Envestnet CEO praises firm's long game strategy amid losses

February 24, 2023 11:27 AM

Bill Crager at MarketCounsel 1219.jpg — Envestnet CEO Bill Crager, right, speaks to MarketCounsel CEO Brian Hamburger at MarketCounsel Summit 2019.

In discussing the previous quarter and the difficult year that was 2022, Envestnet CEO Bill Crager framed financial results presented Thursday night as a win by looking back to how the company marched into 2021.

The leader of the Berwyn, Pennsylvania-based tech firm and turnkey program said two years ago, the company took a deliberate stance by announcing a strategy to invest in the potential of a connected ecosystem, knowing they'd take a hit in the short term but understanding that the long game was more important.

"We are here to tell you that through an exceedingly painful year in our industry marked by stunning inflation, double-digit losses in both equity and fixed income markets and a dramatic shift away from an era of low capital cost, the soundness of Envestnet's vision is paying off," Crager said in a Feb. 23 earnings call. "We are turning the corner on both margin and revenue growth and affirming the path to our long-term goals. We have been clear and have delivered on our stated intentions. Those are to maximize the investment plan we outlined in February of 2021; creating acceleration of our organic revenue and modernizing our platform for greater operating leverage; driving greater engagement and usage of the platform by our clients; taking advantage of new processes and technologies to enable greater expense discipline; and reestablishing our margin expansion in 2023 and reaffirming our commitment to 25% adjusted EBITDA margins in 2025."

Positivity and per-share earnings that once again beat Wall Street estimates aside, the firm's financials were a mixed bag of year-over-year losses and signs that the company's long game is still being played.

To see the key takeaways from the company's fourth-quarter and year-end results, scroll down our slideshow. For previous coverage of Envestnet's earnings, click here.

By the numbers

Envestnet posted total revenue of $292.9 million in the fourth quarter of 2022, down 8% year over year and 1.15% lower than Zacks Equity Research consensus estimates. On a per-share basis, earnings adjusted for one-time gains and costs came to 45 cents per share, better than Zacks estimates by 4.65%, but down from 50 cents per share the year before.

Envestnet has outpaced consensus per-share earnings estimates each of the last four quarters.

Asset-based recurring revenues decreased 15% from the prior year and represented 57% of total revenues for the fourth quarter of 2022 compared to 61% of total revenues for the same period in 2021. Subscription-based recurring revenues rose by 3% while professional services and other non-recurring revenues dropped by 7%.

Looking at the entire year, Envestnet's total revenues increased 4% to $1.2 billion. For the past two years, asset-based recurring revenues increased 4% from the prior-year period and represented 60% of total revenues.

Platform assets and advisor support

Cager said Envestnet posted $32 billion of AUM net flows or 9% organic growth, "reflecting continued uptake of our fiduciary solutions, which typically carry more attractive fee rates than AUA."

Over the last year, the number of Envestnet's platform accounts grew to more than 18 million, an increase of roughly 5%. AUA- or AUM-based accounts per advisor grew 9% in 2022, and more than 130 firms on the Envestnet platform adopted a new AUM program.

"Over 2,000 advisors are using Envestnet proprietary managed portfolios for the very first time. Over 100 new solution amendments were signed across client enterprises providing thousands and thousands of advisors with access to the cutting-edge features available through Envestnet, ultimately expanding their options to better serve their clients," Crager said. "We have signed several new contracts across the business from our financial planning business to data and analytics, the core Envestnet wealth platform. We are successfully expanding the footprint of distribution, and we are importantly going deeper by expanding our services to existing clients."

Envestnet currently has a total of $4.8 trillion in total platform assets and provides services to about 106,000 advisors.

Expenses and losses

Total operating expenses for the fourth quarter dropped 7% to $319.4 million from $321 million one year ago. Compensation and benefits increased 4% to $121.3 million while general and administrative expenses increased 7% to $58.2 million.

Loss from operations was $26.5 million for the fourth quarter of 2022 compared to a loss of $1.3 million for Q4 2021. Net loss per diluted share attributable to Envestnet was $36.5 million, or 85 cents per diluted share.

Total operating expenses for all of 2022 increased 14% to $1.3 billion from $1.1 billion in the prior-year period. Cost of revenues increased 11% to $468.5 million; compensation and benefits increased 13% to $490.7 million; and general and administration expenses increased 26% to $216.1 million.

Adjusted revenue

Adjusted revenue for the fourth quarter of 2022 dropped 8% to $292.9 million compared to $319.6 million one year ago, and adjusted EBITDA dropped 4% year over year to $53.8 million, down from $56.2 million.

Adjusted net income decreased 8% to $29.9 million from $32.7 million, and adjusted net income per diluted share decreased to 45 cents from 50 cents.

For the year, adjusted revenues increased 4% to $1.24 billion from $1.19 billion; adjusted EBITDA decreased 16% to $220.1 million from $261.7 million; and adjusted net income decreased 22% to $122.5 million from $158 million.

Remarks

"Over the last year, we were there for our clients as they navigated through a period of deep market uncertainty and volatility. We delivered, managing increased volumes, enabling foundational account growth, offering them more choices to solve the challenges of a historically difficult market," Crager said. "Also, we have heard over and over and over again how the evolution of investments offering is answering the strategic road maps that our clients have planned for their futures. We are delivering the leadership our clients want from us.

"With foresight in 2021 and from a position of strength, we knew we would create greater value by leveraging that market leadership and making our business resilient in all market cycles."