutions subscription based revenue of over $84 million, representing 6% growth over Q2 2023. During Q2, we deconsolidated FIDx from our results in connection with the recent funding round led by insurance company partners and Envestnet clients. During 2023, FIDx contributed approximately $9 million of consolidated revenue to Envestnet, with approximately 90% of this contribution in subscription revenue. Envestnet is the largest shareholder in FIDx despite not participating in this funding round. In total, wealth solutions segment revenue grew to over $312 million during Q2, representing 13% growth over Q2 2023. Turning to our data and analytics business, which generates subscription based revenues across open banking and alternative data offerings. During Q2, our D&A revenue was $36.2 million, representing a 1% decline from Q2 2023. Q2 revenue represented a 3% revenue increase from Q1, with professional services as the primary driver. Our recurring subscription revenue of $33 million has been approximately flat during the last four quarters, consistent with our stabilization efforts. In connection with business conditions, we recorded a non-cash impairment charge of $96 million during Q2, writing off the remaining goodwill related to the D&A business created by Envestnet's 2015 acquisition of Yodlee. Now moving on to expenses. As previously detailed, Envestnet's costs consist of a combination of non-controllable and manageable expenses. Our non-controllable expenses include asset based payments to third parties common in the wealth industry that move in tandem with revenue growth. Our Q2 direct expenses of $144 million included $130 million of these asset based costs. Our manageable costs fall into three general categories, compensation-related, non-compensation expenses, and capital expenditures. Regarding compensation expenses, as a reminder during 2023, Envestnet reduced its headcount by 10%, consistent with the conclusion of a period of elevated platform infrastructure investment. We expect our headcount to be roughly flat during 2024. As discussed on previous calls, despite increased variable compensation in connection with improved results, we expect a decline in total compensation related costs, which include all salary, benefits, stock based compensation and severance, regardless of accounting treatment regarding software development. The second major area of total costs is non-compensation expenses, which encompasses all other operating expenses, including capitalizable software development, consistent with our focus on free cash flow. As discussed on prior calls, despite inflationary headwinds, we continue to anticipate our non-compensation costs will be modestly lower versus 2023, given our scale. Finally, CapEx was $3 million for Q2, consistent with our annual planning cycle. Our free cash flow during Q2 2024 was $67 million, a sequential improvement from negative $20 million during Q1 and up from $37 million during Q2 2023. During the first half of 2024, Envestnet generated approximately $47 million of free cash flow, more than it generated in all of 2023. Cash on our balance sheet increased to $122 million, driven by our improved free cash flow generation, efficiency and conversion. As of the end of Q2, our leverage ratio, defined as total debt less cash over trailing adjusted EBITDA was approximately 2.7 times, representing more than a full turn of leverage reduction relative to a year ago. In addition to our previously described impairment charge, during Q2, our financial results were impacted by non-cash items in connection with our continued efforts to enhance our operations. These include accounting gains from our minority investments of $20 million, primarily related to the FIDx deconsolidation. These gains are partially offset by losses of $13 million from writing off previously capitalized software development in connection with streamlining our platform accounting efforts. There is no cash or cash flow impact from these items. Before closing, I'd like to convey a sincere thank you to all our stakeholders, particularly our clients, our employees, and our shareholders. Envestnet has been on an incredible journey during the last 25 years. We're pleased to have announced this transaction with Bain and we look forward to embarking on this new chapter. We are confident that our firm's best days are ahead as we continue to grow and evolve the company and capitalize on the substantial opportunities for our industry. Thank you for your interest in Envestnet.
End of Q&A: Thank you. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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