Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Envestnet Inc  (NYSE:ENV)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

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

At this time, I would like to turn the call over to Mr. Chris Curtis, Division CFO and Head of Investor Relations. Please go ahead, sir.

Christopher Curtis -- Division Chief Financial Officer & Head of Investor Relations

Thank you. Good day, everyone, and welcome to the Envestnet fourth quarter 2018 earnings conference call. Today's call is being recorded. At this time, I would like to turn conference call over to me -- sorry about that. Thank you and good afternoon. With me on today's call are Jud Bergman, Chairman and Chief Executive Officer; and Pete D'Arrigo, Chief Financial Officer. Our fourth 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 one month on our website. All remarks made during the call are current at the time of the call and will not be updated to reflect subsequent material developments. We will take questions after our prepared remarks.

And with that, I will turn the call over to Jud.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Thank you, Chris. I add my own welcome to everyone this afternoon. Thank you for joining us today. Envestnet's integrated financial loans platform empowers enterprises and advisors with actionable intelligence to attain better financial outcomes. We continue to grow our business while enhancing the emerging financial wellness network through innovation and acquisition to help firms, advisors and their clients achieve better financial outcomes and improve their lives.

Envestnet delivered solid results in the fourth quarter and for the full year of 2018. During the fourth quarter, we grew revenue 15%, adjusted earnings before interest taxes, depreciation and amortization grew 22% and adjusted earnings per share grew 53% over the prior-year period. For the year, we grew revenue 19%, adjusted EBITDA 22% and adjusted earnings per share of 47% over the prior year. Revenue was in line with our guidance and we outperformed on earnings for the quarter and the year.

In Wealth Solutions, gross sales, excluding conversions, were $33.6 billion in the fourth quarter. We added over $23 billion in asset-based conversions and on-boarded an additional $72 billion in subscription-based conversions, bringing total conversions for the quarter to $95 billion. During the quarter, redemptions were 1.8% per month, resulting in net flows of almost $28 billion.

We ended the quarter with more than $2.7 trillion in more than 10.8 million investor accounts. More than 96,000 advisors now use Envestnet's wealth management technology, up 4% in the past three months. We expect to surpass the 100,000 advisor milestone, that's advisors using our solutions, sometime during 2019, and we look forward to reporting that milestone.

In Data and Analytics, revenue grew 15% in the fourth quarter to nearly $48 million and 15% for the year to nearly $180 million. Adjusted EBITDA for Data and Analytics grew 26% for the quarter to $11 million and 25% for the year to nearly $37 million. During the year, we made progress in fulfilling our vision for financial wellness. As a reminder, financial wellness begins with financial planning and includes budgeting, investing, managing credit and protecting capital.

The foundation for our delivering on this vision is our industry-leading capability and data aggregation and reporting and our market-leading wealth management operating system, which supports firms' and advisors' ability to implement the elements of financial wellness. Recently, an independent wealth management firm, 1st Global, based in Dallas, expanded their use of Envestnet to now include Envestnet Vision, our enterprise data management solution. Envestnet Vision provides the enterprise with a client-centered portal that provides a full picture of the client's financial wealth and the opportunity for the enterprise to get closer to that client.

We are also making great progress with the insurance exchange we formed one year ago. Today, we have six leading insurance carriers under contract. They will be offering annuities and other insurance products through the exchange to Envestnet's advisor base as part of the proposal process. We expect the insurance exchange will be a solid contributor to our growth in subscription-based revenue in 2019.

And FolioDynamix has now been part of Envestnet for a year. We made significant progress, integrating Folio clients into the Envestnet environment, while improving the operating efficiency of the business, as we leverage our core operating expertise in doing large scale conversions. We are on track to deliver the expected contributions in both earnings and revenue in 2019 and beyond.

Much has been accomplished already, as we began 2019. We began the year with a -- an alignment of our organization into two business units, down from four to better position the company to fulfill our vision for financial wellness. Bill Crager leads our Wealth Solution business, which includes Enterprise, Tamarac and Retirement; and Stuart DePina, previously President of Tamarac, now leads our Data and Analytics business, which include Yodlee offerings as well as Envestnet Analytics.

At the same time, Anil Arora announced his plans to step down from his operating and leadership role at the end of February. And I want to thank Anil for his many contributions and for building Yodlee into the leading data aggregation and analytics platform in fintech. I look forward to his continued involvement with Envestnet as a member of our Board of Directors.

I'd also like to highlight three developments that align very well with our financial wellness vision. First, this afternoon, we announced an agreement to acquire PortfolioCenter from Schwab Performance Technologies. PortfolioCenter has helped our Tamarac's award-winning suite of portfolio reporting, trading, client portal and CRM applications.

More than 3,000 RIA firms use PortfolioCenter today, including many of the 1,000-plus firms Tamarac already counts its customers. This acquisition will enable us to support more of the registered investment advisor marketplace and help empower advisors using PortfolioCenter with a broader range of solutions. Overall, this combination yields access to more advisors, who can use our technology, and also importantly, a deeper partnership with Schwab.

Last month, we announced the acquisition of Abe AI. Abe's transformative conversational artificial intelligence capabilities, paired with Yodlee's industry-leading financial data aggregation platform and personal financial management apps, allows institutions across retail banking and wealth management to engage, support and assist consumers on their path toward financial wellness.

Also, we announced the formation of a price, a partnership between Envestnet, PIEtech, Inc., the parent from behind MoneyGuide, the leading goals-based financial planning application in the market; and Edmond Walters, the founder of eMoney, Apprise is building software to address sophisticated high-end of state planning, lifetime cash flow, tax and other client retirement needs.

This next-generation software will add detailed short-term cash flow and tax planning capabilities to the financial planning solutions offered by both Envestnet Logix and MoneyGuide, and will strengthen the interactive relationship between advisor and client in the sophisticated financial planning process. Our investment in this partnership underscores our view that financial planning is the cornerstone of our financial wellness vision.

Envestnet is uniquely positioned to build the premier financial wellness network. Our wealth management platform offers advisors choice and retains the benefits of an integrated offering across the entire application stack of wealth tech, which we provide and includes aggregated data, client onboarding, proposal generation, financial planning, extensive managed account solutions and client reporting.

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

Pete D'Arrigo -- Chief Financial Officer

Thank you, Jud. I will review our fourth quarter results and our guidance for the first quarter and full year of 2019. Briefly summarizing Envestnet's fourth quarter 2018 results compared to the fourth quarter of 2017, total revenue grew 15% to $210 million, recurring revenue was 96% of total revenue, unchanged from 2017. Our recurring revenue is the combination of subscription-based recurring revenue and asset-based recurring revenue.

Subscription-based recurring revenue grew 19%, reflecting continued strength, relative to other subscription-based fintech providers, contributions to growth of subscription-based recurring revenue were relatively balanced between Wealth Solutions and Data and Analytics business units. Our asset-based recurring revenue increased 11% year-over-year, which is entirely in our wealth business. Despite a drop in equity markets in the fourth quarter, conversions and net flows remained strong. And I'll speak more about the implications of the market activity in our guidance section.

Professional services revenue increased 35% from the prior-year period, driven largely by activity in our Data and Analytics business relating to customer deployments and upgrades. Adjusted EBITDA was $47.5 million, a 22% increase over last year as we have continued to manage the business to balance profitability with reinvestment in growth. Adjusted earnings per share was $0.61 for the fourth quarter, $0.21 or 53% higher than the fourth quarter of 2017, again, driven by the revenue growth and favorability in operating expenses.

Moving onto our outlook for the first quarter and full year of 2019, you'll find our guidance detailed in full in the earnings release. For the first quarter, we expect total revenue to be between $200 million and $202 million, of that, asset-based recurring revenue between $110.5 billion and $111.5 billion (ph). The implied effective fee rate on our end of December assets under management or administration is 10 to 10.1 basis points.

Subscription-based recurring revenue, we expect to be between $82.5 million and $83 million, professional services and other revenue between $7 million and $7.5 million. Cost of revenue, we expect between $62.5 million and $63 million. Similar to prior years, we expect operating expenses to increase sequentially from the fourth quarter due to the seasonal nature of certain items, particularly in personnel expenses, namely payroll taxes and other benefits, all of which were significantly higher in the first quarter compared to the fourth quarter.

Adjusted EBITDA for the first quarter should be between $32.5 million and $33 million. And we expect our normalized long-term effective tax rate to be 25.5%, down from the 27% we assumed in 2018 due to a slight change in our state income tax apportionment. Assuming approximately 50.1 million diluted shares outstanding, this translates into adjusted earnings per share of $0.38. For the full-year 2019, we expect revenue in a range of $868 million to $880 million. We expect adjusted EBITDA in a range of $170 million to $175 million and adjusted earnings per share in a range of $2.05 to $2.12. And again, this is all summarized in the earnings release.

Below the guidance summary, we also included a table that bridges our normalized growth assumptions to our guidance by revenue line. A point of emphasis that emerges in the table, not necessarily apparent in the guidance, is a continued shift toward subscription-based recurring revenue. In 2019, subscription-based recurring revenue will likely exceed 40% of total revenue, up from 36% in 2018.

Additionally, guidance for 2019 includes the following assumptions. First is the fourth quarter market impact. The fourth quarter market decline had a significant impact on our asset-based recurring revenue run rate, coming into 2019. We have partially offset that impact in our guidance by updating our models to be market-neutral as of January 31. But the January capital markets impact will have little impact on the first quarter. The implication is that the last three quarters of the year will reflect this assumption. And we believe this is the most accurate view of how we are running the business today and for 2019.

Next is a reclassification of accounts to subscription. During the fourth quarter, several large clients shifted from an asset-based model to a subscription-based recurring revenue model. Approximately $78 billion and 400,000 accounts were reclassified from AUA to subscription as noted in our asset roll forward in the earnings release. While this does not impact total platform assets, accounts or revenue, the billing arrangements for this business in future periods are subscription-based rather than asset-based. We believe this will help stabilize our effective fee rate to some degree going forward.

The third item is third-party manager fees. During the fourth quarter, certain managers on our platform lowered their fees to their end clients, which, in turn, lowers the revenue as well as the cost of revenue to invest that, having no impact on our profitability. This impact will carry throughout 2019. The just announced acquisition of PortfolioCenter, PortfolioCenter's expected contribution to Envestnet's 2019 financial results are included in our guidance due to the likelihood of our expectation of the flow of the transaction closing in the near term. Revenue from PortfolioCenter will be 100% subscription-based. And we expect PortfolioCenter to contribute modestly to our 2019 revenue and earnings.

And finally, FolioDynamix. Consistent with previous consolidating acquisitions, it takes several years for clients of the acquired business to begin to realize growth rate similar to the rest of our business. For 2019, FolioDynamix revenue is expected to be flat, and with the market down slightly, possibly even down, while the integration activity continues. As I mentioned, the details are quantified in the table in the release. The full-year revenue guidance reflects the combination of -- basically flat asset-based revenue, robust growth in subscription-based recurring revenue, and a modest decline in professional services non-recurring revenue.

Our normalized growth assumptions include asset-based revenue of 9% to 11%, subscription-based revenue of 16% to 18% and a modest decline in professional services revenue translating to total revenue growth between 11% and 13% for the year. The items noted above connect these assumptions to our revenue guidance range.

So, thank you for your support of Envestnet.

And at this point, I will turn it back to Jud for his remarks.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Thank you, Pete. We are pleased with our results for the fourth quarter and the year, with our progress in expanding our financial wellness platform and our ability to maintain revenue and raise our earnings guidance throughout 2018. Looking forward to 2019, we expect, as Pete indicated, robust growth in our subscription-based recurring revenue and continued growth in asset-based recurring revenue, following a dip in the first quarter that resulted from lower December 31 capital market valuation levels. Customers continue to adopt our wealth management and data solutions. And we expect to grow revenue throughout the year from our first quarter baseline.

Over the longer term, our growth targets in a stable market environment are as follows. Low-double-digit growth in asset-based recurring revenue, weaker in difficult markets and accelerated in stronger markets, mid-to high-teens growth in subscription-based recurring revenue, and total revenue growth at a premium to publicly traded fintech peers. Again, over the longer term, our target is to maintain a 1.2 times relationship between the growth rate of revenue and the growth rate of adjusted EBITDA. We also plan to accelerate the top and bottom line growth over time to disciplined acquisition activity. And I will add that the pipeline for deals is full and active in our space, and we are seeing a number of attractive opportunities.

In short, we see a very long runway for growth as we fulfill our vision for financial wellness. And we see this vision as driven by several forces. As mentioned them before, specifically, we expect registered investment advisors with the fiduciary responsibility will continue to gain share from other advisor channels. We will both benefit, enable this growth. Second, we expect Data and Analytics to continue to open the door to delivering actionable intelligence and improving real outcomes.

Third, outsourced technology in general and improved digital solutions with respect to advice and financial planning, in particular, will be an increasingly important source of growth for our advisors and enterprises. Fourth, fee-based compensation for advisors over transaction-based compensation will continue to grow. And finally, we expect that wirehouses will continue to be a very strong force in the industry as they more fully embrace the fiduciary standard of care and seek faster innovation in their own technology stacks.

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, Pete and I are happy to take your questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We will take our first question from Surinder Thind of Jefferies.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Hi, Surinder.

Surinder Thind -- Jefferies LLC -- Analyst

Hi, guys. I'll start with a big picture question here. Can you provide some color on the reorganization in the sense of, why is the timing right now to kind of make the kind of changes that you guys did in terms of the organization into the two business units? And how you think that that kind of drives things going forward?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, the timing was right because of our wanting to marshal resources along the lines of the financial wellness platform that we've outlined. We had four business units, and we identified that we needed to improve our responsiveness to the markets. We were finding that a number of firms we are wanting, a combination of solutions that we were offering could be data aggregation from Yodlee, rebalancing and advisor view from Tamarac and managed accounts from Envestnet.

And the ability to do this efficiently and effectively, we believe that by organizing two business units rather than four, we are going to streamline development and be able to get to market faster with some of these solutions. We also think that over time, we will be able to marshal resources in a way that make a bigger impact. And we will eliminate certain redundant activities that did take place among four business units that won't when there are two.

Surinder Thind -- Jefferies LLC -- Analyst

That's helpful. And then, maybe another big picture question on the competitive environment. Can you talk about more specifically Yodlee and the outlook for, I would say, the non-wealth management component of the business? And more specifically, I'm kind of thinking about the capital raise that was done by Plaid, and their acquisition of Quovo. And is there a risk to Yodlee living up to its expectations outside of the Envestnet umbrella in terms of what used to be, maybe, let's say, the Yodlee Interactive business in how that kind of shakes up into the big picture, where you guys are headed down the road?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, we are very pleased with Yodlee's results and we are pleased with the results within wealth management. We are also pleased with the results within finrech, more broadly. And today, by our measure, Yodlee has something like a 70% market share of data aggregation clients. Now that said, there has been $60 billion flowing into fintech in just the last year alone.

So, you're looking at a situation, where private equity is seeing high-single-digit growth that publicly traded fintech companies are providing as a significant premium over what GDP growth is. And then, they are looking at the market leaders in that space are growing at premiums to that fintech average. So, it's natural that you're going to have money flow in when there are high growth rates.

We are going to continue to focus Yodlee on wealth management, and fintech, enterprising firms and the logo list is in our investor deck. We expect that we're going to be making additional investments with respect to credit. And we believe that as the market leader, we're going to continue to hold our own.

Surinder Thind -- Jefferies LLC -- Analyst

Understood. Okay. Back into the queue for additional questions. Thank you.

Operator

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

Judson Taft Bergman -- Chairman & Chief Executive Officer

Hi, Patrick.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey. Good afternoon. So, from what I understand, you guys are buying Schwab's, call it, their older generation technology, PortfolioCenter, but not their next-generation Portfolio Connect platform. One, is that understanding, correct? And if it is, can you help us understand the difference between those two platforms, and to the extent that Schwab might continue to compete against the asset you guys are buying?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, that's precisely correct, Patrick. We're buying the old technology, if you will, or we're buying the established technology that supports some 3,000 firms. And we are, I think, in a -- the best position to migrate those advisors to the solutions that Tamarac uses. We've already got of the 3,000 users of PortfolioCenter, we have nearly a third of them, perhaps fully a third of them already using Tamarac.

The largest of those firms -- those firms $500 million and up have adopted Tamarac to a much higher percentage, around a 50% market share of PortfolioCenter users. It's the mid-sized advisors that we have not traditionally focused on, and we see this as a tremendous opportunity for us to focus the Tamarac offerings on the mid-sized advisor, which is a huge part of the market that we have not -- we have not intentionally emphasized. That changes with this acquisition.

How the two technologies, we expect, will work is that the new technology will be offered to users of Schwab as a custodian. We expect that all of these advisors that are part of PortfolioCenter will continue to use the custodians that they currently are using. And there is a predominance of that used toward the Schwab, but there will be again another example of coopetition, not unlike, we've experienced with all of the other custodians.

And we will be offering our upgraded technology based on a new portfolio accounting engine, a web-based, cloud-based accounting engine and there will be in the marketplace something of a coopetition that we consider Schwab a very strong partner. We're on the very short list of firms that are in their intelligent integration project and have been for a number of years. So, we expect that we will be able to leverage this opportunity very nicely.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Got it. I appreciate that. And then, to maybe follow up on that point, given the contribution from PortfolioCenter that you expect or you implied in your 2019 guidance, I think just that suggests that maybe the business is doing something to the tune of maybe $10 million of annualized revenue, give or take. So, is there opportunity for you guys to put those clients onto Tamarac, and then, it's basically an upsell?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, there is two -- Yes. Basically, yes. There is a revenue potential that we see that will play out over years. It's great to get another 2,300 advisors that we can begin to work with them, partner with them, help build their business. And over time, we expect that a good chunk of Tamarac's current client base originally started on PortfolioCenter. So, this enables us to have access to a bunch more to do the same, and then, over time, to migrate them to additional services, financial planning, data aggregation, managed account. Also, there is -- we have a nice expense elimination because of our use of PortfolioCenter for supporting many of those Tamarac clients, so that cost will go away, and that's the primary contributor to the earnings that this transaction will give us. And I can also confirm, approximately, your math is right on the revenue.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Great. I appreciate that. And then, maybe one -- last one on a different topic. Does it surprise, you have muted redemptions were during the fourth quarter, given the volatility that we saw?

Judson Taft Bergman -- Chairman & Chief Executive Officer

Yes.

Patrick O'Shaughnessy -- Raymond James -- Analyst

All right. Great. Thank you.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Yes, it does. I don't know what else to add.

Operator

And our next question comes from Peter Heckmann of Davidson.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Hi, Peter.

Peter Heckmann -- D.A. Davidson & Co -- Analyst

Good afternoon, everyone. Thanks for taking my call. In terms of the two acquisitions, assuming PortfolioCenter closes in the first quarter, can you talk about what type of cash commitment that will avail?

Pete D'Arrigo -- Chief Financial Officer

We are not disclosing that amount. It's determined to be immaterial in the overall view of our balance sheet. So, the terms of that are not going to be disclosed until any further detail. We expect to close in the first half of the year for PortfolioCenter, Abe has already closed. So, those items will be in the subsequent events, but in terms of -- material terms of the deal not to be disclosed.

Peter Heckmann -- D.A. Davidson & Co -- Analyst

Okay, that's fine. And then, you talked about 10 basis points effective fee rate in the first quarter, and I assume that step-up from where we were is -- a big part of that is the reclassification of revenue from a AUM/A to subs, would something close to 10 or just below it be kind of the right effective fee rate to think about for the full year?

Pete D'Arrigo -- Chief Financial Officer

So, two things. One, the first part, yes, that's exactly right. The impact of the increase is due to the reclassification. They are primarily lower type fee rate business in the AUA component that then moved to subscription. So, that part is right. I would say, generally that trend that we've seen in the past, where there is a very modest step down will be mitigated to some extent because some of those clients that have migrated to the subscription component, where some of the big drivers, a lot of assets at lower fee rates that were causing that quarter-to-quarter decline that we've seen over the last year. So, I think the trend is the same, but I think the magnitude of it is likely to be mitigated somewhat.

Peter Heckmann -- D.A. Davidson & Co -- Analyst

Thank you.

Operator

And our next question comes from Will Cuddy of J.P. Morgan.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Good afternoon, Will.

William Cuddy -- J.P. Morgan. -- Analyst

Hi. Good evening. So, on PortfolioCenter, on the addition to Tamarac, the (ph) PortfolioCenter support other third-party software with similar degree of Tamarac? And does the acquisition of PortfolioCenter potentially a purpose suite of software providers that would make sense to acquire a partner with, while that's having PortfolioCenter (ph) previously, especially in that mid-tier RIA space?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, PortfolioCenter integrates to other software providers. The use of PortfolioCenter as a portfolio accounting engine than with power other reporting apps or other rebalancing apps -- rebalancing apps does occur and we expect no changes in any of the existing integrations in PortfolioCenter in the near term.

William Cuddy -- J.P. Morgan. -- Analyst

Okay. And on the -- to the second part of this -- I don't know -- like this there opportunity that maybe could involve more in the -- on this pivotal the more into the mid-tier RIA space?

Judson Taft Bergman -- Chairman & Chief Executive Officer

Yes. That, for us, strategic -- the strategic importance and value of this is, close our partnership with Schwab, even though they will be having a competing product at some point. Access to the mid-sized advisor market, which is huge in terms of dollars. And we're going to be accessing that with a product and a price point that, we think, is going to be very attractive to them.

William Cuddy -- J.P. Morgan. -- Analyst

Okay. Great. And then, switching gears a little bit. So, you raised capital from BlackRock late last year. Could you walk through the rationale of the transaction, especially beyond the additional capital in the brand association? What else does BlackRock bring from a product offering perspective and distribution perspective?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, we like very much BlackRock's commitment to financial technology, commitment to advisors. We like the risk mitigation applications that they have, and we look forward to having versions of that integrated into the Envestnet platform for the benefit of our user base. We also like what they've done in retirement and we expect that we're going to be able to improve our retirement offering by including some elements of BlackRock's retirement technology.

Over time, we expect that advisors will opt for lower cost managed account solutions because of a deep integration with front to back including onboarding with them. All of these things were reasons for the commercial arrangements, had nothing to do or very little to do with taking capital. We took the capital because we expect to be active acquirers over the coming quarters and years, and we felt that there was no better endorsement of our strategy than BlackRock's.

William Cuddy -- J.P. Morgan. -- Analyst

Great. Thanks, Jud.

Operator

And our next question comes from Chris Shutler of William Blair.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Hi, Chris.

Chris Shutler -- William Blair -- Analyst

Hey, guys. Good afternoon.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Good afternoon.

Chris Shutler -- William Blair -- Analyst

So, first, Jud, on Yodlee, can you just talk about what yearly subscription growth was in the quarter? And what your outlook is for subscription growth there in 2019?

Judson Taft Bergman -- Chairman & Chief Executive Officer

I'm going to hand that over to Pete.

Pete D'Arrigo -- Chief Financial Officer

Yes. So, subscription growth for the quarter was about 12% for the year. Outlook for '19 is about 15% in that. Again, I'm giving kind of points, I think, what's in the table.

Chris Shutler -- William Blair -- Analyst

Okay. So, 12% in the fourth quarter, 15% is midpoint for 2019. And then, on the PortfolioCenter deal, the EPS accretion that's in the 2019 numbers from the deal. Could you give us that number?

Pete D'Arrigo -- Chief Financial Officer

So, PortfolioCenter is going to -- again, that's -- it's about 3% to the revenue growth and we haven't broken out the EBITDA contribution. The revenue growth for subscription-based at about 1% overall. And again, EBITDA, when we start talking about consolidating acquisitions, gets a little more harder to disclose based on the things. So, based on the need for allocations and an absorption of integration of the business. So, we will kind of update that the expectation is that it should be additive, probably not materially driving the numbers any higher or lower.

Chris Shutler -- William Blair -- Analyst

Okay. So --

Pete D'Arrigo -- Chief Financial Officer

It's unfortunate to the revenue contribution in terms of margin.

Chris Shutler -- William Blair -- Analyst

Okay. Got it. That's helpful. Let's see, I guess lastly, the conversion pipeline, Jud, I'm not sure that you talked about that, but just can you give us the latest commentary there, and remind us how far out you have pretty good visibility?

Judson Taft Bergman -- Chairman & Chief Executive Officer

We've got good visibility out four to six quarters, and we completed some large conversions over this -- the past year. The conversion pipeline is still strong. I expect as we've seen before that during market kind of volatility, it slows down a bit client-related, I wouldn't be surprised if that happens again. But the market, it didn't seem to respond as negatively with respect to redemptions is what we would normally expect. And then, there has been some snap back in terms of valuation. So, we'll just have to see how that does play out.

You know, in the past, stable markets are our friend, growing markets have caused some investors' expectations to get out ahead of what we actually can deliver. So, we like stable markets. And weaker markets have caused some slowness in the past of some -- in the rate of growth, but we've been able to grow through good and bad markets with both our subscription-based recurring revenue and our asset-based recurring revenue. And so, the conversion pipeline is very strong and it looking out four to six months, there are a lot of exciting opportunities for us to still bring on.

Chris Shutler -- William Blair -- Analyst

All right. Thanks, Jud.

Operator

Our next question comes from Chris Donat of Sandler O'Neill.

Christopher Donat -- Sandler O'Neill -- Analyst

Good evening. Thanks for taking my question.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Chris.

Christopher Donat -- Sandler O'Neill -- Analyst

First is a timing question on -- well, timing questions for both FolioDynamix and for the PortfolioCenter. Just in terms of -- if there are expenses coming out of those, that's more of -- that's not going to be in 2019 sort of development, right? That would be more of a 2020 issue.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Well, with respect to Schwab PortfolioCenter, there is a kind of a one-time expense benefit we get because we will no longer be paying for the Schwab PortfolioCenter license. And so, there is going to be a benefit that is incorporated into our numbers already in the guidance. And the benefit from FolioDynamix is also incorporated into the guidance for this year. And there will be -- we expect that there will be continued benefit in the coming years, already identified with those are for FolioDynamix.

And we -- given the fact that the value in terms of consideration is not material, we've dimensionalized the revenue today around $10 million of contribution that would come on once the transaction is completed. And there is some impact for earnings and cash flow that come from that $10 million, but really comes from the expense savings on the use of the software. Out years, we expect that there will probably be a growing benefit for Schwab PortfolioCenter, but that will come from cross-sells, getting those advisor firms to adapt Tamarac and other solutions, and some greater efficiency in the operation.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay. That's very helpful. And then, just wanted to follow up on your brief answer to Patrick O'Shaughnessy's question about redemptions and being surprisingly low. Anything else in the December market volatility that seemed unusual to you? Or is there been surprisingly normal customer behavior or advisor behavior, and an investor behavior? And then, anything changed in January or is it people behaving rationally and not moving their portfolios? Just curious what you're saying.

Judson Taft Bergman -- Chairman & Chief Executive Officer

It's not one question, Chris. So, I didn't -- I think I didn't mean to shorten any response, but we were surprised by the redemption activity. We normally would have expected that to pass, and it didn't, when when volatility comes. I guess the -- one surprise was that in that marketplace, or in the market, active managers -- the -- some of the capital appreciation losses were a little bit higher than what we might have otherwise expected under and all index portfolio. Now, the flip side of that is, it's come back stronger on the other side. So, I guess that was a -- I don't know if that was a surprise, but that was curious. And then, with respect to 2019, all I can say is that, if we had experienced anything significantly different, then that would presumably logically affect our guidance for the year.

Christopher Donat -- Sandler O'Neill -- Analyst

Right. Okay. And your guidance is as of January 31 date for the market. So, we can --

Judson Taft Bergman -- Chairman & Chief Executive Officer

January 31 date for the market. There's -- the markets -- so far in February is up, but we're affecting the guidance as of January 31, and market environments, which I would not yet say is a stable market environment. That's one of the reasons that our normalized assumption for asset-based recurring revenue is slightly below what our longer term target is for asset-based recurring revenue.

Christopher Donat -- Sandler O'Neill -- Analyst

Understood. Thanks, Jud.

Operator

Our next question comes from Devin Ryan of JMP Securities.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Good afternoon, Devin.

Devin Ryan -- JMP Securities -- Analyst

Hey. Good afternoon, guys. Maybe to follow-up on some of the comments on the last question on the guidance, I mean the fourth quarter market, I think, is always a -- at least what we saw there is a good reminder of just to have business plans for a wide range of of environments. And so, you're clearly ongoing move to subscription should help relative to the past. But can you maybe just remind us how much flex is in the model today, like in expenses, rather where just in an environment where the markets are lower, but in a more sustained fashion? And also, how you would think about investing through a more challenging environment?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, that's a great question. And so, I'll answer a couple of ways. We report revenue -- we don't report net revenue, we report revenue. But I think the best indicator of what exposure to the market is for us is not the gross revenue mix, but probably more like the -- the net revenue mix is probably more indicative of what the actual exposure is. And if you look at -- just take revenue minus the cost of goods sold as a proxy for, not pass through expenses, but manager expenses and other variable expenses, then you get a different picture of where we are today, we're at like 42% on the net revenue -- on a net basis using that simple math.

We're at about 42% asset-based recurring revenue and about 54% subscription-based recurring revenue, and about 4% professional services, which I might add, I didn't -- we expect will be deemphasizing in the future as the market for data aggregation and analytics is migrating to expect more work done as part of the ongoing subscription and less work done as part of the professional services. So, that's another, if you will, offset this year because we're not expecting professional services to grow in 2019 at all.

Over time, we think that that will sustain our very high growth rates in subscription revenue, subscription-based recurring revenue. But in the near term, that will have an apparently adverse impact on year-over-year growth rates. But I'd just remind everyone on the call that those are not recurring revenue, that is professional services and usually one-time revenue. So, all of that on a net revenue basis, were like 42% asset-based recurring revenue, 54% subscription-based. These are approximate 4% professional services that gives you an idea of the exposure from a revenue standpoint point after pass throughs because those are variable.

And then, today, we are 58% to 60% of our asset-based revenue is in equities either domestic or international. And then, the balances in fixed income, there are some alternatives, although not significant. And then, cash balances generally are in the 3% range, although they have ticked up a bit lately. And so, that kind of gives a reminder, these are not new numbers, although they are updated, given the fact that subscription-based revenue is growing faster in this environment than asset-based revenue.

And then, so in terms of the expenses, again cost of goods sold are variable, they go with the market. Markets up, it goes up, it goes down, it goes down. And we are disciplined in our expense management. We are looking to invest wisely in the financial wellness platform of the future. There are continued enhancements and expansions we want to make. We expect that if we have a prolonged period of difficult markets that that investment rate will probably slow as will our investments in human resources, that will also slow.

So, right now, we've given you a picture of how we're trying to manage through that in 2019. And we think we've balanced the opportunity, the long-term opportunity with the short-term downturn in the first quarter of asset-based revenue and what looks like it will be from a normalized growth rate of, let's say, call it 10%. We're really expecting flat revenue growth from asset-based recurring revenue, but very strong growth from subscription-based, in part, accelerated because of that reclassification.

Devin Ryan -- JMP Securities -- Analyst

Okay. Terrific. Appreciate all the detail there. Just to follow up on the PortfolioCenter acquisition. Is there anything to read into that you're buying an asset from a custodian? I'm just trying to think about whether this was an idiosyncratic opportunity? Or if there's any reason to think there could be more capabilities that just don't fit anymore within some of the custodians, where some are moving away from their own technology stack. And just trying to think about whether that could create a pipeline of maybe more acquisition opportunities for you guys.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Well, in that regard, this is not dissimilar from the WMS acquisition several years back, where Prudential just concluded that they had a legacy technology that they did not have the -- they concluded they did not have the market receptivity nor the ability to do a complete rewrite and bring that into a cloud-based environment. So, that was a kind of a prototype consolidating acquisitions for us, where revenue was flat for several years of that client base, but we were able to make significant cash flow and earnings contributions due to efficiency.

And now, that client base is growing at a rate equal to, and in some cases, faster than the rest of the asset-based recurring revenue business. But it takes time because you get them off of one system, you convert them, you lose some advisors in the process, and then, you build from a new base. So, we see these kind of carve out opportunities. They come along once in a while, and we like them, especially when it's with a firm with whom we're doing business, and we see it as a way that there really can be a win-win.

Devin Ryan -- JMP Securities -- Analyst

Understood. Great. Thank you very much.

Operator

And our next question comes from Hugh Miller of Buckingham Research.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Good Afternoon, Hugh.

Hugh Miller -- The Buckingham Research Group -- Analyst

Thank you so much. I appreciate you to taking my questions. Wanted to touch a little bit on the M&A pipeline that you had talked about, which I guess from the commentary, sounds fairly robust. Was wondering, if you could just let us know what's kind of changed over the year that's made it maybe a better environment, more opportunities. And if you could just talk about, you know, with the volatility in the marketplace, what are you seeing in terms of pricing expectations? And would you categorize the opportunities more as consolidating or strategic?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, first of all, something that's changed, I think, is that -- just one factor is that there was a lot of -- all this money from private equity that's flowing into -- that's flowed into fintech. That hasn't stopped. But the whole private equity model is leveraged up with bank debt, and that hasn't been as freely available the last six months. And that, I believe, has had a very direct effect on prices that private equity firms have been willing to pay and some of the kind of excessive prices have moderated. That doesn't mean that things are cheap. Quality assets are going for multiples of cash flows that make our return on investment thresholds possible, and we're seeing opportunities that are both strategic and consolidating right now.

Hugh Miller -- The Buckingham Research Group -- Analyst

Great. That's helpful. Thank you so much.

Operator

We'll take a follow-up from Surinder Thind of Jefferies.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Yes, Surinder.

Surinder Thind -- Jefferies LLC -- Analyst

Thanks for the follow-up, guys. Just wanted to touch based on the reclassification. And in AUM/A to the subscription licensing, if there's any additional color you can provide in the sense of how that conversation was initiated? Whether it came from you guys or from the client? Or there certain thresholds involved in terms of the assets? And maybe, how we might -- if there's other clients that might be approaching those thresholds or is it something that, maybe, those are the types of conversations you have once a year with clients? How should we be thinking about that?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, that's a good question. Let me try to give some context. So, as enterprise clients grow, the pay-as-you-go with low or no-minimums asset-based pricing is the preferred methodology for 95% of enterprises and 95% of advisors because it's a variable cost for their -- basically their tech infrastructure. As firms grow with us, there comes a time when they look at, well, a long-term subscription-based arrangement, maybe better for them. We share more of the benefits of scale with them. We get a longer term commitment. This is generally not a -- it's typically -- no revenue delta in the short run. But over time, the growth of the subscription-based revenue is user or account or a combination of those two. So, you don't get the ups or the downs, if you will, that a market-based thing provides.

Now, a lot of investors and analysts like that dynamic. I'm much more neutral on it. We are trying to serve a market, and we are offering our technology and our services in the way that makes the most sense for the advisor of the enterprise to pay. Some people pay cash for cars, some people lease them. I don't want to make it to hold me of an analogy, but we want to be able to provide both. And so, the conversation is, how do we get more benefit from using Envestnet as our business continues to scale.

Well, a long-term subscription or licensing arrangement is just something that people graduates to. And so, this is not a isolated occurrence, this is something that, I expect, will be a part of our business over time. And it's on balance. I think that it's neutral to positive for the financial profile of our business because we've helped create very successful managed account programs in enterprises and we've helped RIAs scale their business in ways that would be hard for them to do without the use of our technology, and we both benefit from that scale.

Surinder Thind -- Jefferies LLC -- Analyst

That's helpful. And then, just really quickly related to that, is that kind of an annual conversation that you would have then? And then, are there a lot of other clients within that AUM/A range? Or how should we think about that?

Judson Taft Bergman -- Chairman & Chief Executive Officer

So, almost all of our enterprise clients are multi-year arrangements. So, I think the average is -- today is probably 3.5 years on our subscription arrangements -- license arrangements. So, these come up like every 3.5 years for those. And then, of the annual evergreen renewals base, which is asset-based, that comes up probably every two to three years for the very biggest of those clients, but 90% of the entities aren't big enough to even consider it.

Surinder Thind -- Jefferies LLC -- Analyst

Understood. That's helpful. Thank you.

Judson Taft Bergman -- Chairman & Chief Executive Officer

Okay. I see that there are no more in the queue. We've reached a little past the top of the hour. So, I want to thank you for these follow-up questions. We were able to go a little deeper on a couple of things. And I think that's helpful and valuable. So, thank you, again for your commitment to -- and your work and your support. Good afternoon.

Operator

And this does conclude today's call, ladies and gentlemen. We appreciate everyone's participation today. And you may now disconnect.

Duration: 66 minutes

Call participants:

Christopher Curtis -- Division Chief Financial Officer & Head of Investor Relations

Judson Taft Bergman -- Chairman & Chief Executive Officer

Pete D'Arrigo -- Chief Financial Officer

Surinder Thind -- Jefferies LLC -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

Peter Heckmann -- D.A. Davidson & Co -- Analyst

William Cuddy -- J.P. Morgan. -- Analyst

Chris Shutler -- William Blair -- Analyst

Christopher Donat -- Sandler O'Neill -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Hugh Miller -- The Buckingham Research Group -- Analyst

More ENV analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.