Envestnet Inc (ENV) 2018 Q2 法說會逐字稿

Good day, everyone, and welcome to the Envestnet Second Quarter 2018 Earnings Conference. Today's call is being recorded.

And at this time, I would like to turn the conference over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. 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 2018 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 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.

And 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. Envestnet delivered solid results in the second quarter, with revenue, adjusted EBITDA and adjusted earnings per share exceeding our expectations. In the second quarter, we delivered 20% growth in revenue and 18% growth in adjusted EBITDA over the prior year period. Adjusted earnings per share grew over 40% to $0.41.

Consistent with the first quarter, we executed well on our priorities for 2018, which are: first, to deliver on our growth plans to become the preferred data and advice-centric wealth management platform; second, to integrate FolioDynamix; and third, to expand the participants and the offerings in our growing financial wellness network.

With respect to our growth, total revenue grew 20% in the second quarter. Excluding the FolioDynamix acquisition and accounting changes, our organic growth was a solid 12%. Subscription-based revenue grew 13% organically, reflecting continued strength relative to other subscription-based FinTech providers. We expect our premium growth to continue in our subscription-based offerings. Our asset-based revenue increased 10% organically year-over-year and 19% overall.

Gross sales excluding conversions were $36 billion. We also completed $5 billion in asset-priced conversions following the $23 billion we onboarded a quarter ago. However, during the quarter, redemptions ticked up to 2.1% per month, contributing to a slowing of net flows to $10 billion. This could indicate a potential cyclical impact on the industry growth rates for asset-based offerings. We saw this in 2011 and again in 2015. And at this point, we are planning for slower industry growth in net flows for the rest of this year.

Professional services revenue was up 26% organically from last year due to continued strong renewal and upsell activity at Yodlee in anticipation of new and enhanced customer deployments. Overall, we expect to grow both our asset-based and subscription-based revenue at a premium to the industry.

Regarding FolioDynamix, the integration is on schedule. We have already completed the first tranche of customer transitions and are well underway with the second tranche. We also expect to remain very diligent in eliminating our operating expense redundancies as we integrate FolioDynamix into our wealth business. Financial contributions from FolioDynamix are in line with our initial expectations.

And our third priority, executing on our financial wellness vision, is core to our long-term growth. By focusing on planning-centric and data-centric advice, we have the opportunity for financial advisors to expand how they work with us across the full spectrum of financial wellness in areas of planning, budgeting, investing, managing credit and protecting.

We continue to innovate, launching new products that help advisors and financial enterprises provide greater value to their clients and increase their share of wallet.

At our Advisor Summit in May, Envestnet | Yodlee demonstrated 2 new financial wellness applications: OK to Spend and AI FinCheck. OK to Spend uses machine learning to understand the consumer's recurring cash inflows and outflows and to predict likely cash balances helping end consumers better manage their budgeting and spending. FinCheck dynamically measures consumers' financial health, delivering personalized insights and recommendations alongside financial coaches or advisors to help consumers build smarter habits and systems to reach their financial goals. We're seeing significant interest in these new offerings from some of the largest enterprises and wealth advisors.

In the area of protecting, our insurance exchange is preparing for a launch later this year, having signed multiple insurance carriers and executing on our technology development plan. And we continue to add new relationships and expand existing ones with firms who seek a more complete digital platform. One example is HD Vest Financial Services, a leading advisory firm and broker-dealer headquartered in Irving, Texas, overseeing $45 billion in assets for about 350,000 wealth management clients nationwide.

HD Vest provides comprehensive tax smart financial services, including securities, insurance, money management and banking solutions. Envestnet's technology will support HD Vest by providing advanced solutions, including better integrated Unified Managed Account technology, model management technology and comprehensive client reporting.

Global Financial Private Capital is a premier example of a registered investment advisory firm embracing the full suite of Envestnet's offering. Global Financial can now offer more than 300 of their advisers a complete and fully integrated solution consisting of Envestnet | Yodlee data aggregation, digital Advice Logix and advanced financial planning, PMC Premium Research consulting and investing. By embracing the Envestnet operating system, Global Financial can deliver a holistic client experience that will help their advisors grow a scalable, fully integrated practice.

As we expand our relationships with clients, we expand the number of participants in the financial wellness network, strengthening our competitive advantage and enhancing our network effect.

I'll turn it over to Pete at this point, and be back in a few moments with some closing thoughts.

Thank you, Jud. I'll review our second quarter results and spend some time on our guidance for the third quarter and the full year of 2018.

Briefly summarizing our results compared to the second quarter of 2017, revenue grew 20% to $201 million. Asset-based revenue was 59% of total revenue for the quarter and subscription-based revenue was 36% of total revenue for the quarter, making recurring revenue 94% of total revenue. Organic revenue growth, excluding FolioDynamix, was 10%, or 12% before the effects of the new revenue recognition rule.

Adjusted EBITDA was $34.8 million, an 18% increase over last year. Both the core business and FolioDynamix contributed to this growth. Adjusted earnings per share was $0.41 in the second quarter, $0.12 or 41% higher than the second quarter of last year and $0.04 ahead of our guidance. The bulk of the outperformance was driven by higher-than-expected professional services revenue and expense management with our debt refinancing and the second quarter contributing about $0.01.

Overall, revenue, adjusted EBITDA and adjusted earnings per share were ahead of our expectations.

We completed a $345 million convertible note issuance in May, providing for the December 2019 maturity of the existing convertible notes, paying off our revolver and creating additional access to capital to support growth initiatives.

With that, I'll summarize our outlook, which is presented in full in our earnings release. For the third quarter, we expect: total revenue to be between $202 million and $205 million, up 15% to 17% compared to the prior year; asset-based revenue between $118.5 million and $119.5 million, or 12% to 13% higher than last year; the implied effective fee rate on our end of June assets under management or administration is 9.3 to 9.4 basis points; subscription-based revenue between $76 million and $77 million, up 21% to 22% compared to the prior year; professional services and other revenue between $7.5 million and $8.5 million; cost of revenue between $65 million and $66.5 million. Adjusted EBITDA should be between $40 million and $41 million, and using a normalized long-term effective tax rate of 20% -- 27%, and assuming approximately 47.5 million diluted shares outstanding, this translates into adjusted earnings per share of $0.50.

For the full year, we are tightening the range of our revenue guidance, now expecting revenue to grow 19% to 20% to a range of $812 million to $818 million. We are increasing our prior guidance on adjusted EBITDA, expecting adjusted EBITDA to grow 19% to 21% to a range of $153 million to $156 million. And we are increasing our prior guidance on adjusted earnings per share, expecting it to grow 41% to 44% to a range of $1.85 to $1.89. This is higher than our previous range due to our increased EBITDA guidance and the expected cash interest expense savings from the convertible financing.

The contributions to our financial performance this year from the core business, FolioDynamix and the insurance exchange platform are generally in line with the guidance we established at the beginning of the year.

Finally, we ended the quarter with $518 million in total debt, which represents leverage of approximately 3.7x our trailing adjusted EBITDA. Priorities for our cash flow in 2018 continue to be investing in the business to support our long-term growth, whether through acquisitions or new initiatives, and paying down debt. Thank you for your support of Envestnet.

And at this point, I'll turn it back to Jud for his closing remarks.

Thank you, Pete. So we are pleased with the results of the second quarter, with our execution for our 2018 priorities and our ability to maintain revenue and raise our earnings guidance for the year.

Longer term, we believe that several forces will continue to fuel our growth. Specifically, we expect that registered investment advisors with fiduciary responsibility, RIAs, will continue to grow share faster than other advisor channels, and we will benefit from enabling this growth.

We also expect to continue to enable the growing importance of fee-based compensation for advisors as many transition away from commission-based compensation. We expect that outsourced technology in general and improved digital solutions in particular will be an increasingly important source of growth for our advisors and enterprises. We expect wire houses will continue to be a force in the industry as they more fully embrace the fiduciary standard of care and seek technology innovation.

Finally, we expect data and analytics to open the door to delivering better intelligence and better financial outcomes as we fulfill our vision for financial wellness.

Envestnet stands to benefit as firms look to us for integrated technology, access to fiduciary solutions, data aggregation and analytics. We believe the wealth tech space represents a tremendous long-term opportunity for us, our customers and our shareholders as we grow organically as well as through acquisitions, which we expect will continue to provide opportunities for additional scale or access to new markets or product capabilities.

With this backdrop in mind, we expect core business growth to be strong relative to the industry, and we expect to maintain the 1.2x relationships between the rate of growth of revenue and the growth rate of adjusted EBITDA and adjusted earnings per share for our core business, accelerating the top and bottom line over time through disciplined acquisition activity. We see a long runway for growth as we expand our operating system for financial wellness, seeking to enable our clients to attain better financial outcomes through better intelligence.

I want to thank you for your time this afternoon. Thank you for your support of Envestnet.

And with the completion of our prepared remarks, we are happy to take your questions.

(Operator Instructions) And we'll go first to Surinder Thind at Jefferies.

Just starting with a quick question on perhaps some of the redemption trends that you're seeing. Beyond just the data, can you provide any additional color that you are seeing in terms of what maybe the discussion amongst the advisors might be? And is it simply clients becoming just a little bit more safety conscious at this point, given where we are in the cycle? Some color would be helpful.

Well, we're in a multiyear bull market and expansion. We have seen cyclical ebbs and flows to advisor and client new account activity. And of course, the net flows are a function of gross sales at the top line less redemptions, equaling net flows. And so we are seeing the same thing that's everywhere else in the business right now. Now we see our subscription-based revenue, a good proxy for that are subscription-based SaaS companies in the FinTech industry. And we are seeing that the premium growth that we've expected there, we see continuing. And it's in the asset-based side of our revenue where we think a good proxy industry-wide for that is a combination of wealth management firms, publicly-traded brokerage firms and also, to some extent, asset managers. You find that the rate of account growth at -- of advisors opening net new accounts has slowed over the last quarter. There's a redemption factor there. There's a gross new account opening factor there. So we saw that in the second quarter. Don't know if it's going to last 1, 2, 3 quarters, but we are planning and we have reflected in our guidance an expectation that, that will continue through the rest of this year.

That's helpful. And then maybe turning to a question on FolioDynamix. Last quarter, I think that the revenue profile was maybe a little bit stronger than you were anticipating. Any additional color on kind of trends that you are seeing there at this point that might be helpful at this point?

So last quarter, it was the expense management that was slightly ahead, just to put that in context, I believe. There was not a revenue or otherwise indication. We are on track in accordance with our expectations on both the revenue side and perhaps more importantly, on the consolidating transaction side, the adjusted EBITDA side of the equation.

We'll move next to Will Cuddy at JP Morgan.

So in the past, you discussed the potential for international expansion building on the Yodlee footprint. This past quarter, we saw a U.S.-based asset manager acquire a U.K.-based wealth management technology firm. How do you think about bolt-on acquisitions outside of the U.S. to further build out your international business?

So we do expect at some point to draft in behind the Vanguard work, the pioneering work that Yodlee has done internationally. And we expect that, that will happen with wealth technology and perhaps managed account technology offerings, not substantially dissimilar from what we see in North America and what our presence is in North America. We look for opportunities to expand the Yodlee footprint with wealth technology or wealth technology software. We would expect that at the time when we enter the international market more fully, we would do so after a fairly comprehensive look of build internally, build through partnering or acquired through acquisition. And if we did acquire through acquisition, we would be very disciplined about the returns threshold that we would be expecting and would probably expect a little bit more of a higher return profile for an international investment that would expand our business than we would in a core market like North America.

Okay. Great. And then on the guidance for the subscription revenue growth, could you please elaborate a little bit more on where do you expect that growth to come from? Is it core Yodlee? Is it Yodlee data and analytics, Tamarac or some of the other Envestnet subscription offerings?

So -- again, just in context, about 46% of our net revenue -- about 59% of our gross revenue, 46% of our net revenue is asset-based recurring revenue. And about 49% of our revenue is subscription-based recurring revenue. About 5% of our revenue is professional services, so not recurring in the same way the other 2 are. We're seeing subscription-based revenue growing faster in all of our offerings, whether that's our enterprise wealth management technology offering, our Tamarac advisor-facing technology offering, or our data aggregation and analytics technology offering. Of those, they're all growing at above our current growth rate, and the analytics piece is growing faster than all of them, but not significantly faster. And we expect that the above-average growth to continue in software, wealth technology software subscription-based pricing, wealth technology software asset-based pricing as well as our data and our analytics offerings.

And next to Chris Shutler at William Blair.

So first, Jud, I just -- I wanted to come back to the redemption comment because actually -- I know you're talking about the redemptions being a little higher, but they came in quite a bit better than what we were looking for in the quarter. So was the second quarter rate impacted at all by the previously mentioned client losses? And if so, by how much? And I guess, have you -- it would seem like you've seen a tick up from Q2 levels. Is that fair?

So let me try to unpack that. If I miss anything that you asked, Chris, please circle back.

Yes.

First of all, the anticipated client losses were not reflected in those redemption rate numbers during the second quarter. That all worked its way through in the first quarter, but the full year impact of it you'll continue to see when you look at year-over-year growth rates, particularly in the third and the fourth quarter, because of how it just works through. So what was anticipated has occurred and we have scoped that very accurately. The redemption rate that we reflected was higher than the first quarter rate adjusted for those other events. And it was an uptick at a time when, if there is any seasonality, redemption rates tend to be lower in the second and the third quarter, slightly higher in the fourth quarter and kind of maybe about average in the first quarter. So all we're saying is that in the second quarter, we saw an increase in redemption rates. And it's a modest increase. It's an uptick. It's not giving us a terrific amount of concern. We see it, we're noting it and we're now planning as if it will last through the second half of the year, quarters 3 and 4. And that's as complete an answer as I can give you.

That's helpful, Jud. I appreciate it. And then just one other one, the -- maybe just in the TAMP space, could you talk about the competitive environment? Specifically, I'm interested in, I guess, fee pressure in your -- on your TAMP overlay fees. I know at least one of your competitors has jumped into the business of trading models. So any commentary there would be great.

So the TAMP business for -- just for those who don't follow it, that's an acronym for turnkey asset management platform business. That's been an offering that we have had since our inception. We brand that offering as Envestnet | PMC. That's the product suite that we -- that's short for portfolio management consulting. Envestnet | PMC's offering competes with a number of companies. And what we have found on the pricing side is that there's a high level of pricing stability in like-for-like offerings. However, we're seeing a secular shift away from traditional single account -- separately managed accounts moving in a secular shift towards multi-manager Unified Managed Accounts, multiple accounts within a single registration. And that has an effect on our -- both our gross revenue and our net revenue because a typical manager fee on a traditional separately managed account is around 50 basis points, whereas model revenue for a sleeve-based Unified Managed Account provider is in the 30 to 35 basis points. Now that's a cost of goods sold, but that has a revenue and an expense effect on their profile. We expect that's going to continue. We also see a fundamental trend over time moving away from traditional active management towards ETFs, low-cost beta index funds and smart beta or rules-based investing, factor-based investing like you would see with a firm like [BFA] or AQR, or like we've done with our own Quantitative Portfolios. That also has an effect on margins. We have not seen a competitive negative effect from new entrants into the market. We've been a disruptor, if you will, since our inception. And we expect that we'll continue to gain share of TAMP assets relative to the industry for the foreseeable future, as we are now. And a good proxy for looking at that is just look at the account growth rates of publicly traded wealth management firms, see what those are growing at, and you'll find that a very durable growth premium is that our TAMP business grows very consistently at around 2x the rate of growth of the overall industry for managed accounts. And that's reflective of the market share that over time -- sometimes it seems slower, sometimes it seems faster, but over time we're gaining that market share. So that's kind of a long answer. I don't know if I addressed what you were asking for or not.

And we'll go next to Peter Heckmann at D.A. Davidson.

I wanted to follow up on FolioDynamix. You had noted that the integration is very much on schedule. I wanted to see if you could comment on -- give us an update on when you think you might be able to achieve your margin targets there? And as well, with the FolioDynamix functionality, I mean, how should we be thinking about that asset? Would you expect to add new -- material new clients to the FolioDynamix platform either through cross selling or net new business? Or should we expect it to -- will it be more of a -- kind of just a steady growth with the industry, but no net new clients?

Well, again, to kind of place some context, the cash flow and revenue expectations that we have in 2018, '19 and '20 are consistent with what we laid out originally, have not changed. So we're expecting a nice contribution this year, additional contribution in '19 and then a final amount in early 2020. That hasn't changed. This would remind investors and analysts of the profile of consolidating acquisitions for the first year or so, maybe even 2 years following a consolidating acquisition. There's not a lot of revenue growth in that acquired customer base. There's new training on technology and there's a focus more on cost reduction and eliminating redundancies. Over time, whether it goes back to FundQuest or WMS or Placemark or other consolidating transactions we've done, over time we've seen them grow consistent with the rate of growth of our long-standing enterprise clients. And so if that context that I would then say that the trading tools at -- that we acquired, that we benefit from with FolioDynamix, we expect will find a broader use space. Now sometimes they will -- the client will be getting an upgrade of functionality for essentially the similar pricing that Envestnet's own APM, Advisor as Portfolio Manager technology, trades for. And since there is a per user or an asset-based escalator on that, what will come at the growth of the FolioDynamix will be at the expense of the old APM tool. We're neutral on that. We want the tool to be in the hands of the advisor that can most benefit from the higher frequency trading and less of a model-based approach. So we expect that it will become an increasingly important part of our service offering. That's for the use of the FolioDynamix tool within the Envestnet client base. And we think that that's good because it's a higher degree of satisfaction among the advisor users. Now to the FolioDynamix base, we're expecting to over time grow that very nicely and that's by offering some of them fiduciary solutions that PMC offers, our data and analytics solutions from the Yodlee side of the business, and in some cases, for a subset of advisors who are more registered investment advisor oriented in their practice and who rebalance on a household level rather than an account level, we would expect to see some adoption in the FolioDynamix advisor base among the high end of the advisor of the Tamarac solution.

Got it. That's helpful. And then just one housekeeping question. Can you give a range for the noncash stock comp that's embedded in the guidance for the year?

What's the question? The noncash stock comp?

Yes. Stock comp that's embedded in the adjusted EBITDA guidance.

It's around $40 million for the year.

In the quarter, yes.

Got it.

Check the quarter. Yes, it's kind of ratable, I think.

And our next question today is from Chris Donat at Sandler O'Neill.

Actually, yes -- had another one for Pete since we got him. On the professional services this quarter, I'm just curious if something unusual was going on there. And I understand that the guidance is for a little lower for the third quarter, but it just looked unusual to me, so I'm curious.

Yes. So it's -- the big thing in there is the summit and fees related to the Advisor Summit. And the rest is just work we're doing for onboarding clients that we're recognizing in Q2.

Okay. I guess, it's all in the past that the Advisor Summit typically appeared in subscription and licensing. Is there a chunk of it in that also or am I wrong on that?

No. It was -- so I think the old construct had subscription and other, and so it was in that line combined. But now that we’ve broken out subscription separately, it goes with the PS and other -- professional services and other.

Okay. Got it. And then just curious, Jud, as we're talking about the redemptions, separate issue but maybe there's something related in it. With rising interest rate, we're seeing in some online brokers and other institutions a shift of clients moving their cash into securities and other instruments that will generate a higher yield. Does that have any effect -- well, first of all, are you seeing that sort of movement? And then, does it have any revenue or earnings implications for you?

So we have not seen that to any significant degree, even marginal degree yet. There's some sporadic evidence of -- on large new accounts. There is -- it is -- an almost, say, a higher degree of conservatism on the new account openings for larger accounts to put the full allocation into the equity markets. So we're seeing it at the margin on new accounts, not any kind of wholesale or systematic change on existing asset base of the $500 billion approximately of fiduciary solutions assets. But of course, if that does happen, fewer out of every dollar will be invested in full program assets. And there would be less platform revenue per dollar if that does play itself out on a more systematic basis. I have seen no indication of that yet, however. I think it's more of a new cycle that may be taking its toll on some psychology of investors, causing a little bit of slowness. Advisors across the industry are not opening up as many new accounts, and there's higher redemption rates with existing accounts.

And David Grossman at Stifel.

Jud, just looking at the results for the quarter and the net flows, the bookings, again, this is like your third consecutive quarter of just incredibly strong gross sales. How does that reconcile with some of the broader trends that you've been talking about in the context of higher redemptions, and clearly we saw it in both the accounts and the advisor growth.

We would expect in a normal year to be -- to see an expansion 2Q over Q1, right? And that's the simplest answer I can tell you, David. And so when it's relatively flat, Q-over-Q, even though at very high levels, very high -- it's relatively flat. And with that uptick in redemption, it's just only prudent to plan for that continuing for the next couple of quarters. Hope it doesn't, but seems prudent to plan for it to continue. And I would just cite the flattening quarter-over-quarter at the top line on the uptick of the redemption rate. That's what we're seeing. And we shouldn't try to read too much into it.

Right. Okay. And then looking at the mix shift in your business, because we're talking about, obviously, the subscription and license component of your business growing at a faster rate. What is the implication on the financial model as that trend continues to play out?

Well, I mean -- there's -- I'll just kind of state the obvious. One is that because of the cost of goods sold, the -- over time it'll slow. I mean, if 1 is going at 15 and 1 is growing at 10, they're both growing and it takes time to really have a big impact one way or the other. But one simple thing is that operating margins over time are higher because of the absence of cost of goods sold expense, higher on the recurring revenue subscription-based side and also on the recurring revenue non-AUM asset-based software side. So that's one implication. Another implication would be less susceptibility to market changes. Asset-based pricing -- the good news is that for the last 10 years, the market has been going up and that benefits when it's asset-based pricing. But we all know that the not-so-good news is that markets don't go up forever. And again, not making a big deal about it or overemphasizing anything, but an implication is less susceptibility to market downturns, but flip that on the other side, less upside in strong markets. And in strong markets, it's not just the asset benefit. It's advisors open new accounts faster. They close old accounts or redemption rates drop in strong markets. And in strong markets, I think there will be a corollary benefit. Our subscription revenue will grow faster in a strong market environment -- strong capital market environment. I think our subscription revenue will grow faster than in weak capital market environments. But those are just 2 very plain potential implications, and I'm sure you can think of others and...

Right. Okay. There were some other things I was thinking more in terms of kind of the unit element of your growth rate, but perhaps that's something that we could take offline. And just one other question I had was really about the new model that you're pursuing of financial wellness. What changes, if any, do you really need to make to the products or the go-to-market strategy to really execute on that? Is there any real material change? Or is it really kind of a relatively modest transition to kind of tool the business to kind of pursue that strategy?

So it's modest, but I would look at that wheel. On the financial planning side, we'd like to -- we're strongest in planning and investing. We're making great strengths via Yodlee -- great strides via Yodlee on the budgeting and spending side. Yodlee has begun with the new offering on the credit side to be able -- to firms that want a very highly accurate predictive tool for creditworthiness, we've been able to, in beta, show a product that's very attractive there. And then on the protecting side, we're -- we started with the enterprise group on that FDx exchange. These are early day, early stage investments. We don't expect to have any material shortcomings of our offerings in those areas. Of our core area, though, of financial planning and investing, it's tweaks, it's modifications. And some of the trends that I identified, which are the ones I always identify, on the advisor side, a continued strong -- maybe a laser focus on the advisor. And the things that the advisor needs, we're going to want to continue to invest in that registered investment advisory channel, which is the fastest growing. On the planning side, we're giving nice adoption of Logix, the financial planning capability, but we'd like to continue to look to invest more heavily in the financial planning area. We continue to hear from advisors that they'd like deeper integration on CRM, on client relationship management software into the Envestnet ecosystem, into the Envestnet wealth management platform. We expect to do that. And on the investing side, the trends that we believe are durable and we'll continue to -- that we'll continue to look to make investment in are things like Quantitative Portfolios or rules-based investing, because we think that -- especially cost effective rules-based investing, these are the things that we think have durable growth levels. So there shouldn't be any news here. This is just an amplification. None of this is a big strategic missing piece. And we would be looking to invest in organic growth in any -- inorganic growth in the areas that I just identified right now that we'd like to go deeper in. I don't know if that's helpful or not.

(Operator Instructions) And we'll go next to Patrick O'Shaughnessy at Raymond James.

So as we see the RIA industry consolidating and RIAs joining up with larger firms and RIA consolidators kind of leading that charge, does that structurally lead to more pricing pressure for you guys as they try to negotiate better terms on their software? Or is that something that's been going on for long enough, it's already embedded within your business model and the headwinds that you might be already facing?

Yes. So [investment], Patrick, I wouldn't characterize that we're facing headwinds. I think we still have very strong tailwinds, although they've moderated a little bit is how I would characterize it. And not to be argumentative, Patrick, but I just don't -- I don't feel headwinds now at all. I still feel tailwinds. But yes and no. For 10 years or longer, the $20 billion on a platform or with the client is probably at a 30% discount to what the first billionth dollar is on the technology. So as our enterprises get larger and our advisors get larger, their marginal cost, whether it's asset-based or subscription-based, are their marginal cost is less than it was when it first started. Because we are a scale business heading towards superscale, and scaled enterprises and scaled advisory firms expect to have some of the benefits of their own scale over time. So I don't think that there's any acceleration in that dynamic, Patrick, in the RIA side. The lion's share of the growth in wealth management is -- and it's a significant portion of the lion's share, is happening at the very largest RIA firms. So the largest RIA firms today are -- one way of thinking about it is they are the disruptors in wealth management today. And Envestnet is the enabler of the disruptor through our technology. But they're taking share, they're gaining share over other channels at this point. And there are lessons that the other channels can learn, but they are gaining share at that. And we think that, that consolidation will continue. And sometimes it will benefit us and our client base and sometimes it won't. Over the last 5, 6, 7 years, industry consolidation, whether it's in the registered investment advisor channel or the broker-dealer channel or the insurance channel, has on balance favored us because of our leading market share position. So we think that, that will continue, but it's not a smooth trend that always goes the same direction without some step function. And sometimes we take a step back in order to go 2 steps forward later on. Does that help?

That makes sense. I appreciate you cleaning up my wording as well. And then Pete, maybe a follow-up one for you. In the announcement about your new convertible bond offering, you spoke to maybe opportunistically repurchasing or retiring some of your 2019 converts. Did you do any of that during the quarter? And what are your expectations going forward?

We monitor the availability and we're considering it on an ongoing basis. We have not executed any repurchases yet.

And with no additional questions at this time, Mr. Bergman, I'll turn things back over to you, sir.

Well, thank you, everyone, again for your support, and I know we'll be following up with a number of you in follow-up calls over the coming days and weeks, and we look forward to that. And thank you for your support, and we look forward to talking to you in the near future. Bye.

And ladies and gentlemen, once again, that does conclude today's conference. And again, I'd like to thank everyone for joining us.