Envestnet earnings outpace industry expectations in Q3

Envestnet earnings outpace industry expectations as advisors get more active on the platform

November 9, 2023 12:48 PM

Envestnet CEO Bill Crager says more financial advisors are using the firm's tools to support their practices, contributing to year-over-year asset and revenue growth that he expects to trend upward heading into the new year.

While discussing the Berwyn, Pennsylvania-based tech firm and turnkey program's Q3 performance on Wednesday night, Crager said something he tracks very closely is the company's assets under management and accounts per advisor.

He said both of those metrics are up 9% when compared with this time last year, indicating that adoption and activity on Envestnet's platform is moving in the right direction. The company also celebrated third quarter earnings per share of 56 cents, 2 cents better than the analyst estimate of 54 cents.

Revenue for the quarter was a recorded $316.8 million versus consensus estimates of $319.96 million.

"We are focused on ensuring that as assets begin to rebalance into investment portfolios, we are extremely well positioned for the demand and growth that will come. This is the advantage we have in the scale and depth of our installed base as we serve more than 107,000 financial advisors and $5.4 trillion in assets."

To see the key takeaways from the company's first quarter financial results, scroll down our slideshow. For previous coverage of Envestnet's earnings, click here.

Platform assets and advisor performance

Envestnet Executive Vice President of Business Lines Tom Sipp said in Q3 the company continued to generate positive net flows into both AUM and AUA. But the mix in the quarter was unfavorable to Envestnet's fee rate.

"Our asset-based revenues increased to $193.9 million, up 9.5% when compared to Q3 2022. Our wealth business continues to increase market share," Sipp said during an earnings call. "For Q4, we anticipate asset-based revenue to be between $183.5 million and $186.5 million. Assuming the midpoint, this leads to our projected asset-based revenue growth to be approximately one half of 1% for the full year 2023."

Sipp added that subscription-based revenues in wealth increased to $76.8 million, up 1.1% when compared to Q3 2022.

"Our Q4 performance in wealth will be negatively impacted by timing delays in connection with new client conversions, and new programs coming online that we now expect to begin recognizing in 2024," he said. "We do not believe that the Q4 wealth subscription performance reflects the underlying opportunity for this business. Recent pricing actions and new customer wins gives us confidence in an accelerated subscription revenue growth rate in the next few years. All-in-all, our expectations remain to grow our wealth subscription revenue at approximately 6% in 2023."

Expenses and losses

Total operating expenses for the third quarter increased 3% to $316.2 million from $307.7 million one year ago. Direct expenses increased to $119.5 million for the third quarter from $110.1 million for the prior year. Employee compensation fell 3% to $113.3 million for the third quarter of 2023 from $116.8 million for the prior year period.

Employee compensation was 36% of total revenue, while general and administrative expenses increased 4% to $49.1 million for the third quarter. General and administrative expenses remained consistent at 15% of total revenue for both the third quarter of 2023 and the prior year period.

Income from operations was $600,000 for the third quarter of 2023 compared to a loss of $1 million for the third quarter of 2022. Net income attributable to Envestnet was $7.1 million, or 13 cents per diluted share.

Adjusted revenue

Adjusted revenue for the third quarter of 2023 increased 3% to $316.8 million from $306.7 million one year ago, and adjusted EBITDA increased year over year to $67.2 million, up from $53.5 million.

Adjusted net income increased 24% to $36.6 million from $29.5 million, and adjusted net income per diluted share increased to 56 cents from 45 cents.

Remarks

"As we review our results and accomplishments tonight, there are three things to focus on. First, our competitive position is unparalleled and is being validated by the marketplace we serve," Crager said during Wednesday evening's earnings call. "We are confident in the growth opportunity ahead, which is evidenced by client and market share gains in a challenging macro environment.

"Second, we are better servicing our clients with greater efficiency, leading them to increase their engagement with us. … And then third, the long-term, sustainable operating leverage we have created will meaningfully increase shareholder value," he continued. "Since the start of 2023 we have reduced our operating expenses by over $60 million on a run rate basis. We are structurally a higher margin company than we were before. Our leading competitive position and the ability to take share, along with significantly enhanced operating leverage are the gains we are experiencing, based on the success of our investment cycle."