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Envestnet Inc
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Greetings, and welcome to the Envestnet First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It's now my pleasure to introduce your host, Chris Curtis. Please go ahead, sir.
Thank you, and good afternoon. I'm joined today by our CEO, Bill Crager; and CFO, Pete D'Arrigo. Our earnings press release and associated Form 8-K can be found at envestnet.com under the Investor Relations section. I'll point out that a supplemental presentation is also posted on our website. We will reference that throughout our remarks.
During this conference call, we will be discussing certain non-GAAP information including adjusted revenue, adjusted net revenue, 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 Bill.
Thank you, Christopher. It is good to speak with everybody this afternoon. Like most of you, I'm doing this call from home in what I hope will be a quiet location with a good and undisrupted connection. I hope everyone on the call today and their families are staying safe, and that everyone is healthy. Our business had strong momentum as we started the new year and we posted very strong results, growing adjusted revenue by 24% and adjusted EBITDA by 61% year-over-year. And as you well know, the first quarter was a story of two very different chapters, before and after.
In our wealth business and in our data business, we saw very good, very encouraging activity, but then the world changed. In late February and the first days of March, we began to respond to circumstances as they unfolded, first in Seattle, but then across all our operations. Activating our business continuity plan, we rapidly effected decisions to protect the safety of our employees in every location in which we operate while we also ensured the ongoing support of all of our clients. These were extraordinary days as we mobilized and we relocated at the very same time that historic market volatility absolutely exploded.
We sit at the nexus of financial services, partnering with nearly every type of financial institution and serving more than 100,000 financial advisers who work with tens of millions of clients. We also serve over 20 million consumers who use our data every day. While our interconnection gives us a unique perspective on the industry, as you can imagine, during periods of volatility and distress, our clients generate a tremendous level of activity. During those days of March, we operated in the eye wall of the storm.
Throughout it all, our platform performed at scale and our people delivered in the most difficult of circumstances. I can't express enough how proud I am of the team for executing in a situation with such high degree of difficulty and how appreciative our clients have been for Envestnet being there when they needed us. We're an essential partner that has delivered, and I suspect we'll be leaned on even more in the future. What we have built over these past 20 years, our technology, our team, our client-first culture, stood up and showed itself these past weeks. The volumes we handled in recent weeks demonstrate the power of our platform and the ability to grow and handle volume at scale. These weeks have been an important proof point for our company.
Page 6 in the supplemental material shows some of the metrics on our recent activity. Here are just a few examples. In March, trade orders were more than five times higher than last year. Adviser service requests were up 78%. 17% more consumers leveraged Yodlee's account aggregation platform to check on their finances. And clients leveraged our Tamarac client portal nearly 80% more frequently and uploaded more than twice as many documents to our document vault.
We handled the volumes. We illustrated our scale, we more than held up during the storm. All the while, 100% of our global workforce, including our employees in Bangalore and Trivandrum, have been working from home. The agility of our technology to be deployed from anywhere and at any time and the work we have done as a company to prepare for whatever comes has been an incredible asset during these weeks. Again, I'm grateful and I'm proud of the Envestnet team. Our financial results for the first quarter were strong with revenue and earnings exceeding expectations. Pete will run through some of the specific areas of outperformance in a few minutes. But first, I'd like to take a little bit of time to review our business activity in the first quarter, what we're seeing now and then what our outlook importantly is for the rest of this year.
Let's start with the wealth business. I point you to Page 7 of the earnings supplement. Gross sales or asset inflows surpassed $40 billion in the quarter, that's our highest ever. We also onboarded more than $20 billion in asset-based conversions. The challenging markets late in the quarter do not appear to have affected our platform activity in a meaningful way. Within the quarter, gross sales were strong each month and redemption rates importantly remained below 2%. All told, net flows from existing business were $11 billion for the quarter.
Based on an early look at April, net flows are likely to exceed what we saw in March, but it's not going to match what we saw in January and February. That's driven by some understandable softness in gross sales and a redemption rate that's been running north of 2%. This more recent activity informs our updated outlook that Pete will cover in just a bit. In our data and analytics business, revenue and earnings were ahead of expectations as we saw outperformance in subscription revenue from all major areas of the business, including aggregation for financial institutions as more consumers check the balances of their financial accounts more often.
As we go forward, consumers will interact more and more with digital tools that providers make available to them. When there is uncertainty, users absolutely click on these apps. They want to know. The data we provide becomes essential and is essential.
In credit, we've also seen increased usage as mortgage refinancing activity has grown as a response to record-low interest rates. In our credit analytics, our Equifax implementation continues on a slightly delayed schedule given this current environment, but revenue should not be affected due to contractual minimums, and we still expect to head into 2021 in a very good place with respect to this important credit offering. And in our investment analytics business, we continued to innovate and pursue additional use cases to diversify our revenues in this area. I will comment about the work we are doing here in just a moment. The current environment has reduced our expenses in the short term. We saw some of these reductions in March and we're anticipating even more in the second quarter, particularly in areas of travel and entertainment, obviously, and also in marketing.
We also have pulled back on hiring and other discretionary expenses for the year to mitigate a meaningful portion of the earnings decline we're expecting from the first quarter market action. Based on our first quarter results and our strong financial position as well as our outlook for the remainder of the year, we are confident that we won't simply weather this storm; we'll emerge from this even stronger and be prepared to take advantage of opportunities to accelerate our long-term growth.
We don't know how this pandemic will fully play out in a macro global sense, but we do know it is impacting the heart of American families as they cope with their own economic, physical and mental well-being during this time. The kitchen table has become the center point for what it means to all of us. It is absolutely essential that we think about all stakeholders at times like these. We are truly in this together, and it's important for our company to play its part today. Never before has our core purpose of making financial wellness a reality for everyone become more essential. As Americans are under financial strain and stress right now, we're in a unique position to help. So we've made MoneyGuide, MyBlocks financial planning modules available for free.
We're encouraging advisers to share these with all of their clients, with all of their employees as well as within their communities as they serve a tremendous purpose that can be utilized by everyone, young and old, employed or unemployed, financially secure or in financial need to answer the essential question at this time: what should I do?
Envestnet also is providing insight on consumer spending with the launch of our COVID-19 income and spending trends from Envestnet Yodlee. This is a powerful example of how we plan to evolve our Yodlee analytics offering and these reports are helping businesses and government agencies understand where and how consumers are spending money in this current environment. It's invaluable information. These insights are answering questions for policymakers and others about how American families have been impacted. We're also leveraging data from our industry-leading wealth platform publishing adviser insights, which highlight key investor behaviors. These insights are showing the value of advice and how investors were able to react quickly while also maintaining focus on their long-term plans. Links to both of these reports are included in the supplemental material online.
Our Envestnet Institute in the Classroom partnered with EVERFI to offer free online education to anyone in the United States. The curriculum includes digital courses for students in kindergarten through 12th grade and provides quality educational content on life's critical topics, including financial education. We're incredibly proud to sponsor this effort. And then last week, we were scheduled to hold our annual Advisor Summit in Austin, and obviously, and disappointingly, that was canceled. But in its place, we will be launching a series of virtual summit events, including a learning center to help advisers navigate the landscape in a post-COVID world. We encourage you all to sign up when we launch these online. That leads me to what we believe the future will look like and how Envestnet will lead the way.
We released our thoughts this morning, and you will find this list on Page 11 of your supplement. Our thoughts are based on the data we see each and every day that informs what we deliver and how we serve our clients and informs these essential elements as we see critical that we see as critical to the future of our industry: number one, a new level of trust and relevance on the currency of valued engagement. Transparency, authenticity and logic supported by predictive analytics will be the baseline for how a client values the information they engage with. This month, we'll invest we will introduce Envestnet Connect, which makes this possible for advisers at scale.
Number two, redefining what it means to be prepared. Understanding the trade-offs and what-if scenarios will be the underpinning of advancements and usage of financial planning. Our market-leading MoneyGuide financial planning tools enhanced with estate planning features become the core to all investor engagements in the future.
Number three, digital becomes far more human. Hybrid will be the only engagement model that will work in the future. And the fidelity of engagements must be the same, whether they are digital or they are in person. A dynamic client portal becomes an essential digital extension of the financial adviser.
Number four, the fusion of health and wealth. Behavioral holistic wellness across assets and liabilities will be the mandate, supported by an integrated technology platform. Our current and future exchanges supported by predictive analytics will enable true personal wellness.
Number five, family and communities lead the way forward. This is the new mutuality. We are all in this together. This drives the connectiveness and strength of communities, and financial security is an integral part of this and our industry needs to lead the way.
And then, finally, number six, creating a new playbook for a sustainable business. The need for scale that includes digitizing, data and analytics, outsourcing and strategic partnerships will be the focus for advisers after COVID-19. The Envestnet ecosystem combines technology data and solutions as well as an upcoming suite of adviser services, and this comprises the foundational toolkit for our future. We do see definitive outcomes that will drive change. We do realize that with this change, the delivery of financial wellness will become a reality for everyone. We will lead and will support the industry every step of the way, and this is our mission.
I'll be back with some closing comments in a moment, but first, let me turn it over to Pete.
Thank you, Bill. Before I get into the review of our first quarter results, I am thrilled to extend congratulations to my longtime partners here at Envestnet, Bill on being named CEO of the company; and Stuart DePina on being named President. I'm looking forward to the next phase of growth for us. Also on our Board of Directors, congratulations to Jim Fox, our Chairman; and Chip Roame, our Vice Chairman, on their new roles. And I'd also like to express thanks to Ross Chapin for his stewardship as interim Board Chairman bridging us through a time of uncertainty.
I'm going to review our results for the first quarter and update our outlook for the rest of the year in a bit of a different fashion than usual, providing as much context as possible given the current environment and spend less time on reading the numbers from the tables themselves.
Our first quarter results were quite strong, meaningfully exceeding expectations. You'll see on Slide 8 in the supplemental material. That adjusted revenue for the quarter was $247 million, around 24% above the first quarter of 2019 and $4 million ahead of the midpoint of our guidance. Data and analytics outperformed largely from higher platform utilization, while the wealth segment was relatively in line with our expectations. Excluding the revenue contribution from the acquisitions of MoneyGuide and PortfolioCenter completed in the second quarter of 2019, revenue grew 15% versus last year on an organic basis.
Cost of revenue was favorable to our guidance driven by lower manager fees associated with our asset-based revenue, which led to higher adjusted net revenue. Elsewhere, within our operating expenses, personnel expenses were lower than our expectation due in large part to the way we managed hiring activity in the quarter and favorability in our benefits and taxes, which we have seen increase through the second half of 2019. General and administrative expenses were also favorable across a variety of categories, mainly due to the cancellation or deferral of events and lower marketing spending, travel and other discretionary spend, particularly during the month of March consistent with the way Bill described.
All told, our adjusted EBITDA of $54.6 million exceeded the midpoint of our guidance by more than $8 million. Approximately $5 million attributable to higher adjusted net revenue and around $3 million related to the expense favorability, including personnel, marketing and travel. Adjusted earnings per share was $0.57, $0.12 higher than our guidance for the quarter. Our growth in adjusted EBITDA was 61% compared to Q1 2019, and adjusted earnings per share was up 46%.Looking forward to both the second quarter and the full year, you can find our specific guidance in the earnings release and additional information on Page 9 of the supplement.
For our updated outlook, we're taking into account the current environment and the impact it may have on our business activity and financial performance. The most obvious change is the effect of the market in the first quarter. The market downturn reduced our billable assets by $82 billion as of March 31. This impacts our asset-based revenue going forward, which will be partially offset by a reduction in our asset-based cost of revenue. Other assumptions impacting our asset-based revenue have also been updated. Fee rates have come down as a result of a mix shift from AUM to AUA, partly due to conversion activity in the first quarter and partly due to adviser-driven portfolio changes, which we see commonly during times of high volatility. The effective fee rate in the first quarter was 9.8 basis points. In the second quarter, we expect these shifts to result in a fee rate of around 9.5 basis points.
We are tempering net flow expectations modestly, reducing our expectations for gross sales and increasing redemptions. Net flows are still expected to be positive in the second quarter and the rest of the year, but less so than we previously might have anticipated. And we have shifted out the expected timing of new bookings, conversions and implementations based on known or likely delays in such projects in the current environment. This last element will impact both our asset base and subscription-based revenues this year.
Professional services and other revenue was lower than previously expected due to the Advisor Summit cancellation. Cost of revenues associated with the summit will also not exist in the second quarter. Within our operating expenses, we have assumed that pandemic-related measures will continue to affect hiring, travel and entertainment and marketing in the near term. We're also managing discretionary spending through the remainder of the year in an effort to mitigate the impact from the first quarter market decline. For the full year 2020, we continue to expect top and bottom line growth compared to 2019. And despite the impact from the first quarter market decline, through a conscious effort to manage expenses, we expect to maintain a 1.2 times relationship between our growth rates in adjusted revenue and adjusted EBITDA.
Our guidance assumes a market-neutral outlook based on market levels as of March 31. Every quarter, we update our forecast and guidance based on the quarter-end market level. In the current environment, given the volatility we have seen so far this year, our future guidance updates could look meaningfully different although as the year progresses, there's less of an impact in the current calendar year. Turning to the balance sheet, I'm now referencing Page 10 of the supplement. We ended March with $69 million in cash and debt of $635 million. Our debt consists of a revolving credit facility with $290 million outstanding as of the end of March and convertible notes maturing in 2023 with a principal value of $345 million.
Our net leverage ratio at the end of March was 2.6 times EBITDA with an additional $210 million available on our revolver and positive cash flow generation. We have liquidity and flexibility as we balance managing the business in the current environment with continuing to invest in growth opportunities, both organically and through strategic activity.
Thank you, again, for your support of Envestnet. At this point, I will turn it back to Bill for his closing remarks.
Thank you very much, Pete. Amid the uncertainty of these days, Envestnet is positioned to be the driver of a digital, integrated future that empowers the industry as we emerge from this extraordinary period of time. I spoke earlier about the storm: the collision of a health crisis; a financial crisis; the implications for government, health care, education, transportation, the service industry, for financial services and the very ways of life and how it has impacted the psyche of every American household. The big storms, they transform the way people live and they also transform the way people operate. This is one of those storms.
We've done an incredible amount of work to put ourselves in a position to be able to deliver the necessary solutions for this urgent future. That said, there is work we still need to do. We are accelerating. We are initiating an effort to create a greater alignment inside the company to speed these efforts along. The output of this work will generate savings, but it will also require investment. As we urgently drive these outcomes, we expect to be a stronger, more aligned, more efficient market-leading company with the ability to continue to grow at industry-leading rates as we serve more of our addressable market that's available to us.
We are investing in new solutions to drive future growth of the business. These are things like our Insurance Exchange, our Credit and Advisor Services Exchanges as well as other new exchanges that we are planning for. These are investments in progress in the use of our artificial intelligence, using our data to drive next action for the advisers and their clients. We're also leveraging voice and chat service to support to help support advisers in this new digital age. Bringing these pieces together is what we're focused on, and these are the things that we're investing in.
As we go forward, we're also continuing to evaluate strategic opportunities despite the market environment, and we will be opportunistic when it makes sense for us. We see acquisition opportunities that would deepen our position in fast-growing segments as well as continuing to evaluate other opportunities for all parts of our business. We're planning for a different type of future. The industry will require new tools and new ways of engagement, and Envestnet will deliver them. One thing will not change, and that is our ability to make a difference in our mission to help more families find financial security and to achieve financial wellness.
Our work has never been more important and our purpose never more clearly needed. Thank you again for your time this afternoon. Thank you for your support of Envestnet.
With that, Pete and I are happy to take your questions.
[Operator Instructions] Our first question today is coming from Alex Kramm from UBS. Your line is now live yes.
Hey good evening everyone. I guess, firstly, just would love to get a little bit more color in terms of what you saw during the first quarter. I think, Bill, you gave some good color already in terms of the two chapters and also what we saw in April. But I think you said at the same time that maybe results were a little bit better than what you thought in terms of flows and redemptions, etc. So just curious if there's anything more in terms of what advisers have been doing or why that may have been a little bit better and then, of course, how that informs your outlook going forward.
I mean is it are you assuming an environment of maybe prior episodes of increased volatility and market declines? Or why could this maybe be a little bit better? Not sure if that makes sense but, yes, any more color would be helpful.
Awesome, Alex. Hope you're doing well and hope you're everybody's healthy. So yes, we got off to a very good start for the year. January and February were incredibly strong months for us. I think the stage was set. As we got towards the end of the year, we saw adviser activity increase, so January, February, very positive months. And in addition to that, Alex, our redemption rates in January and February were low. As we got to March, towards the back half of March, we saw the flow rates kind of decrease a little bit, but still very significantly net flow positive. And we saw the redemption rate tick up to 1.9% where it been kind of, over the quarter, around 1.7% in January and February and then 1.9% into March. Still, I think overall activity for the quarter, really very strong.
As we look provided an early look into April, get a sense of what's happening here in April, I would say that our net flows in April are going to be stronger than March. I think that we continue to see good account activity but we also see an increased activity on redemptions. They've ticked up above 2% for the month of April. So our net flows will be solid, but they won't be what we had forecast at the beginning of the year, understandably just given the market climate. So what we've done is we've kind of taken a picture, taking a snapshot of what our experience has been in April.
And as we forecast as Pete talked about, our forecast or outlook, we've tried to extend that across the course of the year. I think we are in obviously, the market has come back impressively. But there is more news out there on the horizon and we want to be make sure that we're, again, looking at it conservatively as we look at the rest of the year.
So maybe just very quickly. So are you basically saying you assume kind of an April-ish environment for the remainder of the year? Or again, anything more specific in terms of the kind of redemption or flow assumptions that you have for the remainder of the year?
Yes. We again, we've looked at it in an April-ish type environment for the rest of the year and moved more of the business towards the back half. So what we're thinking is that the next throughout this quarter and early into the summer more volatility and we push more of it into the back half of the year. And of course, that impacts our ultimate billing and fee rates billing rate.
Okay, great. And then just maybe like a little bit bigger picture. I mean, obviously, you laid out this kind of like road map, if that's the right word, of how you think the environment is going to look going forward. But can you maybe be a little bit more specific in terms of the challenges that advisers faced in particular during the quarter and the kind of challenges you had to engage with advisers and help them navigate? And what the kind of tools that you think may be necessary or that you're already working on to kind of address maybe this whole engaging with client with your clients but also advise with end clients in a more of a remote fashion for the time being.
I mean, I guess, what are the historically, you've obviously been always going where the puck is going. So I'm just wondering in this new environment, what specifically you are doing to kind of address things as quickly as possible and position yourself for that environment?
Without a doubt, Alex. So those weeks in March, of course, everybody scattered, right? So and if you think about advisers that are sitting in their offices, they're and they're not as the independent adviser is not quite as equipped from a technology standpoint to operate remotely as, let's say, a larger organization just given the infrastructure. So everybody scattered. I'd say it was about two weeks of lots of volatility. The key instrument, I think, during that period of time was our platform. It's where we're able to rebalance accounts, we're able to send orders, make service requests, tweak portfolios and do that at scale and the volumes that you saw were historic. They were extraordinary. We reacted to that. We were able to support it.
So first and foremost, going forward, having a web-based cloud-based platform that is available at all times and from anywhere is key. Now the engagement in the future has to become more and more of this digital hybrid. The digital imperative becomes I read somewhere, and I'm sure a lot of people have heard the same thing, that five years of digital transformation has happened in five weeks. That's occurred in our business. So advisers in order to continue to engage and support their business going forward, they have to blossom and grow their client portal infrastructure. We're leaders there. We feel really well positioned there. We believe that we provide the tools to help advisers engage to co-browse.
This week, if you look at some of our releases, MoneyGuide released secure environment for advisers to work with their clients through their financial plans and a co-browsing video secure video environment. So that is the future and we're pushing hard towards it. At the end of my comments, I did talk about investments. And those investments are to pull all those pieces together and do that as rapidly as we can and deliver things like chat and voice for advisers, client portals so that clients aren't speaking to that adviser all the time, but are getting the answers that they need given an automated AI platform that we're building.
All right, great, thank you very much.
Yes. Thank you,
Our next question today is coming from Devin Ryan from JMP Securities. Your line is now live.
Good afternoon, guys. How are you.
Good, how are you doing. Doing well.
So I guess first question, maybe to follow back up on Alex's first question around net flows. And what I'm trying to think about here is there's kind of two things going on: there's the market drop and the volatility, which we've been through before. But then there's also the health crisis and work from home and the effect that, that's just had on people's daily lives, including advisers and your employees as well. And so I'm just trying to think about whether some of the volatility and maybe even the slowdown in net sales more recently and expectations for the remainder of the year are based on kind of prior experience with market volatility in what you're seeing? Or whether some of that is just maybe a delay or pause as people had to initially work through kind of the health issues of their teams and but as the markets are stabilizing here and the economy starting to reopen can kind of get back to focusing on things to help them grow their business.
So I'm trying to kind of parse through those two interrelated, but in some ways, separate dynamics here just given that this is an unusual moment that we haven't been through before.
Right. Great question. Appreciate it. Why don't I start and then Pete will fill in a little bit on what our expectations are and how we model that. But if I look at the flow data and I look at the ours, investments and then I look at the industries, I see us we've been net flow positive every week of the during the period. We've been consistently our redemption rate has ticked up. I think if you go back a few weeks, and even now, there's this massive anxiety and uncertainty, the market seems to have planned and leveled and stabilized, but nothing else has. And it seems to me that there is what we're sensing is a great deal of anxiety.
So, if you look at the portfolios that we're managing, there was a pretty significant rebalance of those portfolios towards more conservative, more defensive positions. We were able to handle that. That was part of the trading activity that we experienced and able to really to support advisers as their clients got more defensive. But again, if I look at our April numbers, they're in a range of what we had initially thought the year would look like. We're behind, but not significantly behind. We're not it's not a 50%, 40%, 30% behind. We're in the range of what we believed. We'll see how that continues. We'll see if the appetite is to take advantage of where the market is valued today and a belief that this storm will pass and that the market will rebound and people are going to put money to work.
But I do believe that the posture is going to be slightly more defensive going forward. I do believe that from our standpoint, we'll add advisers. We will add accounts. Those accounts will be at sort of a depressed value for a period of time. But ultimately, I'd like to think of that as a coiled spring. So depressed value, but if the market comes back and reaches kind of where it was trading prior to all this, that's going to be a springing growth for us.
Pete, what would you add?
Yes. Just a couple of things in the numbers. Thanks, Bill, and thanks, Devin, for the question. Page 15 of our supplement talks about the comparison to 2008-2009 global financial crisis, which was a time when we did show positive accounts, advisers and asset flows through every period. So we do have some history that you're asking about and that was at a time when we were a much smaller and much more a market-sensitive business. What we saw really in Q1 was one of the highest increases in accounts per adviser that we've ever seen and also very high quarter for account growth.
So, I know it was really kind of toward the end of March when a lot of this happened, but we do feel that we're positioned well to continue to support advisers and adviser activity during this period.
And Devin, in the supplement that we posted online, there is a historical kind of page that looks back at the crisis, the financial crisis of '08 and '09 and it compares to our Page 15, it compares to kind of where we're at today. So that might be helpful as well.
Yes. Okay. Terrific, and appreciate all the detail in the supplement as well. Just a follow-up on the M&A landscape. I know you guys are always having conversations. I'm sure there's businesses that you've been watching or know and have had your eye on. And I'm just curious when you get these kind of market shocks that can create kind of a break in the bid ask, if you will, and I'm just curious, if in your opinion, M&A is going on hold for the industry and for Envestnet for the time being? Or do you think that this may actually this volatility or lower price points may actually trigger some consolidation?
So just trying to think about how, now that we've reset the bar here a bit, how that could impact the ability to do deals or create opportunities on the M&A front?
Yes. Thanks, Devin. We continue to look at the landscape, something that we do all the time, look at opportunities, understand the opportunities, understand how they fit. There are deals that are being done throughout this period and I think those are the ones that make sense from a price standpoint, but also make sense from a strategy standpoint. But I think for the really quality properties, you're not going to see the "discount" because firms that are strategically positioned and have a strong market presence and a good platform and good client base, I think those are resilient, strong businesses and they'll continue to hold value. But again, we're going to continue to lean in from a strategic standpoint behind those businesses that mesh well with ours, complement ours and are represent an ability for us to continue to grow.
When I look at the marketplace, I see our platform and its expansive capabilities from the data to the planning, to the platform now with the additional exchanges and how that can be applied out to a broader client base and it's something that we'll continue to be very focused on.
Appreciate the color. Thanks, Bill. Thanks Pete stay well guys you can.
Thank you.
Your next question is coming from Will Cuddy from JPMorgan. Your line is now live.
Good afternoon. Thanks for taking my questions. So first, quickly, Pete, on the market-neutral comment, so that assumes flat markets from March 31. Is that consistent with how the guidance has been given in the past?
In 99% of situations, that's how we've done it. If there have been extreme dislocations between the end of the quarter and the time we give guidance, then we may update that, but that we may have done it twice in the last 10 years. So yes, that is very consistent with how we do it.
Perfect. And in the prepared remarks, there was some mention of mix shifts within the AUM and the AUA buckets. Could you help us understand where the mix is continuing to go to? Is it SMA, UMA and the asset management bucket, and likewise, an AUA? And then also, do you have like the latest fee rates on a blended basis for both of those buckets?
So what we tend to see as advisers take the portfolios that are managed by third parties in times of volatility or negative returns and they bring those in-house and start to manage them themselves, part of that is a more conservative approach, but it's also that allows the adviser to speak with more confidence to their end clients, to allow them to say, here's what we're doing with your money because sometimes they haven't heard from the investment manager and the client is looking for feedback right away. So a lot of times, they take those more in-house. So that's a move more from an AUM to an adviser as portfolio manager or AUA strategy for us.
We're not breaking out the fee rates. So again, on a combined basis, generally speaking, the average fee rate for AUM is in the mid-20 s. The average fee rate for AUA is around three to four basis points, and it's that blend that sometimes that goes in.
It all right, thanks for walking through that.
I appreciate it.
Your next question today is coming from Peter Heckmann from D.A. Davidson. Your line is now live.
Hi, everyone. This is Alexis [ph] on for Pete. I hope all of you and your employees are staying safe and well. So I just wanted to start off by talking about the margins in the first quarter. I heard you mention a couple of things including personnel expenses lower than expected. I'm hoping that you could help us kind of really figure out what drove that, especially EBITDA margin expansion?
So it was primarily driven by revenue outperformance in the subscription line, which tends to it doesn't have a significant cost of revenue with it. So that's really the biggest driver of it. The benefits and taxes comment, again, we're talking about employee or payroll-related taxes there, not income taxes. But what we had seen through the second half of last year was an increase in comp and benefits. So we had modeled for that to continue into 2020 and it didn't return in Q1 as much as we had expected.
So, we're not sure if that's a timing thing or if that was something that we'll see a benefit going through the rest of the year, but those were the two major components.
Okay. And then, I think I heard you say $45 billion of conversions in the quarter. Could you walk us through that? Is that coming from the end of 2019 that just got completed in the quarter? Is it something else?
Yes. It was about $20 billion, actually, that well, I guess, an AUM/A, $45 billion total, but that is all in Q1, completed in Q1.
Alexis, this is Bill. Typically, what does occur is that people wait for the beginning of a reporting period to do conversions. So they like to get those done, transition off the old system at the end of a year and then transition on to a new one that's going to begin to pick up the reporting from that point.
Okay. That's helpful. And then just one last one, if I could. On Yodlee, has there been any update into the regulatory review?
Sure. The I think you're referring to the letter we received from Senator Wyden's office and then the FTC follow-up. And yes, so we've been engaged, fully cooperating with the Federal Trade Commission. They provided us with some questions. We've answered them, been very open and engaged with the FTC. I think our experience there has been a lot of education, getting them up to speed as to exactly what we do and how we do it.
And then based on that, they gave us a revised set of questions, which we've responded to and waiting for their reply.
Thank you so much.
Yes. Thank you.
Our next question today is coming from Chris Donat from Piper Sandler. Your line is now live.
Good afternoon, everyone. It's good to hear your voices. Wanted to ask one question about the data and analytics business since that looked like it was good. Just can you remind us how the subscriptions work for that if you picked up business, say, in March, I assume we'll see that over the next four quarters or something. But just remind us sort of how the subscription revenue is recognized.
So there are a couple most of the contracts there have minimums with them. When clients go over the minimums based on number of users, then the revenue ticks up with each additional user. So what we saw in Q1 was, in many cases, a bit of a spike in user activity. And so that translated to some outperformance in the subs line there where we outperformed with FIs, financial institutions.
Okay. And so that sort of spike that's user driven won't necessarily repeat going forward?
So again, calendar-wise, we tend to see Q1 with users be a little bit higher. I think that's kind of people go through the year, they're checking their accounts. And then through the first quarter here when the market's all over the place, people are checking their balances. We saw a couple of days where there were record low mortgage rates. So in credit, we saw some usage increases from credit clients that, again, were trying to apply for take advantage of the low interest rates. So overall, in first quarter, we did see higher user volumes. Whether or not that continues, it will again, it's hard to predict. We're anticipating and what we've shown in the guidance is that moderate to more historical levels through second quarter and second half of the year.
Okay. That makes sense.
Yes. Chris, this is Bill. I may just add a little to it because I think what was evident to us is that the usage, definitely the market got super volatile and people got anxious about their balances and all those things. So they're clicking on those bank apps and we're filling it with our data. And so in my mind, it was another proof point that it's an essential offering. The data that we're providing is absolutely an essential offering. We are thinking that as the market stabilizes and just cyclically, we seasonally, we kind of see kind of a first quarter that's strong, and so we've anticipated that in our outlook. But there are these green shoots in that data business that we're excited about. We've talked last year about a lot of the challenges the business was facing, but we're beginning to work through them. I don't think they'll be truly evident in 2020, but they are on the horizon for us.
For instance, we built a new developer's portal that is was built to compete in the FinTech market, we've seen kind of a doubling of new accounts within our FinTech client base over the quarter, which is super positive. We see the volatility spike and people turn to these apps that makes that an essential offering. We're also developing on the analytics business, I think the core current product is going to continue to be challenged, but we're innovating new types of solutions and insights there that I think we'll be able to market it that more broadly. So while 2020 will continue to be kind of a challenge as we work through some of those issues, I think the green shoots are really exciting for us and really paint a picture into 2021 that we're beginning to be a lot more optimistic about.
Okay. Thanks for adding that on. And then I just wanted to ask about the marketing budget. I realize there's a bunch of things in there, probably like some conference attendance and stuff like that. But it seems like this might be an environment where you can be picking up business and new relationships with advisers. When I think about the adviser landscape, I'm imagining there's a number of them that are not as well served with the technology and offerings that they could be, and anyway they might be looking for solutions in this environment.
So, I'm wondering are you still reaching out to those potential customers? Or is your just what are what's changed in the marketing budget really?
Yes. We just prioritize the investments. We're not doing conferences. We're not supporting remote events as much as we were, Chris. So today would be a great example of some of the marketing that we're doing. We published our outlook for where the industry is going ahead and we want to lead. And then in all of those elements, we have services that we're providing out to the market and they become essential, right? So, we are going to absolutely accelerate and pronounce our voice in the marketplace. You'll see us much more active on social. You'll see us much more active from a PR standpoint.
And you'll see us active in other kind of virtual type marketing environments, including our virtual summit that we'll host I believe that's in the beginning of June.
All right, makes sense. Me, thanks.
Thanks.
Yes. Thank you.
Our next question is coming from Chris Shutler from William Blair. Your line is now live.
Good afternoon, everybody, hope you're all well Maybe first, Bill, could you just talk about some of the exchanges, specifically the I guess, the insurance exchange? And then any insights you can offer at this point in time on some of the other or newer types of exchanges that are under consideration?
Sure. So yes/no; we are very optimistic about the exchange network that we've invested in and have built over the last year or so. We didn't anticipate a pandemic, but if you think about the future of the investor, our risk is going to take a much higher kind of grab much more mindset. And then how do you mitigate that, through principal protection and also through guaranteed income, the insurance exchange becomes an essential. So we feel incredibly fortunate that we had built this and we spent the time to integrate it. And then we're advancing the integration of the exchange into all elements of our business. For instance, straight out of the MoneyGuide planning app now, an adviser can access our Insurance Exchange and execute on those products. So made tremendous progress.
We've got eight carriers today and they are loaded up on the platform and beginning to distribute product to a growing list of clients that are utilizing our Insurance Exchange. At last count, I think, at the end of the quarter, we were up to 4,000 insurance licensed advisers, nearly a 6,500 total advisers who are using the platform. But the pipeline behind that, Chris, has been very, very encouraging. And my sense, just given the market climate that, that will continue to build the Credit Exchange off to a very fast start. We've got four lenders today on the platform and a pipeline of others that will join. We've processed or we're processing loans and have a pipeline of over $100 million in loans today that we're looking to serve. We anticipate by the end of the year about 15 firms will be utilizing the Credit Exchange. So lots of progress there.
In the first quarter, we announced a partnership with Dynasty Financial Partners around the Advisor Services Exchange. When I think about the future, I believe that independent advisory firms in a remote go-remote environment without all the infrastructure to connect and collaborate the way larger companies can, I think there'll be more and more outsourcing. Outsourcing to things like finance support, marketing support, compliance support, other services that we're driving around our Advisor Services Exchange. So we're super encouraged by the early days of that and hoping from the feedback that we've gotten and hoping that by third quarter, we'll be in the market and we'll be engaged with advisers to help fill those services.
As we look at future exchanges, we're continuing to look at what does integrated advice look like? What are the components of advice? They include things like banking, they include things like life insurance and other types of services and into the these beginning to step into the health care, how do I budget my HSA or how do I address my health care needs. And that all becomes an integrated environment that sits underneath the financial plan, and that's really what we're looking towards.
Got it. Okay. So second question, I noticed looking at the P&L that the severance expense ticked up quite a bit, $14 million. It was also elevated last quarter. Maybe just talk about that. It looks like mainly in the wealth business. So what are those efforts around? And maybe just talk about driving more efficiency throughout the organization more broadly. How much, I guess, expense efficiency have we seen to date and how much is still to come?
Yes. Thank you, Chris. So towards the end of last year, we introduced an optional early retirement program. We called it the emeritus program and long-tenured individuals have been at the company for with Jud, myself and the team for a number of years decided to opt into that. And these are have been great partners of ours and that's what that expense represents. We do believe that as we've gone through that, we've been able to lean in towards this more integrated organization and create more efficiency and effectiveness in the way we work across our data business, our wealth business, our planning business etcetera to create that integrated advice model.
We are and always have continued to evaluate the organization in ways that we can be tighter aligned where we have redundancies, where we have in this environment, especially as we think about real estate and other things, how can we bring the company closer and closer together to create more alignment, to get more throughput, to get to market faster with things that we see as a tremendous opportunity for us. So working on it and continue to make progress, and we'll make more progress this year from a cost standpoint.
Okay, great. And then, lastly, just on maybe to follow up on Devin's question about M&A. Is it fair, Bill, to say that tuck-ins are possible, if not likely, but larger transactions? I mean are those still on the table in this environment or not so much?
No, I think they're possible, Chris. I mean if it's the right opportunity and we can find a way to execute the transaction, we're not going to not participate given the climate. We feel very confident in our capital base. We feel very confident in our ability to execute those types of transactions. So if they present themselves, we want to be opportunistic and we want to do it. We're in a position to and maybe others are not in that same position at the moment.
So that said, the market client is what it is, and I think everybody is pretty tentative at the moment. And so it's not as it was, say, in February where there were all that many opportunities out in the market and where having lots of conversations has clearly narrowed quite a bit.
Yes. Okay, thanks a lot.
Our next question today is coming from Craig Jones from Stifel. Your line is now live.
Hey, great, thanks. I think these questions guys. I wanted to ask about Yodlee sort of if we were to think about what would sort of be an annualized growth rate maybe in a normal environment that you would think of that business doing? And then maybe now in this new environment, sort of what would be the delta there?
So we talked a lot about how Yodlee, starting in the middle of last year really, is starting to or actually beginning of last year, running into some headwinds in terms of growth, particularly within that analytics segment. We are looking to diversify that client base to start to drive revenue. We'd also seen some renewals that were coming in where we're retaining clients, but not as much of the revenue. So we're in a period right now that's relatively flat. First quarter was up a little bit, 4%, 5% from last year, which was pretty good. But the rest of the year, we're still not expecting an acceleration from that point. We're still expecting flatness, not only given the headwinds that we're still working through, but also just given the broader economy.
So we expect some of the business that was starting to get into the pipeline will likely slow down. So probably still flat. Longer term, as we transition, we do think double-digit growth is certainly what our expectation is as we work through this, but that's not a 2020 thing for us.
Okay, great, that's very helpful.
Thanks.
Thank you.
Our next question today is coming from Alex Kramm, a follow-up from UBS. Your line is now live.
Thanks for giving me the time again. Actually, I had two follow-ups, although one of them, I think, you may have just answered. But on the data and analytics side, was looking for an update and I guess I was hoping that maybe in this environment, right, where the core customer base, like the hedge funds, the long-onlys, maybe demand a little bit more insight as everybody is trying to deal with what does this crisis mean for, I guess, insights on stocks. I guess are you saying that you're not seeing new demand coming at all? Is it still kind of the status quo on the demand side? Is there more competition maybe?
Or again, was just hoping that there may be a little bit of new demand. I think you're actually giving some products away for free right now to spur some interest. So just wondering if anything has changed there?
No. On the analytics side, I think, again, I think it's a little uncertain just given how budgets will be impacted at the asset management. That said, I think we've advanced quite a bit from an analytics standpoint in the COVID insights that we published and are available on the blog, Alex, you should check them out and we update those every other twice a week, I think are an indication of where we're headed. And in my mind, we can develop a really pretty macro consumer dashboard of the American economy and provide a real-time look at how consumers are responding to different events. We focused today on COVID, but there'll be something down the road. Hopefully, something else down the road, although this will this team will be here for a while. But we want to help deliver insights to get people to answers around items that are creating an uncertainty or creating an opportunity.
And I think that's again, a small example, but some a path we're absolutely headed down. And you get a good look at that on our I think there's a link inside the supplemental material to go look at have a deeper look at that.
Great. And then just another very quick one sorry, go ahead.
I'm sorry. Yes, you just mentioned the free. We gave our MoneyGuide, MyBlocks away to advisers and really encouraging them to distribute them to their clients, their employees, their communities because they're bite-sized FinApps that answer questions like how do I refinance my credit card debt, how do I pay my rent. Really quick snapshots of people's financial life that can be completed in five minutes, and they've been really well received.
Cool, great. And then just, secondly, just maybe just coming back on the expectations. I think you said the conversion pipe the conversion expectations are lower. So just, again, maybe just flesh out how much of this is have the pipelines disappeared? Is it this environment because these are really big undertakings, so you have to really engage in person and or is there, I guess, a path for maybe that to pick up later in the year as maybe everybody gets used to this kind of environment?
I -- just it seems like conversion is probably the part of the business that's the hardest to do in this new environment, but maybe just flesh it out a little bit more and what you're expecting.
Yes. Alex, I think the part of the what we're incorporating here is that maybe a lost month. People, again, fled to their homes and got booted up and our customers are trying to get their arms around what's happening and projects, for most part, were an afterthought. I would say that there's a lot of activity. There's a lot of engagement. There's new ways of working. We're getting and our customers and our clients are getting better and better about pushing projects forward. I know I have executive calls with certain clients each week and they're very anxious to keep momentum throughout this period of time.
So, I think what we did was we got conservative. We clearly a disruptive period of time. We know that we've lost time about a month or so in that transition to remote. We find the working environment and the collaboration environment improving, but still, that's going to have a cost. It's not going to be like us putting a team in and -- so in office and doing the work for them; it's going to be more virtual; so we've built that in. Likely, Alex, as you said, later part of the year and everything just gets pushed out a little bit.
All right. Helpful. Again, thank you.
Yes, Alex. Take care.
Okay. Thank you.
We have reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.
Thank you very much, everybody. We appreciate your support. We are again, I think the main takeaway that I have from today's session is that we're navigating a very difficult environment. We have our businesses are operating very strong, have been very stable and we've been able to execute in tremendous volumes, and that we're going to exit this period of time with more opportunity given the work that we're doing and the focus and aspirations that we have.
So, I appreciate the support. Thank you very much. And I look forward to talking to you next time. Thank you.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.