Almost nine years of favorable market movements have helped the financial industry recover from its worst period in generations. With profits restored, financial institutions have been able to invest in technology to help improve their operations, and financial information technology specialist Envestnet (ENV +0.00%) has benefited from the long bull market as it markets its productivity tools to clients in the wealth management industry.
Coming into Wednesday's third-quarter financial report, Envestnet investors were looking to see the company's growth rates remain favorable in light of continued success in the financial markets. Envestnet's gains were considerable, and the company is optimistic about a recent acquisition that could help it accelerate future growth. Let's look more closely at how Envestnet did and what's ahead for the company.
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Envestnet climbs higher
Envestnet's third-quarter results continued the forward momentum it has generated in recent quarters. Revenue picked up 18% to $175.6 million, which was stronger than the 15% growth rate that most investors were looking for from the financial IT specialist. Adjusted net income of $17.3 million was 39% higher than in the previous year's third quarter, and that resulted in adjusted earnings of $0.37 per share, which beat the consensus forecast among investors for $0.35 per share.
Envestnet continued to attract more clients to its offerings. Total platform assets hit the $1.29 billion mark, up by nearly $240 billion in just the past 12 months. The number of platform accounts rose by nearly 850,000 to 6.72 million, and the total number of advisors using the Envestnet system was at nearly 59,500, up by almost 7,500 since last year.
A number of tailwinds helped Envestnet's fundamental performance. Assets under management or administration climbed by almost $32 billion over the past three months, with favorable market impacts making up $13 billion of those gains. Net inflows accounted for the other $19 billion, with gross sales dramatically outweighing redemptions among the company's clients. Total conversions for the quarter amounted to more than $22 billion.
Envestnet's gains were well-balanced between its key segments. The core Envestnet business saw top-line growth of 19%, outpacing the 14% rise in sales from the Yodlee segment. Gains in adjusted pre-tax operating earnings showed the same relative performance, with the core unit seeing a 33% rise even as Yodlee boosted its segment bottom line by 25%.
CEO Jud Bergman remains optimistic about the company's prospects. "Envestnet's strong execution continued through the third quarter as we delivered solid organic growth in both revenue and earnings," Bergman said. The CEO also pointed to the moves that Envestnet's customers are making to build stronger relationships with their end-clients, and that has positive implications for Envestnet as well.
What's next for Envestnet?
Envestnet is also upbeat about what the future will bring. As Bergman put it, "We continue to see growth opportunities in 2018 and beyond, both organic and from acquisition, including the FolioDynamix transaction." The company expects to close on that purchase early next year.
FolioDynamix has the potential to add to Envestnet's capacity to serve wealth management clients. The company provides integrated wealth management technology solutions, and Envestnet spent $195 million to buy the company in September. As wealth management plays an increasingly important role among financial managers, Envestnet hopes that the institutions it serves as customers will see the value of offering a more inclusive package of tools to help advisors guide their end-clients more effectively.
Envestnet's guidance was upbeat as well. For the fourth quarter, Envestnet expects adjusted revenue of $178 million to $180 million, which is just a bit higher than the current consensus projection among investors. Quarterly adjusted earnings of $0.39 per share is only a bit lower than the $0.40 that those following the stock are hoping to see. For 2017 as a whole, Envestnet boosted its sales guidance higher again by about $10 million, expecting between $679 million to $681 million for the year.
Envestnet has seen solid gains in its stock price over the past two years, and the company continues to ride the wave of positive industry performance. Investors should be pleased with the way that Envestnet is performing fundamentally, and all signs point to continued success in the coming year.
