Release Date: August 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Envestnet Inc (ENV, Financial) reported Q2 revenue of $348 million, representing an 11% growth over Q2 2023.
- Adjusted EBITDA was $78 million, representing a 22% adjusted EBITDA margin and nearly 450 basis points of margin expansion compared to Q2 2023.
- The company experienced a 3% year-over-year growth in advisor count, reaching over 110,000 advisors.
- Total asset-based revenue generated by Wealth Solutions was over $219 million, an 18% increase from Q2 2023.
- Free cash flow during Q2 2024 was $67 million, a significant improvement from negative $20 million during Q1 and up from $37 million during Q2 2023.
Negative Points
- Adjusted EPS was $0.55, lower than guidance due to certain non-cash charges.
- Accounts on the platform declined to over 19.4 million due to a programmatic effort to reduce unfunded dormant accounts.
- Data and analytics business revenue was $36.2 million, representing a 1% decline from Q2 2023.
- A non-cash impairment charge of $96 million was recorded, writing off the remaining goodwill related to the DNA business.
- Losses of $13 million were incurred from writing off previously capitalized software development.
Q & A Highlights
Q: Can you provide an update on the pending transaction with Bain Capital?
A: (James Fox, Chairman of the Board, Interim CEO) On July 11, Envestnet announced a definitive agreement to be acquired by Bain Capital. The transaction is expected to close in the fourth quarter, subject to customary closing conditions, including shareholder approval and regulatory clearances. The Board unanimously concluded that this transaction is in the best interest of the company and shareholders.
Q: What were the key financial highlights for Q2 2024?
A: (James Fox, Chairman of the Board, Interim CEO) Q2 revenue was $348 million, representing 11% growth over Q2 2023. Adjusted EBITDA was $78 million, representing a 22% adjusted EBITDA margin and nearly 450 basis points of margin expansion compared to Q2 2023. Adjusted EPS was $0.55, up 20% from $0.46 in Q2 2023.
Q: How did the Wealth Solutions segment perform in Q2 2024?
A: (Joshua Warren, CFO) Wealth Solutions segment revenue grew to over $312 million, representing 13% growth over Q2 2023. Total asset-based revenue generated by Wealth Solutions was over $219 million, an 18% increase from Q2 2023. Subscription-based revenue was over $84 million, representing 6% growth over Q2 2023.
Q: What were the key drivers behind the increase in advisor count and account growth?
A: (Joshua Warren, CFO) Advisor count increased to over 110,000, representing 3% growth year-over-year. Account growth was 4% compared to Q2 2023. The decline in accounts to over 19.4 million was driven by a programmatic effort to reduce unfunded dormant accounts among certain clients, which won't have a meaningful revenue impact.
Q: Can you elaborate on the performance of the Data and Analytics (DNA) business?
A: (Joshua Warren, CFO) DNA revenue was $36.2 million, representing a 1% decline from Q2 2023. Recurring subscription revenue of $33 million has been approximately flat during the last four quarters. A non-cash impairment charge of $96 million was recorded during Q2, writing off the remaining goodwill related to the 2015 acquisition of Yodlee.
Q: What were the major expense categories and their impact on financial results?
A: (Joshua Warren, CFO) Q2 direct expenses were $144 million, including $130 million of asset-based costs. Compensation-related costs are expected to decline despite increased variable compensation. Non-compensation expenses are anticipated to be modestly lower versus 2023. CapEx was $3 million for Q2.
Q: How did the company perform in terms of free cash flow and leverage ratio?
A: (Joshua Warren, CFO) Free cash flow during Q2 2024 was $67 million, up from $37 million in Q2 2023. Cash on the balance sheet increased to $122 million. The leverage ratio was approximately 2.7 times, representing more than a full turn of leverage reduction relative to a year ago.
Q: What were the non-cash items that impacted financial results in Q2?
A: (Joshua Warren, CFO) Non-cash items included accounting gains from minority investments of $20 million, primarily related to the FedEx deconsolidation, and losses of $13 million from writing off previously capitalized software development. There is no cash or cash flow impact from these items.
Q: What is the outlook for Envestnet as it transitions to a private company under Bain Capital?
A: (James Fox, Chairman of the Board, Interim CEO) The road ahead is bright for clients, partners, and associates. As a private company with Bain Capital's support, Envestnet expects to continue executing its strategy through organic and inorganic initiatives and investing in its platform to make it more customized, connected, and intelligent.
Q: How did the annual investment elevate client conference impact Q2 results?
A: (Joshua Warren, CFO) The conference caused slightly higher professional services revenue, which offset the associated direct expenses incurred. Nearly 2000 advisers and professionals experienced firsthand the growth and productivity made possible by Envestnet's leading wealth management platform.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
