Envestnet Inc (ENV) 2017 Q1 法說會逐字稿

Good day, everyone. Welcome to the Envestnet First Quarter 2017 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. Please go ahead, sir.

Thank you, and good afternoon. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer; Pete D'Arrigo, Chief Financial Officer; and Anil Arora, Vice Chairman and Chief Executive of Envestnet | Yodlee.

Our first quarter 2017 earnings 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 similar non-GAAP information for other companies. 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 1 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.

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

Thank you, Chris. I add my own welcome to everyone. Thank you for joining us. Today we will review our results for the first quarter of 2017 and also update our outlook.

Envestnet is off to a solid start in 2017. We are focused on growing our business organically and gaining adoption of our unified wealth management technology offering, our fiduciary solutions, and our data aggregation and analytics offerings. During the quarter, we witnessed continued adoption of Envestnet offerings as we both enabled and benefited from the main trends impacting advisers and enterprises. These trends include the continued migration from commission-based revenue models to a fiduciary fee-based standard of care and business model, an increasing use of outsourced technology by expert users and the leveraging of data analytics to improve end client outcomes. We believe these trends are fundamental to our business and are the foundation for our growth.

In the first quarter, we grew revenue 20% and adjusted EBITDA by 35% over the prior year's period. Gross sales of asset-based technology and services exceeded $30 billion, a record level during the quarter. And subscription and licensing revenue increased 33% year-over-year, also to record levels. We now serve more than 55,000 advisers, and our revenue profile continues to be approximately 96% in recurring revenue. Last week's Advisor Summit drew more than 2,000 attendees, also a record. Chess great and human rights activist, Garry Kasparov, spoke about what we call the Kasparov Principle, which holds that humans using smart technology plus superior processes create better outcomes. This principle informs the way Envestnet approaches the wealth management space, empowering advisers and enterprises to deliver better financial outcomes through integrated technology and better intelligence. This principle helps navigate the changes confronting our industry, which shows how technology can mitigate and, in some cases, even eliminate human errors but not replace the creativity and wisdom of human experience and intelligence. Better outcomes for end clients are created when human wisdom, creativity and experience are supported by advanced technology. And this is our vision for the future of wealth management. We are putting the pieces in place for an expert-centric intelligent system for financial wellness that supports the experts' unique value proposition and delivers better outcomes for their clients. The power of this emerging network is that it connects the main participants in countless ways: clients with their advisers and advisers and enterprises with managers, strategists, software and service providers and custodians. When advisers operate within the system, they unlock huge benefits that had previously only been imagined. These benefits include: one, first a quantum deepening in their knowledge of their client; second, a warp-speed acceleration of client onboarding; third, turbocharging of adviser productivity; and perhaps, most importantly, delivering better financial outcomes for end clients through better intelligence. Knowing your client for the adviser requires a smart client portal like the next generation client portal we introduced during the quarter, one that includes automated data analytics, personal financial management apps, on-demand performance reported and integrated goals-based planning. It's an essential element to engaging the end client and making them an active participant in their own financial planning and outcomes.

To further accelerate onboarding and transitioning and to support a fiduciary standard of care, in the past quarter, we also strengthened our outsourced chief investment officer offering. This solution supports enterprises and advisers in developing compliant portfolios and programs for managed and transactional accounts. Likewise, our enhanced fund strategist network provided advisers with high-caliber strategists who provided a robust selection of portfolio solutions. Also, we enhanced our wealth management technology by more deeply integrating the industry's leading data aggregation and analytics capabilities. We improved our data analytics tool set that provides actionable intelligence, and we also support integrations with top CRM point providers and leading financial planning applications. We recently completed a second study with the Aite Group, entitled "Technology Integration Turbocharges Advisor Productivity." The study took a deep dive into the effects of advanced integration of technology on adviser productivity. RIAs with integrated technology dedicate more time to clients, generate 50% more financial plans, and this translates into 57% more clients served, 78% larger books of business by way of assets, nearly 50% greater practice revenue. Broker-dealer representatives and bank and trust officers experienced similar results, doubling their fee-based books of business. These are tremendous boosts to productivity, helping to significantly enhance results for advisers.

Finally, we believe data analytics will create better intelligence and will profoundly change the way financial advice is rendered, answering critical questions like "Where else do clients have assets? Is the adviser's share of wallet increasing? How are clients shifting spending over time? What's changing about client income distributions as they age? How do I compare to peers with respect to outcomes and performance?"

The cover story of this week's issue of The Economist noted big data is giving rise to a new economy. This is a quote, "It is to this century what oil was in the last one, a driver of growth and change." Flows of data have created new infrastructure, new businesses, new politics and, crucially, new economics. Digital information is unlike any previous resource. It is extracted, refined, valued, bought and sold in different ways. American Century Investments is the latest example of a firm that is embracing our data-driven value proposition. They recently signed on as a new digital advice client and will soon launch data aggregation, client-facing FinApps and data analytics to better serve their clients. We believe Envestnet is uniquely positioned to help advisers and enterprises to deliver better outcomes through this intelligence based on our unique network of tens of thousands of advisers, thousands of enterprises, millions of investment accounts, over a $1 trillion in adviser-supported assets and many trillions in aggregated consumer financial transactions. This is where we believe the future of wealth management will be, an expert-centric network using smart technology to leverage the creativity and insights that only experienced professionals can provide. We believe we are leading the way. Envestnet's 3 broad offerings, wealth management Software as a Service, fiduciary solutions and services, and data analytics, are the building blocks of this financial network we are enabling. All 3 of these offerings are gaining firm record levels of adoption.

With that, I'll turn it over to Pete to provide more detail on our first quarter results and outlook for the rest of the year.

Thank you, Jud. Good afternoon, everyone.

Briefly summarizing Envestnet's first quarter results comparing the first quarter of 2017 to 2016. Revenue and adjusted revenue grew 20% to $158 million. Asset-based revenue grew 14% to $94.2 million. Subscription and licensing revenue increased 33% to $57.9 million, up from $43.6 million in 2016. Professional services and other revenue increased 7% to $5.7 million. I'll point out that the first quarter of 2017 is the first period that Yodlee's results are now fully included in both the current and prior year periods. Recurring revenue was again 96% of total revenue during the quarter, and we saw revenue from subscriptions and licensing increase to 37% of adjusted revenue from 33% last year. Adjusted EBITDA was $25.8 million, a 35% increase over the $19.2 million we reported last year. Adjusted earnings per share was $0.25 in the first quarter, $0.07 or 39% higher than the first quarter of last year of $0.18.

Moving to our outlook for the second quarter of 2017, which is also included in our earnings release. In the second quarter, we expect total revenue to be between $163 million and $165 million, up 15% to 16% compared to the prior year, made up of asset-based revenue between $96.5 million and $97 million or 12% to 13% higher than last year, reflecting an effective fee rate of approximately 10.7 basis points on our March 31 fee-based assets; subscription and licensing revenue, between $58 million and $59 million or 23% to 25% higher than last year; and professional services and other revenue between $8.5 million and $9 million; cost of revenues between $53 million and $53.5 million. We're assuming approximately $3 million in the second quarter in professional services revenue and cost of revenues associated with the Advisor Summit, making the event effectively breakeven. Adjusted EBITDA should be between $27.5 million and $28.5 million in the second quarter, which is a 23% to 28% increase compared to last year. And using a normalized GAAP tax rate of 40% and assuming approximately 46 million shares outstanding, this translates into adjusted earnings per share of $0.27. For the full year, we are increasing our adjusted revenue guidance to a range of $655 million to $664 million, which represents growth of 13% to 15% compared to 2016. Driven by our increased revenue outlook, we are raising our adjusted EBITDA guidance and now are expecting growth of 23% to 28% compared to 2016 to a range of $122 million to $127 million.

Thank you again for your time this afternoon. Thank you for your support of Envestnet. And with the completion of these remarks, Jud, Anil and I are happy to answer any questions.

(Operator Instructions) We'll have our first question from Chris Shutler with William Blair.

So first, I just had a couple of cleanup questions, if you don't mind. There was a reclass from -- into licensing. And just curious what that was, if it's a one-off or if it should become a trend and how the revenue on those assets changed, if at all?

So the revenue isn't going to change. It was a minimum fee type of a relationship which got moved from one to the other as the onboarding completed. And it happens. I wouldn't necessarily call it a trend, but it certainly happens periodically.

Okay, got it. And then, any -- let's see, it looked like the licensing accounts also dropped quarter-over-quarter. Could you just talk about that?

Yes. There were some small accounts with one of the relatively newer aggregation and reporting agreements that we had put in place that the client thought they were too small to continue the complete recon on. Again, it will have no revenue impact. It was -- obviously if it's in licensing, it's a fixed rate deal, so there shouldn't be any impact on revenue.

Okay, sounds good. I just wanted to clarify all that. And then, I guess stepping back on the DOL, Jud, is there -- we obviously know there's the June 9 and January 1 dates out there. What are you seeing in terms of broker-dealer activity preparing for the DOL? And is there still a lot of hesitancy around decision-making?

Yes. I feel like it's just the same song, a different verse, in the last several quarters, but the tempo is picking up. So as we've said, we don't really know. No one knows how this is all going to shake out. We can make an argument that it will indefinitely be delayed and go away. That's got a certain probability associated with it, a fairly high one. There's some probability that, eventually, it will be adopted as a DOL standard. And there's a range of outcomes that would mean -- that could anticipate a uniform fiduciary standard not overseen by the Department of Labor, but perhaps by the SEC, perhaps somehow in connection with the existing Advisers Act. Whatever it is, the train has left the station for certain types of clients. Large banks, large insurance companies tend to be a bit more risk averse, a little bit more maybe compliance-minded. And many of them are now adopting new programs for IRA assets as well as brokerage assets that emphasize fee for service, level share or level-priced shares, ETFs, so-called clean shares, if you will, as well as managed accounts. So we expected that there would be, in the second half of this year, some increase in the pace over what we had last year. And I think we saw some of that even in the first quarter. So I wouldn't -- I don't know if it will quicken from this pace but, certainly, what we saw in the first quarter was activity that was enhanced or up tempo, if you will, from the first 3 quarters of 2016. We think that, that will continue in major parts of our bank and trust channel, in significant portions of our insurance channel. As we've discussed before, the RIA channel, which is a very important channel for us, is less impacted by the DOL because they already act as fiduciaries in all cases or nearly all cases. And then, it's the independent broker-dealer and regional broker-dealer world that now, I think, is sort of back to the way it was earlier. Most independent broker-dealers are not rushing to implement any new DOL or fiduciary-compliant programs, rather they are allowing advisers to continue to do their business as they've always done it. So still not what we would have expected had the DOL gone into effect but beginning to see some of the benefits of some of the enterprises making determinations that DOL or no DOL, a fiduciary standard is a better duty of care and duty of loyalty to the end client. And those enterprises are incentivizing and promoting new fiduciary managed account programs.

Okay, that's helpful. And then, just one last one. Jud, you mentioned the strengthening of the OCIO offering in your prepared remarks. Maybe just dive into that a little bit, talk about that opportunity?

I'm sorry, the strengthening of the what?

The OCIO, outsourced chief investment officer.

Oh, OC -- outsourced chief. Yes. So that is -- got it. As some of these newer programs take what had been brokerage or commissioned or transaction-based accounts, we're finding some number of new advisers, they're with existing enterprises, long-standing or, in some cases, newer clients, but these are advisers that are new to the fiduciary standard or to the managed account marketplace within firms that we've been doing business with. So increased investment in our outsourced CIO, or Chief Investment Officer, offering just provides more CFA type professionals to consult with advisers about what kinds of transition programs. I've got these portfolios of commission-based funds with these 130 clients, for example. How, Envestnet, should I transition these clients in IRA assets to give them a similar risk profile but to change from a commission-based system to a fee-based system with clean shares that will pass my compliance department. And so while the technology does a tremendous amount of mapping and presenting through a search engine, suitable solutions, many times, there will be several or even dozens of potential alternatives. And this is just a human element, an expert element, that we are adding to the algorithms, to the technology to provide that human machine point of service with advisers that are transitioning their businesses, in some cases, for the first time.

(Operator Instructions) We'll go next to Rishi Jaluria with JMP Securities.

A couple of quick questions. I wanted to drill down on the number and then one for you, Jud. But starting with the fee rates. It looks like the calculated fee rates came in a little lighter than the 10.7 to 10.8 points that was discussed on the Q4 earnings call. Can you just help us understand the dynamics here? And if this is maybe a noisy number, and we should see that number stabilize or pick up? Or what's the right way to think about that?

Yes. We can probably answer this better in more detail afterward, but our calculation was about 10.9 basis points, a little stronger than what we have guided at 10.7 to 10.8.

Okay, all right. Yes, I'm happy to chat about that offline. And then it looks like in this quarter, redemptions ticked up as well, was there any driver or anything in particular behind that one?

I think what you're seeing there, and we'll have to see in the future, but I think what you're seeing there is the downside of an increased return to business as usual from advisers in the first quarter. So we saw gross sales higher-than-expected, we also saw redemptions only slightly higher-than-expected. And that 2.3% rate in the first quarter is spot-on with the broader industry's redemption rate as measured by -- I think, it's Cerulli -- ICI, which is tied to mutual funds and ETFs. So it did -- it was up a little bit. I think that it's the flip side of the coin to the increased sales activity. And that's the fullest insight we have at this point. And it's one quarter, don't know how that's going to continue or not.

One other thing is that, just for some additional color, the redemption rates were higher, for some reason, in the first quarter in some of the reporting and APM assets and lower in the fiduciary solutions which are the higher-yielding portion of our asset-based technology and services offering.

Okay, got it. And one for Jud, and maybe, Anil, you can help on this one as well. We saw some nice growth in Yodlee in the quarter, especially compared to last year. Just coming out of the Advisor Summit last week, there's definitely some customer excitement around Yodlee and, hopefully, some future adoption. Can you give us an idea for just what you're seeing in terms of adoption of Yodlee with existing Envestnet clients and, maybe from a product road map perspective, when we can expect to see full integration that might help take that number up towards your longer-term target of 30% penetration?

So we're very, very encouraged by the response of advisers and enterprises. As I've said before, that response -- first of all, they have to see it, which they have now. The first version was out last August, a better version in November and then, in April, as you saw last week, an enhanced client portal with a lot more features and functionality in it. This is both from the enterprise portal and for the adviser platform. And we're struck -- we're surprised by a big difference in terms of enthusiasm from our clients. And still, a fair amount of questions from investors, "When is this is going to happen? When are you going to show real results?" And when we first outlined the Yodlee opportunity, the data aggregation opportunity, we said this is a long-term strategic benefit. We expect that it will result in material enhancement of revenue and cash flow over time. A big part of that is cross-sell, but that's not the only part of it, it's also just the business that we were in before Yodlee, increasing our data analytics and our performance analytics offering that continues to be the fastest-growing element of the Envestnet enterprise offering. So we still expect that this would be material. We think that it will begin to move the needle probably in a discernible way. We originally set out by 2020, very significant impact. And we expect that, that will have some kind of geometric function that will be -- it will be growth at an increasing rate as the network effect goes and the first early satisfied adopters become reference points for additional. And I don't expect significant needle moving of revenue or cash flow in 2017, and didn't a year ago and don't know -- don't now.

We'll go next to David Grossman, Stifel Financial.

Just looking at some of the key metrics that we always look at, including account growth and adviser growth. And if the numbers that I have are right that I'm looking at, it looks like we saw another deceleration on a year-over-year basis in terms of year-over-year growth. So I'm wondering, can you frame for us maybe there are some comparisons, maybe it's the mix shift to the licensing platform that is going to continue to kind of skew these numbers down when, in fact, fundamentally, there is something else happening in the business. Just trying to better understand the dynamic in that number and when those growth rates may start plateauing.

So we did not have a significant number of conversions in the first quarter. That's a factor. The continued mix shift -- asset-based technology and services are growing at a 12% to 14% annualized rate right now. Subscription- and licensing-based technology and services are growing at significantly higher rates. That, over time, has an effect on the comparables. There was a time when we were -- 90% of our revenue was asset-based technology and services. So the relative slowness of conversions in the first quarter would affect adviser -- organic adviser growth rates. The ongoing shift, little by little, each quarter, into a higher mix of adviser and enterprise is opting for that subscription and licensing-based form of payment is another factor. And -- those are the 2 main things, David. I don't know of any other, but I will dig into it. And if we find anything useful, we will communicate that to you.

Okay. And just the second question I had was on the conversion activity. I think, you told us at the end of last year that you expect some slow start to the year. Any updated thoughts on how you expect conversion activity to evolve as the year progresses, given that we're 3, 4 months, or actually 4.5 months into the year?

Yes. We -- the big ones that we've got are on track. We -- I think we did a more intentional job of -- I think we've used the term risk adjusting the probabilities on the conversions that are in the pipeline. So I think the only update I would have is that the updated guidance that we have takes into effect now 1 quarter of better market than where we were. We don't want to get too far out of over our skis. It also affects the expectation that is intact of those risk-adjusted conversions coming over at rates that we had previously thought that they would.

Got it. And just one more, just in terms of -- I think this came up maybe in the previous question. But as you kind of move to a more of an integrated platform, it would seem that the trend in the revenue per account or revenue per adviser would start migrating higher at some point. And a, I just want to make sure I'm thinking about that the right way. And if not, how should we start benchmarking your success, if you will, in selling that more integrated platform where you would get, hopefully, a higher revenue, if you will, per adviser?

So that's how we think about it. A healthy business will show growth in, if you will, the same-store advisers. Growth in revenue of the same-store advisers. Of course, we don't break out the growth in revenue of same-store advisers. But a healthy business, and ours is experiencing growth in that. Of course, as you add new advisers, they come in and they're not as productive and they're just getting started, so that has a factor. And there are some things that we've been able to expect over time but, again, we don't break out the metrics on same-store adviser revenue growth. Pete, what would you add to that?

I think you're thinking about it the right way, David. I do expect that as we have further success, we will see that revenue per adviser metric grow.

And over time, if you plot it out, that's been a significant part of our overall growth.

Right. So is there any way for us to do it, kind of given the information that you provide, particularly given that when conversions start reentering the mix, that can actually skew that number, right, in any given quarter, given the type of adviser and assets that come on?

I'm going to leave that to Pete and Chris.

I think, again, we can start digging into it. It's -- on a quarter-to-quarter basis, it's kind of a hard thing to track over longer periods of time. There are numerous changes in the revenue profile, in the mix, and it can depend on conversions, can depend on acquisitions. As I look back over 8 quarters or so, we can get into more detail on it, but while I believe that effect Jud has described is happening, it's hard to see it in the numbers that we put out.

(Operator Instructions) We'll go next to Matthew Roswell, RBC Capital Markets.

Two questions. First, can you talk about the competitive and pricing environment?

And second, can you talk about or provide examples of cross-selling core Envestnet product into former Yodlee clients?

So the competitive environment on pricing, we've seen that, apples-to-apples, the pricing from 1 product to another over time has been very consistent, there's been very little fee decline or degradation. If you look at an actively managed unified managed account with several sleeves of active equity managers and tax overlay, 3 years ago, that was a 60-plus basis point revenue product. And today, it still is. Reporting has had very little change. Reporting, when we first unbundled that, that's a 1 to 1.5 basis point product. That's what it was 3, 4 years ago. That's what it is today. There's been some decline due to competitive pressures in the APM, or the adviser as a portfolio manager, offering. Advisers have the choice of paying basis points for that technology and services bundle, pay as they go. Or in some cases, the enterprise, the home office, elects to have a much higher minimum amount and opts for a license or a subscription-based form of that same service. The drivers of the gross fee rates decline are -- can almost entirely be explained by the movement from active investment management to passive investment management. And in the last year -- the last quarter, you'll see that we have a result much like the industry. The industry, I think, had -- reported by Cerulli, was something like $650 billion of net flows into passive and significant net flows out of active -- I'm sorry, $130 billion of net flows into passive, and about $8 billion of net outflows out of active. So that's a primary factor. Another primary factor is the account mix moving away from more full fiduciary solutions and relatively more adviser as portfolio manager and reporting solutions. So that's an example of the competitive pricing pressure. With respect to the services that Envestnet is offering to Yodlee's client base, we recently announced a -- one of the 3 or 4 largest wealth management firms that was engaged in adopting a joint offering, which was Yodlee's data aggregation capability, their personal financial management apps, fortified by Envestnet's data integrity and reconciliation efforts and announced that, talked about it. I think you'll remember when we talked about that. We also identified a large insurance company, a Yodlee client, as well as a Canadian bank, a Yodlee client, where we have added to the services that are being offered to that client by offering either data reconciliation or performance analytics. And we expect that, that's going to continue.

We'll go next to Surinder Thind with Jefferies.

I'd just like to start with a question on guidance. When I kind of think about the new guidance point, and I look at the Q1 EBITDA beat by $1.5 million, it seems like the revenue guidance isn't quite as high as I would have expected, perhaps given the strong market move. And then, given that you guys did beat in Q1 on EBITDA or adjusted EBITDA, the -- and given the strong market move, I would have expected maybe perhaps the EBIT -- adjusted EBITDA guidance to be a little bit higher. Any color there?

Again, we're adjusting, given our forecast for the second half of the year. And in the same vein, we described the level of risk that we were adjusting for. And assuming for the back half of the year, we took the same approach with adjusting the guidance for the current period. And as we move forward throughout the year and look to see the differences, there may be opportunity to adjust further, but that will be dependent on what happens with the business and the market.

Understood. So it seems like -- so on a risk-adjusted basis or if you were to remove the risk adjustment, then the EBITDA guidance should have been higher, is that the right messaging?

I wouldn't go quite that far. What I would say is that, it's still early in the year. And I don't want to get out -- we don't want to get out ahead of the -- of ourselves. We're seeing some very favorable responsiveness to these new features and functionality, to the new outsourced CIO offering. Our quantitative portfolio offering, our QPs, that we introduced about 1.5 years ago, just crossed a fairly significant milestone for us of over $500 million in net new product. And the first $0.5 billion is always the hardest $0.5 billion to come up with a new product. So we're continuing to make investments in the business, and this is particularly true in the analytics business that Anil is running. And so we -- I would -- that's how I would describe our approach.

Understood. And then, maybe focusing on kind of the core business. When I think -- or the asset-based business. So when I think about AUM/A. When I look at the AUM, it seems like gross sales were strong and the net flows there have been improving over the previous year. And they were especially strong this quarter. And so they -- from my perspective, they surprised the upside. But when I look at the AUA business, it seems like the gross sales have kind of more been flattish over the past year. But redemption activity has been generally been picking up. And so as a result, the net flows there have been weakening. Is there anything that we should be thinking about between those 2, I'll call it, types of offerings at this point that you're seeing in the marketplace?

So that's actually a very good point. It's a very good insight. Of course, we don't show -- we don't break out data. But it is a dynamic that we're aware of, and we've noticed it. If you look at where the flows are going, the flows in the asset-based technology and services revenue that has a fiduciary element to it, the AUM, we're seeing very strong flows into that strategist network. And a source of those flows is out of adviser as portfolio manager, APM, which is an AUA. So there's, if you will, there's -- as there's an increased scrutiny -- and this is, in part, due to the top-to-bottom evaluations of these enterprises looking at their firms, how are the advisers performing, who are discharging the duties of the fiduciary as a portfolio manager. And there is a certain set of advisers who are looking to rely less -- these are not the CFA-type registered investment advisers who rightly consider themselves the chief investment officers of their practices. This is rather a different profile, a different adviser persona, if you will, more of a wealth adviser, more than a generalist, but somebody that is a financial planner, a tax planner, a wealth adviser. There is some indication that a subset of those are looking to employ more of the strategists and more of the sleeves into unified managed account offerings and wading slightly less out of the adviser as portfolio manager offerings and, in some cases, the reporting. So that is a dynamic that's happened with some increased frequency over the last couple of quarters. I am making no claims or predictions that it will continue to happen in the future, but yes, you've placed your finger on one of the dynamics that's happening. And of course, with tens of thousands of advisers and thousands of firms, these are happening in, in essence, tens of thousands of accounts. And it's playing itself out over time.

Understood. That's really helpful. And then maybe a quick question on not so much DOL but kind of the uncertainty -- not having -- whether DOL's going to go forward or not, the uncertainty that's kind of created. When I kind of look at the adviser growth in the AUM/A business, it seems like when they first introduced the DOL rule last year, the growth rate there in that adviser count, effectively got cut in half. And to your earlier comment about broker-dealers not rushing out to do DOL implementations is possibly the opposite true in a sense that there's a lot of consciously -- people just holding back that, right now, they may be viewing the wirehouses as a safe place to hang out, and they're just kind of waiting for clarity? And then post once we get some clarity on what might happen with the DOL rule, that there might be kind of some pent-up demand at this point? Or how should we be thinking about that?

Yes. I don't -- here's how we're thinking about it. We're thinking about it that the delay, which really slowed things down, it was a bottleneck for a lot of 2016. That is easing. The ice jam, I'm mixing my metaphors, the ice jam is starting to flow. And they're -- it's compared to what? Had the DOL rule been enforced? There's a lot of demand that would've found its way because it had to. It would have had to have gone from commission-based IRA accounts to fee-based fiduciary accounts. What's happening to how we think about it is that this environment will continue to have opportunities for migrating underperforming assets into compliant programs and then initiating new programs -- even an adviser that has opened up commission-based accounts for years in IRA land, now many firms are offering new incentives to make sure that the new accounts that are being opened up are not commission-based accounts. So we see that the market is better than a year ago and will continue to be this way, with maybe some slight acceleration in the second half from where we are today now in the second quarter, but it won't really flow until, if and when, there is a uniform fiduciary standard that's adopted. And I'm not sure that will ever happen, but we're seeing some benefits from where we were a year before. I don't know if that's helpful or not.

A little bit. A little bit. There's definitely some incremental help there. And then maybe just one really quick question on -- discuss kind of perhaps the seasonality component of Yodlee a little bit in the past where maybe 4Q tends to be a little bit stronger. But when we kind of look back over at least the historical data that we have at this point, while that tends to be true, there also seems to be a little bit more volatility that I would've thought on a quarter-over-quarter basis. Is there any other thing that we should be thinking about? Or is it just kind of as maybe there's some lumpiness related to client activity or you bring on some clients or you have a big win here or there. How should we be thinking about Yodlee going forward?

I'm not sure I understand the question. It's that why is there -- why our fourth quarters higher for Yodlee than other quarters, is that the question?

I guess, the -- it's not so much a why -- I understand the fourth quarter being generally seasonally stronger. But it seems like there's some more volatility than what I would have expected intra-quarter sometimes. And I was just trying to get a handle on that, if there's any insight, or if there's just kind of noise in the data that we have since it's just a limited amount of data.

Well, the quarter-over-quarter effects, and Anil is able to continue to add to this, is really a function of new enterprises, new engagements and then how professional services get rolled out for those launches and then how they ramp up. So there is some variation in quarter-over-quarter growth. There is some variation in year-over-year growth if you look over time. But it's -- I don't know of any technology business that doesn't have that. Anil, maybe you could add some insight.

Sure. Jud, I think you're exactly right. I think the -- yes, go ahead.

Anil, I was going to say I wasn't sure if there's maybe a segment component to it, meaning, let's say, Yodlee Interactive versus the Yodlee financials business. Obviously, they're very different growth profiles.

Not really, not really. What I would add that might be helpful, Surinder, is a couple of thoughts. What we have focused on is subscription revenue growth which, in turn, is driven by users and by average revenue per user. And we toggled between the 2 to maximize subscription revenue growth. Now obviously, we had a solid quarter of growth, that 26%. And what we are trying to do is make sure that we are driving the optimal amount of subscription revenue growth. Then in some quarters, as you alluded to, it's a lot of new deployments. In other quarters, it's a lot of cross-sell of additional products that we have. And one important insight that might be helpful is that, in many company -- technology companies that are selling subscription, they typically sell seats. So I'm selling 100 seats to you, and it costs x for this number of seats. In the Yodlee -- Envestnet | Yodlee business model, we're not really selling seats. What we're doing is we are paid by active users. And to your point, active users fluctuates by use case and by seasonality. And because there are so many dozens of use cases, it's really difficult to come up with a composite seasonality index because the component use cases keep fluctuating. I would summarize by simply saying that I don't believe there is any unusual level of volatility between the quarters versus what we have seen historically. And that perhaps, a more stable measure that we have focused in on is annual trends in terms of users and revenue and subscription growth.

We'll go next to Patrick O'Shaughnessy with Raymond James.

So maybe to follow up on Yodlee. As I look at your company and think about your company, we have so much great data to work with, with the legacy Envestnet side, with all the adviser and asset metrics that you provide. And then on Yodlee, which is an increasingly important part of the business, we don't really have much beyond revenue. In your 10-K, you talk about paid users, but that seems to be less relevant these days. Are there may be other underlying metrics that you could think about providing us to kind of get a better sense of Yodlee's trajectory and what's working?

Pete, you want to take that?

We have -- every quarter, we revisit with the Yodlee group what metrics are most relevant. And Anil talked about users and revenue per user. But as the model has shifted more to subscription licensing and, particularly, with the growth in the data elements, those numbers are little less indicative of what the forecasting model might need. So we do continue to look at items, but what we are providing in terms of revenue growth seems to be the best indication or a way to guide at this point.

Okay, got it. And then, Jud, kind of going back to the question earlier that touched on competition. I think you kind of touched on the pricing impact. But just as we think about the overall landscape, Black Diamond put out a press release talking about how it's seen really nice customer growth. And SEI has a lot of new functionality with their platform. And AssetMark was recently acquired and seems to have some momentum. Can you talk about how you're viewing the competitive landscape versus TAMPs or single-point service providers and how you see Envestnet's differentiation at this point?

So yes. This is for the -- if you will, the enterprise platform business of Envestnet that is part wealth management platform technology, part fiduciary solutions and part performance analytics or data, if you will. We still think that the winning strategy in this space is to be able to offer a platform that can be end-to-end fully integrated but offer component parts. And we think that there are different pain points in these different adviser personas. Some want to just run portfolios themselves. Some want to outsource everything. Some are indexers. Passive portfolios that they create portfolio construction and do systematic rebalancing, and that's it. We think -- we believe that the growth that we have today is significantly higher than the account growth in the channels that we're operating in. And by extension then, it's also greater than any of the customers that -- or the firms that you've mentioned. Our business has tremendous opportunity, and the distinctive value proposition that we are focused on is, while you can get the functionality in its component parts, the fullest and best use of the technology is integrated. That's where adviser productivity takes off. And that's resonating with enterprises and advisers. And you see that over time in the revenue per adviser per year on the subscription side and in the assets and the accounts on the asset-based services side. So we have seen competition from the day we started our business. When we first started it, we were the cloud-based or the web-based technology provider. Most of the other providers had some form of a mainframe or installed software. And that cloud-based capability has been a differentiator for us, it enabled us to be the first UMA provider and the first mobile device-enabled provider. I think competition will continue to be strong. It's a very big space, but we, most recently, are growing at over 2x and maybe even as much as 3x the growth of the wealth management space, which means we're continuing to take share. And while we don't rest on that fact and while we're paranoid about new competitors and how things may go, we do see the market share growth and our revenue growth, even in the asset-based services side being a multiple of the underlying growth of the space, we see that as continuing validation that advisers are adopting our solution more often than they are other solutions.

That does conclude the question-and-answer session. We'll turn the conference back over to management for additional or closing remarks.

I want to thank you again for your participation today. Thank you for the very good questions and the insight that they offer. And we'll look forward to following up with some of you and joining the rest of you in about 3 months' time. Thank you so much.

That does conclude today's conference. Thank you for your participation. You may now disconnect.