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Envestnet Inc (NYSE:ENV)
Q1 2019 Earnings Call
May. 8, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Envestnet First Quarter 2019 Earnings Conference Call. Today's call is being recorded.

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

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

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 first quarter 2019 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. 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. Specific non-GAAP metrics include adjusted revenue, adjusted EBITDA, adjusted net income and adjusted net income per share. This quarter, we also are (ph) introducing adjusted net revenue as a non-GAAP metric. Adjusted net revenue eliminate the effects of asset-based cost of revenue, which is included in both our asset-based recurring revenue and cost of revenue on our income statement.

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 Bergman -- Chairman, Chief Executive Officer, Director

Thank you, Chris. I add my own welcome to everyone and want to thank you for joining us today. Envestnet continues to expand and strengthen our financial wellness platform. Through organic growth, innovation, disciplined acquisitions and the development of marketplace exchanges, we are focused on enabling advisors to deliver unified advice and help advisors achieve better outcomes for their clients.

For the first quarter, Envestnet grew revenue, adjusted EBITDA and adjusted earnings per share and our quarterly results overcame the impact of challenging capital markets in the fourth quarter of 2018 and the December 31st market billing cycle. In our Wealth Solutions business, gross sales excluding conversions with $30 billion. We also completed $48 billion in conversions, $20 billion in asset-based recurring revenue business and another $28 billion in subscription-based conversions. We ended the quarter with more than $3 trillion in platform assets and $11 million investor accounts. Nearly 97,000 advisors now use Envestnet's wealth management technology. And at the end of March, Envestnet Yodlee's data aggregation platform supported more than 24 million active users.

We also continue to expand our client relationships. Edelman Financial Engines, America's largest independent investment advisor has chosen Envestnet to be the exclusive provider of consolidated reporting, billing, trading, supply it's oversight tools and product access. The $37 billion RIA side of business solution with greater scale and efficiency in order to consolidate investment platforms. Edelman Financial Engines believes that the integrated wealth management platform provided by Envestnet will allow them greater scale and provide a better experience for both their advisor and client base.

We're also pleased to announce an expanded partnership with Q2 to integrate our newly launched conversational AI platform via Abe AI. Q2 will be offering the new conversational banking solution to their existing bank and credit union customers. We've been active in 2019 implementing our vision for financial wellness, since our last earnings call we've progressed on several fronts, including the formal launch of our insurance chain exchange. Closing on the swap portfolio-centric transaction announcing and closing on the acquisition of Envestnet MoneyGuide and creating the Advisor Credit Exchange. All of these contributes in a meaningful way to the establishment of a powerful financial wellness platform for advisors to deliver increased value to their clients.

We have the opportunity last week to highlight some of these accomplishments at our annual Advisor Summit in Austin, Texas, were nearly 3,000 are in attendance, including more than a dozen from the investor community. At the Summit our message to advisors focused on expanding the definition of unified advice and how investment is supporting them with innovative technology, data and fiduciary solutions. Unified advice means supporting our client's entire financial well-being through a few critical elements; planning and budgeting, investing, managing credit, protecting capital and legacy and delivering that the financial planning-centric and data-centric platform. These are the elements of financial wellness.

I may firstly welcome the MoneyGuide team to Envestnet, acquiring the industry leader in goals-based financial planning advances our vision to enable financial wellness. We believe that Envestnet MoneyGuide intuitive and engaging software is an important enhancements to our platform and will lead to more informed decision-making better client communications and also better outcomes. In a recent study from The Money Management Institute, 65% of high net worth investors said that they're considering leaving their wealth provider due to a lack of an integrated omni-channel experience. This indicates to us that enterprises and advisors who provide an integrated financial wellness experience will exceed and gain share.

I am also very encouraged by the products coming out of Apprise Labs, the initiative we recently formed. Apprise will offer innovative tax, legacy and the state planning capabilities to help advisors better collaborate with their clients and their families. It's a next level solution that builds on our financial planning offering and tackles many of the challenges of inter-generational wealth transfer. In short, we are creating new and sophisticated planning tools for financial loans that address complex tax and legacy planning.

We believe the power of delivering unified advice and services across the entire financial life of an advisors client is a very important trend. Unified tools also benefit the advisor as they automate low-value tasks and enable advisors to focus on high value work by communicating with their clients and offering sophisticated tax in the state planning and portfolio construction. It's through this unified approach to an expanded definition of advice that financial wellness can be achieved.

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

Pete D'Arrigo -- Chief Financial Officer

Okay. Thank you, Jud. Thank you everybody for joining us this afternoon. I'll review our first quarter results, our guidance for the second quarter of 2019, and updated guidance for the full year. As Chris described at the beginning of the call, we are including adjusted net revenues as a new non-GAAP financial metric this quarter. This non-GAAP metric presents adjusted revenue without manager fees included, which are the sub-advisory fees we paid to third-party asset managers with which we contract to implement investment portfolios. These fees are presented as the primary component of the cost of revenues in our Wealth segment. As Envestnet's business model moves toward a more subscription-based recurring revenue model excluding the manager fee cost improves the comparability when we are internally evaluating the growth and operating results of the overall business and in analyzing segment performance.

Briefly summarizing our first quarter results compared to the first quarter of 2018, adjusted net revenues grew 4% to $146 million overcoming the impact of challenging capital markets in the fourth quarter of 2018. GAAP revenue grew 1% to $200 million. Subscription-based recurring revenues increased 19% from the prior year period and represented 57% of adjusted net revenues. The increase came from organic growth as well as a change in classification of revenue from certain customers from an asset-based recurring revenue model to a subscription-based recurring revenue model, as we discussed on the first call on February.

Asset-based recurring revenues decreased 10% from the prior year period and represented 38% of adjusted net revenues when adjusted for manager costs. The decline was driven by the impact of the fourth quarter market on our first quarter billing cycle and the impact of the change in classification to subscription, that I just described. Professional services and other non-recurring revenues increased 7% from the prior year period. Adjusted EBITDA was $34 million, a 4% increase over last year and adjusted earnings per share was $0.39 in the first quarter, $0.02 or 5% higher than the first quarter of last year.

Next, I'll provide our outlook for the second quarter of 2019 and update the full year, which is presented in full in our earnings release. Please note with the Envestnet MoneyGuide transaction closing on May 1st, the contribution is included from that date. For the second quarter, we expect adjusted revenues to be between $223.5 million and $226.5 million, up 11% to 13% compared to the prior year. Adjusted net revenues to be between $165 million and $168 million, up 14% to 16% compared to the prior year period. Asset-based revenue between $118 million and $119 million, or 0% to 1% higher than last year and 36% of adjusted net revenues when adjusted for manager costs. The implied effective fee rate on our end of March assets under management or administration is roughly 9.6 basis points.

Subscription-based revenue, we expect to be between $95 million and $96 million, up 32% to 34% compared to the prior year, which is approximately 58% from our adjusted net revenues. Professional services and other revenue between $10.5 million and $11.5 million, which includes revenue related to the Advisor Summit. Cost of revenue between $72 million and $73 million, including $59 million to $60 million for asset-base cost of revenue.

Note that last week we had hosted our Advisor Summit in Austin for which we should recognize roughly $3.5 million of revenue, which will show up in our professional services and other revenue line item and roughly $5 million in cost of revenues in the second quarter. We invested more into this year's Summit given the long-standing benefits we have gained each year through brand recognition and client goodwill.

Adjusted EBITDA, we expect between $42.5 million and $43 million, up 22% to 24% compared to the prior year using a normalized long-term effective tax rate of 25.5% and assuming approximately $52.8 million diluted shares outstanding. This translates into adjusted earnings per share of $0.44. For the full year, we also include contributions from Envestnet MoneyGuide and therefore raising and tightening the range of our revenue and earnings guidance. We now expect adjusted revenues to grow 11% to 12% to a range of $902 million to $912 million. We expect adjusted net revenues to grow 15% to 16% to a range of $665 million to $676 million. We are increasing our prior guidance on adjusted EBITDA expecting adjusted EBITDA to grow 21% to 24% to a range of $190 million to $195 million. We are also increasing our prior guidance for adjusted earnings per share now expecting a range of $2.08 per diluted share to $2.15 per diluted share. This is higher than our beginning of your guidance due to the purchase of Envestnet MoneyGuide.

Finally, we ended the quarter with $246 million in cash and $518 million in total debt based on the cash used to close both the portfolio center and MoneyGuide transactions and drawing down $130 million from our revolver post close our gross leverage ratio is 3.6 times and our net leverage ratio was 3.3 times. Priorities for our cash flow for the remainder of 2019 continue to be investing in the business and platform technology to support our long-term growth, investing in new initiatives and acquisitions and paying down debt and ensuring we have capacity to fund the 2019 convertibles that mature in December.

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

Judson Bergman -- Chairman, Chief Executive Officer, Director

Thank you, Pete. We are pleased with our results for the first quarter and our execution thus far in 2019. Beyond this year, we expect our core business growth to be strong relative to the FinTech industry and we expect to maintain the 1.2 times relationship between the growth rate of revenue and the growth rate of our expected adjusted EBITDA for our core business, accelerating the top and bottom line over time through disciplined acquisition activity. You see a long runway for organic growth as we expand our platform for financial wellness.

As I mentioned we believe financial planning is the gateway to financial wellness, especially when fully integrated within a unified data environment. Our emerging network connects advisors to a universe of solutions, asset managers and strategists, custodians and software providers, insurers who were part of our insurance exchange and lenders who will be part of the credit exchange. All unified and informing the progress toward the essential goals of an advisor's clients. Envestnet provides the data, the platform technology and the fiduciary solutions, powerfully connected and driving continuous unified advice so that advisors and enterprises and their clients can reach their goals and achieve financial wellness.

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

Questions and Answers:

Operator

Thank you. (Operator Instructions) You have a question from Surinder Thind from Jefferies. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Surinder.

Operator

I do apologize. The name is David Grossman of Stifel.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, David.

David Grossman -- Stifel Nicolaus -- Analyst

Hi, good afternoon. It was a name change there. So just a quick question about the guidance, if I'm understanding that your guidance correctly, it seems to imply an acceleration of organic growth in subscriptions and licensing in the second quarter. If that math is correct what underlies that dynamic. Is that something fundamental to relate to the reclass at the end of last year, or is it something else?

Judson Bergman -- Chairman, Chief Executive Officer, Director

Yeah, David, so I think if you go through the earnings release from either this quarter or into previous quarter, you will be able to kind of track the impact of that growth rate from what our growth assumptions are, but primarily the organic assumption for growth is impacted by the reclasses you mentioned along with the acquisitions of PortfolioCenter and MoneyGuide, Envestnet MoneyGuide, which make that line grow faster than the long-term expectations.

David Grossman -- Stifel Nicolaus -- Analyst

So the number that you reported for the March quarter of 19% is that -- is that -- does that include any acquired content or is that just a pure investment number?

Judson Bergman -- Chairman, Chief Executive Officer, Director

No, both acquisitions closed during the second quarter. So we'll see that impact in the second quarter growth rates, but the...

David Grossman -- Stifel Nicolaus -- Analyst

Right.

Judson Bergman -- Chairman, Chief Executive Officer, Director

The first quarter was only impacted by the reflex.

David Grossman -- Stifel Nicolaus -- Analyst

Got it. Okay. And second just at a higher level with subscriptions and licenses becoming -- obviously becoming a much larger percentage of the mix. And I'm sure you're not chomping at the bit here to add your disclosures, but have you given any consideration to introducing some kind of bookings metrics are some other metric that will give us a sense of how that business is trending before it actually hits the P&L?

Judson Bergman -- Chairman, Chief Executive Officer, Director

You know, we've -- we track that internally, but we don't have any GAAP or financial standard agreement as to how that could be communicated in the effective way to external audiences. We understand that, that would be helpful. It's not going to be something that we would introduce in this year for certain and it will be something that we will continue to evaluate at the opportune time, but we are little reluctant to offer yet another disclosure item until we get it nailed down.

David Grossman -- Stifel Nicolaus -- Analyst

All right. Great. Thanks for that. That's all for me. Thanks.

Operator

(Operator instructions) We'll now take our next question from Surinder Thind of Jefferies. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Hi, Surinder.

Surinder Thind -- Jefferies -- Analyst

Hi, Jud. Hi, guys. I guess I'd like to start with the effective fee rate and the guide on that to 9.6 basis points. I think if we rewind to last quarter and when I think about the fee rate and where it was. Can you talk about what the differences in the decline quarter-over-quarter. It's bigger than I would have expected?

Judson Bergman -- Chairman, Chief Executive Officer, Director

Yeah. So again it's all reflective of the mix of business that comes on during Q1. And so the new business mix came in at a rate that was a little bit lower. And again, when we have asset-based conversions they tend to come in at a lower rate. And so that is also part of the impact consistent with what we've seen in previous quarters.

Surinder Thind -- Jefferies -- Analyst

And then as maybe as a follow on to that would be the drift lower than perhaps be more modest on a go-forward basis. Is there a Q1 component to it, or is it really just there's -- you know it's a big chunk of the conversion activity that comes on at a lower price and then just the mixture of the business.

Pete D'Arrigo -- Chief Financial Officer

The biggest driver -- again, the biggest driver will be based on conversion activity as it goes live. And so it's hard for us, again, as we try not to predict the timing because there is a fair amount of unpredictability relative to the rest of the business as to when conversions will go live. It's hard to say whether Q2, Q3 or Q4 might have a greater or smaller impact than we saw in Q1. Jud more color on that.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Well, I guess the only other thing -- obviously, the biggest driver is the conversions in the rate that, that was coming on. And this was driven primarily by a fair amount of Advisers Portfolio Manager, or APM and reporting business that came on in the $20 billion of asset-based recurring revenue conversions. We also saw at the start of the quarter heightened redemption levels which did stabilize by the end of the quarter. So we expect that for the second quarter and the rest of the year, we expect the return to more normal levels. But the only thing that I would add a little bit of color to is that those heightened redemption levels of 2.3%, which I don't believe are going to continue based on what we've seen in the last couple of months. Would result in a bigger than usual affect on the conversion assets that are coming on because that the same-store sales, net flows were not as strong as what we have seen in the past.

Surinder Thind -- Jefferies -- Analyst

Fair enough. And then maybe just related to that comment about the flows in some of the redemption activity levels. Obviously, if we do exclude the new client conversion activity, it was negative for the quarter. Just messaging wise, is the messaging that you're beginning to see that trend reverse, or is it you're expecting it to reverse, meaning do we have an update in kind of the first five weeks of this quarter at this point, or how should we...

Judson Bergman -- Chairman, Chief Executive Officer, Director

Yeah, so the activity was front-end load, the heightened activity was front-end loaded in the quarter. We believe in part a result of the volatility that was in the fourth quarter sort of a delayed response, if you will, because those redemption levels in the fourth quarter were not as high as what we might have otherwise expected. So you see some of that in the first quarter and based on what we have seen since then, we expect that redemption rates are going to be for the second quarter and continuing more at normal levels, which we expect to be at 2% is how we drive our forecast.

Surinder Thind -- Jefferies -- Analyst

That's helpful. I'll get back in the queue for a number of follow-ups. Thank you.

Operator

We have another question from Will Cuddy of J.P. Morgan. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Will.

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

Good afternoon. So in March, we talked at a high level about the financial impact from MoneyGuide. Could you break out in more detail the MoneyGuide contribution to the guidance update for 2Q and for the remainder of the year?

Pete D'Arrigo -- Chief Financial Officer

So I'll give you kind of run rate numbers, which are consistent with what we talked about in March, and then pretty much you can assume two-thirds for the second quarter. So again, it's in the range of $50 million to $55 million of run rate revenue on an annualized basis with an EBITDA margin of about 50% to 55% as well.

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

Okay, great. So essentially no change from the prior guidance.

Judson Bergman -- Chairman, Chief Executive Officer, Director

No, very consistent with what the analysis we had completed prior to completing the acquisition, yes.

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

Great. And then on that asset flows digging that -- into that a little deeper. So Jud, you had mentioned that the advisors portfolio manager business coming on. Could you maybe elaborate on the types of clients where you're seeing conversions and same store sales growth?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So with respect to asset-based recurring revenue, we are seeing APM programs, Advisers Portfolio Manager programs, Unified Managed Account programs and Separately Managed Account programs coming in at rates that are less robust than the reporting business and the APM business. And that's a result of -- in the first quarter some significant regional broker dealer and regional wealth management firm activity. The subscription-based revenue is coming in, generally speaking in the larger enterprise and the larger RIA marketplace. And they're coming in again at for packages of our technology that include performance reporting or performance reporting plus rebalancing tools. The activity has been strong across all of the channels we serve, but slightly stronger within the Registered Investment Advisor channel, the RIA channel. And then with respect to same-store sales, when you adjust for the market hit in the fourth quarter and that December 31st billing cycle, the asset-based business normalized flows are in the 9% high-single digit range normalized for the subscription reclass and normalized for the market decline in the fourth quarter and at December 31st level. Subscription-based recurring revenue, same-store sales are more in the low to mid teens rate on a recurring revenue basis growth. So that's some of the breakout that you will see in the tables provided by the finance team.

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

Great. Thank you for taking my questions.

Operator

We have another question from Peter Heckmann of Davidson. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Peter.

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

Thanks for taking my question. Just a point of clarification, I don't see it in the press release where you say as. But given the issuance of new shares with the MoneyGuide deal, should we be using ending diluted share count of around $55 million?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So the $52.8 million incorporates the impact for Q2 being only two-thirds that will go up another million or so for the full quarter of -- in Q3 and Q4 not each quarter just one more million to pickup the full quarter impact. So the 3 million shares issued is impacting only two-thirds of Q2, but then there will be a full impact for Q3 and Q4. So one quarter $55 million (ph). It won't be an additional 3 to what we're assuming.

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

Got it, got it. Okay. And then just looking at the segment reporting, you hardly seem to decelerate a little bit sequentially and just wanted to see if there was anything to call out there in terms of year-over-year comps or any changes that may have happened there?

Judson Bergman -- Chairman, Chief Executive Officer, Director

No, there is no update on the segment from where we've given in terms of directionally our expectation. And then of course, it all rolls up for the annual results that we've updated tightened and -- and tightened.

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

Got it, got it. Okay. And then, yeah, let me get back in the queue and we can call further later. Thank you.

Operator

We have our next question from Chris Shutler of William Blair. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Chris.

Chris Shutler -- William Blair -- Analyst

Hey, Jud. How are you?

Judson Bergman -- Chairman, Chief Executive Officer, Director

Fine. Thanks.

Chris Shutler -- William Blair -- Analyst

So I guess first, it felt like the revenue and EBITDA guidance didn't really increase much after you back out the impact of MoneyGuide. I recognize the market rally that you had already incorporated January markets in the guidance, but is there anything else that we need to be aware of obviously the fee rates ticking down a little bit?

Judson Bergman -- Chairman, Chief Executive Officer, Director

The only thing that I think is sort of a factor in the modeling and the forecasting is that, one of the conversions came in for the quarter at net net gross and so basically placed the gross guidance -- we came in at the low end of our gross revenue guidance, but slightly ahead of the midpoint of the implied net revenue guidance. And that's just was a Q1 effect on one of the conversions where the client build for manager fees on the first quarter, we will do that in subsequent quarters. So there is that -- that's a small point, I think, Pete?

Pete D'Arrigo -- Chief Financial Officer

No, I think there are things that we did discussed earlier on the call about the mix of assets. We've just updated the forecast to reflect what has come on in Q1. And I think we have a pretty reasonable estimate of the rest of the year.

Chris Shutler -- William Blair -- Analyst

Okay. On the -- you mentioned the Edelman Financial Engines deal, I think, and correct me if I'm wrong, but I think there were clients before maybe just confirm that and what's new about the -- this new agreement?

Pete D'Arrigo -- Chief Financial Officer

Well, Edelman was a client before we've expanding that now to include as you know that was a big transaction that took place Financial Engines went private. So now we've expanded that relationship to the Financial Engines portion.

Chris Shutler -- William Blair -- Analyst

Okay, got it. And last one Jud for Yodlee. Can you just -- can you talk about the progress that you've made with APIs and making a lot easier for developers to work with Yodlee and how confident are you that you can kind of meaningfully improve your win rates with the FinTechs? Thanks.

Judson Bergman -- Chairman, Chief Executive Officer, Director

So the -- we're making significant investment continuing to in the Data and Analytics business and the Yodlee platform. We're focused and have been for the last several years and really two things; one is setting the industry standard for accuracy and data integrity and we have made tremendous progress there custodial data that we aggregate and consolidate by the time market opens is at a 99.6% accuracy level. And for the held away data, that data that's not the 80 or 90 largest custodians, but is at a variety of banks and other financial institutions. Now applying machine learning and applying our own data reconciliation and data normalization techniques, we're now getting that up into the low to mid '90s, which is a significant improvement from where it had been. That's a positive.

The second thing that we are working and investing in is making the functionality available through API's, so that the developer community can more easily access the capabilities of the data aggregation platform. And we expect that, that will continue to make a lot of progress for us. We're focused primarily on the Wealth Management segment for data, wealth advisors, wealth managers, asset managers. But we are expecting that with the improvement on the API layer that we will be become more competitive within credit and within the FinTech. We expect that, that will be an ongoing investment and we expect to get some results later this year from that.

Chris Shutler -- William Blair -- Analyst

All right. Thank you.

Operator

We have our next question from Oscar Turner of SunTrust. Please go ahead.

Oscar Turner -- SunTrust -- Analyst

Hey, guys good afternoon.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon.

Oscar Turner -- SunTrust -- Analyst

Just have one question related to the new insurance and credit changes. How should we think about the cross-sell potential within your advisor base. And do you think those products could be material to revenue growth over the long-term?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So the insurance exchanges further along the credit exchange was just announced and the insurance exchange is essentially a 100% cross-sell. It's to a segment of our advisor base. The advisor base that uses an investment that doesn't have access to no load or fee-based insurance product. And so we expect that it's not all advisors, a number of advisors are already in ecosystems where they have complete access to insurance, but it's an important segment and we think that the -- we think that the long-term revenue potential is significant. We've gone from essentially no revenue, we expect that will end the year probably in that a low 8 figure run rate that will be -- that we've incorporated into our overall guidance. It's an important element of revenue. We expect that it will realize both in the form of research and subscription fees coming from the providers as well as some asset-based fees coming from the advisors who place assets in various insurance products. So we expect that it will be significant. We think that the credit exchange could also be a significant revenue source for us three years, four years, five years down the line and that's why we're investing in these exchanges. it not only makes the platform more relevant, it not only makes the advisor more relevant with an expanded useful definition of what they do, but through subscription revenue and through asset-based recurring revenue, we expect that it will be an important accelerator of our overall revenue per advisor.

Oscar Turner -- SunTrust -- Analyst

Okay. Thanks a lot.

Operator

We have another question from Chris Donat of Sandler O'Neill. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Chris.

Christopher Donat -- Sandler O'Neill -- Analyst

Hey, good afternoon everyone. I want to ask one question related to the fee rate just because of things I've heard from other sources. I'm just wondering, if you had any higher mix of cash from some and clients just because of the changes in the tax code and if that might have affected the fee rate. And if that is the case, it seems like could be a transitory time (ph). So that's part of the reason I'm asking just anything unusual there with this unusual tax season?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So we did see marginally higher levels of cash in new accounts. We saw very little rebalancing into cash from existing accounts. We saw some, but it was not enough to affect that fee rate significantly to the detriment. The new business that came on, did have more conservative allocations, but that wasn't enough to affect that rate. The major factor in that rate was the conversion business that came on during the first quarter.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay. Thanks for that. And then just looking at the account growth, it looks like a pretty strong quarter up about 7% from the fourth quarter. Any call-outs there, is that related to Edelman Financial Engines or is there something else like migration from AUA. And I'm looking at AUM accounts not AUA, but any migration from AUA to AUM or just trying to understand what's the (inaudible).

Judson Bergman -- Chairman, Chief Executive Officer, Director

Again any change -- I don't think you should part as a trend because it's a result of the conversion activity, primarily the result of the conversion activity.

Christopher Donat -- Sandler O'Neill -- Analyst

Okay. Thanks very much, Jud.

Operator

Our next question is from Hugh Miller of Buckingham. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Thank you, Hugh. Good afternoon.

Hugh Miller -- Buckingham -- Analyst

Hi, thanks. Good afternoon. Thanks for taking my questions. Just, if I heard you correctly, I think in the prepared remarks, you mentioned that a key area for your cash flow. It was not only investing the platform, but also investing in acquisitions. And I was wondering, if you could just provide a little color on your appetite for M&A, now that you've completed the PIEtech deal and what you're seeing in that market?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So we have seen planning is central. And so we saw the acquisition of MoneyGuide as an important strategic transaction. We don't see a high likelihood of -- in fact for the delivery, see a low likelihood of a major strategic acquisition in the near term. We continue to look at consolidating acquisitions and we view consolidating acquisitions different then strategic acquisitions. Strategic acquisitions bring new capabilities or expanded or enhanced capabilities on a product or platform or bring adjacent marketplaces into our business. Consolidating transactions on the other hand of companies that are already in a market that we're in and that we're able to generate an acquisition of new customers and over time reduce the operating expenses in the tech spend of that business. So that they -- the consolidating transactions are financially accretive once the conversion is complete. We expect that there is going to be a regular -- that we will regularly -- we're looking at consolidating acquisitions consistently and if they meet our screening process and they meet our return on invested capital requirements and they don't over leverage the business, we expect that we're going to continue to do consolidating transactions.

Hugh Miller -- Buckingham -- Analyst

That's helpful. And I guess maybe just a follow-up on your comment about over levering the business. If you could just provide us a little color on your comfort level and what metrics we should be thinking about in terms of that leverage?

Judson Bergman -- Chairman, Chief Executive Officer, Director

Well, on a net basis, I'm certainly comfortable at 2.5 times to 2.8 times, of course for an acquisition like MoneyGuide, we are higher than that, but we expect to end the year below 3 times on a net leverage basis. I'm comfortable at levels in that mid 2 times to high 2 times ratio. I'd like to keep it below 3 times, and really like to get it down below 2.5 times over the longer term. But there is a -- we're in space. FinTech with tremendous investment going into it. And we believe that we are the logical consolidator of this wealth tax space. And so we are going to be very disciplined on our returns hurdle and we expect that we'll see a fair amount of activity over the coming years of consolidating acquisitions that hit those thresholds or that exceed those thresholds.

Hugh Miller -- Buckingham -- Analyst

Definitely helpful. Thank you for that. And then with the roll-out of the Advisor Analytics, I was wondering if you could provide just some color on the feedback that you're receiving and whether or not there's any change in kind of the longer-term conversion pipeline given you know that, that's a helpful tool for larger potential conversion in this?

Judson Bergman -- Chairman, Chief Executive Officer, Director

So you're referring to the Advisor Analytics offering that we introduced last week at the Summit. Is it fair amount of enthusiasm about it? Whether it's at the enterprise level, the home office product executives and marketing executives or whether it's more share of market-oriented registered investment advisors. There is a huge appetite for data and for analytics. And of course they don't want the raw data, they want the actionable intelligence. So as we grow our platform business what are the intentional byproducts of that is growing our data set and that data set consists of some very valuable metrics as to pure benchmarking for account growth for fees or for asset allocation or for even returns profiles. And what types of asset classes are being used by the most successful advisors and what does the practice management profile look like of top quartile advisors or top 50% advisors and what kind of anomalies are there between advisors that maybe under performing with against their peers. So there is tremendous appetite for this data. We have a very good challenge in that some of this is readily available and is disseminated to the clients of investment and Yodlee on the platform side, so differently it comes with the platform, but there are some opportunities to do some more customized and frankly more valuable and deeper analytics and we're able to do that as well, whether it's for asset managers or insurance companies broker dealers banks are RIAs. And so over time we're going to be off -- we're going be fortifying and strengthening both that the standard platform offerings that come to anybody who is a client of investment as well as the more targeted and research intensive versions of our data analytics and that's an important part of our business going forward.

Hugh Miller -- Buckingham -- Analyst

Okay. Great color there. Appreciate the insight. And then just one housekeeping one for me. If we think about the quarter-over-quarter reduction in the AUA Advisor, any insight you can provide, if you kind of adjust for the reclassification subscription, how that metric would look?

Pete D'Arrigo -- Chief Financial Officer

So I think that the only thing that's going on there is the reclass.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Nothing notable here.

Pete D'Arrigo -- Chief Financial Officer

Nothing notable. Yeah, it's not a big quarter of growth if you adjust for that.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Stronger growth in the subscription advisors in the quarter.

Hugh Miller -- Buckingham -- Analyst

Okay, thank you.

Operator

We have our next question from Patrick O'Shaughnessy. Please go ahead.

Judson Bergman -- Chairman, Chief Executive Officer, Director

Good afternoon, Patrick.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Hey, good afternoon. Just a quick one from me. On your balance sheet your liabilities we saw a nice pickup of your deferred revenue in the first quarter. Is that just kind of one big large client that is national is taken a while for you to on-board, or is there something else going on there?

Judson Bergman -- Chairman, Chief Executive Officer, Director

No, it's related to a few different clients, that are in the process of on-boarding. And again that will start to amortize through to the income statement as those plants get implemented.

Patrick O'Shaughnessy -- Raymond James -- Analyst

Okay, great. Thanks, Pete.

Operator

And we have one question from Surinder Thind. Please go ahead.

Surinder Thind -- Jefferies -- Analyst

Thanks for the follow-up guys. Just a follow-up on the subscription licensing business. Is there any additional color you can provide on maybe the sub-segments within that, if you think about. It appears that maybe there is a bit of a bifurcation in growth between like what we're seeing in Tamarac versus Yodlee and other and maybe even the enterprise business. Any color that you can provide?

Judson Bergman -- Chairman, Chief Executive Officer, Director

No. So the subscription business today, the subscription pricing model is -- it will take a step back is preferred by large RIAs and large enterprises. That being Yodlee's client base historically has been large enterprises. Tamarac's client base large RIAs enterprises on the wealth sides client base is a combination of large enterprises and smaller and mid-sized enterprises. So there is as scale what happens is -- and there is a consolidating aspect of this wealth tech industry. There is just a stronger demand for subscription-based pricing, then asset-based pricing from a high level. There over time, many occasions where a mid-sized firm starts with asset-based revenue. And then at some point they graduate to subscription-based revenue. So whether that's happening within data and analytics, the Tamarac RIA business or the enterprise wealth business, the rates are pretty clustered in the low teens to mid to high teens depending on that, but none of those activities falls out of that range. Surinder, just to say it that way.

Surinder Thind -- Jefferies -- Analyst

Okay, that's fair. That's helpful. And then maybe a really quick one on Folio Dynamics here. I guess we're approaching about a year and a half since the deal closed. Maybe any kind of an update on where things stand, maybe progress on the -- I guess I think it was $20 million in cost synergies maybe. And then just maybe at the same time when that deal first close, there was the thought that maybe at some point in the future there might be an opportunity for revenue synergies. So any color or update that would be helpful.

Judson Bergman -- Chairman, Chief Executive Officer, Director

So, thank you for that question. Yes, Surinder, so when we did the acquisition, we identified initial synergies in that $20 million range, in addition to what the EBITDA was at the time in the mid-single digit range. And we are on track for the conversion activity. You remember -- well, just to remind everyone that when we do a consolidating transaction, we expect there to be essentially flat top line revenue for a period of one to as long as three years while we consolidate and then convert on to the investment platform. So we're on scale -- on schedule with that, the first tranche of that activity we realized of those efficiencies, we realized last year, the second tranche we're experiencing this year and that's in our guidance is one of the reason that EBITDA growth year-over-year is as high compared to some of the other metrics. And we expect that the third tranche of that savings will be -- we will begin to realize that in early 2020. So that's all on schedule. In terms of the cross-sells the client base we expect will stabilize and will begin to grow again in sometime in 2020. And it's then that we would expect there to be some nice cross-sell opportunities where the Folio tool maybe incorporated more broadly within the investment client base, FolioDynamix trading tool. And we're beginning to meet more regularly with legacy FolioDynamix clients about ways that we can do more with them. For example on the research side through investment PMC or through the data side through our data and analytics offering. So we expect that, that if we look back and look at the consolidating transactions we've done in the past from eQuest Prudential WMS, Placemark are examples. Then those businesses start to look very much like the rest of the enterprise business, two years, three years, four years after the acquisition. And we expect that's going to be the case with FolioDynamix as well and we're encouraged by that.

Surinder Thind -- Jefferies -- Analyst

All right. That's helpful. Thank you very much guys.

Operator

Thank you. It appears there are no further questions. At this point, I would like to turn the conference back over to Mr. Bergman for any additional or closing remarks. Please go ahead, Mr. Bergman.

Judson Bergman -- Chairman, Chief Executive Officer, Director

I want to thank everyone for your participation. I want to thank you for the good questions, the solid homework and I see that we're at the top of the hour, so I will say goodbye for now and look forward to joining you I guess in, would that be early August. Okay, thank you so much. Bye.

Operator

Ladies and gentlemen, the conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

Duration: 60 minutes

Call participants:

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

Judson Bergman -- Chairman, Chief Executive Officer, Director

Pete D'Arrigo -- Chief Financial Officer

David Grossman -- Stifel Nicolaus -- Analyst

Surinder Thind -- Jefferies -- Analyst

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

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

Chris Shutler -- William Blair -- Analyst

Oscar Turner -- SunTrust -- Analyst

Christopher Donat -- Sandler O'Neill -- Analyst

Hugh Miller -- Buckingham -- Analyst

Patrick O'Shaughnessy -- Raymond James -- Analyst

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