Envestnet Inc (ENV) 2012 Q4 法說會逐字稿

Good day, everyone, and welcome to the Envestnet fourth-quarter 2012 earnings conference. Today's conference is being recorded.

At this time I'd like turn the conference over to Mr. Chris Curtis, Senior Vice President and Treasurer. Please go ahead, sir.

Thank you, Sara, and good afternoon, everyone. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer, and Pete D'Arrigo, Chief Financial Officer. Our fourth-quarter 2012 earnings press release and associated Form 8-K can be found at envestnet.com under the Investor Relations section.

During this conference call, we will be discussing certain non-GAAP information, including adjusted revenues, adjusted EBITDA, adjusted net income, and adjusted net income per share. This information is not calculated in accordance with GAAP, and may be calculated differently than other company's similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information to the most directly comparable GAAP information appear in today's press release.

Our financial results presented in today's earnings release, and discussed on today's call, have not yet been reviewed or audited. Consequently, these financial results are subject to any adjustments that may result from the completion of the audit process, which may be material.

During the call, we will also be discussing certain forward-looking information. These discussions are not guarantees of future performance, and, therefore, you should not put undue reliance on them. The statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Please refer to our most recent SEC filings, as well as our earnings press release, which are available on our website, for more information on factors that could affect these matters.

This call is being webcast live and will be available for replay for one month on our web site. All remarks made during the call are current at the time of the call, and will not be updated to reflect subsequent material developments. We will take questions after our prepared remarks.

With that, I will turn the call over to Jud.

Thank you, Chris. Good afternoon. I add my own welcome to everyone on today's call.

The fourth quarter represented the culmination of a successful year for Envestnet. We delivered on our organic growth and acquisition plans, and grew top-line revenue by 29%. Our advisor base grew 16%, and accounts grew by over 30%, demonstrating our ability to both add advisors to our platform and, more importantly, deepen our relationship with them. We believe this is a strong evidence of Envestnet's leadership role in empowering advisors to transform wealth management into a transparent, conflict-free, and fully-aligned standard of care for investors.

During the fourth quarter and throughout 2012, we delivered on our priorities, which included growing our business by adding advisors, accounts and assets. Also by integrating Tamarac and Prima into the Envestnet organization and product suite. And, third, by on-boarding conversions as they worked their way through our pipeline of new business opportunities.

I'd like to provide some more detail on these priorities. Growth in our core business remains strong. During the fourth quarter we added 350 advisors, ending December with more than 16,000 advisors who had assets under management or administration on our platform. That's up 16% year-over-year in an environment with a declining number of overall advisors. Including license arrangements, we now serve more than 23,000 advisors with our wealth management solutions.

Accounts per advisor also grew in the fourth quarter, up 14% from a year ago. The growth we've seen in advisors and accounts per advisor compounded to our total account growth, which was up over 30% year-over-year.

Gross sales of assets under management towards administration during the fourth quarter were over $8 billion, excluding conversions. An increase of 60% over the prior-year period. For the year, gross sales were over $30 billion, up 26% from just over $24 billion in 2011. Redemptions averaged 2% per month during the quarter, an improvement from a year ago, and consistent with what we experienced during the rest of 2012. As a result, net flows were significantly stronger in 2012 than in 2011.

Regarding our integration of Tamarac and Prima into the investment organization and product offering suite. First, Tamarac continues to build on its recent record of strong growth, as we gained further traction with large, registered investment advisory firms who want a fully unified platform for portfolio and practice management. We also fully integrated Primus' institutional class research and due diligence and advanced portfolio solutions into our broader investment PMC solutions set. We continue to on-board significant assets to new client conversions. During the fourth quarter, conversions totaled $9.4 billion, most of which were in licensing.

For the entire year, we had just over $10 billion of asset-priced conversions, plus another $13 billion in licensed conversions. We expect conversions will continue to contribute meaningfully to our organic growth in the coming quarters.

As we enter 2013, our priorities are consistent. And that is to continue to grow our existing business, to continue to add new advisors and enterprises, and to continue to develop our platform with breakthrough improvements coming in our March release. Additionally, we will be looking to accelerate growth, with disciplined merger and acquisition activity.

To grow our existing business, we will continue to focus on adding advisors, accounts and assets to our wealth management platform. This has been the core organic growth driver of our business. And we believe it will continue to drive us toward our growth objectives going forward.

We also expect that conversion activity to onboard new clients will continue to be robust, and a meaningful driver of our organic growth. Our implementation teams are geared up for another very active year. Several large new clients are already well through the implementation queue.

I also want to mention that we believe we have the broadest and deepest unified wealth management platform targeted for the independent financial adviser. Even so, we continue to innovate and leverage our capabilities to help advisors better serve their high net worth and affluent clients.

At the recent T3 Technology Conference, we unveiled a preview of our next generation platform, which we believe is the first end-to-end wealth management platform that is fully mobile. Advisors really liked what they saw, and expressed a high degree of enthusiasm for the full release, which will be launched at our annual advisor confidence this May.

I will conclude with some more remarks in a moment. But I will first turn it over to Pete D'Arrigo, our Chief Financial Officer, to discuss our financial performance and a recent change in auditors in more detail.

Thank you, Jud. Good afternoon, everyone, and thank you for your participation on our call today.

For the 2012 fourth quarter, revenues from assets under management or administration grew 41% to $34.7 million, compared to $24.6 million in the fourth quarter of 2011. Licensing and professional services revenue in the fourth quarter was $9.9 million, up 66% from $6 million a year ago on an adjusted basis, due primarily to the addition of Tamarac and Prima. As a result, adjusted revenues increased 46% to $44.6 million in the fourth quarter, from $30.5 million in the fourth quarter of last year.

Our cost of revenues increased to $16 million for the quarter from $10.4 million last year. As a percentage of revenue from assets under management or administration, cost of revenues was 46% compared to 42.2% in the fourth quarter of 2011.

We reported GAAP net income in the fourth quarter of approximately $800,000, or $0.02 per diluted share. Included in the GAAP results are ongoing non-cash expenses, approximately $1.3 million higher than the prior year on an after-tax basis, for the deferred revenue fair value adjustment, stock-based compensation and amortization of acquired intangibles.

On a non-GAAP basis, adjusted EBITDA was $7.2 million for the fourth quarter. Adjusted EBITDA margin came in at 16.2%, a sequential improvement of 130 basis points over the third quarter of 2012. Adjusted earnings per share were $0.10 in the fourth quarter.

Looking forward we expect our effective fee rate in the first quarter of 2013 to be about 14.7 basis points on our December 31 AUMA asset base of $98.3 billion. We believe licensing and professional services revenue in the first quarter this year will be up approximately 130% year-over-year on an adjusted basis, reflecting a full quarter of revenue for both Prima and Tamarac in 2013. Adjusted revenues for the first quarter should increase between 41% and 42% year-over-year. That includes a deferred revenue fair value adjustment of $136,000 in the first quarter.

We expect first-quarter cost of revenues to remain at about 46% of our AUMA revenue. We expect our adjusted EBITDA margin to be between 17.2% and 17.7% in the first quarter of 2013. We expect that our adjusted EBITDA margin will continue to expand into the upcoming quarters.

We have replaced McGladrey with KPMG to be our independent auditors. KPMG will be performing our 2012 audit, as well as a re-audit of our 2011 financial statements. This change was made because it was recently determined that certain services provided to Envestnet may be inconsistent with the SEC's rules on auditor independence. We believe that our prior financial statements, as well as those presented today, are accurate and complete in all material respects. While it is possible we may miss the March 18 due date to file our 10-K, we will be working to minimize any disruptions in the timeliness of the filing.

With that, I will turn it back to Jud for his closing comments.

Thank you, Pete. I would like to add my own comments on our change in auditors. I wanted to emphasize that we believe that our financial statements are accurate and complete in all material respects.

Our need to make this change is unfortunate. But results from our careful attention to ensuring the independence of the auditor of our financial statements. Pete and his team will do all they can to onboard KPMG and begin the audit work immediately. The rest of Envestnet will continue to focus on serving our clients and growing our business.

By wrapping up, Envestnet unifies and simplifies the wealth management process for advisors. Empowering them to achieve higher standards in portfolio and practice management. As we empower advisors to deliver better results for their clients, we believe Envestnet is well-positioned to deliver substantial revenue growth and margin expansion in 2013.

As I've mentioned before, our long-term targets are to grow top-line revenue at 20% per year. And to grow adjusted EBITDA at 25% per year, reflecting improving operating leverage in our business. As we sit here today, we expect that for 2013 we will be able to modestly exceed our top-line target, growing revenue for this coming year by at least 25% versus 2012. And significantly exceed our adjusted cash flow target, growing adjusted EBITDA by at least 45% versus last year. This, of course, assumes a flat and relatively stable market environment.

I thank you again for your time this afternoon. Thank you for your support and interest in Envestnet. And with the conclusion of these prepared remarks, we are happy to take your questions.

(Operator Instructions)

Alex Kramm at UBS.

Maybe just start, you talked about the priorities and adding existing advisors and enterprises. Can you maybe just flesh this out a little bit more of where you've seen the most success in adding advisors recently? And what the priorities are on that end going into next year.

I remember a couple years ago you were talking big about going downstream to some of the smaller RAs. Are you seeing a lot of joiners in these large organizations and converting those? Or is it coming from a lot of new accounts that you are adding?

So maybe just a little bit more of where you've seen the most success in terms of the sales force of getting new advisors on the platform. Thank you.

First of all, in an environment where the overall number of advisors is declining it is coming -- there's a continued market shift away from wirehouses and towards independents. The fastest-growing segments of the investment advisor marketplace are duly registered advisors and RIAs, or registered investment advisors. So we are focused on where the growth is. We are also focused on supporting the enterprises that we have, and in gaining new enterprises.

So, the growth is consistent with the growth of the industry. We are growing our high-end advisory firms. We are growing our mid-sized advisory firms. And we are also taking on advisors who are transitioning from commission-based practices, brokerage-based practices, to fee-based practices. We are getting meaningful growth in advisors in all of those segments.

The growth in advisors comes from both new firms and also from going deeper with enterprises that we are currently serving. We track all of these and we roll them up into a single number. But we are gaining growth in all the relevant segments of this marketplace.

All right, that's fair enough. Then maybe just a little bit more specific on the conversion side.

I think your comment, Jud, was meaningful conversions again this year. So, given the number that you've put out, the strong numbers you put out this year, I think it was $10 billion enterprise. And I think license was even more than that.

What does meaningful mean? Can you be a little bit more specific? And maybe even talk about, it's a lumpy business, how the pipeline is looking very near term and throughout the year? Thanks.

Alex, this is precisely what got me in a little trouble about a year ago, I think. So I'm going to be very careful in how I talk about this.

The pipeline is more robust and full than it's ever been. It is very strong. We've got a backlog of conversion implementations. But it is a lumpy business.

And while the registered investment advisory segment is a little bit more predictable, they also tend to be smaller conversions. $100 million to $200 million conversions at a time. The large enterprise conversions, which can make meaningful improvements in our revenue for subsequent quarters, and can also help move our operating margin to higher degrees of leverage, are much lumpier.

So, as we've said in the last several quarters, it remains strong, but I think it's probably a mistake for anybody to model in any kind of specific amount in specific quarters. Because, while it is an important engine for organic growth over the long term, and we certainly expect it to be over the next year, they are lumpy and they are not predictable.

All right. I won't hold you to too much detail. That's fine.

Just lastly for me, maybe a little bit more bigger picture. There's been a lot of talk here recently about this whole potential investor rotation from fixed income into equities. Everybody has their own views on if this is happening or not. But from your perspective you have a lot of visibility in terms of what advisors are doing. I know it is only a month-plus-change so far this year.

But maybe any trends that you've seen that could speak to this in terms of your gross sales. Have you seen a lot of gross sales in equities and actually more redemptions in fixed income? Or do you think what you've seen so far actually speaks a lot to what a typical beginning of the year looks like?

And then maybe related to that, if such an asset rotation would actually happen into equities, maybe you can just outline for us again with that actually would mean for your business in terms of the different fee rates? And how that would impact performance longer term. Thank you.

Several dimensions to that question, Alex. First of all, we are six weeks into a new year. I will say that net flows have started the year very, very strong.

We have not seen meaningful changes in the asset allocation of new money coming to the market. Nor have we seen meaningful rotations. We have seen for net new business coming in weightings that are less in long-only fixed income. We are seeing weightings more to non-traditional or to non-correlated asset classes.

We have not seen material increases yet to equity allocations. But again, this is a snapshot and it is very early in the year.

So obviously this would have effects on the business, on advisors' businesses as well as our own, because in an environment where macroeconomic policies are, I won't say punishing to the saver but very difficult for the saver, it is going to be difficult for an advisor or a platform to generate meaningful yield off of fixed income asset allocations. So there's some cautious optimism about an improved product mix going forward.

But my comments or Pete's comments don't reflect any change in basic product mix as of yet going forward. It is just too early to make any conclusions on that.

I totally get it. It is pretty early in the year but I think the color you gave is actually very helpful. So, thanks very much. That's it for me.

Hugh Miller of Sidoti.

One question, you gave some great color on the flows for January. I was wondering, we've seen, obviously, an exceptionally low level of market volatility. What are you guys seeing on the redemption side, and how should we be thinking about that? I know there's a link but it hasn't been as strong of a relationship as we've normally seen in the last year or so.

We are projecting 2% per month for the year. We think that that's not an overly conservative projection. Could it be lower? Yes.

What we've found in the past is that there is a correlation between VIX, between volatility and redemption rates. But when it comes to the retail investor, there is a very fat tail on the other side of increases in volatility. So volatility goes up, it comes down -- it comes down much faster than redemption rates do. We are, again, encouraged by the low levels of volatility. And eventually that should translate into lower redemption rates.

But it has moderated. 2012 was better than 2011, and I wouldn't be surprised to see that continue. But we haven't projected that.

Okay. That's great information there. You guys talk about how it could be a fat tail. But have you taken a look to see historically what that duration is between when you get to a low level of market volatility and when the confidence level starts to come up, and you see that improvement in redemption?

We have. You can bet that we've looked at that. There are not -- our PhDs tell us, at PMC, that there's not a statistically numerous enough instances to make any bold claims as to when that's going to be. But we've seen it anywhere from three to four months of a fat tail, to, in one case, as long as almost a year.

Okay. I understand it is not statistically significant given the limited information you have to look back. Okay.

One housekeeping question just on the GAAP tax rate. Coming in a bit higher than expected. Was wondering is that just true-up or is there something else that's influencing that during the quarter?

Yes, Hugh, this is Pete. I don't know if I'd call it a true-up, but there was some finalization of expenses that were related to the acquisitions during the year. And those were not deductible.

So they're an expense for GAAP purposes, but we don't get the tax benefit of that expense. So that made the percentage relative to the pretax number a little bit higher.

Okay. And looking at the headcount growth of advisers in the quarter, was up 350 on a net basis. While obviously it's great to see the growth there, the growth rate on a sequential basis up a little over 2%, has been a slower pace than what we've seen normally. And I assume that can be lumpy from time to time.

But is there anything you are seeing with regards to trends there? And with the potential rollout of the new products you're looking at, I think you mentioned towards the March period, would you anticipate that you might see an acceleration there, as advisors get a little more excited about some of the new products?

We think so. Obviously, again, macro, this is in an environment where the number of financial advisors are declining. Now, the channels that we are targeting are growing or stable. But we've targeted internal growth targets in growth of advisers in the high single digits per year.

And then the more important one is the number of accounts per advisor, as they grow their practices, as they transition their practices. And we expect to see that in the low double-digit range per year. Really, anything higher than 2% is coming in line with our target. And when it is higher than that, that's exceeding our target. And I don't really think you can expect more than an annualized rate of 7% to 8% advisor growth going forward, although we would certainly like to see higher than that.

Yes, obviously, it was up somewhere around 21% this year, so that's very substantial. But okay, so that's how we should be thinking about it, more in the high single-digit area for headcount.

And what that does is that compounds out very nearly to 20% in terms of same-store organic and new advisor organic growth rates. And then enterprise conversions round out that organic portion, and that's how we get to the 20% target on long-term revenue growth.

Okay. And then my last question I had was just with regards to some of the commentary you made about the M&A environment and the opportunities there. But you also mentioned that you want to remain disciplined. If you could just add a little color there.

Is the discipline part just purely on the valuation and what you're willing to pay for these organizations? Or is there something more into it, that you want to make sure these things are accretive immediately? Or what are your thoughts there?

There's a couple of dimensions of the discipline that we've employed. We've talked before, and what's very clear to us, and our own language doesn't always convey, so please forgive me if I go through it again.

In our merge and acquisition activity, we look at two broad types of transactions. One is the consolidating transaction. And this would be from a platform provider, someone -- some firm that is already providing similar services or similar technology to what Envestnet does. And for these firms, we have a very clear price discipline where we are looking to achieve a 25% internal rate of return on the investment. And that we are looking to achieve as close to a 20% cash-on-cash return within the first 90 to 120 days of expense synergies or consolidation synergies.

So these are transactions that are financially accretive. They have very little, if any, implementation risk. They're just like a very large conversions. I would buy -- for example, use FundQuest, as an example of that, where we were able to onboard 90,000 accounts, and do the conversion on those accounts in about a five- to six-week period.

So it's a price discipline. But there's also a discipline on the core business. If we believe that the business has not stabilized on a consolidating transaction, if we believe that there are issues like excessive reliance on 12b-1 fees. Or excessive reliance on brokerage commissions, which we don't support that part of the business, that would also fall outside of our discipline on a consolidating transaction.

On the strategic front -- and on the strategic front this is transactions or companies that will be either a deepening of our existing features or functionality in our platform. Or a broadening of our capabilities into something that we are not doing right now. So while we have a very successful liquid alternative offering that PMC is rolling out, and we are bringing out later this year PMC's concentrated portfolios. These are low-cost stock baskets that compete with ETFs, but they are better.

It is a way to get low-cost market exposure or beta exposure for advisors. And they're beneficial in that you can actually control the basis of the underlying stocks, which you cannot do in an ETF. Or you can customize a large cap growth portfolio around concentrated holdings.

Let's say that you're a Silicon Valley engineer and you don't want to double up on software. Then we create a basket around that. These are examples of things that we can do internally to develop our capabilities. And we are doing that.

But there are areas that we may be looking for to round out or deepen capabilities. And these are just examples. We may want to deepen our capability in traditional alternative or traditional non-correlated asset classes. We may want to go more deeply integrated on an application that is related to wealth management but it is nearby.

A perfect example of something like this would be Tamarac. Tamarac had a proven record of a high-end rebalancing CRM and reporting solution, a unified platform for the very high-end investment advisor who is a portfolio manager.

And there may be other times when we would want to deepen. The other benefit from Tamarac is that it really strengthens our presence in the high-end advisory market.

I want to say there are no known gaps in our product and platform offering right now. There may be opportunities to deepen a functionality or a feature here or there. And we may be looking at broadening the footprint of our end-to-end platform at some point, as well.

So, it's a very long answer. But the discipline on the strategic side is we've got very clear priorities as to where we are trying to improve our business going forward. And the discipline on the strategic side will be making sure that those firms fit into that in a meaningfully productive way so there can be value accretion over the long term.

Okay, that's very helpful, thank you.

Chris Donat of Sandler O'Neill.

One question getting into maybe the details on your revenue for the first quarter. Can you remind me what percentage of it is tied to AUM and AUA as of December 31? And what the percentage that isn't? This is on asset base.

Because with the S&P up about 7% quarter to date, I think the smaller portion of it, that should be, I think, a tail wind to your revenues. But I just want to make sure I understand some of the dynamics there.

For the fourth quarter, it was just under 80%. About high 70% -- 78%. And again related to the market impact of that, will be muted to a large extent because of the significance that the December 31 valuation date has on the revenue going forward. So the market appreciation that we've seen so far, if it holds up, will have a greater impact in the second quarter and beyond.

But will there be some market impact felt on the portion of your asset-based revenues that's not the 78%? What is that? What are those revenues based on? They're no December 31 end of period as a metric. It's something else, right?

Yes, it's more of an average daily balance that we bill in arrears. That percentage has a little bit of a swing to it, but it tends not to be dramatic, even in high market. It is maybe, of that 78%, about 15%.

Okay. And then just a curiosity question here. This gets to the mix of what's equities and fixed income. But with the S&P 500 actually being down about 1% in the quarter, and yet you had positive market impact for both AUM and AUA, can you just remind me the mix that's fixed income and equities?

Longer term we use around 60% to 70%. And because it was -- it was down a little. When there are small swings then things can get impacted and look a little bit out of whack. When we look at it over twelve-month periods, it tends to really stabilize in that 60% to 70% range.

Okay. Got it. And then just looking back a year to the contract you renegotiated with Fidelity, and the impact that had on some of your license revenues, I'm just trying to understand the risks of you doing any other re-negotiations like that.

And I know -- I can't think of a way to ask the question directly in a way you can answer it, but can you give some maybe flavor on how the Fidelity relationship is, and how long you expect rates to be in that one? And then are there any other large contracts out there that could be up for renegotiation or revisitation or anything like that?

I'm actually glad you asked the question. I expect that we will still get questions on Fidelity even after the first quarter of 2013's conference call. But I would be very surprised if they go on much longer than that.

First of all, the nature of the Fidelity contract was truly unique. We signed the first contract about six years ago -- over six years ago. And it had a fairly standard services agreement which was asset-based. It had a revenue share piece to it.

And then there was a technology transfer license because they wanted protection. Fidelity is a very large, very successful organization. They wanted some protections against what would happen if something happened to our firm. And they wanted to have access to the code base of the software that was helping them grow their intermediary business.

It is that last piece of it that caused a significant delta in the old Fidelity contract and the new Fidelity contract. And you can back into what that amount was. It was a significant hit to both our top line, and it dropped right down to our bottom line in the first quarter.

Now, we've been able to, in spite of that very difficult headwind to top line and bottom line, we've been able to grow top line. And we've been able to get our cash flow back to just about the same level that it was a year ago. Also on the Fidelity side, we've continued to grow that business nicely. And the revenue from Fidelity is now nearing in, closing in on where it was before the contract renegotiation. But the new revenue from that is not as profitable, because what was 100% profit margin technology transfer -- or nearly, let's call it 90% -- is now replaced by revenue that looks more like the rest of our business.

So we have no other contracts that even look like that. That was something of a -- that was truly a unique contract. And so it wasn't probably a once-in-a-lifetime kind of contract, but in the 13 years since I started this business, it's the only one of its kind we've ever signed. Now, having said that, every year all of our contracts, the vast majority of our contracts are annual contracts that evergreen.

Within Tamarac, the average period of time for the license agreement is actually inching up. It has traditionally been around three years and I think we've tipped it more towards the three-and-a-half, nearing the four-year side on the Tamarac side. And license arrangements tend to be longer.

We're finding a fair amount of stability in our asset-based pricing on AUM, particularly on the equity side. We are also finding that our asset based and license pricing for performance reporting and account aggregation has also stabilized.

The area in our business where there is continued pricing pressure is in the advisors' portfolio manager and trading applications that we support both enterprises and RIAs. But as things go on, as we go, every time we have a big arrangement, there's competition in the marketplace. And we will find that for our best and highest-growing clients there sometimes needs to be a sharpening of our pencil and coming at a slightly lower rate going forward.

With that said, there is no other contract that has the kind of technology transfer arrangement that Fidelity had. And there's no other contract out there that has that kind of impact, negative impact potential for us going forward.

Got it. I apologize for asking the question but I certainly appreciate the answer.

I'm expecting at least one like that even next quarter. Because that's when we're going to be coming off the sequential growth -- the effects of that obviously were -- the effects of that were reflected in Q1 of 2012. And so Q1 of 2013 will show some significant growth over that lower level.

Right. Okay. Thanks very much, Jud.

Chris Shutler of William Blair.

You obviously talked about the 20% organic growth target long term. And now over 25% in 2013. So really just curious what specifically -- we are only in February, what gives you the confidence to say revenue's going to grow over 25% in 2013?

Again, Chris, this is assuming that the market stays stable and we don't get hit with a lot of redemption or anything like that. We are not a software as a service business. But there are very strong elements of our business that look like that.

So we start December 31 with a very good picture of where we're going to be for the rest of the year. And then we've got a pretty good sense on what our organic gross inflows are going to be. What our redemption rates we project. And that gives us a pretty good sense on what our organic net flows are going to be. Anything we get on the conversions are on top of that.

And, of course, we are benefiting this year a little bit from the full-year effect of the Tamarac acquisition. So that's going to give a little bit of a boost to what would normally be maybe a slightly less organic number, if you were to adjust for that. But that's how we get to the 25%. And, as I said, for this particular year, we expect it to be moderately higher than 20%. We expect top-line growth will be at least 25% for this year.

Okay. And then it looks like pretty nice margin expansion you're expecting in Q1. What expense line do you think most of that leverage is going to come from? I'm assuming it is G&A but can you just confirm that?

And then as you look out at the balance of 2013, and over the next few years, what else in that G&A line do you see yourselves really needing to spend on? Why would that line grow very much?

You're right, G&A is the one where we've seen a lot of leverage over the last few quarters. And that's where a lot of it will be. We are also growing revenue faster than we are growing our headcount growth. So there's scaling in that line, as well.

I think the biggest G&A item, as again it is related to the headcount growth in terms of rent and where we might see that with new space in the upcoming several quarter. Not in the next quarter or two but we will have to see how many people we have, going beyond that.

Chris, I would just add, it is unsolicited, I'd be reluctant to straightline any assumptions on that sort of thing going forward because we have to be in a position to respond to opportunities. We are trying to balance strong continued top-line growth with the resources necessary to ensure that we can continue to do that. And sometimes that brings on additional G&A expenses.

Okay. Are you planning on changing headquarters buildings or anything in the next year?

We are adding -- domestically, no. We are consolidating our two offices in Trivandrum, India. We are going to get some operational and service lift out of that. And I expect that that will have an effect at some point in the coming year.

Okay. Then last one for me on the acquisition landscape. Jud, when you think about consolidating transactions, do you have a real preference for buying more of a technology-related TAMP, or are you equally interested in a more product-related TAMP?

We are open to both. The challenge when you look to a more technology-related TAMP, there's a greater likelihood that there is something about that TAMP which is different or unique.

And it may be a little bit more of a challenge to onboard and convert. Because in the consolidating transaction, the acquired company's platform technology, we want to sunset it so that we don't have to support two. Whereas, in more of the asset-oriented TAMPs, you just don't have that challenge.

Okay. Thanks a lot, guys.

David Grossman of Stifel Nicholas.

Jud, if we can perhaps go back to the revenue guide, just to make sure I caught all the details. Is the composition of the 78% advisor growth, low double-digit growth in accounts per advisor, plus whatever you get from conversions or your visibility that you have on conversions today?

Yes. It is high single-digit growth on advisor count. Low double-digit growth on accounts per advisor.

And then it is the enterprise conversion growth that then rounds to 20. Because, as we track it, there's day-to-day conversion growth that comes from advisors bringing their practices over. And that's a part of the first two numbers.

Then there's the enterprise growth that comes lumpier, and that's that third element. So I'm not trying to be confusing but there's that difference I believe we've talked about from time to time before, that difference. This year it will be higher as we analyze Tamarac and Prima.

Right. So they is an element of enterprise conversions assumed in that revenue guide for the year?

Some, yes.

Okay. And then should we assume -- I think you guided to 14.7 basis points in terms of fee rate for the first quarter. Should we assume that that's, at least as far as the eye can see without an acquisition, that that's a reasonable rate to be assuming for the balance of the year?

I think that that's not unreasonable, David. I know that's not affirmative. I think it is not unreasonable to assume that.

But you've seen how this bounces around. It is more a function of the product mix. And in 2012 we brought on a lot of reporting and APM business.

Right. But wasn't you exit rate -- so, your exit rate was lower than your average rate for the year, so there is some fee rate headwinds year over year in terms of the revenues, right?

Right. Which is mostly due to product mix. Onboarding more of a certain type of product. As opposed to compression of the AUM revenue rates.

Okay. And then just can you remind me just how the license -- the conversions were high this quarter, and you had some last quarter -- can you just remind us of how that flows into revenue versus the other conversions?

So the (inaudible due to technical difficulties) to model. The asset-priced conversions just come on at whatever rate that particular product and the converted assets come on as. On the license side, for performance reporting, or for any of Tamarac's business, which is virtually all license-based, there's some onboarding revenue. Over time, the amount of onboarded licensed assets has a rough approximation to the increase of revenue. And that's a function of how much of the advisor's suite, the advisor X suite that Tamarac installed, is adopted by the advisor.

But we will continue to report on both asset-priced conversion activity and license-based conversion activity. But you'll really see the effects, I'm sorry to say, more in the rear view mirror, as you look at what those new licensed revenue amounts translate to over the previously converted licensed assets.

So that's not something that we can model going forward, if you did, what was it -- $7.9 billion? Was that the number for the quarter?

I think it would be hard to do that, David.

Okay. And just maybe one other question, Jud.

If, in fact, the market trajectory continues to improve, which one of these metrics do you think gets most impacted? Other than the obvious, just the AUM going up. But in terms of, do you have any sense for whether number of advisors, account growth, perhaps pricing, do any of these metrics get impacted by a rising market?

What we found before -- and, again, when I started the business the Dow was over 13,000 and NASDAQ was at 4,500. So we've seen as many ups as we have downs. Except with the NASDAQ where we've seen more downs than ups.

But what we have seen in the past is that redemption rates come down. We've also seen that the yield on AUM assets under management at PMC rotates more towards some of the higher-margin activity -- the liquid alternatives offerings, the non-correlated assets, non-fixed income and the equity assets. So the yield on assets under management goes up, redemption rates come down. Other things happen too, but those are the two more significant, and they both happen to be positive.

Okay. Very good, thank you.

Peter Heckmann of Avondale Partners.

Most of my questions have been answered. But I just did want to follow up. Been following a few press releases from some of the larger custodians.

And it is a little difficult as an outsider talking about, in some cases, adding a proprietary product. In some cases maybe giving a proprietary product away for free. Are you seeing any change at the large custodians in terms of how they want to price their services? And their relative interest in offering a private label product?

We do business with all the major custodians. We are custody neutral. We are not in the custody business. We don't provide custodial services.

But it is a competitive business. And the various custodians we work with are looking to improve the competitive offering of not only their custody services but their other services. Of course, our strategy is to be custody neutral, to be truly open in our approach -- offer access to multiple custodians, dozens of strategists, hundreds of managers, and thousands of portfolio solutions.

And so, from time to time, someone will say -- okay, this particular service is now free. One large custodian gives away a portfolio accounting software to advisors that have a certain amount of assets on their platform. Another custodian gives away free rebalancing software to advisors we have custody assets with their platform.

This is not new. This has been going on ever since we started our business. And what we've found is that advisors will pay a fair rate for a premium offering.

We are finding that whether it is our reporting solutions, our rebalancing solutions, our CRM, our practice management solutions, or our advanced portfolio solutions, there are advisors who are willing to pay for the value that having a truly open, best-in-class, end-to-end solution set provides. And our value proposition is we will deliver best-in-class functionality in everything that we are delivering. And we are truly unified end to end. And that's a compelling value proposition to independent advisors.

Okay. All right, that's fair enough.

Are you seeing any incremental interest or ability to sell products that are more focused on income and retirement, planning for retirement, financial planning type tools? I know you already offer some of those, but is that an area you can expand?

That's an area that we're continuing to build out and continuing to support. We expect that -- and we are hearing more and more of our advisors want a solution that they can offer not only to their clients that are coming into retirement. But more and more visors are looking for a solution that they can take and extend the Envestnet, or the Envestnet Tamarac, or the Envestnet PMC offerings not only to the advisors who are serving the independent retirement account market. But they are asking more and more for us to support them as they go after the small plan sponsor marketplace.

So we are looking to meet that demand. And we expect that that will, in the future, be an important new initiative.

All right, I appreciate it.

That does conclude our question-and-answer session. Mr. Curtis, I will turn the conference back to you.

Thank you. This is Jud. I will just say again we appreciate the support. And we look forward to talking with you again in a few months. Thank you very much.

Ladies and gentlemen, that does conclude today's conference. Again, thank you all for joining us.