Why don't we get started here with the next session? My first session for the day. As a reminder, I'm Alex Kramm, Senior Research Analyst at UBS, covering exchanges and business services. Very excited to have a new company and new face at this conference, Josh Warren from Envestnet, newly minted CFO. I think that's a way to put it. And yeah, thanks for coming, and thanks for giving investors an opportunity to listen to the two of us chat. Happy to do it. There's no fire, though. Yeah, there will. At the last. Well, it's Miami, right? So I think it's warm enough as it is. So look, why don't we just jump straight right in? And I think since you're new, I'm going to be easy on you and start with a soft one. But clearly, you just came over to Envestnet, but you've watched the company over the span of the last few years in your previous role. So maybe you can just start by helping us understand what attracted you to join Envestnet and why you think the company is now positioned well from here. Sure. By the way, that's much less of a softball than you asked me on my first earnings call. So look, Alex, nice to see you. Alex, by the way, is one of the OG Envestnet analysts, I think, going back to the IPO. So I've known Envestnet now for several years. I knew it initially prior to joining Envestnet. I was the global head of strategy for iShares and index investing at BlackRock. And Envestnet was always this fascinating part of the ecosystem that, frankly, at BlackRock, we could never quite figure out. BlackRock has, call it, two-thirds of the assets under management is institutional. Well, the world isn't making any more defined benefit pension plans. How does one, as an asset manager, grow in wealth outside of the UBSs of the world? The way to get to most financial advisors in the United States is through Envestnet. So BlackRock viewed Envestnet as this fascinating company that I endeavored to understand. That was a couple of years of research that culminated in a strategic investment in 2018, which was both a direct investment by BlackRock into Envestnet and an integration of various advisor-facing technology tools. The other way I got to know Envestnet was I was on the board of something called iCapital. iCapital is sort of the alts-to-wealth feeder fund provider of choice. Alts-to-wealth continues to be a very large opportunity. Several of you have asked me about it. But right now, that opportunity really exists at places like UBS, places like Morgan Stanley, Smith Barney. It is yet to reach the masses, as it were. And so I found myself in the iCapital boardroom talking about, how do we, iCapital, do more with Envestnet? And then when you couple that with the fact that there's just a bunch of nice people who work there, I view this as a tremendous opportunity to kind of get in with the part of the ecosystem that is unique, is differentiated, is desirable. Frankly, the company has had a bit of a unique history. As we think about the next chapter, it meant for me an exciting entry point. Psyched to be here. Psyched to talk about it with you, Alex. Yeah. So to just do the segue to the next question, it has been a rocky ride for Envestnet over the last few years. You didn't get to that yet. But so if you think about the next 12 months and you in the new seat, so what are the priorities to get the company back on, quite frankly, back on track? Yeah, totally. So remember, my first day, the stock was at 35. So so far, so good. But look, the priorities are a couple of things. We're in transition to a new CEO. Bill Crager, who was a co-founder of the company and was the second CEO of Envestnet, is going to be transitioning off this year. The priorities are pretty simple. And the focus is on execution. Despite a transition at the top of the house, the strategy of Envestnet's unchanged. The strategy is simply execution and client focus. And the priorities are really about how to do that, how to deliver that with a bit of scale, with a bit of operational excellence, with a bit of simplicity. As Envestnet enters this new chapter, it's all about how do we take advantage of what we've built? We don't need to go out and find the next 100,000 financial advisors. We have them. They're our clients. We need to serve them more effectively, serve them better, deliver to them as well as possible, and then also change our focus from one of growth at any cost to more of a responsible growth, now with operating leverage and the focus on free cash flow. My goal is just to help have the company run simpler and better. Now we feel like we can operate as one Envestnet. One team shows up. There's one service desk that a client calls. There's one integrated offering. That is only possible because of all the investments that have been made over the last couple of years in processes and technology, in kind of merging together what was a series of component parts and maybe disconnected at times applications, merged that all into one and deliver one firm because that's what the market demands. That's what the market expects. Now we feel positioned to deliver that. So getting a little bit more specific now and starting with the outlook for maybe this year, you didn't give specific guidance for 2024, more broad targets. Can you talk about those targets for everyone who wasn't on the earnings call? But then also, what are the puts and takes to get there? Sure. So first thing, most of Envestnet's revenue is market-based. So the way one would think about targets and guidance, our goal from a top-line perspective is double-digit growth. We forecasted for our Wealth Solutions franchise, which is 87% of the revenue base, to be in the mid to high single digits. And that's ex-market. You can think about Envestnet, the holding company, if you will, as having two business units, two business segments. Wealth is the one I talked about. We also have a data and analytics segment. And then two pricing constructs, an asset-based or market-based pricing that's the majority, a subscription-based pricing into the Wealth Solutions segment, and then also a subscription-based pricing for data and analytics. The different puts and takes for each, let me just give me a minute. Let me just go through them. Wealth, asset-based, that's like an asset manager. That's flows. That's fees on flows. Envestnet is unique in a few ways there. The first is this quarter was the 54th quarter in a row and by the way, I may be understating it. I couldn't find the data further back. But 54th quarter in a row of inflows. I would challenge anyone to find an asset manager that looks like that. I think, T. Rowe, the base case is outflows. Envestnet is a structural grower given where it is in the ecosystem, number one. Number two, as far as just the quality of those flows, Envestnet flows are underpinned by multi-year contracts. An ETF, you can sell whenever the market's open. A mutual fund, you can redeem every day. Envestnet, the multi-year contract, the multi-year duration, the quality of those flows, it's just different. And I think that speaks to the structural growth that Envestnet has, how much, when. That'll be somewhat market-dependent. The pricing on that, typically, think of it as the high end is 10.5. The low end is 9.5. The kind of data says it was 10, then it was 10, and then it was 10, and then last quarter was 9.8. Who knows? That's an outcome. But the puts and takes there are just flows and pricing on those flows, fee mix, call it. Subs within Wealth Solutions, it's really two things. It's technology for RIAs. RIAs are the fastest-growing part of the independent advice market in the United States and financial planning tools. So RIAs, the company that Envestnet acquired was called Tamarac. That is the software offering there. The financial planning tool that Envestnet acquired was called MoneyGuide Pro. Subs, think of that as just kind of P times Q, utilization, adoption. That's the focus there. Then we have the data and analytics business. The data and analytics business, I'm sure, Alex, you'll ask about it. That has had a lot of challenges, certainly during 2023. Revenue year-over-year was down 14%. We believe we're turning a corner there and happy to go into the reasons why. But the puts and takes, really, I would say, we don't need to go out and find net new advisors. It's just serving and executing more effectively on the installed base or the foundation that we have that we feel will position us well for the future. OK. A couple of more specific ones for this year, but also backward-looking. So as we think about this year, I think 2023, the growth was impacted by a few client losses from M&A. You talked about this a little bit on the call. So can you just flesh it out a little bit more, how much that has actually weighed on your numbers, if you can? And is this really an abnormal occurrence, or do you expect more of that? Yeah, I would say less so. So the sales cycle is long. The conversion cycle is long. And so a 2023 deal, per se, wouldn't necessarily show up in the 2023 numbers. A 2023 deal would be more likely to show up in the 2025 numbers. So the 0% growth that we put up in 2023, which, to be honest, was quite less than satisfactory, much more of a function of the data and analytics challenges than M&A. The M&A dynamic, since you asked about it, it's a couple of things. There's a bit of like it depends. But in the situation where an Envestnet client goes out and acquires a third party, that's great. That's effectively customer acquisition. Just we didn't have to go out and do it. They bring new clients on. Great. When a third-party client buys an Envestnet client, that's bad. We lose the client. Us and literally every other software vendor under the sun has that feature going on. What I think is new for Envestnet, and it's a function of the scale that we have and the reach that we have, I mentioned 108,000 advisors. The denominator there is 245,000. So think of that as almost like our advisor share. What's new for Envestnet is situations where an Envestnet client acquires another Envestnet client. In that case, there's a bit of, let's call it, bad news, good news. The bad news is the client can run up against a breakpoint. There could be a short-term revenue hit. In the long run, a client should be well-positioned to do more with Envestnet. That aggregation, I think that's a feature that is here to stay. I think that dynamic is probably unique to us, just given how strong and how entrenched, if you will, our market position is in this population. There are other things, as you kind of rightly kind of identify, Alex, which is other firms buying up advisors, the RIA aggregation, aggregators out there. That's certainly the trade that's in vogue as advisors are getting maybe older, thinking about transition. Some firms are sort of using kind of an active custody business to go out and buy logos. There's all these features at play. In general, I think it creates a bit of a near-term headwind for us. But it's one of these things. It will play out over the course of the next couple of quarters. Great. I made myself useful and gave you some water. Oh, thanks. We've been talking a lot here. But staying on the headwinds, just again, to think about inform the future, you had mentioned how investor allocation has shifted in the last couple of years as interest rates have come up. And again, it sounds like that's been a headwind. So can you help us at all quantifying that headwind? And then more importantly, if we find ourselves in a different interest rate environment, maybe sooner than later, how would that impact you, hopefully positively? Yeah. I mean, I think outside of the general what does the S&P 500 do because we have asset-based pricing, I think the biggest macroeconomic variable that has sort of weighed on Envestnet's results has been the inverted yield curve and the amount of return that an investor can get just by leaving money in cash. Think of that as impacting Envestnet in two ways. The first is if you leave money in your banking account, in your deposit account, that, for us, we earn zero on. That's effectively a held-away asset. That's like cash on the sidelines. That's outside of the system to the extent that turns on. And And by turns on, I mean the yield curve normalizes. People have to return to the market to get to the kind of outcomes that they want. To the extent that returns, that is, A, flows for Envestnet. And then on top of that, the fees on flows, the pricing, if you will, allocating to a retail money market fund and only a retail money market fund, that has also brought the kind of blended pricing rate down. And so look, when I think about what the portfolio should look like and how that rips through the Envestnet P&L, as it were, you should think of the kind of pricing dynamic as returning to more of an average place, like it's been, let's say, since 2020, where the average is 10-ish basis points. Right now, last quarter, I think it was a click under 9.8. But what will be really interesting to see is the flow dynamic. And there, I confess, I don't know how much money is on the sidelines. I've seen the trillions of bajillions of gajillions of dollars there. We'll see how that money ultimately returns to the market. OK. All right. Getting away from the very near term here and thinking beyond 2024, you do have some medium targets. You mentioned the double digits yourself. So obvious question is, how do we get there as we think beyond 2024? Yeah. So the easy one is the market, right? The mid- to high-single digits, that assumes a flat market. So think of that as like an organic ex-market growth rate. How we get there, it's really all about execution in the sense of we can go to market now in really two unique and distinct ways. The first is simply deliver the firm. Take those clients that we serve. Have them do more with Envestnet. Our research suggests 60% of advisors want a one-stop shop and all-in-one. Everyone wants to do more with less. Advisors are no different. So just continuing to deliver to advisors, delivering the firm, sort of first way. The other way that I think is kind of newer and unique, and we just haven't done this effectively yet, is connecting the ecosystem, meaning whether it's through custody, whether it's through asset managers we're talking about private markets but helping an advisor with a curated set, with a simpler set, making there effectively an easy button for advisors to just go and operate and go and execute. That, to me, is all on the come and still upside. How much that will play into 2024, who knows? I would think of something like custody that you ask about as more of like a medium-term opportunity for us. OK. Finishing up on your targets and outlook, maybe I'm jumping ahead a little bit to the margins. But the other thing you guys have out there, and I know new management team soon, and you're part of that, but is that 25% margin for 2025? So again, how do we bridge that? What's your confidence level to obviously get there? I mean, I would say we are like 1,000% committed to improving our margins, including our EBITDA margins. But more importantly, in terms of my focus and our focus, our free cash flow margins and our free cash flow at the end, sort of bottom of the income statement. Now look, adjusted EBITDA, that target, you can't invest adjusted EBITDA. You can't return adjusted EBITDA. You saw Warren Buffett, what he said about EBITDA, how it's effectively banned. But from my and our perspective, we improved our adjusted EBITDA margins by 600 basis points during the course of 2023. You should think about that 25% as a milestone along the way. But the two points I'd leave you with is the best thing we could do for our margins is to grow now that we have operating leverage and kind of have made those platform infrastructure investments over the last couple of years. And our focus is and remains on the free cash flow that we can do stuff with. We can do stuff with, namely, we can repay debt with it. We can return it. We can do M&A with it. So the adjusted EBITDA figure that's core and comparable to me and to us, that's kind of a middle-of-the-income statement phenomenon. It's a good guide. I mean, you should keep looking at it. We're going to keep reporting it. But our focus is sort of elsewhere, namely on the free cash flow that we generate. OK. Good. Maybe unpacking some of the investments you just mentioned, the investments that you've made in the past, not to be too backward-looking again, but can you just remind us where some of those dollars have gone of that investment program? But then more importantly, what is the positive impact that we've already seen? And yeah, what's more to come, I guess? So in terms of where it's gone, look, I think between everyone tells a story of land and expand. But between land and expand, there's kind of like get it all together. And that's the investment cycle that Envestnet has been on during the chapter that we are now leaving, which is what we call the investment cycle, integrating people and process and technology during the last three years, difficult, cumbersome. But I don't believe we would be in the position we are if we had multiple systems out there. In a world where everyone's trying to go deeper with fewer partners, we now have a lot of things that are maybe less visible, like one trading system, one ERP, one way of going to the cloud. It's not a choose-your-own-adventure novel. There was like one operating chassis underneath Envestnet. And that was made possible by the investment cycle. For a proof point that it's not like lollipops and sunshine and whatever, you can look at the number of accounts that an advisor had on Envestnet in 2020 and the number of accounts that an advisor on Envestnet had at the end of 2023. That number has grown by 50%. We have not had to grow costs in line with accounts the way we would have. Now we have one firm, one integrated team. I think about the finance department that I inherited. It's now on Oracle, like every other finance department out there. It used to be kind of a patchwork quilt of systems. So bringing all that stuff together, oh, and by the way, we've lowered our headcount. We've lowered our headcount 10%. Our Net Promoter Scores are up. I think that's only possible with investments in automation, in integration of people and teams. That's where you'll start to see it. And as we go forward into kind of the Envestnet of the next five years, 10 years, we just have a structurally different amount of operating leverage, a structurally different margin profile than Envestnet had prior to doing all that really difficult work of actually merging together what was a series of disconnected things. That's now done. That work has been completed. That work's not easy. But we feel it's set us up for the next chapter. I think you kind of alluded or answered the next question a little bit already. I'll ask it anyways. It's really about the growth algorithm of the company and how that's changed and how it's changing right now. I think the focus used to be very much on land grab. It seems like now it's much more about cross-selling and upselling. Anything else we haven't talked about there that you would point out? Because it seems like that's where the company really is now. 100%. Think of the features of our growth algorithm as a couple of things. I mean, Alex, you nailed it with the what. It's the 108,000 advisors we serve. It's the level of product-market fit that we have. That's the foundation. That's the foundation that we can grow from. In terms of where, the wealth industry is a growing industry. Pick your third-party research provider. Cerulli is, I think, 6%. BCG is 8%. My guess is many people who will come on the stage will talk about the opportunity in wealth. Wealth is growing in the United States and an exciting place to be. So we have kind of a solid installed base of what in a growing where. And then in terms of how, people want holistic advice. People want connected advice. People want the all-in-one provider. That is a secular tailwind. So if you think about that coupled with how we make money, which is those two ways of an asset-based pricing construct for the broker-dealer channel, a subscription-based pricing construct for the fast-growing RIA channel, those pricing constructs enable us to meet the need of the industry. So that combination, multiplied all out, that's why we feel we're well-positioned to grow structurally kind of from here. And then given what we talked about with regard to our operating leverage, the company should be able to recognize more of that, more of that in free cash flow than we did ever previously. Think of 2023 as effectively flat growth. I think we added $6 million of top line. And we added $35 million of adjusted EBITDA. That would have only been possible with some of these platform infrastructure investments that we've made. One thing you've been talking about a little bit more is pricing. But quite frankly, I can't really wrap my head around it quite yet because I don't think you disclose a lot about it, other than the fees you just mentioned. But it sounds like you may actually be able to get positive pricing in some areas. So again, why do you think you can, and where can you get it? And then zooming out a little bit more, when I think about my coverage, in particular on the information services side, those companies actually include pricing in their growth algorithm and talk about adding maybe 3%, 4% or so in some of those cases. So when you think about it, is there actually a number in your head where you think, across your whole revenue base, pricing could be an X% contributor over time? Yeah, what does it take to get there? I will tell you, that's an excellent question. It's an area where we and I are certainly taking a bit of a fresh look at. A couple of features at play. The first is a lot of these contracts, I mentioned before that they're long-dated. So when you take a fresh look, it isn't like you suddenly increase the Netflix bill and you kind of recognize that day one. It will take some time to roll through. We've gotten better at some of our pricing with regard to minimums, inflation escalators, things like that. But you'll see that play out over time. Where people think about Envestnet pricing is typically on the AUMA side. That's the blended 10 basis points I mentioned. It's funny, we gave guidance for Q4 in our November call that had 9.6. Everyone was like, oh, my god. And then we ended up at 9.76, rounded to 9.8. Everyone's like, great job. The reality is that's an incredibly tight band. The band's between 9.5 and 10.5. The way we're going to grow that, the way we're going to improve that, is through more what we typically refer to as AUM-based value-added services, ESG overlays, direct indexing, customized offerings. And what you've seen is our AUM as a share of AUMA versus AUA has grown from around 36% to a little less than 50% over the last couple of years. More AUM equals more value-add equals higher pricing. The big headwind to that, of course, though, is cash allocations and some of the dynamics that we talked about. But I think bottom line, Alex, I think there's a lot of opportunity there. We can work with that now, that we have much more of an integrated offering. It now becomes possible. Right. Quickly, maybe on the flip side of that, I mean, this is an industry where we also see a lot of price erosion in some areas. So maybe anything that you're seeing there, any trends on the subscription side you can talk about? Yeah, is there any areas where there's price erosion? There's always puts and takes. But I think we—I mean, what we've observed and it's funny, the 9.5-10.5 range that I keep quoting, there is no product at 9.5. There is no product at 10.5. There's no product at 10. That's an outcome of millions of accounts and hundreds of thousands of decisions at any given time. The way the kind of offset, the natural offset that we would have to that is just more value-added services, more integration, more tightly coupling our bundle, if you will. But it's less of a point-to-point pricing than my previous job, iShares, where we would price a fund. And then if it wouldn't be selling, we'd cut the price and see what would happen. And then if it wasn't selling, we'd cut the price again. It's a little more dynamic than that. But to me, that's the benefit of the Envestnet platform. Shifting gears quickly to the non-wealth part of the business, the data analytics segment. Yeah, sure. You mentioned before that that was a tough area in 2023. So again, it's been a serial underperformer. Anything you're doing to turn this around? So what can we expect for 2024, I guess? Yeah. 2023 was a brutal year for the data analytics segment. Three reasons why. Kind of two exogenous and one sort of on us. There was the banking turmoil in March. We had a series of client delinquencies. We also lost a critical data set, which we've now restored. That data set eroded the quality of the product. But we've now sort of won that data set back and secured other data sets that would offset and mitigate that. It was sort of a demographically diverse data set that's now been restored. As you kind of correctly surmise or correctly kind of mentioned, we took a pretty sizable impairment charge there in the last quarter. But look, in terms of what to expect on the forward, we're bullish about the future of data and analytics. The data and the pipes of the data and analytics business, formerly known as Yodlee, it's unparalleled in terms of the number of connections, the frequency of those data connections, more than 19,000 data sources, over $5 trillion of annualized dollars of financial data. I think of it as almost a spreadsheet with the most columns and the most rows of any data set out there. And then the pipes that connect it in a regulatorily compliant way to AI models and machine learning models, there's a lot of opportunity there. We collect more data. We do so directly. And we do so in a regulated manner. That's an exciting business to be. I think what we've done there and I think what you can look at is, first, have we stabilized the business? And I believe the early days, but I think we're starting to see that we have. If you don't believe me, look at the Q4 revenue versus the Q3 revenue. What you'll see is the business has gone from sort of falling to sequentially up 3% quarter-over-quarter. When that opportunity kind of flows through, I think it's just too early to tell in the sense of there's a tremendous amount of exciting initiatives that are in place. We'll see. Step one was to stop the bleeding and stabilize the business. I believe we've done that. I think that business represents certainly, you're right in calling it a serial underperformer. But I think for us, kind of from this moment forward, it represents tremendous upside and opportunity. Now, you do actually sound excited about it. But I do need to ask how much core you still actually view that business, given all the discussions in the media, et cetera, that's been around that business. So you actually changed the segmentation a little bit, moved some of the revenue that was in that segment but was more wealth into wealth. Seems like it would be easier to separate now if you choose to do so or somebody calls you up about it. So yeah, what's the appetite here? Well, we changed the segmentation because that's how we run the firm. It's sort of start with the clients and go back from there. I confess I didn't understand why it wasn't that way. So that's how we run the firm that way. We should report that way. So that's how we report. I mean, as far as the look, obviously, not going to. I read the Bloomberg story, too. I was like, oh, I didn't know that. There's obviously been some market speculation around it. I can't say I'm terribly surprised by it. But look, we'll see. I mean, I think, like I said, it creates tremendous upside, tremendous strategic flexibility. What I do believe is core, though, is two-way financial advisor using data effectively to deliver a holistic picture of a client's financial advice so you can deliver what Envestnet has to offer. So I do believe data and the use of data is core. Look, time will tell. We'll see. But you've got to assume we're thinking about everything. I have a couple more. But I'm also watching this clock tick down quicker and quicker. So I should at least ask the room if there's anything we didn't talk about that somebody wants to ask. Otherwise, I'll keep going. Nice. Yeah. Now, since you are the CFO, I should ask you about margins. I asked you earlier about margins. In terms of expense control, where are you still taking cost out post this investment period? Or are you still taking cost out? Are there opportunities to cut more if the top line should be challenged? You mentioned yourself you have market sensitivity. If you need to, are there things to do? Yeah. I mean, think about Envestnet's cost base, if you will. Let's call it four things. There's one aspect to it which really is non-controllable. That's effectively the almost pass-through-like costs that Envestnet receives, turns around, and pays to an asset manager, turns around, and pays to a custody provider, a brokerage services provider. When those costs grow, it's a good thing. It means our wealth business is growing. Let's park that to one side. We have a tremendous amount of the majority of our cost base is what I consider to be manageable. And that's compensation, whether it's cash comp, whether it's stock comp, but call it compensation. We've reduced our headcount 10% year-over-year. We have a set of non-compensation costs. Non-compensation costs are really where I think there is probably more opportunity. There it is around overlapping data vendors, the same thing that people hire us for, run simpler, simplify their stack. We're sort of looking inward at ourselves. And we do have still some legacy overlapping. Our plan and then we have CapEx is probably the last piece. CapEx is going to be down almost 50% year-over-year. But that's because of the investments made, not because we're not going to invest in growth. You should think about our technology spending as coming down in the mid- to high-single digits year-over-year. That's only possible because of what we've done. And again, that's like a cash view of the world, not a GAAP view of the world. But look, with regard to margins, the best thing we can do for our margins, given the operating leverage that we have, is just grow. More of that will fall down to the bottom line. Great. Maybe last one, then on capital allocation. Can you talk about how you have some debt out there. Some of that is coming due. But then also, you've been pretty active on M&A. Is that in the near future? Repurchases, I think, where they are. And if we have time, I think you mentioned earlier already that there's a bigger focus on free cash flow now. So maybe in terms of capital, just how do we get free cash flow closer to adjusted earnings, which is kind of what I usually look at? But when free cash flow is not really there, it's hard to really trust that number. So maybe with the minute we have left, we can lump those things together and talk about capital here a little bit. Yeah. Capital allocation, two priorities, operational execution, and deleveraging. Part of the commitment we have to our clients who run their business on Envestnet is we're going to continue to invest in the platform for growth. And also, we are steadily in the process of deleveraging. We were at around 4x about a year ago. We were a tick under 3.2 as of December 31. And you should expect not immediately because we're not going to do unnatural things to do it. But you should expect that number to kind of ratably go down in 2024. Free cash flow conversion, look, we're focused on it. There should just be, frankly, less noise between adjusted EBITDA and free cash flow. We'll never get 100% of the way there. We'll always pay our taxes and all of that good stuff. But I think part of running a simpler, more free cash flow focused company is just giving you and giving all of you the visibility that you need to make a buy, hold, sell decision about Envestnet. That's being predictable. That's being stable. That's being a company where you can see things all the way down the income statement, all the way through to free cash flow. That's what I and we are committed to doing. Good. Great way to end. The red light is blinking. Josh, thank you very much. Thanks for paying attention, everyone else. Appreciate it.