Envestnet Inc (ENV) 2016 Q1 法說會逐字稿

Good day everyone and welcome to the Envestnet First Quarter 2016 Earnings Conference. Today's call is being recorded. At this time, I would like to turn the call over to Mr. Pete D'Arrigo, Chief Financial Officer. Please go ahead, sir.

Thank you and good afternoon everyone. With me on today's call is Jud Bergman, Chairman and Chief Executive Officer and Anil Arora, Vice Chairman and Chief Executive of Envestnet Yodlee. Our first quarter 2016 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 companies 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.

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. These statements are subject to numerous risks and uncertainties that could cause them 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 website. 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.

I will now turn the call over to Jud.

Thank you, Pete. I add my own welcome to everyone. Thank you for joining us today. Envestnet empowers financial advisors and enterprises to deliver better outcomes for their clients.

Given our market leadership, evidenced by thousands of clients, tens of thousands of advisors, hundreds of billions of advisor supported assets, trillions in aggregated transactions and the power of our leading data aggregation and analytics capability; we believe we are uniquely positioned to support our advisors and enterprises in providing better outcomes for their clients. We enable investors to interact with their advisors in the ways they choose, face to face or increasingly via leveraging the digital interactions we provide as well. Our target addressable market is huge and growing.

As we discussed on our call last quarter, we estimate the markets for wealth management technology solutions and data aggregation and analytics combined will grow to be a $25 billion to $30 billion or more in annual revenue over the next five years. Envestnet enables and benefits from several super trends that we've discussed in the past.

First the long-term migration from commission-based compensation to fee based compensation, often aligned with a fiduciary standard of care and we expect this trend to accelerate with the recent Department of Labor ruling. Second advisors and financial institutions are increasingly leveraging cloud-based technology to better serve their clients.

Third advisors and their clients are continuing to seek independence and objectivity in their advice and the wealth management solutions that they choose. And the fourth super trend of increasing value in big data and analytics. One example of the power and value of data analytics can be seen in the recent study Envestnet completed that evaluated advisors' portfolio returns over a multi-year period.

Two key findings emerged. The first was that regardless of asset type, product selection or asset allocation, advisors who rebalance their client's portfolios regularly, systematically outperformed those who did not by 40 basis points to 80 basis points per year.

The second finding, was that a significant number of advisors still do not choose to rebalance on a consistent basis. This is the type of insight that our unique access to data is able to provide and is very valuable to the advisors and to the enterprises and to their end clients, enabling these firms to systematically adopt best practices in order to deliver better outcomes to their end clients. Our growth strategy is aligned to both enable and benefit from these super trends that fuel our industry and our business.

Our core growth strategy is all about aligning our platform and service offerings with our partner's business models and increasing our base of recurring revenue. This core strategy breaks down into four steps. First, we add new financial enterprises. Second, we had new advisors or users within those enterprises. Third, we seek to increase the utilization of our technology platforms and other service offerings. And fourth, we seek to increase user adoption of Yodlee's personal financial management applications, data aggregation and data analytics capabilities.

A second component of our growth strategy is tied to cross selling, arising from our acquisitions and other strategic activity. This includes; first, selling Yodlee's data aggregation and personal financial management applications to Envestnet advisor clients and Envestnet enterprise clients; second, to sell performance reporting and enterprise data solutions to Yodlee clients; third, our joint continuation of development and growth in the data analytics and research business; and finally, leveraging Yodlee's strong international presence by providing wealth management solutions more broadly.

I like to turn to the current environment. On the capital market side, the environment has improved somewhat more recently, beginning in the latter half of the first quarter. This is creating a somewhat healthier environment for advisors to do business and to open new accounts.

As an example, net flows within Envestnet's fee-based programs were more than $10 billion in the first quarter with record gross sales; market appreciation contributed nearly $3 billion in assets under management or administration -- more than $300 billion in assets under management or administration at the end of the quarter along with our increasing levels of subscription and license-based revenue provide a solid and growing base of recurring revenue. Some 96% of our total revenue today is recurring.

Also within the current environment, I cited the Department of Labor's recent fiduciary mandate for retirement accounts. This represents, what we believe will be an accelerator of the ongoing transformation from commission-based compensation to fee based compensation, a trend we identified more than a decade ago. Near term, we expect this new regulatory paradigm will drive a fair amount of business away from annuities and commission-based fund sales to managed account and other fiduciary programs, benefiting the end client in the process.

Longer term, we believe other regulatory regulators may follow with similar standards affecting retirement accounts as well as taxable accounts over time. We continue to execute on our strategy, evidenced by our most recent results.

Adjusted revenue grew 37% in the first quarter, in line with our expectations and bolstered by the acquisition of Yodlee. Recurring revenue, as I indicated, was 96% of total revenue, subscription revenue increased to 33% of revenue.

This increases the predictability of our recurring revenue base. We were also able to achieve good growth in advisors, accounts per advisor and assets. These are the fundamental drivers of our recurring fee-based revenue stream and we had solid onboardings through organic conversions. $10 billion overall weighted more to licensing and subscription and our conversion pipeline remains very strong.

Regarding the Yodlee integration, the first version of our integrated data aggregation offering to Envestnet clients will be rolled out as expected that the Advisors Summit in two weeks. There is strong and growing demand for data aggregation to incorporate that into financial planning from our enterprise clients as well as from our Registered Investment Advisor clients and an early example of success in cross-selling even before we are fully rolled out, we have our first executed agreement between Yodlee and an existing Envestnet client.

United Capital recently announced that Yodlee will power their FlexScore solution with data aggregation. The FlexScore solution will be part of United Capital's White Label FinLife Partners offering. We look forward to helping United Capital continue to grow as a valued partner.

Before I turn the call over to Pete, I do want to mention our upcoming Advisors Summit, which is taking place in Chicago in two weeks with some 2000 in attendance, including nearly a 1,000 financial advisors and we are thrilled to have a record number of attendees at this year's conference, which includes a pre-conference for a 150 of Tamarac clients to kick-off the week.

We look forward to Envestnet's advisors, introducing them to Yodlee's capabilities and Yodlee's clients to the breadth and depth of Envestnet's cloud-based technology offering as these industry experts seek to deliver better outcomes for their clients.

I will now turn the call over to Pete to discuss Envestnet's first quarter results in more detail and also to provide an update on our outlook for the remainder of the year.

Thank you, Jud. Comparing the first quarter of 2016 to 2015, as Jud mentioned, adjusted revenue grew 37% to $132 million on a consolidated basis. Revenue from assets under management or administration grew 2% to $82.9 million compared to $81.1 million. With the inclusion of Yodlee, subscription and licensing revenue in the first quarter was $43.6 million, up from $14 million a year ago.

Our cost of revenue increased to $40.2 million from $38.7 million. As a percentage of revenue from assets under management and administration, cost of revenue was approximately 48.5% compared to 47.7%. Adjusted EBITDA was $19.2 million, a 14% increase and better than our guidance, due in part to the benefits of some integration activity at Placemark. Over $500,000 of quarterly cost savings was realized in the first quarter, which was earlier than anticipated, bringing us closer to the $12 million to $14 million annualized number we have indicated, we expect for the first quarter of 2017.

In an effort to simplify and clarify the GAAP tax impact on adjusted earnings per share, we are modifying the presentation to adjust the short-term GAAP rate to 40%, which is our current estimate of our long-term effective GAAP rate. Our adjusted earnings per share was $0.18 in the first quarter compared to $0.22. We expect our actual cash federal income tax rate to be zero for the next several years. We will, however, have cash obligations for foreign taxes and state taxes.

In the first quarter, we received a net refund of approximately $1.5 million. Also during the first quarter, deferred revenue increased by approximately $2.7 million.

Moving to our outlook for 2016, which is also included in our earnings release. For the second quarter, we expect the following. Revenue from assets under management or administration should be between $84 million and $85 million. This reflects an effective fee rate of approximately 11.1 basis points to 11.2 basis points on our March 31 AUMA asset base of $303 billion.

Subscription and licensing revenues should be between $47 million and $48.5 million. Professional services and other revenue should be between $6.5 million and $7 million, which includes around $2 million of revenue related to the Advisors Summit. Adjusted revenues should increase to between $137.5 million and $140.5 million.

Cost of revenue should be between $44 million and $45 million. This includes approximately $2 million of costs also associated with the Advisors Summit, similar to the amount of revenue. Adjusted EBITDA should be between $20 million and $21 million in the second quarter using a normalized GAAP tax rate of 40% and assuming approximately 44 million diluted shares outstanding, this translates into adjusted earnings per share of $0.20 to $0.21.

For the full year we are raising our expectations for adjusted revenue, which we now expect will be between $580 million and $592 million and adjusted EBITDA, which we expect will be between $95 million and $105 million.

With that, I'll hand it back to Jud.

Thank you, Pete. I'd like to close with a few thoughts about our near-term outlook, as well as the longer-term opportunity. In the near term, our revenue growth is affected by several factors; core organic growth, strategic acquisitions like Yodlee that add or accelerate our organic growth, consolidating acquisitions that don't grow as quickly as our core business until fully integrated, and the market which can have an impact up or down in any quarter but not a strong effect over a long period of time.

As we have shown over the past 15 years, we have been able to demonstrate reliable growth in good markets and in tough markets. We see all of these factors at play in 2016. And over the next several years we target organic revenue growth in the mid-teens with acquisitions potentially accelerating that growth from time to time.

Also as we have demonstrated historically, we expect adjusted EBITDA to grow faster than our organic revenue growth, reflecting our scale. In 2016, we expect to see a lift in the second half of the year, as the WMS integration is completed. We also anticipate more meaningful contributions from Placemark and Yodlee as we enter 2017. Contribution from these and future acquisitions, as well as leveraging the scale of our cloud-based technology should enable us to grow adjusted EBITDA at least 20% year-over-year over the next several years.

Over time, we will continue to pursue acquisitions and other strategic relationships that leverage the scale that we've been able to earn, expand our capabilities or enter new markets, providing an opportunity to accelerate our growth above our long-term organic targets. Meanwhile, the combined Envestnet platform today, puts us in a truly unique position of leading and enabling our advisor and financial enterprise customers to take advantage of the massive transformational opportunity that they face.

We provide our customers with digital connectivity to their clients that no one else can match, enabling us to capture an increasingly large share of $30 billion dollar market opportunity in the years to come.

I thank you again for your time this afternoon. I thank you for your support of Envestnet. And with the completion of our prepared remarks, Pete, Anil and I are happy to take your questions.

(Operator Instructions) Alex Kramm, UBS.

I will leave the questions about the quarter and stuff to other people, but I appreciate it, you actually highlighting the Department of Labor rules [field than what] more than you have in the past, so I'm going to talk about that or ask about that.

So, first of all, a bigger picture, but I'm going to go into much detail perhaps. But, Jud, you talked about the opportunities a little bit, if you want to expand a little bit, that'd be great. But more importantly, sometimes we also see a lot of unforeseen consequences when some of these huge changes come in. So what are the kind of the risk that you would highlight where you might not be a natural winner from everything that's going on here?

So, I think you're asking me to elaborate on opportunities and risks within the Department of Labor's recent ruling and what we see is the final product was the result of input from a number of advisory financial services firms as well as trade organizations. And the result of that is the fiduciary standard adopted is going to have changes, but they are not going to be, in our view, radical changes and we'll have time to work through those.

There is a clear path for doing business as it's always been done through a Best Interest Contract Exemption, a BIC or BICE -- a BIC Exemption and we expect that most firms will be adapting to offer something in an automated tangible way long before the rule is necessary to go into effect.

We think that certain segments that we serve are going to benefit more from this change. It's probable, in our thinking that the Registered Investment Advisor channel will continue to gain share and there will be some channels that will see an increased -- an uptick in the transformation from commission based to fee-based work.

We think that there will probably be less done, as I mentioned, in annuities and less done in front-end loaded or load mutual funds and more in managed account programs and probably more in exchange traded funds and separately managed accounts. So there will be product changes, but I don't see material or dramatic changes in any of those areas that have already been underway for a number of years.

You look where the flows are, anybody can look at that analysis and they can see that the strongest flows are in certain product categories and that will continue. Within the segments, there has been an ongoing theme of consolidation for as long as Envestnet's been around and that consolidation, we expect, will continue among broker dealer firms, insurance firms, Registered Investment Advisor firms, probably not so much in the bank and trust space.

This is the kind of transformation or evolution that on balance, we like and we like it because we help our clients adapt to these kinds of changes. But as industries consolidate, sometimes they will consolidate around firms that have heavy adoption of the Envestnet platform. Another times, there will be industry consolidation with firms that haven't chosen Envestnet or who have an in-house solution.

So that industry consolidation will be on beneficial for Envestnet, because Envestnet is the market leader for fee-based wealth management technology, data aggregation and data analytics. But that doesn't mean that we're going to win every one or come out -- or the client base or the advisors or enterprises that we serve will always come out on top. So that's what we're expecting, I hope that that's kind of what you were looking for by way of an answer. If it's not, I'm happy to accept a follow-up later on in the conversation, Alex.

No, that was great, I appreciate it. I will have one follow-up real quick. I mean I obviously was interested in risk and you talked about the consolidation a little bit. But more specifically, at least if I look at the rule early here, one of the things that I see a lot is the level fees and as far as I understand, it actually relates to fee based accounts as well.

So wondering, if you can describe a little bit like your arrangements on SMAs, UMAs, managed accounts, ETF wraps all the good things that you do, obviously there is third-parties, there are some of the PMC programs. Do you think there is a risk that the absolute level of fees comes down here little bit and that, I guess, your cuts could be under attack as well or is it too early to tell? Thank you.

So, all of the programs that we administer on the managed account side, the PMC programs, the advisor led or advisors as portfolio manager programs, all evidence and embody a fiduciary standard. And so, we don't see risks posed by the DOL standard. In fact, the programs that we have created and that we support almost universally will comply to -- we expect will comply to the standard or already do, and that's an important point.

The issue of fee compression, there is an ongoing change from active management to more of an active/passive core satellite approach adopted by most advisors reflecting a best practice, seeking manager producing alpha in those asset classes where it is most able to happen.

There has, over time, also been as baby boomers have averaged in movement from 70% or 75% equity dominant portfolios to be more like 55% to 60% equity dominant portfolios. And of course, fixed income programs have a different fee rate than do equity based programs and passive ETF programs have a different fee rate than do active separately managed account programs. We don't expect that the DOL will cause significant or dramatic or drastic changes in those fundamental developments that we're seeing.

Peter Heckmann, Avondale Partners.

Good afternoon, gentlemen. Pete, on the fee rate on AUMA revenue, how do you feel about that for the second half? You gave your guidance for the second quarter that continues the fee rate a little bit lower over the last several quarters.

Do you expect it to flatten out here or improve and as well -- as part of that question, are there any large conversions on the AUMA side that are implicit in your guidance and that may also change the fee mix later in the year?

Thanks, Pete. I think the best way to think about that is a reflection of the mix we're anticipating for the rest of the year. We don't expect major shifts in the fee rates within categories, but we have seen more on balance of our flows going into the AUA and primarily reporting product.

So that trend is something that is more prevalent than we have seen in the last several quarters. But that's kind of how we're expecting the rest of the year to play out. So again, the mix will just be a reflection of the blend of assets, but the fee rates will be a reflection of the mix.

Just looking at the cash flow statement, was there an acquisition made in the quarter or was that related to prior deals?

So the bulk of that was related to an appraisal rights case that we announce related to the Yodlee transaction and then there was, additionally, an ERS transaction that occurred in February. So both of those items together are what you're seeing in the cash flow statement.

Okay. And then just last question. It does not appear that you repurchased any material amount of stock, but that's something that the Board continues to consider?

We have the authorization. We had it for, basically the last month of the quarter and the stock actually performed pretty well. So we're trying to be opportunistic with the buybacks and be active in times to support the stock because it's not a big authorization and we have some restrictions as to what we do with cash related to the credit agreements as well. So we're trying to be more opportunistic than systematic with that.

Chris Shutler, William Blair.

Yes, good afternoon. On the 2016, revenue guidance, is the increase of $2 million to $5 million all due to the market or are there any other positive or negative factors in that? I just want to make sure that I have that straight.

It's a reflection of both market and an assessment of where we're seeing fees. So, I think last time we characterized most of the move related market and I would say this time, it is part market and part reflection of the mix and flows.

Okay. And what date, Pete, did you use for markets?

This is the end of the quarter, March 31.

March 31, okay got you. And you just assume zero from here?

Correct.

Okay. And then a couple of bigger picture questions. One, just on slide 11 of your latest investor presentation; that's where you have the slide, where you lay out the growth opportunity by channel and it says that you have an opportunity for roughly 100,000 additional advisors within your existing client base.

So I guess, I'm just curious, within that basically you get a little bit more granular or at least ballpark, can how many advisors today are using the full advisor suite? How many are using the managed accounts platform, how many are using reporting and billing only. Just trying to get some ballpark sense of the usage of the platform as it stands today?

Chris, I think I'm probably the best person to answer that and I can't provide any answers to that off the top of my head. I'm not prepared to, I don't have the segmentation. If you look at the -- you're asking not what the basis of the untouched advisors are using; you're asking what the mix of the 47,000 or 48,000 advisors are, right?

Yes, you're right Jud. That and I wanted to get a better sense of the opportunity within the 100,000 advisors. I guess that would be a separate question. How many of those are truly addressable?

So, that's the easier question. It's always a point in time and of those 100,000 or so of additional advisors there is some segment of advisors who will never adopted the fee-based solution. Clearly, that's not the case in the RIA channel, but I'm certain of these channels there or advisors who will retire with a book of business that is exclusively or predominantly commission based.

Now as they retire, those books of business are usually recycled within the organizations to advisors that are more open to the fee-based business, but that is something that will take place over years. But the majority of the balance of advisors, we expect will be very good prospects. I'm not saying that we will get the majority of that balance, but the majority certainly in a profile.

And if you look at the firms that we've been working with longest, firms that have adopted the platform over a 10 year or a 12 year period, the usage rates for advisors there are over 40% and in some cases nearing in on 50%. And that's very steady, very predictable growth.

So there does seem to be an upper limit, at least today of 50%, but again that's given the facts and the practice patterns of today's advisors. And tomorrow's advisors, we expect will have far more fee-based orientation in their practices than the average advisor today.

Okay, thanks. And then just one other one actually for Anil. Anil, what kind of pricing power do you think that you have in the Yodlee business over the medium to long term? And is pricing a realistic lever in the business model in your view even if it's not being exercised today? I'm just trying to figure out what the trigger point would be, because it seems like you have a lot of clients, it's probably a pretty -- very sticky service. So maybe just talk about that, thanks.

Hi, Chris. Pricing is a reasonable lever, but our focus has been really growing the user base and if I may take a step back, over the last few years, the Envestnet|Yodlee business' primary goal has been subscription revenue. Subscription revenue in this last quarter represented 88% of our overall revenues for Envestnet|Yodlee.

The key drivers of subscription revenue are users and then revenue per user, so pricing, if you may. And we can toggle between the two of them and we have quarter-to-quarter, we did see a slight increase in revenue per user year-over-year, but our primary focus has really been on growing the user base because we believe that the target addressable market is very large and our current penetration is less than 5%.

So in terms of priorities in the next two, three years, we see our primary focus to grow with new customers grow end users and we may opportunistically grow pricing but that's a secondary priority

Chris Donat, Sandler O'Neill.

Jud, wanted to explore one thing with the advisor count, which increased by about 2,000 in terms of advisors for AUM. First, was there anything specific to that, because it doesn't look like there was conversions and then second, taking a step back from just what's going on quarter-on-quarter with advisors, do you have any sense that either advisors or firms have been holding back on decisions to do more business with you pending the DOL decision or DOL final regulations?

So, those are two good questions. There was nothing notable in the growth of advisors in the first quarter. A couple of firms rolled out new programs. I think there is couple of hundred from new programs, may be as much as several hundred from new programs and the new program would be for someone who has been just doing, advisor's portfolio manager may rule out a unified managed account program and that would enroll some new advisors.

So there is nothing that I know of that was significant or notable about the advisors in the first quarter, other than more often than not -- it's not seasonal, but more often than not there is a couple of times of the year, where it seems like our growth rate of advisors picks up and one those times is in the first quarter and another time is in the September, October period of time.

On the inactivity, I don't think that there is any holding back or now acceleration on the core business. I don't think that there were no conversion on a whole, but now we're going to go forward, no big new programs that (inaudible). But with that said, I do see, feel or sense, sense is a better word, that among a number of enterprises and larger RIA firms, Registered Investment Advisor firms, now that the ruling, the regulations are clear, there is an acceleration for exploring more of a digital offering for a segment of their clients.

There is not going to be a huge grower for any of them, but we expect that there will be, in some cases, thousands -- with large firms, maybe even tens of thousands of commission based IRA accounts that are maybe too small for a fee-based advisor to get interested in.

So, we're seeing an uptick of interest from clients firms and prospects of ways of looking to digitize a solution, which would comply with the new rules, but would enable the firm to service them in a profitable way. And so, that's something that we think is going to be very helpful to the firms and important to the firms, but very -- the pool of assets we're talking about is small compared to the pool of assets that are in more traditional programs.

So that's a long answer, but there are some things that are very promising and there are solutions that Envestnet is uniquely able to deliver for a truly digital approach for these firms, giving them an alternative, if you will, to the [global] advisor.

And then, one for Anil at the risk of asking about competitors. So answer it how you will, but we saw this week that Morningstar is rolling out a platform, a personal financial management portal for advisors using the ByAllAccounts Aggregation, whatever platform they have. Is this any sort of competitive threat or should I view it more like a validation of what Yodlee and Envestnet are doing?

Well, I think as you alluded to, I think there is a very large opportunity here, the traditional services that advisors provide and this kind of goes back really to the first point that Jud made earlier in the question around DOL. I think we are all now going into a phase where expectations are raised, standards are raised, and the opportunity that's created for advisors is much greater in terms of what services and planning an advice in personal financial management, and other tools we can provide to an advisor's client.

So it's a massive opportunity. I think we are in the very, very early stages of pursuing this opportunity. And to me, it is yet another validation as you pointed out. We too are seeing, as Jud mentioned, emerging and strong demand for aggregation for some financial management, many of the [tools] but we're in the very early stages of the game right now.

Surinder Thind, Jefferies.

So let's start with a question on Yodlee. There the revenues were perhaps a little bit lighter than I was looking for, is there any kind of component of seasonality that we should be thinking about from 4Q to 1Q? And then, maybe kind of the path forward in terms of -- should we kind of assume a smooth revenue ramp or how should we think about that?

Yes, I think that's a fair observation. So it's less about seasonality. There is a little bit of seasonality, but really there are two other drivers of what we're seeing quarter-to-quarter. The first one is around what I will broadly label as lumpiness of new deals in deployments.

Our customer base tends to be large financial institutions and financial enterprises and they don't all deploy and sign uniformly during the year. So if you look at our history, we've had a fair amount of lumpiness in the new deals we sign and the deployments that we do. And this year in particular, we are skewed towards the second half in terms of our new deployments.

The second factor is around the cross-sell synergies that were discussed earlier. Much of our cross-sell synergies will impact the second half, Q3 and to a greater extent Q4. As Jud mentioned, we will be introducing the first phase of the integrated product at the Advisors Summit in a couple of weeks and then those will gradually be deployed.

So there is a significant skew based on the current sequence of deployments that we have as well as the synergy impacts, which we are, as you might expect putting a lot of focus and resources on, because we think it's a very significant opportunity for us. So I think what you will see is some ramp in quarterly growth, particularly first half to second half.

Thank you, that's very helpful. One question for Jud. Just kind of on the asset base business. Again, the strength of the quarter in terms of you guys had record gross sales, perhaps a little bit surprising in light of the volatility. Any color thoughts around there?

We were surprised by not the amount because, again, the power of the platform is that as we get more enterprises, more advisors that has its own flywheel effect, if you will, for more sales. There was a lot of volatility in the first quarter and so the gross sales, given that volatility, might have been a little bit surprising, but there is some seasonal effect to advisor's ability to land those new accounts in year-end bonuses and first quarter bonuses tends to get placed into the market unless it's horrible.

We saw the industry's growth rate in accounts per advisor is still below trend. More specifically to Envestnet, it's below our long trend, but it was up a bit from the last several quarters. So, all of that said we did see a pick up at the end of the quarter. And so as markets began to move, we did see a pick-up in new account openings.

Thank you, that's helpful. And then just to round it out, a question for Pete here. How should we think about the right capital structure. I mean the leverage ratio and kind of how to think about debt pay down going forward?

Well, I think there are two aspects to it. One is EBITDA growth, which will help us to de-lever as well as paying down debt. We have covenants, which are in disclosed credit agreement, I'll not get into the details on the call here, but we expect to certainly use those as a guideline for paying down the debt. And as we can, as I mentioned earlier, opportunistically support the stock using share buybacks. That will be the other aspect of using capital for capital structure purposes.

Patrick O'Shaughnessy, Raymond James.

So the first question is on your full year revenue guidance. I think kind of taken the midpoint of your second quarter guidance, you are expecting around, I want to say $270 million in the first half of this year and in the back half, you're expecting $316 million. So what do you see out there specifically or you probably can't talk specifically, but want do you see that gives you confidence that you're going to see that ramp?

So this is the benefit of running a business that has a lot of predictability in the recurring revenue base and a fair amount of predictability on the large conversions that actually get across the line. So, in terms of forecasting or projecting how the second half of the year goes, there isn't an X factor that has to be plugged for business that isn't already either through the implementation pipeline or in the red zone, so to speak, within the ten yard line.

So there are more predictable elements. Now of course, this is all based on the market being flat from March 31. If the market is up, that will have a beneficial effect, presumably. If the market is down, it will presumably have a negative effect, but assuming that March 31 stays, then we've got a fairly predictable amount of core organic growth coming from same stores, new same-store same advisors, core amount from same stores new advisors.

With Yodlee the same thing, same stores new users, new stores new users that are coming on. And then the big delta is conversions that are either now implemented and just waiting to bill or soon to be implemented. And we've got a pretty good perspective on that.

Follow-up question, competitor of yours, AssetMark, was sold a couple of weeks ago. Part A, is that something that you guys took a look at? Do you have the wherewithal to take a look at something that right now? And part B, what do you think that sale, kind of -- what are the implications of it, both in terms of the competitive landscape as well as I think the value of a business like yours.

So, you know that we can't comment on whether we looked at something like that or not, that we just can't. So I'm not going to respond to that, not because I don't want to, but because I am unable to. Implications, it was a foreign buyer. I think that what you find is that there is with private equity, including foreign capital, I'll put that in there, there may be a different risk profile than what the public markets domestically are evidencing for a asset management businesses.

AssetMark, well-run business, it has been around since the early 1990s and is more product and asset management oriented, less technology driven or less technology oriented, but I'm sure they're looking to change that over time. And the implications from a capital market or from a valuation standpoint, I'll let the experts like you figure that out.

I think that the implications from how we look at the marketplace is, we look at, if you think about kind of a McKenzien- type metrics where on the X-axis you've got technology driven platforms and on the Y-axis you have investment driven platforms. This wealth management ecosystem has, you could think of three quadrant; upper left which are traditional TAMs, Turnkey Asset Management platforms, you could call them product TAMs. Firms like AssetMark and there are a number of other firms that are in that category.

And then, go down to the lower right, which is more technology dependent. This is where you have all of the single point solutions and some of the narrower point solutions around specific practice patterns. That's where more of the innovation is taking place. And then, in the upper right, you've got more of the technology platforms or the platform type TAMs and that was a category that we believe, we kind of have had to ourselves early on, say from 2005 to 2010, but that's where we're seeing more competition. We think that that's the sweet spot of the industry.

We know that advisors that use integrated technology, grow their fee based practices at twice the rate that the average advisor does. And we know that integration is a huge productivity lift for advisors. That's why advisors using Envestnet grow faster than advisors in the rest of the industry.

So we think that that's a sweet spot for advisors, for enterprises and we think more firms are going to try to get into that. So one implication I think is that more firms will try to move from being product-oriented to more technology oriented and I think that's an implication, that's certainly what we're expecting.

Thank you. And then last question from me, Pete, as I look at your balance sheet, your cash and equivalents was down to about $37 million this quarter. Is that about as low as you'd want to take it and feel comfortable with your working capital. Like I know you have, I think, something around $100 million of your credit facility to draw upon if you want, but how are you thinking about your cash right now?

We probably have a little bit of room left in there, but that is getting pretty close to about as low as we'd take it.

David Grossman, Stifel Financial.

So most of my questions have been asked and answered, but I just want to ask two quick follow-up questions. The first is back to that gross sales number. I mean that is the highest number that I think I can remember, net of conversions and I'm just wondering, is there anything more behind, just perhaps some cyclical pick up in the back half of the quarter? Is there some pent-up demand perhaps from last year where we had a pretty sluggish year? I'm just trying to get my arms around what are the fundamental dynamics driving that number which was a pretty exceptional number?

Yes. The only thing that we can point to, and I don't want to overemphasize it, so I'm going to posit it with -- is that we did see that account growth per advisor pick up slightly in that first quarter, which would imply that advisors were having a slightly easier or a less hard, depending on how you -- glass half full or glass half empty.

Let's say advisors had a slightly less difficult time opening new accounts in the first quarter and so, when that happens, you get some lift and we've been below trend now from -- really the last quarter that was at trend was Q4 of 2014. So all of 2015 was below trend in both at the industry level and then if you say okay in Envestnet you're going to grow at twice that -- investment advisors given the productivity lift will grow at, let's say, twice that.

Industry advisor per account growth rates and investment advisor per account growth rates were below trend. They're still below trend, but there has been a pick up. So that's one thing that you would find maybe a slightly more favorable environment. But other than that there were no real unusual things. And I did mention earlier that we have seen in the past strong first quarters. Some seasonality, although it's not every year, it's more years than not though.

Right. So, thanks for that. And let me just, in the spirit of time here, I have just one other question and it gets back to WMS and it sounds like at least with Placemark, you got a little bit better integration than you had expected in the first quarter and perhaps less -- I mean, I guess the question is both the expense and the revenue side, but just wanted to check in and just see how -- has WMS now finally, do you think, stabilized in terms of the customers and the fee rate and the mix of business there? And then similarly, it sounds like the integration is on plan that just thought I'd check in on that side as well.

Sure. I thought I've mentioned that in my prepared remarks, but I'll go deeper on that. So WMS, we expect that the revenue side, the mix side -- everything except the expense side has stabilized and we expect the last client to convert by the end of the second quarter. And that last client coming off of the legacy systems is what will create them the ability for us to generate some of the lift in terms of expense savings that we've been expecting.

So that's the lift we're expecting in the second half of the year from getting across that WMS final client. So there is no change to what our expectation is there and we do expect that, on the revenue side it's stable, we think that on the expense side, we expect the lift in the third and fourth quarters.

Okay. So the fee rate guidance that you gave for the balance of the year reflects kind of WMS fully converted then?

Yes. And still that part of the business, not growing at the organic rate. We're going to need probably another six to nine months to get that last business back and that it takes time now. These are new advisors learning a new system and it takes us time to train and to get those same-stores, same advisor growth rates in line with what we're experiencing elsewhere. That's all in the guidance.

Right, And then just one last thing for you, Pete. In terms of Yodlee, so if you did, if I heard it right, with a $2.5 million in EBITDA for the quarter. So if you annualize that, it's $14 million, I think you've guided to $18 million to $19 million. So is it kind of a linear move towards that run rate or is it going to be lumpier in terms of when you're going to get some of the integration synergies or leverage, if you will, from that growth rate back-up in here?

Yes, it's consistent with the way Anil talked about the revenue impact earlier. There is lumpiness and it's skewed more toward the back half of the year.

And we're standing by with no further questions, Mr. Bergman, I'd like to turn the conference back to you for any closing or additional comments.

No, we've gone right up to the hour and I appreciate the questions, very insightful and I appreciate the support and I appreciate your time and we look forward to talking with you in early August. Thank you.

This does conclude today's call. Thank you for your participation, you may now disconnect.