Envestnet Inc (ENV) 2017 Q2 法說會逐字稿

Good day, everyone, and welcome to the Envestnet Second Quarter 2017 Earnings Conference Call. Today's conference 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 second quarter 2017 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 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.

The second quarter results demonstrated solid execution on our growth strategy. We saw a significant growth in recurring subscription revenue, and we further expanded our industry footprint, adding advisers, accounts and assets served by our unified wealth management offerings. Our sanguine view of the opportunity before us was reinforced as enterprises and advisers adopt our intelligent systems for financial wellness, thereby, delivering better financial outcomes for their clients.

In the second quarter, we grew revenue 18%, adjusted EBITDA by 32% and adjusted earnings per share by 38% over the prior year's period. All of these above are our long-term targets. Results were strong across all business units. Asset-based revenue was strong and was aided by a significant conversion activity as well as upsells to higher value solutions. Subscription and licensing revenue increased 27% year-over-year to record levels. Gross sales of asset-based technology and services exceeded $33 billion, that's excluding conversions, also a record. We now serve more than 57,000 advisers and 6.5 million investor accounts. As we've previously stated, 2017 is a year focused on execution, and we have delivered on several fronts. We have executed on our pipeline of large enterprise opportunities. Several notable wins have reinforced our leadership position, particularly in the bank channel. Second, we have executed on cross-selling opportunities, working across business lines with customers who see the value of our integrated financial wellness offerings. Third, we have executed on our financial and capital plan, growing revenue and earnings, reducing leverage and renegotiating our term loan to provide a more flexible credit facility. And in addition, we made solid progress on our remediation plan to address our internal control deficiencies.

Within the bank and trust channel, firms are seeking greater efficiency and improved client experiences across their entire wealth management activity. Envestnet is uniquely positioned to deliver a unified offering across a bank's multiple business lines. For example, retail brokerage, advisory, private wealth and trust services, and we are able to provide that unified offering across a multi-custodial framework. This is leading to increased demand and adoption, Synovus Bank, Hancock Whitney Bank and First Citizens Bank are the most recent firms moving in this direction with Envestnet.

I'm also pleased to announce an expanded relationship with Royal Bank of Canada, or RBC. This represents a very significant partnership for us as we successfully migrate the Canadian broker-dealer to the Envestnet infrastructure following the WMS acquisition.

Very recently, Envestnet was selected by RBC's U.S. Wealth Management Division, and the implementation and conversion is well under way. This represents a significant expansion opportunity with the client through one of our prior acquisitions. Also, Minneapolis-based Thrivent Financial, a longtime Envestnet client, plans to implement Yodlee's data aggregation and financial wellness apps in multiple phases.

Last quarter, I announced American Century Investments had signed on as a new data aggregation client, also including client-facing FinApps and data analytics. And I'm pleased to announce that American Century will also be leveraging Envestnet's wealth platform, with deep integration of data aggregation capabilities in order to better serve their clients. Yodlee offerings are also continuing to enable innovations in the bank and credit markets, including overseas. In banking, both Access Bank and Kotak Bank, 2 of the top 5 banks in India, have integrated our instant account verification with their U.S., Canada and India remittance platforms so their nonresident Indians can originate, expedite and secure money transfers. And in credit, a very promising sector, Sierra Pacific is a significant win for Yodlee as the first mortgage lender to sign up for our risk insight. Yodlee will work with Sierra Pacific to integrate and deploy the risk insight suite initially from mortgage asset verification and, eventually, amend to add other solution packages.

Also Qantas, the Australian-based airline just launched a credit card where the mobile companion app is powered by our API platform. And Tic:Toc, also in Australia, has launched an online home loan platform, offering customer approvals in as little as 22 minutes. And we're also proud to announce a new Envestnet | Yodlee partnership with financial services firm, Edward Jones.

Overall, we are making significant progress in growing our business and adding new enterprise and adviser relationships and at leveraging and realizing on cross-sell opportunities.

I will now turn it over to Pete to provide more detail on the second quarter results and outlook for the rest of the year.

Thank you, Jud. Good afternoon, everyone.

Briefly summarizing Envestnet's results comparing the second quarter of 2017 to 2016. Adjusted revenue grew 18% to $168 million; asset-based revenue grew 15% to $99 million; subscription and licensing revenue increased 27% to $60 million; professional services and other revenue was unchanged at around $9 million. Recurring revenue was 95% of total revenue during the quarter. Revenue from subscriptions and licensing was 36% of adjusted revenue, up from 33% last year. The second quarter of 2017 included approximately $3 million of revenue and cost of revenue related to our Advisor Summit.

Adjusted EBITDA was $29.5 million, a 32% increase over the $22.3 million we reported last year. Adjusted earnings per share was $0.29 in the second quarter, $0.08 or 38% higher than the second quarter of last year of $0.21.

Moving to our outlook for the third quarter of 2017, which is also included in our earnings release. In the third quarter, we expect total revenue to be between $170 million and $172 million, up 14% to 15% compared to the prior year's third quarter, made up of asset-based revenue between $103.5 million and $104 million or 15% to 15.5% higher than last year, reflecting an effective fee rate of approximately 10.5 to 10.6 basis points of our June 30 fee-based assets. The sequential decline from the second quarter in our effective fee rate is due to the $11 billion in conversions that came on during the second quarter, mostly in reporting, which have an effective fee rate of around 1.5 basis points. The impact of the loan fee conversion activity was partially offset by several billion dollars of upsells, which improved our effective fee rate.

We expect subscription and licensing revenue to be between $61.5 million and $62.5 million or 18% to 20% higher than last year and professional services and other revenue to be between $5 million and $5.5 million. Cost of revenues, we expect to be between $54 million and $55 million. Adjusted EBITDA should be between $33 million and $34 million in the third quarter, which is 20% to 23% higher than last year. Using a normalized long-term cash rate of 40% and assuming approximately 46.5 million diluted shares outstanding, this translates into adjusted earnings per share of $0.35. Despite this non-GAAP assumption, we do not expect to be a cash taxpayer in the near term, utilizing R&D tax credits as well as net operating loss carryforwards to offset taxable income.

For the full year, we are increasing our adjusted revenue guidance to a range of $667 million to $673 million, which represents growth of 15% to 16% compared to 2016. Driven by our increased revenue outlook, we are raising our adjusted EBITDA guidance now expecting growth of 26% to 29% compared to 2016, which is a range of $125 million to $128 million.

With respect to the internal control work we've been doing, as Jud mentioned, we believe we are on a clear path to remediation. We have realigned our finance department as well as hired additional resources dedicated to management and oversight of the documentation of nonroutine accounting matters, accounting for acquisitions, preparation and review of the financial statement footnote disclosures and compliance with state and local non-income tax regulations.

We are also continuing to implement systems and processes to improve our control environment over these areas. We will be testing controls in the third and fourth quarter in an effort to avoid having any material weaknesses in our internal controls at December 31, 2017.

We entered the second quarter with total debt just over 2x our expected adjusted EBITDA for the year. In July, we completed an amended credit agreement with our bank group. This revolving credit facility replaces our existing term loan and revolver, expanding our borrowing capacity and increasing flexibility.

Thank you for your support of Envestnet. And at this point, I will turn it back to Jud for some closing comments.

Thank you, Pete. As we look forward to the second half of 2017, we expect to be able to continue to grow organically and execute on all product and operational fronts as we deliver fiduciary solutions, wealth management technology and services and data analytics to our enterprise and adviser clients. And as the wealth tech vertical that we operate in continues to consolidate, we believe Envestnet is a logical leader in consolidation activity and can create significant shareholder value in the process. As such, we are again evaluating, consolidating acquisition opportunities as part of our regular business activity.

Our primary focus is organically growing our advice and data-centric financial wellness network. Our organic growth targets remain at midteens revenue growth and adjusted EBITDA and earnings growth at 120% or more of top line growth, accelerated from time to time by disciplined acquisition activity.

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

(Operator Instructions) And we'll go first to Chris Shutler with William Blair.

Thanks for all the commentary on the deals, Jud. can you just go into a little more detail on a few of those? The Edward Jones, American Century and RBC, just -- what are you doing there again? And how should we think about the timing of the revenue coming on?

I think, Chris, these kinds of announcements are always the result of a lot of work between the new client and Envestnet. So there's not a lot of color I'll be able to add on top of it. The -- as I mentioned, the RBC arrangement includes a conversion of some size, and the bank engagements that we described are across the different lines of the banks. And those are -- that's a notable and valuable unified offering that we're able to deliver on. And we expect that these will unfold over the coming quarters, and any guidance that we give will reflect our expectations on it over time.

And then, the redemption rate. Jud, I know you get asked about this every quarter, but it was better in the quarters. Is there anything to point out other than just, in general, enthusiasm around the markets?

Yes. I don't think there's a lot to draw in on it. Volatility was low, and markets were high and strong. I think too the advisers have resumed the focus again on new accounts and also a renewed focus on bringing in legacy IRA, individual retirement accounts, into programs that more -- that better fit within the Department of Labor's fiduciary standard. So I think that what you're finding is a good environment for advisers in general right now, and that's, I think, what contributes to the lower than our -- lower than planned or lower than forecast redemption rates.

Okay. And then lastly, I think Yodlee grew revenue 22% in the quarter. Just give us -- maybe break that down at least roughly. Give us some sense of how much of Yodlee's revenue is coming from different areas. So how much generally is coming from kind of the wealth management side or the more traditional FI side? How much is data? Just any additional direction you can give us there will be great.

So I'm sure Anil will be able to help round out these comments. But apart from what we've disclosed, the lion's share of Yodlee's revenue comes from financial institutions and wealth management organizations. Broadly defined, it's probably 75% to 80% of the revenue comes from those segments, maybe even slightly higher, but 80% or slightly higher. And again, we've also identified that the fastest-growing area within the Envestnet | Yodlee business is the data analytics, which we had expected to grow strongly and that we expected would be able to be the subject of some further cross-sell efforts. And that is happening as we had expected and as we had hoped for. So the business is very healthy and continues to grow nicely. We're getting some nice cross-sell wins, and those are very encouraging and validating of the strategy. Anil, I'm sure you can add something that is valuable as well.

Jud, I think that's exactly right. Chris, what we have said in the past is that, we drive our business through subsegments: the financial institution segment, which is the core of what we do, new FinTech or Internet players, international, and then analytics. We had good growth in all of these different subsegments. But as Jud pointed out, the fastest growth is in analytics, very consistent with what we've seen in the past. That's the value added layer that our customers are demanding a whole lot more. It gives them -- it's a much stronger value proposition.

And Anil, you might just talk too about some of the things we're excited about with respect to the credit opportunity that I just mentioned.

Yes. So as you know, we -- our platform and our APIs are used for a wide variety of use cases, personal financial management, wellness, robo investments, online lending. One of the very exciting new use cases is around enabling credit decisions, risk decisions, particularly within the mortgage arena. And we have been working with new products that we introduced, that you may have seen publicly, which we call risk insights, as well as partnerships with some of the federal agencies. And we expect this to be a significant area of growth and opportunity for us because, as we are each aware at an individual level, applying for mortgages today is a very slow labor-intensive, paper-intensive process. And we can bring our data to bear to accelerate those decisions, make better decisions and make it paperless.

And we'll go next to Rishi Jaluria with JMP Securities.

Jud, you talked about the success you've seen with cross-sell on the quarter. Can you dive a little bit deeper into where specifically you're seeing success? I mean, is this Yodlee cross-sell? Is this seat expansion? Or is there something else here?

So when we first identified the strategic fit with Envestnet | Yodlee, it was all around our -- evolving our strategy from being an investment-centric platform to becoming more of an advice and data-centric planning and wealth management platform. And so all of that has played itself out, and it's really done it in 3 of ways. We have said that we thought that there would be opportunity for cross-sell of data aggregation and financial wellness apps into our core markets. That was number one. Number two was a joint sell of capabilities that arose out of Yodlee's data aggregation and financial apps capabilities, combined with Envestnet's time-tested and proven ability to create greater integrity around data and higher quality around data. That was the second one. And the third one was in joint and cross-sells of data analytics. And the fourth was international expansion. So where we're seeing most of it is in the first 3. We haven't really begun even to move resources towards that fourth one, which we identified would be at the longer end of our expectation. So we're finding RIAs and enterprises raising their hand and saying that they would like to include data aggregation and the financial wellness apps within either a hosted client portal or their own client portals. So several of the ones we have identified already are just that. The second category is enterprise arrangements, where they're looking for an end-to-end enterprise data management solution, which goes beyond aggregated data and goes to -- it may be an insurance company, may have a broker-dealer and they may have a wealth management division. They have insurance activities. They want to have a 1 source of data, normalization data consolidation, data reconciliation and data integrity. And that's something that Envestnet with Yodlee are uniquely capable of doing, and several of the wins we've identified over the last year fall into that second bucket. And on the third bucket is the data analytics which we just -- in the last question, we just identified as the fastest-growing area of our business. And some of that growth, and over time, more of that growth is coming from cross-sell wins. So those are the -- I hope those are kind of self-evident examples since we've been talking about them now for over 1.5 years.

Okay, got it. That's helpful. And Pete, just looking at cash flow in the quarter, I mean, we saw a decent amount of outperformance relative to what we typically see in a Q2. How should we be thinking about cash flow for the rest of the year?

I think we'll continue to look for opportunities to reinvest in the business as we've talked about, as well as continuing to pay down debt with funds that we generate. I think the EBITDA guidance is indicative of what we expect to generate over the rest of the year, and we'll look for growth opportunities and deleverage.

Okay, great. And then last one from my end. But just in terms of looking at the guidance, can you help me understand, A, why do we expect kind of such a steep deceleration in subscription and licensing revenue? And then, why services revenue should have such a steep decline on a year-over-year basis relative to 2016?

Yes. I think the service is more -- I think we had a big quarter last year. I think when you look quarter-to-quarter, excluding 2Q, which includes the Summit, if you look quarter-to-quarter, it's in that $5 million to $6 million range pretty much every quarter, it moved a little bit higher last year, which also drove a big fourth quarter in the subscription and licensing line which is, again, I think why we expect a little bit less aggressive of a jump from Q4 of last year to this year.

And we'll take our next question from David Grossman with Stifel Financial.

The conversion activity, obviously lumpy but strong. Can you help us understand how you assess the relative strength of this quarter versus the recent trend, given that dynamic? How do we normalize? Because all the metrics, I think, probably depressed in the last couple of quarters because of that and then, maybe uplifted in this quarter. So can you just give us some perspective on how you view the quarter and how to normalize for all that both in the prior quarters plus the strength in this quarter?

So how -- I'll answer the first one first, the first part, how do we look at it. I thought it was a decent level of activity. It was heavily weighted towards reporting assets which, ideally, you're going to have big conversion activity that's skewed more across -- evenly across subscription-based and reporting and some of the higher value asset-based fiduciary solutions as well. So it would have been nice to have seen a little bit more of that. We certainly weren't expecting it, but it was a very solid quarter from a number standpoint in terms of activity. The yield was reflective of the product mix. And then, normalizing is the tricky part because, as you say, it's been lumpy. And this has been the nature of the activity that we've described ever since we went -- shortly after we went public. We're expecting that for the foreseeable future, conversions are going to be a meaningful contributor to our organic growth rates. And then looking back over 4, 5 quarters, we expect it will probably add a couple hundred basis points. I mean, anywhere from 100 to maybe 250, looking back. Now that's lower in terms of percentage than it had been, say, 4 or 3 years ago. But it's because the base of revenue is much bigger. And it's hard -- it takes more to move the needle the same amount. So we're expecting the -- kind of the normalized delta on revenue to be at similar levels where it's been in the recent past. And it will come in, in chunks like it has in the past. So I wish I could be more helpful on that, David, but that's as much guidance as we can give on that one.

And I think Jud, we had talked about the second half having more activity than in the first half. So given the strength of the second quarter, do you still feel that based on the business those that you have that pushed on that same position? Or do you feel that the strength of the second quarter may have drawn a little bit of what you -- some of what you had visibility on, at least 3 months ago, thinking it would come in the back half of the year?

We -- I think it's more the latter than the former, David. I think that there's -- it's still -- there's a strong backlog of conversions, meaningful conversions. But we did get some activity on the conversion side earlier in the year than what we had originally maybe indicated. And that was part of the risk adjusting on the conversion activity. Sometimes, it's nice to get it a little earlier than what we had expected.

Right. And then, just one other question. Jud, with the mix continuing to shift to software licensing, is there anything that we should be thinking about in the context of the model, both operationally and from the financials if that mix shift continues?

Well, I think that's a very good question. And the way we think about it is, the asset-based business is very meaningful to us, in part, because it represents one way advisers and enterprises like to pay for the services we provide. There is a different kind of profile to it. If you look at the components of revenue and the subscription-based, whether it's at Envestnet Enterprise or Envestnet | Tamarac or Envestnet | Yodlee, the subscription-based revenue line is growing faster than the asset-based revenue line. And I would expect that, that would continue. Probably not to the same extent that it is right now, but that -- if you will, that outperformance of subscription-based revenue is a dynamic of all the business units. So I do think that's going to continue. That has implications over time for margin and profitability, too.

Yes. And just to that last point. How should we think about the impact on both margins and perhaps even cash flow?

So in the near term, I think you're asking really more of a longer-term modeling question, right?

Yes. I mean, well, if there's a near-term impact, sure. But I'm just thinking about how the business is evolving here and this mix shift is ongoing.

I think it's fair to look at it as being positive for margins in the long term. But we've been at this thing now 17 years, and things always change fairly -- from a margin and revenue characteristic, they change fairly slowly even though things are happening very fast at the -- where the rubber hits the road of technology adoption, things are changing very quickly for advisers and enterprises business. But the margin characteristics, I think, was probably going to play itself out a little bit more slowly over time. And I don't expect big changes in the near term. Although, I do think long term, operating margins and profitability will be -- will benefit from the shift over time to more subscription-based revenue.

All right, great. And then if I could just get 1 more. And Pete, is there any update or could you give us a sense for how we should think of stock-based comp for the year as we model the adjusted numbers?

I think it's going to be pretty flat to what we saw in 2Q, just a little over $8 million a quarter.

We'll go next to Chris Donat with Sandler O'Neill.

So I have 1 regarding the fee rates. And the rate came in a little bit better than we expected in the second quarter. And I heard your comments about the expected quarter-to-quarter decline in the third quarter with conversions negatively impacting the rate and the upsells helping the rate. So for the second quarter, was it mostly or all just a benefit for the quarter with the upsells? And it should just be more of a headwind in the third quarter? Or was it a little bit give and take for the second quarter as well?

Well, I think the second quarter was a give-and-take, but we benefited from assets that were earning revenue during the quarter that weren't there at the beginning of the quarter because of the conversion activity. So the revenue from that, when you apply it from the beginning, gives you a little bit higher rate if those assets, the $11 billion or so were there at the beginning of the quarter. We would have had about a 10.6 basis point fee rate in Q2.

And then, I guess, I might be looking a little too far ahead, but does that mean that there could be a little bit room of relief for the fourth quarter fee rate? Or kind of you're seeing that 10.5 might be grinding down a little bit lower going forward?

We're not forecasting any significant changes from the overall trend that we've seen over the last 1.5 years or so.

We'll go next to Alex Kramm with UBS.

Just -- maybe just to stay on the topic real quick. I mean, since you pointed out the upsell a couple of times, I think, is there something that's different than before? I mean, I remember you used to call out reporting a lot and that was a detractor and maybe you are basically fairly penetrated now. So maybe your sales force is focusing more on upselling. I mean, is there a change in strategy? Or am I just trying to think through this a little bit too much, like -- because I think upsell, it used to be part of the story but we've never really seen it in the results?

So that's well stated. Let me try to take a crack at that, Alex. So we've always had a land-and-expand strategy. And dating back to even '08 before we were public, we were the first turnkey asset management platform to unbundle the technology and just make the technology available for advisers portfolio manager. And then, in 2012, we went very big into the reporting-only business. I guess, that was '11. And reporting only has been a big driver as we try to gain assets and the relationships with advisers. You can't upsell a client that you don't have. So we've had this strategy to it at some point turn maybe more towards gathering and going deeper with those relationships. I think that, it's not so much that we're doing things different. It's a combination of a couple of factors. With our more sophisticated analytics, going to the home offices, the enterprises, now showing which of their advisers are doing a really fine job of managing portfolios, also identifying maybe some opportunities where some firms may want to rely on third-party strategists or outside money managers to provide the core or the main part of an end-client solutions. This enables the platform through the analytics that identify opportunities for better performance to move some advisers who had been reporting or even advisers portfolio manager assets into more complete fiduciary solutions. And I think that, that's a dynamic that's likely to continue as there's an increased scrutiny on performance and on fees by the market generally and by investors. And there's -- they have more powerful tools to make those evaluations, both at the adviser level and at the home office level. I think that there's going to be increased demand for a strong performing strategists and investment managers. So that is a factor. And we've been seeing, over the last couple of years, several hundred million in upsells each quarter, but they have been dwarfed by the very strong reporting conversions that just come in, the kind of -- they're dominated by those. What's happened in this past quarter is we saw that several hundred million rate go to really a several billion dollar rate in upsells, and it was in a couple of firms in particular, and both of them had an increased scrutiny because of the DOL's fiduciary standard. So we've been waiting for a catalyst. I'm not saying that, that's what this is yet. I don't want to get ahead of ourselves. But this is the kind of event that we had expected. We've been putting things in place. First, we had the relationships, we had the product offerings that always could be there for the upsell. The time is right this last quarter for increased analytics that provide clearer opportunities to the enterprise to do some repositioning in the portfolios, which result in upsells to our offering. So that's what's happened. And it's 1 quarter. I expect that we'll have more good quarters in the coming years than we've had maybe in looking back over the past. But it's certainly not anything to say, "Hey, there's a new trend going on here." I don't think.

That's great color. I don't know -- hopefully, I'm not asking the same question again. But one of the things that stick out for me as well, if you look at the net new sales here, if you back out the conversions -- because it was a strong conversion quarter. But if you back out the conversions, it was still I think the best net new AUM, AUA quarter since the end of 2014. So I mean maybe those are related to upsells you just talked about. But generally speaking, are there other things you want to point to? I mean particular customer groups or more certainty around the DOL rule, the better market environment? But anything else you would point out there that gives us confidence that, that might be repeatable just in terms of the net new money of those conversions?

First of all, I don't want to give anybody confidence that this is going to be a new trend that's repeatable for the foreseeable future, okay? But I will say that it's encouraging on a couple of levels. It's the biggest net flow since late '14. It's the biggest gross new sales organic ever. It's a new high watermark for gross sales activity. And there are market forces that are kind of conspiring to, in some ways, validate what we've been working so long to put in place. Now one of those market forces is the DOL, which has enterprises looking for fiduciary solutions that are compliant. And we've got a lot of firms now adopting our Best Interest Contract tools, so that they are compliant going forward. That's -- there's another thing that's happening within our enterprise business unit, and particularly the large broker-dealers and insurance companies, they are looking to consolidate a lot of their activity on 1 main or 1 primary wealth management platform. And given the market leadership we have in those channels, more often than not -- way more often than not, that consolidating platform is Envestnet. Even if we're not the exclusive platform, we are, in most cases, the primary platform. And that primary platform has the benefit of new programs. Because it's just -- think about it from the home office's standpoint. The more that it's on 1 platform that's compliant and gives dashboards for compliance, the easier their job is in many ways. So that consolidation activity of the wealth management platforms, we expect it's going to continue. And it's one of the reasons why in channels like the broker-dealer or in the bank or in the insurance broker-dealer, channels where the fee-based assets are growing in the mid-single digits per year, we're able to get more than 2x that growth. Part of it is the consolidation dividend that advisers who use Envestnet have. The advisers that use Envestnet get a consolidation dividend because they have more efficient practices and they use that, more of that efficiency to spend more face time with clients and prospects. But the other piece of it is that, there is a consolidation among service providers. And we expect to continue to be the primary beneficiary of that in the space.

Great. And then, just 1 very quick one. You talked about the cross-sell on the Yodlee site. Maybe I missed it or maybe I'm not ready. But do you have any numbers you can give us in terms of synergies realized so far? Where do we stand today?

So what we identified originally was we expected that long term, we would have $55 million to $60 million of cross-sell synergies. And that was something that we felt was going to be an important element of the overall return on invested capital for this. And we are in the process of realizing that. And to do that, first of all, we have to have new enterprises that sign new contracts. And so we're tracking the annualized contract value of the cross-sell wins, and we're very encouraged by that. And then, that just takes time for those annualized contract, those ACD contract wins to work their way to actually recognize revenue. And they're -- we're encouraged by the long-term opportunity, which is as strong or stronger than what we thought it was when we acquired Yodlee 1.5 years ago. We're very encouraged by the annualized contract value of the wins that we are getting, some of which we announced today, but there's -- that's a growing group of enterprises. And we're pleased by the throughput on the actual recognized revenue on this. So progress at all the levels.

But no hard number you can share on signed contracts or anything like that?

We haven't. We are not prepared to do that. We've identified this as a long-term play, and we expect that we'll give you continued progress about it. But one of the reasons that our results are as strong as they are is because of the net flows. Another reason that our results are stronger there is because of the cross-sell opportunity.

(Operator Instructions) We'll go next to Patrick O'Shaughnessy with Raymond James.

So first question here on the competitive landscape. A lot of the custodians seem to be investing a lot of money in their custodial technology platforms and, in particular, trying to really make them more flexible, make them more open architecture and help integrate other third-party technologies. Are you seeing increased competition at all from any of those custodians at this point? Or is your value proposition and your multi-custodian nature really making it such that they're not a direct threat to you?

So we're seeing -- in what we would call the wealth tech or the wealth management technology space, we're seeing increased interest, increased competition. What we have been very intentional about being is a wealth management platform that is multi-custodial that works for advisers and enterprises in a multi-custodial world. And we think that we have a differential advantage there. We have tremendous working relationships with the major custodians. We are a referral source for them. They are a tremendous referral source for us. But they also are, in some ways, competing for some of the same technology spend that we are at the adviser and the enterprise level. So this is a world of coopetition, and it's one that we've been doing very well in for many years. This is not a new dynamic. There are solutions out there that can make an adviser's mind spin because there's so many choices for performance reporting, for rebalancing, for CRM, for product access, for billing administration. What our value proposition has been in the past and will continue to be in the future is that, we integrate the disparate parts in ways that are unique. And we believe better than anyone else in the space because we've been doing it longer. And that integration of the disparate apps is what gives advisers a productivity boost, enables them to grow their fee-based practices by 2 to 3x the rate of advisers that don't use integrated technology. And the key is integrating the apps so that the data flows from application to application. And Yodlee, the data aggregation, the personal financial management apps and the analytics were and are mission-critical in delivering that integrated value proposition to the adviser of the enterprise. So we are different in that way. And then the second piece is the multi-custodial piece, we're able to make things work for advisers and enterprises who have multi-custodial practices. And guess what? The vast majority of the biggest RIAs are multi-custodial on their practices, and we expect that, that will continue. So we expect increasing competition, but we've been involved in a world ever since our start where -- 17 years ago, where custodians are trusted providers of not only custody services, but also enabling technology. It's not a new dynamic. It's a dynamic that we expect will continue. And in some ways, it will intensify.

Great. And then, for my follow-up. What are you seeing so far in terms of any acceleration of repapering accounts from commission-based to fee-based? Have we seen that acceleration really happen yet post-DOL [world] kind of quasi going live here?

Well, the repapering, if you will, is program-specific and client-specific. I would say that of our largest enterprise clients, the majority have programs in place working with us to identify potentially troublesome accounts and target those and move those over to fee-based programs. It's the exception of our largest clients who are not actively pursuing programs like that right now. So we've already seen it. You're seeing the result of that in the gross sales numbers that were at record highs in the second quarter. And so what we had anticipated last year and talked about, which was then put on hold while the fiduciary standard was debated and kind of put on ice, so to speak, for a while. What we expect that would happen is now, in fact, happening. And we expected that, that's going to continue through the end of this year and into 2018.

And at this time, I'd like to turn the call back to our speakers for any additional or closing remarks.

I would like to just thank everybody for their participation today, and thank you for the very, very good questions that we had. We look forward to speaking with you again soon. Thank you. Bye.

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