Envestnet CEO says 'choppy markets' can't stop company's organic growth

Envestnet posted total revenue of $298.7 million in the first quarter of 2023, down 7% year over year and 0.5% lower than Zacks Equity Research consensus estimates. On a per-share basis, earnings adjusted for one-time gains and costs came to 46 cents per share, better than Zacks estimates by 4.6%, but down from 2% cents per share the year before.

Asset-based recurring revenues decreased 13% during the first quarter and represented 59% of total revenues compared to 63% of total revenues for the same period in 2022. Subscription-based recurring revenues rose by 2% while professional services and other non-recurring revenues increased by 20%.

Cager said Envestnet posted $20 billion of AUM net flows or 11% organic growth, stating "these flows are very healthy, especially in the context of the broader industry. For example, long-term mutual fund and ETF flows across the industry were essentially flat in the first quarter."

He added that looking at annualized organic asset growth for public companies that have reported so far this quarter, the average growth was between 2% and 6% compared to Envestnet's 11%. 

"That is considerable outperformance, which we've been delivering quarter-after-quarter. This is reflected in more activity, utilizing more services by more advisors," Crager said. "In the first quarter, the number of accounts on our platform grew 4% year-over-year to 18.5 million, and AUM/A accounts per advisor grew 6% year-over-year. Our personalized investment solutions like direct indexing and overlay services continue to grow new advisors and new accounts."

Envestnet currently has a total of $5.3 trillion in total platform assets and provides services to about 106,000 advisors.

Transitioning to high net worth solutions, Crager said last year the company had $4.5 billion in gross flows from a total of approximately 12,000 advisors who had access to Envestnet's high net worth program. In the first quarter of this year, the company drove $1.3 billion of flows and projects $6 billion in flows in 2023 with a pool of approximately 30,000 advisors. 

"We're increasing firm and advisor access and increasing the penetration of existing high net worth advisors by upselling tax overlay and direct indexing," Crager said. "We expect flows to continue to grow and these solutions carry an average fee rate of 20 basis points to 30 basis points."

Crager said that in the RIA channel, Envestnet has more than 2,000 firms using their software. "We are leveraging our integrated platform to expand the adoption of investment management solutions." Crager said.

Total operating expenses for the fourth quarter dropped 6% to $309.8 million from $328.1 million one year ago. Direct expenses decreased to $109 million for the first quarter from $125.3 million for the prior year. Employee compensation fell 10% to $114.2 million for the first quarter of 2023 from $126.8 million for the prior year period.

Employee compensation was 38% of total revenue, while general and administrative expenses increased 21% to $53.6 million for the first quarter, up from $44.3 million last year. General and administrative expenses were 18% of total revenue for the first quarter of 2023, compared to 14% for the prior year period.

Loss from operations was $11.1 million for the first quarter of 2022 compared to a loss of $6.7 million for Q1 2022. Net loss per diluted share attributable to Envestnet was $41.2 million, or 76 cents per diluted share.