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Text: I'm joined today by our CEO, Bill Crager; and CFO, Pete D'Arrigo.
Such comments are not guarantees of future performance, and therefore, you should not put undue reliance on them.
We also will be discussing certain non-GAAP information.
I hope that you and your families have remained safe and healthy during these last months.
And also that maybe you had the chance to catch up on your sleep after that sleepless selection night earlier this week.
In such a dramatic and disruptive time period, it is noble to begin with the progress we're making.
Such mission is to make Financial Wellness a reality for everyone.
That is our purpose.
We have a clear strategy to achieve that mission which we've spoken about in prior calls.
Here, we bring together our data solutions with our market-leading technology and network to the broadest set of solutions available.
In doing so, we are creating the ecosystem that connects all the capabilities and components of Financial Wellness that buys value for our customers.
And our customers well, they are financial services firms and the advisors who work for them.
They're also FinTech companies.
And there are also new opportunities in new markets where they're embedding financial services into offerings, all of which makes us accessible to tens of millions of consumers.
Envestnet is uniquely positioned to achieve the mission And we have spent these extraordinary months executing on our strategy and our progress has been meaningful.
The business continues to perform very well in the current environment, with our third quarter financial results exceeding our expectations.
As we head toward the end of the year, I'm incredibly pleased with the progress we are making.
We focused -- we've invested in key parts of our business and we are attacking areas of opportunity.
Envestnet has the scale, the footprint, the capabilities in the organization to continue to drive the future of financial advice.
We are the market leader.
We are winning share, and we also are expanding the solutions that we offer to the marketplace.
Today, our Wealth Solutions business supports $4.1 trillion in assets, in nearly 13 million investor accounts.
And our data and analytics infrastructure is unmatched with more than 17,000 data sources, 450 million linked consumer accounts and more than 33 million users in the most recent quarter.
Our Planning and Wealth platform is used by more financial advisors in the United States than any other provider.
In fact, 17 of the 20 largest banks in the U.S. work with Envestnet.
47 of the 50 largest wealth management and brokerage firms work with us.
3,000 RIA firms, including many of the nation's largest and more than 500 FinTech companies rely on investment to help them meet the growing demand and expectations from their customers.
Whether you are in Rhode Island and you're accessing us, you're on your phone with your bank's offering of our MyBlocks that's integrated with our Yodlee data to help manage your credit card, your credit card debt or you're sitting with your advisor in Arizona to plan your estate in the transition of generational wealth, Envestnet's offerings are reaching further touching more users and creating more deeply integrated financial experiences.
What's emerging is a powerful network effect.
When we are powering it, we're generating it.
As manufacturers put more products on our shelves or services, they become more valuable.
And they can address more customer needs.
This attracts more sellers to the ecosystem.
And more sellers drive more users connected to more consumers.
More consumers means more financially well people who seek more services and products to meet their needs into the future.
Our focus has been on execution and executing on behalf of our customers.
are identifying what drives our customers' success and then making it easy for them to deploy our offerings, on providing the most modern and integratable platform, on prioritizing investing in the most critical success stories for our customers and organizing our talent and resources to the right metrics as we drive value through this ecosystem.
We have aligned our investments during this year to help us meet our clients' needs and the opportunities that they see, things like modernization of the platform and our move to the cloud.
Our value-add fiduciary solutions are exchanges enhancing user experiences and building consumer-facing technologies and engaging the marketplace with a much more cohesive go-to-market organization.
The opportunity for us to invest is greater now than perhaps it ever has been before.
We see areas where we have the ability to lean in and drive long-term value, and we will continue to invest in these areas.
Why is it greater now?
Because we are seeing how the marketplace and our clients are responding to these integrated offerings how they're using data to power and differentiate our solutions to drive long-term value.
It is long-term value for them, our clients, for their customers, but is also long-term value for investment.
We are seeing meaningful progress in advisors adopting our higher-value fiduciary solutions.
On last quarter's earnings call, we highlighted success with our tax and impact overlay solutions, our impact in ESG investment portfolios in our direct indexing products.
Advisers continue adopting these solutions in the third quarter.
We continue to see accelerated use of our overlay solutions and a 35% year-to-date increase in use of our direct index portfolios.
The growth and adoption of these solutions is impressive, highlighting the contribution to our consistent revenue outperformance that we've experienced this year.
We are exploring how we can move deeply integrate these solutions into a seamless execution environment in making these solutions available to a broader base of investors.
In our data and analytics business, the work we've done to modernize our developer portal, to drive growth in the FinTech channel continues to bear fruit.
Year-to-date, we've seen more than a tripling in the number of FinTech deals.
Our paid user count has increased 28% versus last year, driven by new logos and user growth in both our financial institutions and our FinTech channels.
And we continue to strengthen our relationship with leading financial institutions by signing additional data sharing agreements.
And while it does not translate to meaningful revenue growth next year, it does position us to lead industry's open finance movement and represent broader distribution opportunities for our Financial Wellness solutions.
We are developing and deploying new solutions for our installed base of customers.
An important example of new solutions is our exchange offering, something I've talked about on past calls.
I'm going to spend a minute here to explain to you kind of how the insurance exchange works and why it's so important.
We started the insurance exchange with a team of industry experts, folks who sense the scope of opportunity inside our ecosystem and utilize their expertise to leverage and accelerate disruptive advisor-focused technology.
We enrolled manufacturers in the vision and they invested time and money to help identify the marketplace needs and accelerate our go-to-market implementation.
Today, 10 insurance carriers among the the largest providers representing more than half of the variable annuity market in the U.S., while they're participating in the exchange.
We are now creating shelf space for the offering by contracting with broker-dealers, contracting with RIAs to provide their advisors with access.
And we're engaging with those advisors and training those advisors on the capabilities and the processes, and advisors now are starting to utilize these very powerful tools.
That usage begets production.
That production drives engagement from the carriers and also from our clients and ultimately drives revenue for investment.
From here, we have a base, we have a foundation.
From here, what comes is additional insurance products that can be sold and managed through the very same types, with the same firms, the same advisors into the same consumers who have a additional need.
D.A. Davidson will be leveraging Envestnet's insurance exchange to the fullest extent.
They will be converting their entire annuity business to the platform, and they will be processing all of their fee-based and commission-based annuities via the Envestnet Insurance Exchange.
And we expanded our relationship with Dynasty Financial Partners last quarter as the firm recently made the investment credit exchange available to their partner firms, allowing them to have broad access to prequalified lending solutions.
These are just two examples of notable wins in our effort to drive meaningful long-term results from our exchange solutions with more to come in insurance, in credit, in advisor services and other exchanges that we have planned for the future.
We have spent most of the year -- much of the year, aligning the organization to drive our strategy forward.
Functions are now organized across all business lines to facilitate internal and external communication and to bring to bear the full capabilities of our company.
Over the years, we've developed and acquired the leading expertise in our industry.
As we brought Envestnet's talent together, we've continued this culture of innovation.
We are complementing the incredible talent inside the organization with valuable perspective and experienced leadership to further scale our business and help us achieve our mission.
Recently, we have named new senior leaders into the company and these include Dana Daria as our Co-Chief Investment Officer.
Dana joins us from Symmetry Partners.
Donna Peoples is our Chief Relationship Officer; Donna was most recently the Chief Client Officer at FIS and previously served as Chief Customer Officer for AIG.
She also has experience at an emerging conversational AI company named Type stream.
Bob Copela has been named as our new Chief Technology Officer.
He began on Monday.
And he joins us from Cision, a software-enabled as a service provider who served as their Chief Information Officer.
He also held technology leadership roles at Bloomberg, Thomson Financial and McGraw Hill.
Dana, Donna and Bob are great additions to the Envestnet team, and I'm very much looking forward to the progress they will help us make.
Envestnet people have always engaged the big challenges to create significant opportunity.
Starting a business during a recession with a card table and dial-up modem, building a technology platform that supports one out of every three financial advisors in the United States, building a network of data connectivity that powers individual's understanding of their money, scaling and infrastructure to support extreme market volatility in trading volumes during the pandemic while working remotely.
I'm confident as we navigate the uncertainty caused by this pandemic, we will continue to engage the challenges, and we will continue to create significant opportunity.
We are making the investments to ensure we use our market position to continue to press the opportunities that we see.
We're enhancing existing capabilities.
We're integrating new solutions We're driving further adoption of our ecosystem, and we're supporting and growing our customers as they power Financial Wellness to millions and millions of consumers.
Today, I'm going to review our results for the third quarter, update our outlook for the fourth quarter and provide context for our thinking about 2021.
Consistent with what we've been experiencing since the pandemic began in March, our third quarter results were quite strong, meaningfully exceeding expectations.
Adjusted revenue for the quarter was $253 million, well above the guidance we provided as we saw outperformance in asset-based and subscription-based revenue as well as professional services.
Asset-based revenue benefited from favorable net flows, continued adoption of higher-value fiduciary solutions like our tax and impact overlay and direct indexing solutions as well as a favorable market on accounts that bill monthly and on the average daily balance during the quarter.
Subscription-based revenue performed well, driven by higher usage in the Data and Analytics segment with our financial institution and FinTech customers.
Operating expenses overall came in around $5 million lower than our expectations for the quarter.
While we had already assumed lower operating expenses due to COVID-related restrictions on things like travel, we saw even more favorability than anticipated in the quarter as we saw lower-than-projected expenses associated with slower hiring, medical, marketing and travel.
As a result, our adjusted EBITDA of $67.6 million was up 24% compared to last year.
This translated to similarly strong performance in adjusted earnings per share of $0.72, 20% above last year.
We are raising our fourth quarter revenue outlook from our prior expectations as we expect our asset-based revenue to benefit from stronger-than-expected net flows and a favorable market in the third quarter, both of which contributed to higher billable values at September 30.
We also expect our adjusted EBITDA and earnings per share to improve in the fourth quarter relative to our August guidance, despite a meaningful sequential increase in operating expenses compared to the third quarter.
As a result of our outperformance in the third quarter and this improved outlook for the fourth quarter, we are raising our top and bottom line guidance for the full year of 2020.
We now expect adjusted revenue for the year to be between approximately $991 million and $993 million, up 9% year-over-year.
Adjusted EBITDA to be between $238 million and $239 million, up 23% to 24%, and we are raising adjusted earnings per share to be between $2.51 and $2.53.
To add some context to the full year, our EBITDA, EBITDA margin and earnings per share this year are meaningfully higher than we expected at the beginning of the year, with revenue growth expected at 9% and EBITDA growth expected at 23% to 24%.
That level of margin expansion is beyond expectations.
Expense management and pandemic-related circumstances have lowered expenses significantly and unsustainably for the long-term.
This expense favorability gives us an opportunity to assess many elements of our business, like our office footprint, given our successful work-from-home transition and the need for travel at the levels we did in 2019 and before, allocating some of that spending into the product, technology, engineering and organizational initiatives Bill mentioned.
We are looking at how we better drive our strategy to position us for long-term value creation.
Over the next several years, we target returning to double-digit growth in revenue while driving our adjusted EBITDA margin into the mid- to upper 20s.
In any given year, we may make more or less progress toward those targets.
Next year is a prime example of the variability we may experience from period to period.
While we are not yet providing specific guidance for 2021, we expect that adjusted revenue will grow in the mid- to high single digits, embedded in that expectation is high single-digit growth in wealth revenue and low to mid-single-digit growth in the Data and Analytics segment.
As our expenses return to a more normal level over the course of 2021 and as we continue to invest in our long-term growth, its likely operating expenses will grow at a faster rate than revenue next year.
However, when combining the performance we expect in 2020 with an early look at 2021, the average growth rate in adjusted EBITDA exceeds our revenue growth rate over that 2-year period from 2019, on track with our long-term margin targets.
Turning to the balance sheet.
We ended September with $363 million in cash and debt of $863 million, including the convertible notes we issued in August.
Our net leverage ratio at the end of September was 2.1 times EBITDA, down from the 2.3 times at the end of June.
And the proceeds from our recent convertible note issuance enabled us to pay off the amount that was outstanding on our revolver.
So now the revolver is entirely undrawn.
With $500 million available on the revolver, meaningful cash on the balance sheet and positive cash flow generation, we are comfortable that we have the liquidity and flexibility as we balance managing the business in the current environment with continuing to invest in growth opportunities, both organically and through strategic activities.
The future of consumer financial services is an integrated experience that connects the person's daily financial lives to their long-term financial goals.
People will access financial information and make decisions in new ways.
Yes, absolutely more digital engagement.
That's for sure, but also relying more and more on accessible expert advice to guide them.
We are seeing this play out during this COVID disrupted period of time.
Envestnet is best positioned, and we are investing in capabilities and talent to make sure we take advantage of this opportunity.
We have work to do, but the progress we are making is meaningful.
We're on our way to establishing the ecosystem that can make Financial Wellness, a reality for everyone.
And this is a cloud-based model where advisors and their clients can access capabilities to tackle the financial questions, both big and small, make a decision and then seamlessly execute on it.
We are very encouraged by our progress, and we are very excited about what we see ahead of us.

user
q3 adjusted earnings per share $0.72.
sees fy adjusted earnings per share $2.51-$2.53.

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