UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2018~~2019

¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34835

Envestnet, Inc.

(Exact name of registrant as specified in its charter)



Delaware		20-1409613
(State or other jurisdiction of incorporation or organization)		(I.R.S Employer Identification No.)



35 East Wacker Drive, Suite 2400	Chicago, IL	Illinois	60601
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code:

~~(312)~~ (312) 827-2800

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading symbol(s)	Name of exchange on which registered
Common Stock, par value $0.005 per share	ENV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company¨	☐

		Emerging growth company¨	☐

If an emerging growth company, indicate by check mark if the ~~Registrant~~registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý

As of ~~November~~August 1, ~~2018, 45,722,068~~2019, Envestnet, Inc. had 52,182,228 shares of ~~the~~ common stock ~~with a par value of $0.005 per share were~~ outstanding.

TABLE OF CONTENTS



	Page

PART I - FINANCIAL INFORMATION	3

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
~~Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017~~	3
Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	5
Condensed Consolidated ~~Statement~~Statements of Equity for the ~~nine~~three and six months ended ~~September~~June 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018	78
Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements	3633
~~Forward-Looking Statements~~Overview	3635
~~Overview~~Results of Operations	3841
~~Results of Operations~~	44
Liquidity and Capital Resources	57

Item 3. Quantitative and Qualitative Disclosures About Market Risk	59

Item 4. Controls and Procedures	60

PART II - OTHER INFORMATION

Item ~~3. Quantitative~~1. Legal Proceedings	60

Item 1A. Risk Factors	60

Item 2. Unregistered Sales of Equity Securities and ~~Qualitative Disclosures About Market Risk~~Use of Proceeds	61

Item ~~4. Controls and Procedures~~3. Defaults Upon Senior Securities	6261

~~PART II - OTHER INFORMATION~~Item 4. Mine Safety Disclosures	6361

Item ~~1. Legal Proceedings~~5. Other Information	6361

Item ~~1A. Risk Factors~~6. Exhibits	63

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~	63

~~Item 3. Defaults Upon Senior Securities~~	63

~~Item 4. Mine Safety Disclosures~~	63

~~Item 5. Other Information~~	64

~~Item 6. Exhibits~~	6461

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share information)

(unaudited)


	September 30,			December 31,			June 30,			December 31,
	2018			2017			2019			2018
Assets
Assets:
Current assets:
Cash and cash equivalents	$	153,542		$	60,115		$	77,717		$	289,345
Fees receivable, net	64,635			51,522			71,632			68,004
Prepaid expenses and other current assets	23,965			19,470			40,046			23,557
Total current assets	242,142			131,107			189,395			380,906

Property and equipment, net	44,713			35,909			51,016			44,991
Internally developed software, net	34,077			22,174			48,059			38,209
Intangible assets, net	318,267			222,731			509,159			305,241
Goodwill	519,923			432,955			908,686			519,102
Operating lease right-of-use assets, net							72,191			—
Other non-current assets	23,893			17,176			33,834			25,298
Total assets	$	1,183,015		$	862,052		$	1,812,340		$	1,313,747

Liabilities and Equity
Liabilities and Equity:
Current liabilities:
Accrued expenses and other liabilities	$	124,364		$	105,897		$	118,608		$	133,298
Accounts payable	20,577			11,097			15,165			19,567
Operating lease liabilities							12,918			—
Convertible Notes due 2019	164,003			—			169,182			165,711
Contingent consideration	719			2,115			—			732
Deferred revenue	24,423			21,246			37,601			23,988
Total current liabilities	334,086			140,355			353,474			343,296

Convertible Notes due 2023	292,078			—			300,078			294,725
Convertible Notes due 2019	—			158,990
Revolving credit facility	—			81,168			145,000			—
Contingent consideration	—			666			16,423			—
Deferred revenue	7,283			12,047			6,659			6,910
Non-current operating lease liabilities							77,431			—
Deferred rent and lease incentive	17,373			15,185			—			17,569
Deferred tax liabilities, net	1,943			969			31,292			640
Other non-current liabilities	17,437			15,102			28,193			18,005
Total liabilities	670,200			424,482			958,550			681,145

Commitments and contingencies

Redeemable units in ERS	900			900
Equity:
Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized	—			—			—			—
Common stock, par value $0.005, 500,000,000 shares authorized; 58,716,254 and 57,450,056 shares issued as of September 30, 2018 and December 31, 2017, respectively; 45,677,135 and 44,700,641 shares outstanding as of September 30, 2018 and December 31, 2017, respectively	293			287
Common stock, par value $0.005, 500,000,000 shares authorized; 65,415,670 and 61,238,898 shares issued as of June 30, 2019 and December 31, 2018, respectively; 52,070,156 and 48,121,800 shares outstanding as of June 30, 2019 and December 31, 2018, respectively							327			306
Additional paid-in capital	637,639			556,257			1,015,578			761,128
Accumulated deficit	(59,105		)	(73,854		)	(76,174		)	(58,882		)
Treasury stock at cost, 13,039,119 and 12,749,415 shares as of September 30, 2018 and December 31, 2017, respectively	(64,926		)	(47,042		)
Accumulated other comprehensive income (loss)	(1,847		)	624
Treasury stock at cost, 13,345,514 and 13,117,098 shares as of June 30, 2019 and December 31, 2018, respectively							(83,820		)	(67,858		)
Accumulated other comprehensive loss							(660		)	(994		)
Total stockholders’ equity	512,054			436,272			855,251			633,700
Non-controlling interest	(139		)	398			(1,461		)	(1,098		)
Total equity	511,915			436,670			853,790			632,602
Total liabilities and equity	$	1,183,015		$	862,052		$	1,812,340		$	1,313,747

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share information)

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Asset-based	$	119,097		$	106,147		$	358,361		$	299,268		$	120,070		$	118,111		$	229,004		$	239,264
Subscription-based	76,194			62,963			217,668			180,675			92,258			71,779			175,345			141,474
Total recurring revenues	195,291			169,110			576,029			479,943			212,328			189,890			404,349			380,738
Professional services and other revenues	7,865			6,504			26,254			20,874			12,117			11,226			19,762			18,389
Total revenues	203,156			175,614			602,283			500,817			224,445			201,116			424,111			399,127

Operating expenses:
Cost of revenues	64,964			56,070			195,525			161,031			72,080			67,627			133,725			130,561
Compensation and benefits	80,424			68,551			244,174			199,079			103,286			80,210			190,003			163,750
General and administration	34,810			31,153			101,628			90,178			42,421			34,089			82,945			66,818
Depreciation and amortization	19,563			15,492			58,294			46,792			26,915			19,185			46,432			38,731
Total operating expenses	199,761			171,266			599,621			497,080			244,702			201,111			453,105			399,860

Income from operations	3,395			4,348			2,662			3,737
Income (loss) from operations													(20,257		)	5			(28,994		)	(733		)
Other expense, net	(6,118		)	(3,986		)	(16,802		)	(13,838		)	(7,512		)	(5,430		)	(13,275		)	(10,684		)
Income (loss) before income tax provision (benefit)	(2,723		)	362			(14,140		)	(10,101		)
Loss before income tax provision (benefit)													(27,769		)	(5,425		)	(42,269		)	(11,417		)

Income tax provision (benefit)	(5,234		)	1,682			(18,662		)	10,824			(28,382		)	566			(24,614		)	(13,428		)

Net income (loss)	2,511			(1,320		)	4,522			(20,925		)	613			(5,991		)	(17,655		)	2,011
Add: Net loss attributable to non-controlling interest	443			—			1,010			—			280			465			363			567
Net income (loss) attributable to Envestnet, Inc.	$	2,954		$	(1,320	)	$	5,532		$	(20,925	)	$	893		$	(5,526	)	$	(17,292	)	$	2,578

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	0.06		$	(0.03	)	$	0.12		$	(0.48	)	$	0.02		$	(0.12	)	$	(0.35	)	$	0.06
Diluted													$	0.02		$	(0.12	)	$	(0.35	)	$	0.05

Diluted	$	0.06		$	(0.03	)	$	0.12		$	(0.48	)
Weighted average common shares outstanding:
Basic	45,475,884			44,044,527			45,087,932			43,604,869			50,870,296			45,247,331			49,526,774			44,963,735

Diluted	47,519,160			44,044,527			47,269,479			43,604,869			52,982,688			45,247,331			49,526,774			47,156,205

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended					Six Months Ended
	September 30,						September 30,						June 30,					June 30,
	2018			2017			2018			2017			2019		2018			2019			2018
Net income (loss) attributable to Envestnet, Inc.	$	2,954		$	(1,320	)	$	5,532		$	(20,925	)	$	893	$	(5,526	)	$	(17,292	)	$	2,578
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss)	(1,108		)	(217		)	(2,471		)	592			112		(1,036		)	334			(1,363		)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	1,846		$	(1,537	)	$	3,061		$	(20,333	)	$	1,005	$	(6,562	)	$	(16,958	)	$	1,215

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated ~~Statement~~Statements of Equity

(in thousands, except share information)

(unaudited)

Accumulated
Common Stock Treasury Stock Additional Other Non-
Common Paid-in Comprehensive Accumulated controlling Total
Shares Amount Shares Amount Capital Income (Loss) Deficit Interest Equity
Balance, December 31, 2017 57,450,056
$ 287
(12,749,415 ) $ (47,042 ) $ 556,257
$ 624
$ (73,854 ) $ 398
$ 436,670
Adoption of ASC 606 (See Note 4) —
—
—
—
—
—
9,217
—
9,217
Exercise of stock options 349,468
2
—
—
5,197
—
—
—
5,199
Issuance of common stock - vesting of restricted stock units 916,730
4
—
—
—
—
—
—
4
Stock-based compensation expense —
—
—
—
29,574
—
—
—
29,574
Purchase of treasury stock for stock-based tax withholdings —
—
(289,704 ) (17,884 ) —
—
—
—
(17,884 )
Issuance of non-controlling units in private company —
—
—
—
—
—
—
473
473
Issuance of Convertible Notes due 2023, net of offering costs —
—
—
—
46,611
—
—
—
46,611
Foreign currency translation loss —
—
—
—
—
(2,471 ) —
—
(2,471 )
Net income (loss) —
—
—
—
—
—
5,532
(1,010 ) 4,522
Balance, September 30, 2018 58,716,254
$ 293

(13,039,119 )
$ (64,926 )
$ 637,639

$ (1,847 )
$ (59,105 )
$ (139 )
$ 511,915



											Accumulated
	Common Stock			Treasury Stock					Additional		Other						Non-
				Common					Paid-in		Comprehensive			Accumulated			controlling			Total
	Shares	Amount		Shares		Amount			Capital		Income (Loss)			Deficit			Interest			Equity
Balance, December 31, 2018	61,238,898	$	306	(13,117,098	)	$	(67,858	)	$	761,128	$	(994	)	$	(58,882	)	$	(1,098	)	$	632,602
Exercise of stock options	200,326	1		—		—			3,162		—			—			—			3,163
Issuance of common stock - vesting of restricted stock units	479,479	2		—		—			—		—			—			—			2
Acquisition of business	15,755	—		—		—			772		—			—			—			772
Stock-based compensation expense	—	—		—		—			12,864		—			—			—			12,864
Purchase of treasury stock for stock-based tax withholdings	—	—		(160,456	)	(9,819		)	—		—			—			—			(9,819		)
Foreign currency translation gain (loss)	—	—		—		—			—		222			—			—			222
Net income (loss)	—	—		—		—			—		—			(18,185		)	(83		)	(18,268		)
Balance, March 31, 2019	61,934,458	309		(13,277,554	)	(77,677		)	777,926		(772		)	(77,067		)	(1,181		)	621,538
Exercise of stock options	114,109	1		—		—			1,750		—			—			—			1,751
Issuance of common stock - vesting of restricted stock units	182,390	1		—		—			—		—			—			—			1
Acquisition of business	3,184,713	16		—		—			222,468		—			—			—			222,484
Stock-based compensation expense	—	—		—		—			13,434		—			—			—			13,434
Purchase of treasury stock for stock-based tax withholdings	—	—		(67,960	)	(6,143		)	—		—			—			—			(6,143		)
Foreign currency translation gain (loss)	—	—		—		—			—		112			—			—			112
Net income (loss)	—	—		—		—			—		—			893			(280		)	613
Balance, June 30, 2019	65,415,670	$	327	(13,345,514	)	$	(83,820	)	$	1,015,578	$	(660	)	$	(76,174	)	$	(1,461	)	$	853,790

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Equity (continued)

(in thousands, except share information)

(unaudited)



											Accumulated
	Common Stock			Treasury Stock					Additional		Other						Non-
				Common					Paid-in		Comprehensive			Accumulated			controlling			Total
	Shares	Amount		Shares		Amount			Capital		Income (Loss)			Deficit			Interest			Equity
Balance, December 31, 2017	57,450,056	$	287	(12,749,415	)	$	(47,042	)	$	556,257	$	624		$	(73,854	)	$	398		$	436,670
Adoption of ASC 606	—	—		—		—			—		—			9,217			—			9,217
Exercise of stock options	162,857	1		—		—			2,403		—			—			—			2,404
Issuance of common stock - vesting of restricted stock units	503,668	2		—		—			—		—			—			—			2
Stock-based compensation expense	—	—		—		—			8,495		—			—			—			8,495
Purchase of treasury stock for stock-based tax withholdings	—	—		(166,217	)	(9,296		)	—		—			—			—			(9,296		)
Issuance of non-controlling units in private company	—	—		—		—			—		—			—			873			873
Foreign currency translation gain (loss)	—	—		—		—			—		(327		)	—			—			(327		)
Net income (loss)	—	—		—		—			—		—			8,104			(102		)	8,002
Balance, March 31, 2018	58,116,581	290		(12,915,632	)	(56,338		)	567,155		297			(56,533		)	1,169			456,040
Exercise of stock options	12,166	—		—		—			136		—			—			—			136
Issuance of common stock - vesting of restricted stock units	253,279	1		—		—			—		—			—			—			1
Stock-based compensation expense	—	—		—		—			10,476		—			—			—			10,476
Purchase of treasury stock for stock-based tax withholdings	—	—		(90,800	)	(5,099		)	—		—			—			—			(5,099		)
Issuance of Convertible Notes due 2023, net of offering costs	—	—		—		—			46,611		—			—			—			46,611
Foreign currency translation gain (loss)	—	—		—		—			—		(1,036		)	—			—			(1,036		)
Net income (loss)	—	—		—		—			—		—			(5,526		)	(465		)	(5,991		)
Balance, June 30, 2018	58,382,026	$	291	(13,006,432	)	$	(61,437	)	$	624,378	$	(739	)	$	(62,059	)	$	704		$	501,138

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2018			2017			2019			2018
OPERATING ACTIVITIES:
Net income (loss)	$	4,522		$	(20,925	)	$	(17,655	)	$	2,011
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	58,294			46,792			46,432			38,731
Deferred rent and lease incentive amortization	408			709			—			1,069
Provision for doubtful accounts	1,228			828			713			924
Deferred income taxes	(21,854		)	6,646			(28,991		)	(17,093		)
Stock-based compensation expense	29,574			23,451
Non-cash based compensation expense							27,852			18,971
Non-cash interest expense	12,337			8,711			9,896			5,630
Accretion on contingent consideration and purchase liability	209			408			742			196
Payments of contingent consideration	—			(357		)	(578		)	—
Loss allocation from equity method investment	1,069			984			550			811
Loss on disposal of fixed assets	57			69
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	(9,131		)	(6,286		)	(536		)	(8,204		)
Prepaid expenses and other current assets	(4,739		)	(5,316		)	(15,507		)	(3,426		)
Other non-current assets	(2,888		)	(1,784		)	(3,241		)	(2,450		)
Accrued expenses and other liabilities	6,710			13,289			(19,060		)	(5,438		)
Accounts payable	4,100			1,435			(4,768		)	4,166
Deferred revenue	1,147			740			3,940			3,478
Other non-current liabilities	2,271			1,852			2,602			1,578
Net cash provided by operating activities	83,314			71,246			2,391			40,954

INVESTING ACTIVITIES:
Purchase of property and equipment	(17,088		)	(11,432		)
Purchases of property and equipment							(8,815		)	(9,569		)
Capitalization of internally developed software	(17,611		)	(9,210		)	(15,583		)	(10,622		)
Acquisition of businesses	(194,959		)	(1,450		)
Acquisitions of businesses, net of cash acquired							(321,571		)	(188,345		)
Other							(2,000		)	—
Net cash used in investing activities	(229,658		)	(22,092		)	(347,969		)	(208,536		)

FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2023	345,000			—			—			345,000
Convertible Notes due 2023 issuance costs	(9,982		)	—			—			(9,488		)
Proceeds from borrowings on revolving credit facility	195,000			35,000			175,000			195,000
Revolving credit facility issuance costs	—			(94		)
Payments on revolving credit facility	(276,168		)	(42,500		)	(30,000		)	(276,168		)
Payments of contingent consideration	(2,193		)	(1,929		)	(171		)	(2,193		)
Payments of definite consideration	—			(445		)
Payments of purchase consideration liabilities	—			(235		)
Payment of Term Notes	—			(35,862		)
Proceeds from exercise of stock options	5,199			4,468			4,914			2,540
Purchase of treasury stock for stock-based tax withholdings	(17,884		)	(11,619		)	(15,962		)	(14,395		)
Issuance of restricted stock units	4			4			3			3
Net cash provided by (used in) financing activities	238,976			(53,212		)
Net cash provided by financing activities							133,784			240,299

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(1,047		)	170			166			(572		)

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	91,585			(3,888		)	(211,628		)	72,145

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD							289,671			62,115

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)							$	78,043		$	134,260

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes							$	6,121		$	2,225
Supplemental disclosure of cash flow information - cash paid during the period for interest							5,952			4,271
Supplemental disclosure of non-cash operating, investing and financing activities:
Common stock issued in acquisition of business							222,484			—
Contingent consideration issued in acquisition of businesses							15,880			—
Purchase liabilities included in other non-current liabilities							5,468			—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities							1,567			1,188
Membership interest liabilities included in other non-current liabilities							1,480			—
Common stock issued to settle purchase liability							772			—
Leasehold improvements funded by lease incentive							648			1,080
Purchase liabilities included in accrued expenses and other liabilities							—			1,422

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 62,115
54,592

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2) $ 153,700

$ 50,704

Supplemental disclosure of cash flow information - net cash paid (refunded) during the period for income taxes $ 3,874
$ (1,449 )
Supplemental disclosure of cash flow information - cash paid during the period for interest 5,780
4,887
Supplemental disclosure of non-cash operating, investing and financing activities:
Leasehold improvements funded by lease incentive 1,780
2,098
Non-cash debt issuance costs —
2,230
Purchase liabilities included in accrued expenses and other liabilities 719
837
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities 1,441
505

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)


1.	Organization and Description of Business

Envestnet, Inc. (“Envestnet”) and its subsidiaries (collectively, the “Company”) provide intelligent systems for wealth management and financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management process. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in “Note 18—Segment Information” to the condensed consolidated financial statements. The business segments are as follows:


•	Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions.

Within Envestnet Wealth Solutions, the Company offers these solutions principally through the following ~~product~~products and services suites:

•

Envestnet | Enterprise provides an end-to-end open architecture wealth management platform, through which advisors can construct portfolios for clients. It begins with aggregated household data which then leads to the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 19,900 investment products. Envestnet | Enterprise also offers data aggregation and reporting, data analytics and digital advice capabilities to customers.


•	Envestnet \| Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high‑end registered investment advisers (“RIAs”).

~~Envestnet | Enterprise~~ provides an end-to-end open architecture wealth management platform, through which advisors can construct portfolios for clients. It begins with aggregated household data which then leads to a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 18,100 investment products. Envestnet | Enterprise also sells data aggregation and reporting, data analytics, and digital advice capabilities to customers.


•	Envestnet \| MoneyGuide provides leading goals-based financial planning solutions to the financial services industry. The highly adaptable software helps financial advisors add significant value for their clients using best-in-class technology with enhanced integrations to generate financial plans.


•	Envestnet \| Retirement Solutions (“ERS”) offers a comprehensive suite of services for advisor-sold retirement plans. Leveraging integrated technology, ERS addresses the regulatory, data and investment needs of retirement plans and delivers the information holistically.

•

Envestnet | PMC®or Portfolio Management Consultants (“PMC”) provides research and consulting services to assist advisors in creating investment solutions for their clients. These solutions include over 4,500 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as over 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.


•	Envestnet Data & Analytics – a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services, and includes product offerings from Envestnet \| Yodlee and Envestnet \| Analytics.

~~Envestnet | Tamarac~~™ ~~provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high‑end registered investment advisers (“RIAs”).~~

~~Envestnet | Retirement Solutions (“ERS”)~~ offers a comprehensive suite of services for advisor-sold retirement plans. Leveraging integrated technology, ERS addresses the regulatory, data, and investment needs of retirement plans and delivers the information holistically.

~~Envestnet | PMC~~®~~or Portfolio Management Consultants (“PMC”)~~ provides research, due diligence and consulting services to assist advisors in creating investment solutions for their clients. These solutions include nearly 4,000 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as over 1,700 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers an overlay service, which includes patented portfolio overlay and tax optimization services.

~~Envestnet | Yodlee~~™ ~~is a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services.~~

Envestnet operates four RIAs and a registered broker-dealer. The RIAs are registered with the Securities and Exchange Commission (“SEC”). The broker-dealer is registered with the SEC, all 50 states and the District of Columbia and is a member of the Financial Industry Regulatory ~~Authority.~~Authority (“FINRA”).


2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of ~~September~~June 30, ~~2018~~2019 and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, ~~2017~~2018 and reflect all normal recurring adjustments which are,

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

in the opinion of management, necessary to present fairly the Company’s financial position as of ~~September~~June 30, ~~2018~~2019 and the results of operations, equity, comprehensive income (loss) and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of ~~Envestnet and its subsidiaries.~~the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet ~~| Yodlee~~Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a ~~foreign~~functional currency ~~functional currency~~other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the unaudited condensed consolidated balance sheets as accumulated other comprehensive income (loss) within ~~stockholders’~~stockholders' equity.

The results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the ~~SEC.~~Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~GAAP~~U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated

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~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the SEC on ~~February 28, 2018.~~March 1, 2019.

The preparation of ~~these unaudited condensed consolidated~~ financial statements in conformity with GAAP requires management to make estimates and assumptions ~~related to~~that affect the ~~reporting of assets, liabilities, revenues and expenses and~~amounts reported in the ~~disclosure of contingent assets and liabilities to prepare these~~ unaudited condensed consolidated financial statements in conformity with GAAP. Areas requiring the use of management estimates relate to estimating uncollectible receivables, revenue recognition, the determination of the period of benefit for deferred sales incentive commissions, valuations and assumptions used for impairment testing of goodwill, intangible and other long-lived assets, fair value of restricted stock and stock options issued, fair value of contingent consideration, realization of deferred tax assets, uncertain tax positions, sales tax liabilities, fair value of the liability portion of the convertible debt and assumptions used to allocate purchase prices in business combinations.accompanying notes. Actual results could differ ~~materially~~ from these ~~estimates under different assumptions or conditions.~~estimates.

The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported within the condensed consolidated statements of cash flows:



	June 30,		December 31,
	2019		2018
Cash and cash equivalents	$	77,717	$	289,345
Restricted cash included in prepaid expenses and other current assets	158		158
Restricted cash included in other non-current assets	168		168
Total cash, cash equivalents and restricted cash	$	78,043	$	289,671

September 30, December 31,
2018 2017
Cash and cash equivalents $ 153,542
$ 60,115
Restricted cash included in prepaid expenses and other current assets 158
2,000
Total cash, cash equivalents and restricted cash $ 153,700
$ 62,115

Recent Accounting Pronouncements -

Recently Adopted Accounting Pronouncements—In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014-09, “Revenue from Contracts with Customers,~~2016-02, “Leases,” which amends the existing accounting standards for revenue recognition. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2017. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and have been reflected in these condensed consolidated financial statements (See “Note 4 – Revenue”).

~~In February 2016, the FASB issued ASU 2016-02, “Leases.” This update~~ amends the requirements for assets and liabilities recognized for all leases longer than twelve months. Lessees will be required to recognize a lease liability measured on a discounted basis, which is the lessee’s obligation to make lease payments arising from the lease, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This standard ~~will be~~is effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018 and will be applied using a modified retrospective approach with optional practical expedients. Early adoption of the standard is permitted. The Company will adopt the new standard on its effective date of January 1, 2019 using the cumulative-effect adjustment transition method approved by the FASB in July 2018 and plans to elect certain available transitional practical expedients. Based on current analysis, the adoption of the standard should have a material impact on our consolidated balance sheets and related disclosures while not significantly impacting financial results. We continue to evaluate the accounting, transition, and disclosure requirements of this standard.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statement of cash flows. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2017.2018. These changes became effective for the Company’s fiscal year beginning January 1, ~~2018~~2019 and have been reflected in these condensed consolidated financial ~~statements. Retrospective adoption of ASU 2016-15 did not have a material impact on the Company’s presentation of the condensed consolidated~~ statements ~~of cash flows.~~(See “Note 17—Leases”).

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash,” which amends ASC 230 to provide clarifying guidance on the classification and presentation of restricted cash in the statement of cash flows. Additional disclosure is required to reconcile between the statement of financial position and the statement of cash flows when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2017. These changes became effective for the Company’s fiscal year beginning January

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~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

1, 2018 and included $158 and $2,000 of restricted cash in the total of cash, cash equivalents and restricted cash in the condensed consolidated balance sheets for the nine months ended September 30, 2018 and December 31, 2017, respectively. A reconciliation of restricted cash for each period is included within this footnote.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business (Topic 805),” which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2017. These changes became effective for the Company’s fiscal year beginning January 1, 2018 and did not have a material impact to these condensed consolidated financial statements. This standard will be applied to all future business acquisition and disposal transactions.

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This update clarifies which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. Specifically, an entity would not apply modification account if the fair value, vesting conditions, and classification as an equity or liability instrument are the same before and after the modification. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2017. These changes became effective for the Company’s fiscal year beginning January 1, 2018. This standard will be applied to all future modifications of share-based payment awards.

In June 2018, the FASB issued ASU 2018-07, ~~“Compensation –~~ “Compensation—Stock Compensation (Topic 718):Improvements to ~~Nonemployee~~Non-employee Share-Based Payment Accounting.” This update clarifies the accounting for share-based payment transactions for acquiring goods and services from ~~nonemployees.~~non-employees. Specifically, the update aligns the accounting for payments to ~~nonemployees~~non-employees to match the accounting for payments to employees, no longer accounting for these transactions differently. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2018. These changes became effective for the Company's fiscal year beginning January 1, 2019. This standard will be applied prospectively to all future non-employee share-based payments and is reflected in these condensed consolidated financial statements.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company early adopted this standard beginning January 1, 2019, noting that this standard will be applied prospectively. Adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

Not Yet Adopted—In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326).” This update significantly changes the way that entities will be required to measure credit losses. The new standard requires entities to estimate credit losses based upon an “expected credit loss” approach rather than the “incurred loss” approach, which is currently used. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. The change in approach is anticipated to impact the timing of recognition of credit losses. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on ~~our~~its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This update aims to improve the effectiveness of disclosure requirements on fair value measurement as part of the disclosure framework project. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on ~~our~~its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” This update is intended to guide entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on our consolidated financial statements.


3.	Business Acquisitions

~~FolioDynamix~~Acquisition of private company

On January 2, ~~2018,~~2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet and a private company, the ~~Company acquired (the “Acquisition”) all of the issued and outstanding membership interests of FolioDynamics Holdings,~~private company merged into Yodlee Inc. ~~(“FolioDynamix”) through a merger of FolioDynamix with and into~~, a wholly owned subsidiary of ~~Envestnet.~~the Company (the “Private Company Acquisition”). The private company provides conversational artificial intelligence tools and applications to financial services firms, improves the way Financial Service Providers (“FSPs”) can interact with their customers, and supports these FSPs to better engage, support and assist their consumers leveraging this latest wave of customer-centric capabilities.

~~FolioDynamix provides financial institutions, RIAs,~~The technology and ~~other wealth management clients with an end-to-end technology solution paired with a suite~~operations of ~~advisory tools including model portfolios, research, and overlay management services. FolioDynamix~~the private company is included in the Company’s Envestnet Data & Analytics segment.

The seller of the private company is also entitled to an earn-out payment based on the private company's revenue and other retention targets for the twelve-month period beginning January 1, 2021. The discounted amount of the contingent consideration liability is estimated to be $7,580 and is included as a long-term liability on the condensed consolidated balance sheets.

The consideration transferred in the acquisition was as follows:



	Preliminary Estimate
Cash consideration	$	11,173
Purchase consideration liability	6,240
Contingent consideration liability	7,580
Working capital adjustment	70
Total	$	25,063

The estimated fair values of the deferred income taxes, identifiable intangible assets, contingent consideration liability, and goodwill balances are provisional and based on information that was available to the Company ~~acquired FolioDynamix to add complementary trading tools~~ as ~~well as commission~~of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and ~~brokerage support to Envestnet’s existing suite~~other studies and are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of ~~offerings. Envestnet expects to integrate the technology and operations of FolioDynamix into the~~these amounts, but is waiting for additional information

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~Company’s wealth management channel, enabling~~necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject to change and such changes could be significant. The Company expects to finalize the ~~Company to further leverage its operating scale~~valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and ~~data analytics capabilities.~~goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than January 2, 2020.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



	Preliminary Estimate
Total tangible assets acquired	$	144
Total liabilities assumed	(629		)
Identifiable intangible assets	4,100
Goodwill	21,448
Total net assets acquired	$	25,063

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of potential cross selling opportunities. The goodwill is not deductible for income tax purposes.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:



	Preliminary Estimate		Estimated Useful Life in Years	Amortization Method
Proprietary technology	$	4,100	4	Straight-line

The results of the private company's operations are included in the condensed consolidated statements of operations beginning January 2, 2019 and were not considered material to the Company’s results of operations.

For the three and six months ended June 30, 2019, acquisition related costs for the Private Company Acquisition were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2019.

Acquisition of PortfolioCenter business

On April 1, 2019, pursuant to an asset purchase agreement, Tamarac, Inc. (“Tamarac”), a wholly owned subsidiary of Envestnet, acquired certain of the assets, primarily consisting of intangible assets, and the assumption of certain of the liabilities of the PortfolioCenter business from Performance Technologies, Inc. (the “PC Seller”), a wholly owned subsidiary of The Charles Schwab Corporation. The PortfolioCenter Business provides investment advisors and investment advisory service providers with desktop, hosted and outsourced multicustodial software solutions. These solutions provide data-management and performance-measurement tools, as well as customizable accounting, reporting, and billing functions delivered through the commercial software application products known as PortfolioCenter Desktop, PortfolioCenter Hosted, PortfolioServices and Service Bureau.

Tamarac acquired the PortfolioCenter Business to better serve small and mid-size RIA firms. The PortfolioCenter Business is included in the Company’s Envestnet Wealth Solutions segment.

In connection with the PortfolioCenter Acquisition, Tamarac paid $17,500 in cash. Tamarac funded the ~~transaction~~PortfolioCenter Acquisition with ~~a combination of~~available cash resources. The PC Seller is also entitled to an earn-out payment based on the ~~Company’s balance sheet, purchase~~PortfolioCenter Business’ revenue for the twelve-month period beginning April 1, 2020. The discounted amount of the contingent consideration ~~liabilities~~liability is estimated to be $8,300.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and ~~borrowings under its revolving credit facility.~~per share amounts)

The ~~estimated~~preliminary consideration transferred in the acquisition was as follows:



	Preliminary Estimate
Cash consideration	$	17,500
Contingent consideration liability	8,300
Total	$	25,800

Measurement
Preliminary Period Revised
Estimate Adjustments Estimate
Cash consideration $ 187,580
$ 12,297
$ 199,877
Purchase consideration liability 12,297
(12,297 ) —
Working capital and other adjustments (3,893 ) (2,500 ) (6,393 )
Total $ 195,984
$ (2,500 ) $ 193,484

The estimated fair values of ~~working capital balances, property and equipment, deferred revenue,~~the deferred income taxes, ~~unrecognized tax benefits,~~ identifiable intangible assets, contingent consideration liability and goodwill balances are provisional and ~~are~~ based on the information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies and are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of ~~tangible assets and~~deferred income taxes, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as practicable but no later than ~~January 2, 2019.~~

April 1, 2020.

The following table summarizes the ~~preliminary~~ estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



	Preliminary Estimate
Total tangible assets acquired	$	13
Total liabilities assumed	(1,600		)
Identifiable intangible assets	12,400
Goodwill	14,987
Total net assets acquired	$	25,800

Measurement
Preliminary Period Revised
Estimate Adjustments Estimate
Cash and cash equivalents $ 4,876
$ —
$ 4,876
Accounts receivable 4,962
—
4,962
Prepaid expenses and other current assets 1,600
—
1,600
Property and equipment, net 927
—
927
Other non-current assets 441
—
441
Identifiable intangible assets 117,700
18,000
135,700
Goodwill 97,248
(16,041 ) 81,207
Total assets acquired 227,754
1,959
229,713
Accounts payable (5,358 ) —
(5,358 )
Accrued expenses (7,173 ) —
(7,173 )
Deferred tax liability (18,245 ) (4,583 ) (22,828 )
Deferred revenue (930 ) 124
(806 )
Other non-current liabilities (64 ) —
(64 )
Total liabilities assumed (31,770 )
(4,459 )
(36,229 )
Total net assets acquired $ 195,984

$ (2,500 )
$ 193,484

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of expanding market opportunities within the mid-size and small RIA market, potential cross selling opportunities, and lower future operating ~~expenses and the knowledge and experience of the workforce in place.~~expenses. The goodwill is ~~not~~ deductible for income tax purposes.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:



	Preliminary Estimate		Estimated Useful Life in Years	Amortization Method
Customer list	$	9,100	10	Accelerated
Proprietary technology	3,300		5	Straight-line
Total	$	12,400

The results of PortfolioCenter's operations are included in the condensed consolidated statements of operations beginning April 1, 2019. PortfolioCenter's revenues for the three and six months ended June 30, 2019 totaled $2,017. PortfolioCenter's pre-tax loss for the three and six months ended June 30, 2019 totaled $1,624. The pre-tax loss includes estimated acquired intangible asset amortization of $514 for the three and six months ended June 30, 2019.

For the three and six months ended June 30, 2019, acquisition related costs for the PortfolioCenter Acquisition were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2019.

Acquisition of PIEtech

On May 1, 2019, the Company acquired all of the outstanding shares of capital stock of PIEtech, Inc., a Virginia corporation (“PIEtech”). PIEtech empowers financial advisors to use financial planning to efficiently motivate their clients to create, implement and maintain financial plans that best meet their lifetime financial goals. The technology and operations of PIEtech, which now operates as Envestnet | MoneyGuide, is included in the Envestnet Wealth Solutions segment.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

The acquisition of PIEtech (the “PIEtech Acquisition”) establishes Envestnet as a leader in financial planning solutions, providing advisors and their clients with access to a full spectrum of financial planning capabilities, and offering a broad range of data-driven, financial plan-informed financial wellness solutions, both domestically and internationally over time. Integration of PIEtech's MoneyGuide software with the Company's integrated technology platform is expected to reduce friction and enhance productivity for ~~income tax purposes. During~~advisors.

In connection with the ~~third quarter~~PIEtech Acquisition, the Company paid net cash consideration of $299,370, subject to a working capital adjustment, and issued 3,184,713 shares of Envestnet common stock, par value $0.005 per share, to the sellers. The Company funded the PIEtech Acquisition with available cash resources and borrowings under its revolving credit facility.

In connection with the PIEtech Acquisition, the Company established a retention bonus pool consisting of approximately $30,000 of cash and restricted stock units to be granted to employees and management of PIEtech as inducement grants. As a result, the Company adopted the Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (the “2019 Equity Plan”) in order to make inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. Envestnet agreed to grant at future dates, not earlier than the sixty day anniversary of the PIEtech Acquisition, up to 301,469 shares of Envestnet common stock in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) pursuant to the 2019 Equity Plan and made cash retention payments of approximately $8,800 to certain legacy PIEtech employees who joined Envestnet | MoneyGuide. As of June 30, 2019, the Company has issued approximately 62,200 and 24,900 RSUs and PSUs, respectively, under the 2019 Equity Plan to legacy PIEtech employees. At this time the Company expects to issue approximately 214,000 additional RSUs and PSUs and expects to pay approximately $5,300 in cash bonus payments over the next three years in connection with the PIEtech Acquisition.

The Company also granted membership interests in certain of the Company's equity method investments to two PIEtech executives with an estimated grant date fair market value of $8,900. These membership interests will vest on May 1, 2020 and become exercisable in future periods. As of June 30, 2019, the ~~customer list intangible was revised due to~~Company has recorded approximately $1,480 as a ~~change in the assumed attrition rate~~component of ~~the customer base acquired.~~

~~A summary of preliminary estimated identifiable intangible assets acquired, preliminary estimated useful lives~~compensation and ~~amortization method is as follows:~~

Measurement
Preliminary Period Revised
Useful Life
Amortization
Estimate Adjustments Estimate in Years Method
Customer list $ 95,000
$ 18,500
$ 113,500
13 Accelerated
Proprietary technology 18,000
(500 ) 17,500
5 Straight-line
Trade names and domains 4,700
—
4,700
6 Straight-line
Total $ 117,700
$ 18,000
$ 135,700

~~The results of FolioDynamix’s operations are included~~benefits in the condensed consolidated ~~statements~~statement of operations ~~beginning January 2, 2018. FolioDynamix’s revenues for~~with a corresponding liability in other non-current liabilities in the ~~three~~condensed consolidated balance sheets.

The preliminary consideration transferred in the acquisition was as follows:



	Preliminary Estimate
Cash consideration	$	299,370
Stock consideration	222,484
Less: cash acquired	(6,360		)
Total estimated fair value of consideration transferred, net of cash acquired	$	515,494

The estimated fair values of the deferred revenue, deferred income taxes, identifiable intangible assets, and ~~nine month periods ended September 30, 2018 totaled $16,404~~goodwill balances are provisional and ~~$51,204, respectively. FolioDynamix’s pre-tax loss for~~based on the ~~three~~information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and nine month periods ended September 30, 2018 totaled $4,247 and $12,228, respectively. The pre-tax loss includes estimated acquired intangible asset amortization of $4,706 and $13,407 for the three and nine month periods ended September 30, 2018.

~~For the three and nine month periods ended September 30, 2018, acquisition related costs for FolioDynamix totaled $260 and $854, respectively,~~other studies and are ~~included~~ in ~~general~~progress and ~~administration expenses.~~not yet at the point where there is sufficient information for a definitive measurement. The Company ~~may incur~~believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional ~~acquisition related costs during the remainder~~information necessary to finalize those fair values. Therefore, provisional measurements of ~~2018.~~

~~Acquisition of private company~~

In August 2018, the Company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics. The private company is included in the Envestnet | Yodlee segment. In connection with this acquisition, the Company paid estimated net consideration of $6,585,fair values reflected are subject to ~~certain closing~~change and ~~post-closing adjustments.~~such changes could be significant. The Company expects to finalize the valuation of deferred revenue, deferred income taxes, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as practicable but no later than May 1, 2020.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

The ~~preliminary~~following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



	Preliminary Estimate
Cash and cash equivalents	$	6,360
Accounts receivable	3,782
Prepaid expenses and other current assets	969
Other non-current assets	4,274
Property and equipment, net	6,057
Operating lease right-of-use assets, net	1,688
Identifiable intangible assets	217,000
Goodwill	353,085
Total assets acquired	593,215
Accounts payable and accrued expenses	(2,166		)
Operating lease liabilities	(2,012		)
Deferred income taxes	(59,643		)
Deferred revenue	(7,540		)
Total liabilities assumed	(71,361		)
Total net assets acquired	$	521,854

The goodwill arising from the acquisition ~~are not material. As~~represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result ~~the remaining balance was allocated to goodwill in the amount~~ of ~~$6,885.~~potential new business and cross selling opportunities. The goodwill is not deductible for income tax purposes.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:



	Preliminary Estimate		Estimated Useful Life in Years	Amortization Method
Customer lists	$	181,000	10-16	Accelerated
Proprietary technologies	25,000		5	Straight-line
Trade names	11,000		6	Straight-line
Total	$	217,000

The results of PIEtech's operations are included in the condensed consolidated statements of operations beginning May 1, 2019. PIEtech's revenues for the three and six months ended June 30, 2019 totaled $6,632. PIEtech's pre-tax loss for the three and six months ended June 30, 2019 totaled $3,422. The pre-tax loss includes estimated acquired intangible asset amortization of $4,142 for the three and six months ended June 30, 2019.

For the three and six months ended June 30, 2019, acquisition related costs for the PIEtech Acquisition totaled approximately $11,269 and$16,189, respectively, and are included in general and administration expenses. Included in these amounts are approximately $8,800 in one-time cash retention bonuses, which are included the Company's corporate non-segment operating expenses in the condensed consolidated statements of operations. The Company may incur additional acquisition related costs over the remainder of 2019.

Pro forma ~~results for Envestnet, Inc. giving effect to the FolioDynamix acquisition~~financial information

The following pro forma financial information presents the combined results of operations of Envestnet, PortfolioCenter and ~~FolioDynamix~~PIEtech for the three and ~~nine month periods~~six months ended ~~September~~June 30, ~~2017.~~2019 and 2018. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of ~~2017.~~2018. The results of the private company acquisition are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented include amortization charges for acquired intangible assets, interest expense, ~~and~~ stock-based compensation ~~expense.~~expense and income tax. The Company's 2018 pro forma information includes the reversal of a valuation allowance on its deferred tax assets, transaction fee payments and retention bonus payments that were incurred in

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

2019 as a result of these acquisitions and reverses these amounts from the appropriate periods in 2019. All intercompany revenues have been eliminated within this pro forma information.

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of ~~2017.~~2018.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues	$	228,522		$	215,240		$	443,275		$	426,291
Net income (loss) attributable to Envestnet, Inc.	(7,612		)	(1,661		)	(18,857		)	5,186
Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	(0.15	)	$	(0.03	)	$	(0.37	)	$	0.11
Diluted	$	(0.15	)	$	(0.03	)	$	(0.37	)	$	0.10


4.	Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:



	June 30,		December 31,
	2019		2018
Prepaid technology	$	9,801	$	6,766
Advance payroll taxes and benefits	10,802		—
Non-income tax receivables	8,279		6,240
Prepaid outside information services	1,989		1,515
Other	9,175		9,036
Total	$	40,046	$	23,557


5.	Property and Equipment

Property and equipment consists of the following:



		June 30,			December 31,
	Estimated Useful Life	2019			2018
Cost:
Computer equipment and software	3 years	$	68,752		$	64,346
Leasehold improvements	Shorter of the lease term or useful life of the asset	31,482			28,191
Office furniture and fixtures	3-7 years	10,659			9,291
Office equipment and other	3-5 years	6,425			5,577
Building and building improvements	7-39 years	2,647			—
Land	Not applicable	940			—
		120,905			107,405
Less: accumulated depreciation and amortization		(69,889		)	(62,414		)
Total property and equipment, net		$	51,016		$	44,991

During the three and six months ended June 30, 2019, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $2,396 and $3,642, respectively. During the three and six months ended June 30, 2019, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $1,640 and $4,121, respectively. Gains and losses on asset retirements during the three and six months ended June 30, 2019 were not material.

During the three and six months ended June 30, 2018, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $1,126, and $3,337, respectively. During the three and six months ended June 30, 2018, the Company retired property and equipment that was no longer in service for the

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Envestnet Data & Analytics segment with an historical cost of $2,525 and $3,401, respectively. Gains and losses on asset retirements during the three and six months ended June 30, 2018 were not material.

Depreciation and amortization expense was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Depreciation and amortization expense	$	6,751	$	3,920	$	11,117	$	7,838

Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2017
Revenues $ 185,717
$ 530,231
Net loss (12,290 ) (37,112 )
Net loss per share:
Basic (0.28 ) (0.85 )
Diluted (0.28 ) (0.85 )


4.6.	~~Revenue~~Internally Developed Software

On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent ASUs that modified Topic 606 (“ASC 606” or “new revenue standard”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The Company recognized the cumulative effectInternally developed software consists of the initial application of the new revenue standard as an adjustment to the opening balance of accumulated deficit. The comparative information has not been restated and will continue to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to the results of operations on an ongoing basis.following:



		June 30,			December 31,
	Estimated Useful Life	2019			2018
Internally developed software	5 years	$	85,993		$	70,410
Less: accumulated amortization		(37,934		)	(32,201		)
Internally developed software, net		$	48,059		$	38,209

The majority of our revenues continue to be recognized when services are provided. The adoption of the new revenue standard primarily impacts timing of revenue recognition for initial implementation services, deferral of incremental direct costs in obtaining contracts with customers and gross versus net presentation related to certain third party manager agreements.

~~The cumulative effect of the changes made to the Company’s condensed consolidated balance sheets as of January 1, 2018 for the adoption of the new revenue standard~~Amortization expense was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Amortization expense	$	3,110	$	1,846	$	5,733	$	3,539

Cumulative
Balance at Catch-up Balance at
December 31, 2017 Adjustments January 1, 2018
Balance Sheets
Assets:
Other non-current assets $ 17,176
$ 5,315
$ 22,491
Liabilities:

Deferred revenue, current 21,246
(1,122 ) 20,124
Deferred revenue, non-current 12,047
(2,780 ) 9,267
Equity:

Accumulated deficit (73,854 ) 9,217
(64,637 )


7.	Goodwill and Intangible Assets, Net

Changes in the carrying amount of goodwill were as follows:



	Envestnet Wealth Solutions			Envestnet Data & Analytics		Total
Balance at December 31, 2018	$	243,809		$	275,293	$	519,102
Private company acquisition	—			21,448		21,448
PortfolioCenter acquisition	14,987			—		14,987
PIEtech acquisition	353,085			—		353,085
Foreign currency	—			90		90
Other	(26		)	—		(26		)
Balance at June 30, 2019	$	611,855		$	296,831	$	908,686

Intangible assets, net consist of the following:



		June 30, 2019							December 31, 2018
		Gross					Net		Gross					Net
	Estimated	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Useful Life	Amount		Amortization			Amount		Amount		Amortization			Amount
Customer lists	7-16 years	$	551,120	$	(121,836	)	$	429,284	$	361,020	$	(102,077	)	$	258,943
Proprietary technologies	4-8 years	96,694		(41,311		)	55,383		66,746		(36,151		)	30,595
Trade names	2-7 years	38,490		(14,027		)	24,463		27,990		(12,352		)	15,638
Backlog	8 years	11,000		(10,971		)	29		11,000		(10,935		)	65
Total intangible assets		$	697,304	$	(188,145	)	$	509,159	$	466,756	$	(161,515	)	$	305,241

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~In accordance with the new revenue standard requirements, the impact of adoption on the Company’s condensed consolidated statements of operations and condensed consolidated balance sheets~~Amortization expense was as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Amortization expense	$	17,054	$	13,419	$	29,582	$	27,354

Three Months Ended September 30, 2018
Without Adoption of Effect of Change
As Reported ASC 606 Higher/(Lower)
Statements of Operations
Revenues:
Asset-based $ 119,097
$ 122,770
$ (3,673 )
Subscription-based 76,194
76,194
—
Total recurring revenues 195,291
198,964
(3,673 )
Professional services and other revenues 7,865
7,849
16
Total revenues 203,156

206,813

(3,657 )
Operating expenses:

Cost of revenues 64,964
68,637
(3,673 )
Compensation and benefits 80,424
80,955
(531 )
Total operating expenses 199,761
203,965
(4,204 )

Income from operations 3,395
2,848
547

Net income 2,511
1,964
547

Net income attributable to Envestnet, Inc. 2,954
2,407
547

Nine months ended September 30, 2018
Without Adoption of Effect of Change
As Reported ASC 606 Higher/(Lower)
Statements of Operations
Revenues:
Asset-based $ 358,361
$ 369,169
$ (10,808 )
Subscription-based 217,668
217,668
—
Total recurring revenues 576,029
586,837
(10,808 )
Professional services and other revenues 26,254
26,434
(180 )
Total revenues 602,283

613,271
(10,988 )
Operating expenses:

Cost of revenues 195,525
206,333
(10,808 )
Compensation and benefits 244,174
245,152
(978 )
Total operating expenses 599,621
611,407
(11,786 )

Income from operations 2,662
1,864
798

Net income 4,522
3,724
798

Net income attributable to Envestnet, Inc. 5,532
4,734
798

Future amortization expense of the intangible assets as of June 30, 2019, is expected to be as follows:



Years ending December 31,
Remainder of 2019	$	37,887
2020	71,524
2021	61,555
2022	57,857
2023	46,748
Thereafter	233,588
Total	$	509,159


8.	Accrued Expensesand Other Liabilities

Accrued expenses and other liabilities consist of the following:



	June 30,		December 31,
	2019		2018
Accrued investment manager fees	$	43,966	$	50,635
Accrued compensation and related taxes	44,411		50,598
Sales and use tax payable	12,006		9,733
Accrued transaction costs	4,812		4,543
Accrued professional services	2,599		4,517
Other accrued expenses	10,814		13,272
Total	$	118,608	$	133,298


9.	Debt

The Company’s outstanding debt obligations as of June 30, 2019 and December 31, 2018 were as follows:



	June 30,			December 31,
	2019			2018
Convertible Notes due 2019	$	172,500		$	172,500
Unaccreted discount on Convertible Notes due 2019	(2,888		)	(5,890		)
Unamortized issuance costs on Convertible Notes due 2019	(430		)	(899		)
Convertible Notes due 2019 carrying value	$	169,182		$	165,711

Convertible Notes due 2023	$	345,000		$	345,000
Unaccreted discount on Convertible Notes due 2023	(38,101		)	(42,641		)
Unamortized issuance costs on Convertible Notes due 2023	(6,821		)	(7,634		)
Convertible Notes due 2023 carrying value	$	300,078		$	294,725

Revolving credit facility balance	$	145,000		$	—

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

At September 30, 2018
Without Adoption of Effect of Change
As Reported ASC 606 Higher/(Lower)
Balance Sheets
Assets:
Fees receivable, net $ 64,635
$ 63,631
$ 1,004
Other non-current assets 23,893
17,600
6,293
Liabilities:

Accounts payable 20,577
19,573
1,004
Deferred revenue, current 24,423
24,908
(485 )
Deferred revenue, non-current 7,283
10,520
(3,237 )
Equity:
Accumulated deficit (59,105 ) (69,120 ) 10,015

~~The impact of adoption on the Company’s condensed consolidated statements of cash flows is immaterial.~~

~~Summary of Significant Accounting Policies~~

Except for the accounting policies for revenue recognition, fees receivable including unbilled receivables and deferred sales incentive compensation that were updated as a result of adopting ASC 606, there have been no changes to our significant accounting policies described in the Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 28, 2018, that have had a material impact on our condensed consolidated financial statements and related notes.

~~Revenue Recognition~~

The Company derives revenues from asset-based and subscription-based services and professional services and other sources. Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the consideration that we expect to be entitled to in exchange for those services. All revenue recognized in the condensed consolidated statements of operations is considered to be revenue from contracts with customers. Sales and usage-based taxes are excluded from revenues.

~~Asset-based revenue (formerly assets under management or administration revenue)~~

Asset-based revenue primarily consists of fees for providing customers continuous access to platform services through the Company’s uniquely customized platforms. These platform services include investment manager due diligence and research, portfolio diagnostics, proposal generation, investment model management, rebalancing and trading, portfolio performance reporting and monitoring solutions, billing and back office and middle-office operations and administration and are made available to customers throughout the contractual term from the date the customized platform is launched.

The asset-based fees the Company earns are generally based upon variable percentages of assets managed or administered on our platforms. The fee percentage varies based on the level and type of services the Company provides to its customers, as well as the values of existing customer accounts. The values of the customer accounts are affected by inflows or outflows of customer funds and market fluctuations.

The platform services are substantially the same over each quarter and performed in a similar manner over the contract period, and are considered stand-ready promises. The platform services that are delivered to the customer over the quarter are considered distinct, as the customer benefits distinctly from each increment of our services and each quarter is separately identified in the contract, and are considered to be a single performance obligation under the new revenue standard.

The pricing generally resets each quarter and the pricing structure is consistent throughout the term of the contract. The variable fees are generally calculated and billed quarterly in advance based on preceding quarter-end values and the variable amounts earned from the platform services relate specifically to the benefits transferred to the customer during that quarter. Accordingly, revenue is allocated to the specific quarter in which services are performed.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

The asset-based contracts generally contain one performance obligation and revenue is recognized on a ratable basis over the quarter beginning on the date that the platform services are made available to the customer as the customer simultaneously consumes and receives the benefits of the services. All asset-based fees are recognized in the Envestnet segment.

For certain services provided by third parties, the Company evaluates whether it is the principal (revenues reported on a gross basis) or agent (revenues reported on a net basis). Generally, the Company reports customer fees including charges for third party service providers where the Company has a direct contract with such third party service providers on a gross basis, whereas the amounts billed to its customers are recorded as revenues, and amounts paid to third party service providers are recorded as cost of revenues. The Company is the principal in the transaction because it controls the services before they are transferred to its customers. Control is evidenced by the Company being primarily responsible to its customers and having discretion in establishing pricing.

~~Subscription-based revenue (formerly subscription and licensing revenue)~~

Subscription-based revenue primarily consists of fees for providing customers continuous access to the Company’s platform for wealth management and financial wellness. The subscription-based fees generally include fixed fees and or usage-based fees.

Generally, the subscription services are substantially the same over each quarter and performed in a similar manner over the contract period, and are considered stand-ready promises. Quarterly subscription services are considered distinct as the customer can benefit from each increment of services on its own and each quarter is separately identified in the contract, and services are considered to be a single performance obligation under the new revenue standard.

The usage-based pricing generally resets each quarter and the pricing structure is generally consistent throughout the term of the contract. The fixed fees are generally calculated and billed quarterly in advance. The usage-based fees are generally calculated and are billed either monthly or quarterly based on the actual usage and relate specifically to the benefits transferred to the customer during that quarter. Accordingly, revenue is allocated to the specific quarter in which services are performed.

~~Certain subscription-based contracts contain multiple performance obligations~~(i.e. platform services performance obligation and professional services performance obligation). Fixed fees are generally recognized on a ratable basis over the quarter beginning when the subscription services are made available to the customer, as the customer simultaneously receives and consumes the benefits of the subscription services. Usage-based revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company provides the services. Subscription-based fees are recognized in both the Envestnet and Envestnet | Yodlee segments.

~~Professional services and other revenues~~

The Company earns professional services fees by providing contractual customized services and platform software development as well as initial implementation fees. Professional services contracts generally have fixed prices, and generally specify the deliverables in the contract. Certain professional services contracts are billed on a time and materials basis and revenue is recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services performed. Initial implementation fees are fixed and recognized ratably over the contract term.

~~Other revenue primarily includes revenue related to the Advisor Summit. Other revenue is recognized when the events are held. Other revenue is not significant.~~

The majority of the professional services and other contracts contain one performance obligation. Professional services and other revenues are recognized in both the Envestnet and Envestnet | Yodlee segments.

~~Arrangements with multiple performance obligations~~

~~Certain of the Company’s contracts with customers contain multiple performance obligations~~such as platform services performance obligation and professional services performance obligation. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. Standalone selling prices of services are

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

~~estimated based on observable transactions when these services are sold on a standalone basis or based on expected cost plus margin.~~

~~Disaggregation of revenue~~

~~The following table presents the Company’s revenues disaggregated by major source:~~

Three Months Ended September 30,
2018 2017
Envestnet Envestnet | Yodlee Consolidated
Envestnet(1)

Envestnet | Yodlee(1)

Consolidated(1)
Revenues:
Asset-based $ 119,097
$ —
$ 119,097
$ 106,147
$ —
$ 106,147
Subscription-based 36,228
39,966
76,194
27,012
35,951
62,963
Total recurring revenues 155,325
39,966
195,291
133,159
35,951
169,110
Professional services and other revenues 2,142
5,723
7,865
2,789
3,715
6,504
Total revenues $ 157,467
$ 45,689
$ 203,156
$ 135,948
$ 39,666
$ 175,614


~~(1)~~	~~As noted above, prior period amounts have not been adjusted under the modified retrospective method.~~

Nine Months Ended September 30,
2018 2017
Envestnet Envestnet | Yodlee Consolidated
Envestnet(1)

Envestnet | Yodlee(1)

Consolidated(1)
Revenues:
Asset-based $ 358,361
$ —
$ 358,361
$ 299,268
$ —
$ 299,268
Subscription-based 101,836
115,832
217,668
77,720
102,955
180,675
Total recurring revenues 460,197
115,832
576,029
376,988
102,955
479,943
Professional services and other revenues 10,186
16,068
26,254
9,650
11,224
20,874
Total revenues $ 470,383
$ 131,900
$ 602,283
$ 386,638
$ 114,179
$ 500,817


~~(1)~~	~~As noted above, prior period amounts have not been adjusted under the modified retrospective method.~~

~~The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018
2017₍₂₎
2018
2017₍₂₎
United States $ 195,063
$ 158,750
$ 576,616
$ 452,333
International (1)
8,093
16,864
25,667
48,484
Total $ 203,156
$ 175,614
$ 602,283
$ 500,817


~~(1)~~	~~No foreign country accounted for more than 10% of total revenues.~~


~~(2)~~	~~As noted above, prior period amounts have not been adjusted under the modified retrospective method.~~

~~One customer accounted for more than 10% of the Company’s total revenues:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Fidelity 17 % 17 % 17 % 17 %

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~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

~~Remaining performance obligations~~

~~The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2018:~~

Years ending December 31,
Remainder of 2018 $ 52,301
2019 168,264
2020 101,449
2021 58,544
2022 44,319
Thereafter 56,336
Total $ 481,213

~~Only fixed consideration from significant contracts with customers is included in the amounts presented above.~~

The Company has applied the practical expedients and exemption and does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligations or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.

~~Contract balances~~

The Company records contract liabilities (deferred revenue) when cash payments are received in advance of its performance. The term between invoicing date and when payment is due is generally not significant. For the majority of its arrangements, the Company requires advance quarterly payments before the services are delivered to the customer.

~~Deferred revenue primarily consists of implementation fees, professional services, and subscription fee payments received in advance from customers.~~

Contract assets would exist when revenues have been recorded (i.e. control of goods or services has been transferred to the customer) but customer payment is contingent on a future event beyond the passage of time (i.e. satisfaction of additional performance obligations). The Company does not have any material contract assets. Unbilled receivables, which are not classified as contract assets, represent arrangements in which revenues have been recorded prior to billing and right to payment is unconditional.

~~The opening and closing balances of the Company’s billed receivables, unbilled receivables, and deferred revenues are as follows:~~

Receivables, Unbilled receivables,
which are included in which are included in Deferred Revenue Deferred Revenue
Fees receivable, net Fees receivable, net (current) (non-current)
Opening balance as of January 1, 2018 $ 36,605
$ 13,229
$ 20,124
$ 9,267
Increase/(decrease), net 11,421
3,380
4,299
(1,984 )
Ending balance as of September 30, 2018 $ 48,026
$ 16,609
$ 24,423
$ 7,283

~~The increase in receivables is primarily a result of timing of payments for asset-based and subscription-based revenues relative to the first nine months of 2018 and the acquisition of FolioDynamix.~~

~~The increase in unbilled receivables is primarily driven by revenue recognized in excess of billings related to asset-based services during the nine months ended September 30, 2018.~~

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

The increase in deferred revenue is primarily the result of an increase in deferred revenue related to subscription-based services during the nine months ended September 30, 2018, most of which will be recognized over the course of the next twelve months.

The amount of revenue recognized that was included in the opening deferred revenue balance was $3,250 and $16,503 for the three and nine months ended September 30, 2018, respectively. The majority of this revenue consists of subscription-based revenue and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

~~Deferred sales incentive compensation~~

Sales incentive compensation earned by the Company’s sales force is considered an incremental and recoverable cost to acquire a contract with a customer. Sales incentive compensation for initial contracts is deferred and amortized on a straight-line basis over the period of benefit, which the Company has determined to be five years. The Company determined the period of benefit by taking into consideration its customer contracts, life of the technology and other factors. Sales incentive compensation for renewal contracts are deferred and amortized on a straight-line basis over the related contractual renewal period. Deferred sales incentive compensation is included in other non-current assets on the consolidated balance sheet and amortization expense is included in compensation and benefits expenses on the condensed consolidated statements of operations.

Deferred sales incentive compensation was $6,293 as of September 30, 2018. Amortization expense for the deferred sales incentive compensation was $552 and $1,570 for the three and nine months ended September 30, 2018, respectively. No significant impairment loss for capitalized costs was recorded during the period.

The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period would have been one year or less. These costs are included in compensation and benefits expenses on the condensed consolidated statements of operations.


5.	~~Cost of Revenues~~

~~The following table summarizes cost of revenues by revenue category for the periods presented herein:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Asset-based $ 57,932
$ 50,597
$ 172,252
$ 142,097
Subscription-based 6,626
5,076
18,065
14,832
Professional services and other 406
397
5,208
4,102
Total $ 64,964

$ 56,070

$ 195,525

$ 161,031

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~


6.	~~Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets consist of the following:~~

September 30, December 31,
2018 2017
Prepaid technology $ 7,063
$ 1,843
Non-income tax receivable 3,488
2,704
Prepaid outside information services 1,488
1,395
Prepaid insurance 1,413
575
Service tax receivable 1,268
1,507
Prepaid rent 995
959
Restricted cash 158
2,000
Income tax receivable —
1,684
Other 8,092
6,803
$ 23,965
$ 19,470


7.	~~Property and Equipment, Net~~

~~Property and equipment, net consists of the following:~~

September 30, December 31,
Estimated Useful Life 2018 2017
Cost:

Computer equipment and software 3 years $ 63,522
$ 56,192
Leasehold improvements Shorter of the lease term or useful life of the asset 27,771
23,192
Office furniture and fixtures 3-7 years 9,199
8,110
Other office equipment 3-5 years 5,416
2,052
105,908
89,546
Less: accumulated depreciation and amortization (61,195 ) (53,637 )
Property and equipment, net $ 44,713
$ 35,909

During the three and nine months ended September 30, 2018, the Company retired property and equipment that was no longer in service in the amount of $1,611 and $8,349, primarily related to fully depreciated computer equipment and software assets. Of the $1,611, $872 of the assets originated in the Envestnet segment and the remaining $739 originated in the Envestnet | Yodlee segment for the three months ended September 30, 2018. Of the $8,349, $4,209 of the assets originated in the Envestnet segment and the remaining $4,140 originated in the Envestnet | Yodlee segment for the nine months ended September 30, 2018. Asset retirements during the three and nine months ended September 30, 2017 were not material. Losses on asset retirements were not material during the three and nine months ended September 30, 2018 and 2017.

~~Depreciation and amortization expense was as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Depreciation and amortization expense $ 3,917
$ 3,724
$ 11,755
$ 11,668

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~


8.	~~Internally Developed Software, Net~~

~~Internally developed software, net consists of the following:~~

September 30, December 31,
Estimated Useful Life 2018 2017
Internally developed software 5 years $ 63,953
$ 46,342
Less: accumulated amortization (29,876 ) (24,168 )
Internally developed software, net $ 34,077
$ 22,174

~~Amortization expense was as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Amortization expense $ 2,169
$ 1,391
$ 5,708
$ 3,791


9.	~~Goodwill & Intangible Assets, Net~~

~~Changes in the carrying amount of goodwill were as follows:~~

Envestnet Envestnet | Yodlee Total
Balance at December 31, 2017 $ 163,751
$ 269,204
$ 432,955
FolioDynamix acquisition 81,207
—
81,207
Private company acquisition —
6,885
6,885
Foreign currency —
(1,124 ) (1,124 )
Balance at September 30, 2018 $ 244,958

$ 274,965

$ 519,923

~~Intangible assets, net consist of the following:~~

September 30, 2018 December 31, 2017
Gross Net Gross Net
Estimated Carrying Accumulated Carrying Carrying Accumulated Carrying
Useful Life Amount Amortization Amount Amount Amortization Amount
Customer lists 7 – 15 years $ 372,850
$ (105,186 ) $ 267,664
$ 259,350
$ (78,482 ) $ 180,868
Proprietary technologies 4 – 8 years 75,544
(41,714 ) 33,830
57,377
(31,067 ) 26,310
Trade names 1 – 7 years 29,540
(12,919 ) 16,621
24,840
(9,701 ) 15,139
Backlog 4 years 11,000
(10,848 ) 152
11,000
(10,586 ) 414
Total intangible assets $ 488,934
$ (170,667 ) $ 318,267
$ 352,567
$ (129,836 ) $ 222,731

~~Amortization expense was as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Amortization expense $ 13,477
$ 10,377
$ 40,831
$ 31,333

~~Future amortization expense of the intangible assets as of September 30, 2018, is expected to be as follows:~~

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

Years ending December 31,
Remainder of 2018 $ 12,984
2019 48,334
2020 44,380
2021 35,744
2022 33,266
Thereafter 143,559
$ 318,267

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~


~~10.~~	~~Other Non-Current Assets~~

~~Other non-current assets consist of the following:~~

September 30, December 31,
2018 2017
Assets to fund deferred compensation liability $ 6,879
$ 5,185
Deferred sales incentive compensation 6,293
—
Lease and other deposits 4,251
4,906
Unamortized issuance costs on revolving credit facility 2,465
3,106
Investments in private companies 1,662
2,731
Other 2,343
1,248
$ 23,893
$ 17,176


~~11.~~	~~Accrued Expensesand Other Liabilities~~

~~Accrued expenses and other liabilities consist of the following:~~

September 30, December 31,
2018 2017
Accrued compensation and related taxes $ 48,587
$ 43,724
Accrued investment manager fees 46,825
39,324
Sales and use tax payable 9,688
9,037
Accrued interest 3,223
—
Accrued professional services 3,225
4,985
Definite consideration —
1,250
Other accrued expenses 12,816
7,577
$ 124,364
$ 105,897


~~12.~~	~~Debt~~

~~The Company’s outstanding debt obligations as of September 30, 2018 and December 31, 2017 were as follows:~~

September 30, December 31,
2018 2017
Convertible Notes due 2019 $ 172,500
$ 172,500
Unaccreted discount on Convertible Notes due 2019 (7,363 ) (11,677 )
Unamortized issuance costs on Convertible Notes due 2019 (1,134 ) (1,833 )
Convertible Notes due 2019 carrying value $ 164,003
$ 158,990

Convertible Notes due 2023 $ 345,000
$ —
Unaccreted discount on Convertible Notes due 2023 (44,886 ) —
Unamortized issuance costs on Convertible Notes due 2023 (8,036 ) —
Convertible Notes due 2023 carrying value $ 292,078
$ —

Revolving credit facility balance $ —
$ 81,168

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statement of operations:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Accretion of debt discount	$	3,784	$	2,411	$	7,542	$	3,829
Coupon interest	2,264		1,366		4,528		2,121
Amortization of issuance costs	862		621		1,720		1,071
Interest on revolving credit facility	1,196		1,429		1,196		3,994
Undrawn and other fees	157		165		373		213
Total	$	8,263	$	5,992	$	15,359	$	11,228

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Interest on revolving credit facility $ —
$ 1,088
$ 3,994
$ 3,543
Accretion of debt discount 3,587
1,393
7,416
4,074
Coupon interest 2,264
755
4,385
2,264
Amortization of issuance costs 849
483
1,920
2,529
Undrawn and other fees 220
139
433
261
$ 6,920

$ 3,858

$ 18,148

$ 12,671

Convertible Notes due 2019

In 2014, the Company issued $172,500 of Convertible Notes due 2019 that mature on December 15, 2019. The Convertible Notes due 2019 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2015. The Convertible Notes due 2019 are general, unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the liability component of the Convertible Notes due 2019 is equal to the stated interest rate plus the accretion of original issue discount. The effective interest rate on the liability component of the Convertible Notes due 2019 for three and six months ended June 30, 2019 and 2018 was 6%.

Convertible Notes due 2023

In May 2018, the Company issued $345,000 of Convertible Notes due 2023 that mature on June 1, 2023. The Convertible Notes due 2023 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018. The Convertible Notes due 2023 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the liability component of the Convertible Notes due 2023 is equal to the stated interest rate plus the accretion of original issue discount. The effective interest rate on the liability component of the Convertible Notes due 2023 for the three and six months ended June 30, 2019 was 6%.

See “Note 15—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income (loss) per common share.

Credit Agreement

In July 2017, the Company and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement ~~(the “Second~~(“Second Amended and Restated Credit Agreement”) with a group of banks ~~(the “Banks”~~(“Banks”). Pursuant to the Second Amended and Restated Credit Agreement, the Banks have agreed to provide to the Company revolving credit commitments ~~(the “Revolving~~(“Revolving Credit Facility”) in the aggregate amount of up to $350,000 which amount may be increased by $50,000.

The Company incurs interest on borrowings made under the Second Amended and Restated Credit Agreement at rates between ~~1.50 percent~~1.50% and ~~3.25 percent~~3.25% above LIBOR based on the Company’s total leverage ratio. Borrowings under the Second Amended and Restated Credit Agreement are scheduled to mature on July 18, 2022.

Obligations under the Second Amended and Restated Credit Agreement are guaranteed by substantially all of the Company’s U.S. subsidiaries. The Second Amended and Restated Credit Agreement includes certain financial covenants and, as of ~~September~~June 30, ~~2018,~~2019, the Company was in compliance with these requirements.

On May 24, 2018, Envestnet Inc. and certain of its subsidiaries entered into a first amendment to the Second Amended and Restated Credit Agreement (the “Credit Agreement Amendment”). The Credit Agreement Amendment made certain technical changes to the calculations of various covenants contained in the Credit Agreement.

~~Convertible Notes due 2019~~

On December 15, 2014, the Company issued $172,500 of Convertible Notes that mature on December 15, 2019. The Convertible Notes bear interest at a rate of 1.75 percent per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2015. The Convertible Notes are general unsecured obligations, subordinated in right of payment to our obligations under our Credit Agreement.

The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 15.9022 shares per $1 principal amount of the Convertible Notes, which represents a conversion price of $62.88 per share, subject to adjustment under certain conditions. Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding July 1, 2019, under certain circumstances. The Company’s stated policy is to settle the debt component of the Convertible Notes at least partially or wholly in cash. This policy is based both on the Company’s intent and the Company’s ability to settle these instruments in cash. Beginning July 1, 2019 the Convertible Notes become freely convertible and therefore are presented in current liabilities on the condensed consolidated balance sheet as of September 30, 2018.

The effective interest rate of the liability component of the Convertible Notes is equal to the stated interest rate plus the accretion of original issue discount. The effective interest rate on the liability component of the Convertible Notes for the three and nine months ended ended September 30, 2018 and 2017 was 6%.

2519

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~Convertible Notes due 2023~~

In May 2018, the Company issued $345,000 of Convertible Notes that mature on June 1, 2023. The Convertible Notes bear interest at a rate of 1.75 percent per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018. The Convertible Notes are general unsecured obligations, subordinated in right of payment to our obligations under our Credit Agreement. The notes are structurally subordinated to the indebtedness and other liabilities of any of our subsidiaries, other than our wholly owned subsidiary, Envestnet Asset Management, Inc., which will fully and unconditionally guarantee the notes on an unsecured basis. The Convertible Notes rank equally in right of payment with all our other existing and future senior indebtedness.

Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Convertible Notes for cash at 100% of the principal amount of the Convertible Notes being purchased, plus any accrued and unpaid interest. The Company may redeem for cash all or any portion of the notes, at our option, on or after June 5, 2021 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any of the five trading days immediately preceding the date on which we provide notice of redemption.

The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances prior to maturity at a conversion rate of 14.6381 shares per $1 principal amount of the Convertible Notes, which represents a conversion price of $68.31 per share, subject to adjustment under certain conditions. Holders may convert their Convertible Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2022, under certain circumstances. The Company’s stated policy is to settle the debt component of the Convertible Notes at least partially or wholly in cash. This policy is based both on the Company’s intent and the Company’s ability to settle these instruments in cash.

The effective interest rate of the liability component of the Convertible Notes is equal to the stated interest rate plus the accretion of original issue discount. The effective interest rate on the liability component of the Convertible Notes due 2023 for the three and nine months ended September 30, 2018 was 6%.

~~See “Note 17 – Net Income (Loss) Per Share” for further discussion of the effect of conversion on net loss per common share.~~


~~13.~~	~~Other Non-Current Liabilities~~

~~Other non-current liabilities consist of the following:~~

September 30, December 31,
2018 2017
Uncertain tax positions $ 9,517
$ 10,640
Deferred compensation liability 6,388
4,364
Other 1,532
98
$ 17,437
$ 15,102


~~14.~~10.	Fair Value Measurements

The Company follows ASC 825-10, ~~Financial~~“Financial Instruments,“ which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the ~~company’s~~Company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value.

Financial assets and liabilities recorded at fair value in the condensed consolidated balance sheet are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~



Level I:	Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level II:	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or inputs that are observable and can be corroborated by observable market data.
Level III:	Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, based on the three-tier fair value ~~hierarchy.~~hierarchy:


	September 30, 2018								June 30, 2019
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		Level III
Assets
Assets:
Money market funds and other (1)	$	119,276	$	119,276	$	—	$	—	$	40,016	$	40,016	$	—	$	—
Assets to fund deferred compensation liability(2)	6,879		—		—		6,879		8,091		—		—		8,091
Total assets	$	126,155	$	119,276	$	—	$	6,879	$	48,107	$	40,016	$	—	$	8,091
Liabilities
Liabilities:
Contingent consideration	$	719	$	—	$	—	$	719	$	16,423	$	—	$	—	$	16,423
Deferred compensation liability(3)	6,388		6,388		—		—		7,974		7,974		—		—
Total liabilities	$	7,107	$	6,388	$	—	$	719	$	24,397	$	7,974	$	—	$	16,423

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


	December 31, 2017								December 31, 2018
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		Level III
Assets
Assets:
Money market funds(1)	$	39,400	$	39,400	$	—	$	—	$	265,554	$	265,554	$	—	$	—
Assets to fund deferred compensation liability(2)	5,185		—		—		5,185		6,346		—		—		6,346
Total assets	$	44,585	$	39,400	$	—	$	5,185	$	271,900	$	265,554	$	—	$	6,346
Liabilities
Liabilities:
Contingent consideration	$	2,781	$	—	$	—	$	2,781	$	732	$	—	$	—	$	732
Deferred compensation liability(3)	4,364		4,364		—		—		6,196		6,196		—		—
Total liabilities	$	7,145	$	4,364	$	—	$	2,781	$	6,928	$	6,196	$	—	$	732


(1)	The fair values of the Company’s investments in money-market funds are based on the daily quoted market prices for the net asset value of the various money market ~~funds and time deposit accounts which mature on a daily basis.~~funds.


(2)	The fair value of assets to fund the deferred compensation liability approximates the cash surrender value of the life insurance premiums and is included in other non-current assets in the condensed consolidated balance sheets.

(3)

The fair market value of the deferred compensation liability ~~is included in other non-current liabilities in the condensed consolidated balance sheets and its fair market value~~ is based on the daily quoted market prices for the net asset ~~values~~value of the various funds in which the participants have ~~selected.~~selected, and is included in other non-current liabilities in the condensed consolidated balance sheets.

Level I assets and liabilities include ~~money-market~~money market funds not insured by the ~~FDIC~~Federal Deposit Insurance Corporation (“FDIC”) and deferred compensation liability. The Company periodically invests excess cash in ~~money-market~~money market funds not insured by the FDIC. The Company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. These ~~money-market~~money market funds are considered Level I and are included in cash and cash equivalents in the condensed consolidated

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share~~ balance sheets. Time deposit account fair values are determined by trade confirmations which mature daily and ~~per share amounts)~~

~~balance sheets.~~therefore are considered highly liquid investments. The fair value of the deferred compensation liability is based upon the daily quoted market prices for net asset value on the various funds selected by participants. ~~Time deposit account fair values are determined by trade confirmations which mature daily and therefore are considered highly liquid investments.~~

Level III assets and liabilities consist of the estimated fair ~~value~~values of contingent consideration as well as the assets to fund the Company's deferred compensation liability. The fair market value of the assets to fund the Company's deferred compensation liability is based upon the cash surrender value of ~~the~~its life insurance premiums.

The fair value of the contingent consideration ~~liability~~liabilities related to certain of the ~~Wheelhouse acquisition was~~Company's acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus ~~represent~~represents a Level III fair value measurement as defined in ASC 820, ~~Fair~~“Fair Value Measurements and ~~Disclosures~~.Disclosures.“ The significant inputs in the Level III measurement not supported by market activity included our assessments of expected future cash flows related to ~~our acquisition of Wheelhouse~~these acquisitions during the subsequent periods from the date of acquisition are appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of ~~the agreement.~~their respective agreements.

The Company utilized a discounted cash flow method with expected future performance of ~~Wheelhouse,~~these acquisitions, and ~~its~~their ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair ~~value~~values of ~~its~~their respective contingent consideration. The Company will continue to reassess the fair ~~value~~values of ~~the~~its contingent consideration ~~made subsequent to the measurement period for each acquisition~~liabilities at each reporting date until settlement. Changes to ~~the~~these estimated fair values ~~of the contingent consideration~~ will be recognized in ~~earnings of~~ the ~~Company~~Company's earnings and included in general and ~~administration~~administrative expenses on the condensed consolidated statements of operations.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

The table below presents a reconciliation of ~~the assets to fund deferred compensation liability of~~contingent consideration liabilities, which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, ~~2017~~2018 to ~~September~~June 30, ~~2018:~~

Fair Value of
Assets to Fund
Deferred
Compensation
Liability
Balance at December 31, 2017 $ 5,185
Contributions and fair value adjustments 1,694
Balance at September 30, 2018 $ 6,879
2019:

The asset value was increased due to contributions to the Plan and immaterial gains on the underlying investment vehicles which resulted in an asset value as of September 30, 2018 of $6,879, which was included in other non-current assets on the condensed consolidated balance sheets.



	Fair Value of Contingent Consideration Liabilities
Balance at December 31, 2018	$	732
Private company acquisition	7,580
PortfolioCenter acquisition	8,300
Settlement of contingent consideration liability	(749		)
Accretion on contingent consideration	560
Balance at June 30, 2019	$	16,423

The table below presents a reconciliation of ~~contingent consideration liabilities of~~the assets used to fund deferred the Company's deferred compensation liability, which ~~the Company~~is measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, ~~2017~~2018 to ~~September~~June 30, ~~2018:~~2019:



	Fair Value of Assets to Fund Deferred Compensation Liability
Balance at December 31, 2018	$	6,346
Contributions and fair value adjustments	1,745
Balance at June 30, 2019	$	8,091

Fair Value of
Contingent
Consideration
Liabilities
Balance at December 31, 2017 $ 2,781
Payment of contingent consideration liability (2,193 )
Accretion on contingent consideration 131
Balance at September 30, 2018 $ 719
The asset value, which is included in other non-current assets on the condensed balance sheets, increased due to funding of the plan and gains on the underlying investment vehicles.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

On December 15, 2014, the Company issued $172,500 of Convertible Notes due 2019. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the carrying value of the Convertible Notes due 2019 equaled ~~$164,003~~$169,182 and ~~$158,990,~~$165,711, respectively, and ~~represents~~represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the estimated fair value of the Convertible Notes due 2019 was ~~$191,044~~$193,983 and ~~$180,180,~~$174,101, respectively. The Company ~~considers~~considered the Convertible Notes due 2019 to be a Level II ~~liabilities~~liability at June 30, 2019 and ~~uses~~used a market approach to calculate the fair value. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes due 2019 in an over-the-counter market on ~~September~~June 30, ~~2018 (see~~2019 (See “Note ~~12 –~~ 9—Debt”).

On May 25, 2018, the Company issued $345,000 of Convertible Notes due 2023. As of ~~September~~June 30, 2019 and December 31, 2018, the carrying value of the Convertible Notes due 2023 equaled ~~$292,078~~$300,078 and ~~represents~~$294,725, respectively, and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of ~~September~~June 30, 2019 and December 31, 2018, the fair value of the Convertible Notes due 2023 was ~~$373,423.~~$411,896 and $339,024, respectively. The Company ~~considers~~considered the Convertible Notes due 2023 to be a Level II ~~liabilities~~liability at June 30, 2019 and ~~uses~~used a market approach to calculate the fair value. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes due 2023 in an over-the-counter market on ~~September~~June 30, ~~2018 (see~~2019 (See “Note ~~12 –~~ 9—Debt”).

AAs of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, there was $0$145,000 and ~~$81,168,~~$0, respectively, outstanding on the revolving credit facility under the Second Amended and Restated Credit Agreement. As of ~~December 31, 2017,~~June 30, 2019, the outstanding balance on ~~our~~the revolving credit facility approximated fair value as the revolving credit facility bore interest at variable rates and we believe our

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

credit risk quality iswas consistent with when the debt originated. The Company ~~considers~~considered the revolving credit facility ~~as of December 31, 2017~~ to be a Level I liability as of June 30, 2019 and December 31, 2018 (See “Note ~~12 –~~ 9—Debt”).

We consider the recorded value of our other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at ~~September~~June 30, ~~2018~~2019 based upon the short-term nature of ~~the~~these assets and liabilities.


~~15.~~11.	Revenue

Disaggregation of revenue

The following table presents the Company’s revenues disaggregated by major source:



	Three Months Ended June 30,
	2019						2018
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated
Revenues:
Asset-based	$	120,070	$	—	$	120,070	$	118,111	$	—	$	118,111
Subscription-based	50,078		42,180		92,258		33,023		38,756		71,779
Total recurring revenues	170,148		42,180		212,328		151,134		38,756		189,890
Professional services and other revenues	6,742		5,375		12,117		5,794		5,432		11,226
Total revenues	$	176,890	$	47,555	$	224,445	$	156,928	$	44,188	$	201,116



	Six Months Ended June 30,
	2019						2018
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated
Revenues:
Asset-based	$	229,004	$	—	$	229,004	$	239,264	$	—	$	239,264
Subscription-based	91,104		84,241		175,345		65,608		75,866		141,474
Total recurring revenues	320,108		84,241		404,349		304,872		75,866		380,738
Professional services and other revenues	9,487		10,275		19,762		8,044		10,345		18,389
Total revenues	$	329,595	$	94,516	$	424,111	$	312,916	$	86,211	$	399,127

One customer accounted for more than 10% of the Company’s total revenues:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Fidelity	15	%	16	%	15	%	16	%

Fidelity accounted for 19% and 20% of Envestnet Wealth Solutions revenues for the three and six months ended June 30, 2019, respectively. Fidelity accounted for 21% and 21% of Envestnet Wealth Solutions revenues for the three and six months ended June 30, 2018, respectively.

No single customer amounts for Envestnet Data & Analytics exceeded 10% of the segment total for any period presented.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
United States	$	217,462	$	193,237	$	409,581	$	381,552
International ⁽¹⁾	6,983		7,879		14,530		17,575
Total	$	224,445	$	201,116	$	424,111	$	399,127


(1)	No foreign country accounted for more than 10% of the Company's total revenues.

Remaining performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2019:



Years ending December 31,
Remainder of 2019	$	122,303
2020	171,252
2021	106,389
2022	70,046
2023	32,354
Thereafter	41,237
Total	$	543,581

Only fixed consideration from significant contracts with customers is included in the amounts presented above.

The Company has applied the practical expedients and exemption and therefore does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligations or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.

Contract balances

Total deferred revenue as of June 30, 2019 increased by $13,362, which is primarily the result of the PIEtech and PortfolioCenter acquisitions and an increase in deferred revenue related to subscription-based services during the six months ended June 30, 2019, the majority of which will be recognized over the course of the next twelve months.

The amount of revenue recognized that was included in the opening deferred revenue balance was $6,865 and $5,737 for the three months ended June 30, 2019 and 2018, respectively. The amount of revenue recognized that was included in the opening deferred revenue balance was $16,588 and $13,253 for the six months ended June 30, 2019 and 2018, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred sales incentive compensation

Deferred sales incentive compensation was $9,598 and $7,014 as of June 30, 2019 and December 31, 2018, respectively. Amortization expense for the deferred sales incentive compensation was $753 and $536 for the three months ended June 30, 2019, and 2018, respectively. Amortization expense for the deferred sales incentive compensation was $1,404 and $1,018 for the six months ended June 30, 2019, and 2018, respectively. No significant impairment loss for capitalized costs was recorded during the period.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


12.	Cost of Revenues

The following table summarizes cost of revenues by revenue category:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Asset-based	$	60,293	$	56,748	$	114,135	$	114,320
Subscription-based	6,697		6,213		14,374		11,439
Professional services and other	5,090		4,666		5,216		4,802
Total	$	72,080	$	67,627	$	133,725	$	130,561


13.	Stock-Based Compensation

The Company has stock options and restricted stock units outstanding under the 2004 Stock Incentive Plan (the “2004 Plan”) ~~and~~, the 2010 Long-Term Incentive Plan (the “2010 Plan”). and the 2019 Equity Plan.

As a result of the PIEtech Acquisition (See “Note 3—Business Acquisitions”), the Company adopted the 2019 Equity Plan in order to make inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. Envestnet agreed to grant at future dates, not earlier than the sixty day anniversary of the PIEtech Acquisition, up to 301,469 shares of Envestnet common stock in the form of RSUs and PSUs pursuant to the 2019 Equity Plan. The RSUs vest over time and the PSUs vest upon the achievement of meeting certain performance conditions as well as a subsequent service condition. The Company is recognizing the estimated expense on a graded-vesting method over a requisite service period of three to five years, which is the estimated vesting period. The Company estimates the expected vesting amount and recognizes compensation expense only for those awards expected to vest. This estimate is reassessed by management each reporting period and may change based upon new facts and circumstances. Changes in the assumptions impact the total amount of expense and are recognized over the vesting period.

As of ~~September~~June 30, ~~2018,~~2019, the maximum number of common shares ~~of the Company~~ available for future issuance under the Company’s plans is ~~3,070,397.~~2,233,604.

Stock-based compensation expense under the Company’s plans was as follows:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Stock-based compensation expense	$	13,434		$	10,476		$	26,298		$	18,971
Tax effect on stock-based compensation expense	(3,504		)	(2,650		)	(6,859		)	(4,800		)
Net effect on income	$	9,930		$	7,826		$	19,439		$	14,171

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Stock-based compensation expense $ 10,603
$ 8,048
$ 29,574
$ 23,451
Tax effect on stock-based compensation expense (2,682 ) (3,018 ) (7,482 ) (8,794 )
Net effect on income $ 7,921

$ 5,030

$ 22,092

$ 14,657

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 26.1% for the three and six months ended June 30, 2019. The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.3% for the three and ~~nine~~six months ended September 30, 2018. The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 37.5% for the three and nine months ended September 30, 2017. However, due to the valuation allowance recorded on domestic deferreds, there was no tax effect related to stock-based compensation expense for the three and nine months ended SeptemberJune 30, 2018.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Stock Options

The following weighted average assumptions were used to value options granted during the periods indicated:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Grant date fair value of options	$	—		$	—		$	21.55		$	—
Volatility	—		%	—		%	40.0		%	—		%
Risk-free interest rate	—		%	—		%	2.5		%	—		%
Dividend yield	—		%	—		%	—		%	—		%
Expected term (in years)	—			—			6.5			—

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Grant date fair value of options $ —
$ —
$ —
$ 14.51
Volatility — % — % — % 43.8 %
Risk-free interest rate — % — % — % 2.1 %
Dividend yield — % — % — % — %
Expected term (in years) —
—
—
6.3

The following table summarizes option activity under the Company’s plans:



					Weighted-Average
			Weighted-		Remaining
			Average		Contractual Life	Aggregate
	Options		Exercise Price		(Years)	Intrinsic Value
Outstanding as of December 31, 2018	1,887,969		$	20.05	3.4	$	56,046
Granted	81,807		49.02
Exercised	(200,326	)	16.91
Forfeited	(1,100	)	31.70
Outstanding as of March 31, 2019	1,768,350		21.74		3.5	77,197
Granted	—		—
Exercised	(114,109	)	13.36
Forfeited	—		—
Outstanding as of June 30, 2019	1,654,241		22.31		3.4	76,187
Options exercisable	1,550,570		$	20.80	3.1	$	73,764

Weighted-Average
Weighted- Remaining
Average Contractual Life Aggregate
Options Exercise Price (Years) Intrinsic Value
Outstanding as of December 31, 2017 2,254,565
$ 19.23
4.3 $ 69,939
Exercised (162,857 ) 14.76

Forfeited (1,668 ) 32.46

Outstanding as of March 31, 2018 2,090,040
19.57
4.1 78,859
Exercised (12,166 ) 11.42

Outstanding as of June 30, 2018 2,077,874
19.62
3.9 73,421
Exercised (174,445 ) 15.25

Forfeited (5,583 ) —

Outstanding as of September 30, 2018 1,897,846
20.00
3.6 77,726
Options exercisable 1,820,156
19.64
3.5 75,194

Exercise prices of stock options outstanding as of ~~September~~June 30, ~~2018~~2019 range from $7.15 to $55.29. At ~~September~~June 30, ~~2018,~~2019, there was ~~$887~~$1,806 of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of ~~1.2~~2.3 years.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Restricted Stock Units and Restricted Stock Awards

Periodically, the Company grants restricted stock unit awards and performance stock units and awards to employees. Performance-based restricted unit awards vest upon the achievement of certain pre-established business and financial metrics as well as service condition. The business and financial metrics governing the vesting of these performance-based restricted stock unit awards provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 50% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest 3 years from the grant date.

The following is a summary of the activity for unvested restricted stock units and ~~awards~~performance stock units granted under the Company’s plans:



	RSUs				PSUs
	Number of Shares		Weighted- Average Grant Date Fair Value per Share		Number of Shares		Weighted- Average Grant Date Fair Value per Share
Outstanding as of December 31, 2018	1,461,468		$	46.59	124,320		$	44.64
Granted	872,104		60.94		68,510		64.32
Vested	(479,479	)	45.98		—		—
Forfeited	(20,830	)	48.31		(4,036	)	61.27
Outstanding as of March 31, 2019	1,833,263		53.67		188,794		51.42
Granted	48,032		68.50		123,812		73.60
Vested	(114,056	)	47.94		(68,334	)	31.03
Forfeited	(22,074	)	56.55		—		—
Outstanding as of June 30, 2019	1,745,165		$	54.40	244,272		$	67.78

Weighted-
Average Grant
Number of Date Fair Value
Shares per Share
Outstanding as of December 31, 2017 1,766,639
$ 32.48
Granted 925,641
55.21
Vested (503,668 ) 34.05
Forfeited (27,265 ) 30.79
Outstanding as of March 31, 2018 2,161,347
41.59
Vested (253,279 ) 31.13
Forfeited (27,324 ) 39.78
Outstanding as of June 30, 2018 1,880,744
43.36
Granted 58,359
58.51
Vested (159,783 ) 31.23
Forfeited (31,828 ) 44.25
Outstanding as of September 30, 2018 1,747,492
44.98

At ~~September~~June 30, ~~2018,~~2019, there was ~~$65,884~~$82,846 of unrecognized stock-based compensation expense related to unvested restricted stock units and awards, which the Company expects to recognize over a weighted-average period of ~~2.0~~2.2 years.

~~During March 2018 and July 2018, the Company granted 26,000 and 30,000~~ At June 30, 2019, there was $17,371 of unrecognized stock-based compensation expense related to unvested performance-based restricted stock ~~unit~~units and awards, which the Company expects to ~~certain employees, respectively. These performance-based shares vest upon the achievement~~recognize over a weighted-average period of certain business and financial metrics. The business and financial metrics governing the vesting of these stock unit awards provide thresholds which dictate the number of shares to vest upon each evaluation date, which range from 50% to 150%. If these metrics are achieved at 100%, as defined in the individual grant terms, these shares would cliff vest over three annual tranches equally.2.7 years.


~~16.~~14.	Income Taxes

The following table includes the Company’s loss before income tax provision (benefit), income tax provision (benefit) and effective tax rate:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Loss before income tax provision (benefit)	$	(27,769	)	$	(5,425	)	$	(42,269	)	$	(11,417	)
Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)
Effective tax rate	102.2		%	(10.4		)%	58.2		%	117.6		%

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Income (loss) before income tax provision (benefit) $ (2,723 ) $ 362
$ (14,140 ) $ (10,101 )
Income tax provision (benefit) (5,234 ) 1,682
(18,662 ) 10,824
Effective tax rate 192.2 % 464.6 % 132.0 % (107.2 )%

For the three and six months ended ~~September~~June 30, ~~2018, our~~2019, the Company's effective tax rate differed from the statutory rate primarily due to the release of the Company's valuation allowance of $21,907 primarily as a result of additional deferred tax liabilities recorded ~~with~~from the ~~acquisition of FolioDynamix as well as differences between~~PIEtech Acquisition, the ~~foreign~~windfall from share-based compensation, federal and state research and development credits, and additional accruals for uncertain tax ~~rates and statutory US tax rate.~~positions.

For the three months ended ~~September~~June 30, ~~2017, our~~2018, the Company's effective tax rate differed from the statutory rate primarily due to the valuation allowance the Company had placed on all US deferreds with the exception of ~~indefinite-lived~~indefinite lived intangibles, additional accruals for uncertain tax positions, the impact of clarifying Base Erosion and ~~unrepatriated~~Anti Abuse (“BEAT”) tax positions, as well as differences between the foreign ~~earnings~~tax rates and ~~profits, resulting in no benefit being recognized for~~statutory US tax rate.

For the six months ended June 30, 2018, the Company's effective tax ~~loss in~~rate differed from the ~~US.~~statutory rate primarily due to the release of the Company’s valuation allowance as a result of additional deferred tax liabilities recorded with the

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

For the nine months ended September 30, 2018, our effective tax rate differed from the statutory rate primarily due to the release of the Company’s valuation allowance as a result of deferred tax liabilities recorded with the acquisition of FolioDynamix, additional accruals for uncertain tax positions as well as differences between the foreign tax rates and statutory US tax rate.

For the nine months ended September 30, 2017, our effective tax rate differed from the statutory rate primarily due to the valuation allowance the Company had placed on all US deferreds with the exception of indefinite-lived intangibles and unrepatriated foreign earnings and profits, resulting in no benefit being recognized for the tax loss in the US.

In December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into United States law. Beginning in 2018, the Tax Act includes the global intangible low-taxed income (“GILTI”) ~~provision. We~~and BEAT provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provision requires usthe Company to include in ~~our~~its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. ~~We expect~~The Company expects to fully offset any GILTI income with Net Operating Losses (“NOLs”). The Company has reevaluated the entity classification of certain of its Controlled Foreign Corporations (“CFCs”); and as such, has changed the classification of its Indian entities to a flow-through status. As a result, ~~of our domestic valuation allowance, we do~~the Company does not currently expect ~~a financial statement impact due~~ to ~~the GILTI provision.~~be subject to BEAT. Additionally, the ~~Tax Act requires us~~two Indian entities are no longer subject to ~~calculate a minimum tax on our foreign earnings and profits; BEAT. As a result of current guidance we do not require a BEAT provision to be recorded.~~GILTI.

In accordance with Staff Accounting Bulletin 118, we recognized provisional tax impacts related to the deemed repatriated foreign earnings in our consolidated financial statements for the year ended December 31, 2017. The ultimate impact may differ from those provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions we have made, additional regulatory guidance that may be issued, and actions we may take as a result of the Tax Act. During the nine months ended September 30, 2018 we did not record any adjustments to our provisional amounts included in our consolidated financial statements for the year ended December 31, 2017. The accounting is expected to be completed when the 2017 U.S. corporate income tax return is filed in the fourth quarter of 2018.

The Company's total gross liability for unrecognized tax benefits, exclusive of interest and penalties, was ~~$18,307~~$18,102 and ~~$18,312~~$15,628 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. Of this amount, a portion of the unrecognized tax benefits was recorded as a reduction of deferred tax assets instead of a non-current liability. The portion of the unrecognized tax benefits, exclusive of interest and penalties, recorded as a non-current liability is ~~$4,054~~$6,411 and ~~$4,622~~$4,429 at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

At ~~September~~June 30, ~~2018,~~2019, the amount of unrecognized tax benefits, including interest and penalties, that would benefit the Company’s effective tax rate, if recognized, was ~~$9,544.~~$12,116. At this time, the Company estimates that the liability for unrecognized tax benefits ~~will not~~could decrease in the next twelve months as it is ~~not~~ anticipated that reviews by tax authorities will be ~~completed and there will be any expiration of certain statutes of limitations in this time period.~~completed.

The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. Income tax expense includes ~~$(221)~~$898 and ~~$1,261~~$548 of potential interest and penalties related to unrecognized tax benefits for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. The Company had accrued interest and penalties of ~~$5,463~~$6,924 and ~~$6,018~~$5,977 as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.


~~17.~~15.	Net Income (Loss) Per Share

Basic income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted income (loss)per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants, restricted stock awards, restricted stock units and ~~Convertible Notes due 2019 and 2023 (collectively “Convertible Notes”)~~convertible notes using the treasury stock method, if dilutive.No items were included in the computation of diluted loss per share in the three and nine months ended September 30, 2017 because the Company incurred a net loss attributable to Envestnet, Inc. in those periods and therefore these items were considered anti-dilutive.

The Company accounts for the effect of ~~the Convertible Notes~~its convertible notes (See “Note 9—Debt”) on diluted earnings per share using the treasury stock method since they may be settled in cash, shares or a combination thereof at the Company’s option. As a result, the Convertible Notes due 2019 and Convertible Notes due 2023 will have no effect on diluted earnings per share until the Company’s stock price exceeds the conversion price of $62.88 and $68.31 per share and certain other criteria are met, respectively, or if the trading price of the ~~Convertible Notes~~convertible notes meets certain ~~criteria (See “Note 12 – Debt” in Part II, Item 8 of our 2017 Form 10-K and “Note 12 – Debt” in this Form 10-Q).~~criteria. In the period of conversion, the ~~Convertible~~convertible notes will have no impact on diluted earnings if they are settled in cash and will have an impact on dilutive earnings per share if they are settled in shares upon conversion.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Notes will have no impact on diluted earnings if the Convertible Notes are settled in cash and will have an impact on dilutive earnings per share if the Convertible Notes are settled in shares upon conversion.

The following table provides the numerators and denominators used in computing basic and diluted net income (loss) per share attributable to Envestnet, Inc.:



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019		2018			2019			2018
Basic income (loss) per share calculation:
Net loss attributable to Envestnet, Inc.	$	893	$	(5,526	)	$	(17,292	)	$	2,578

Basic number of weighted-average shares outstanding	50,870,296		45,247,331			49,526,774			44,963,735
Basic net income (loss) per share	$	0.02	$	(0.12	)	$	(0.35	)	$	0.06

Diluted income (loss) per share calculation:
Net income (loss) attributable to Envestnet, Inc.	$	893	$	(5,526	)	$	(17,292	)	$	2,578

Basic number of weighted-average shares outstanding	50,870,296		45,247,331			49,526,774			44,963,735
Effect of dilutive shares:
Options to purchase common stock	1,164,246		—			—			1,360,300
Unvested restricted stock units	662,853		—			—			832,170
Convertible notes	261,075		—			—			—
Warrants	24,218		—			—			—
Diluted number of weighted-average shares outstanding	52,982,688		45,247,331			49,526,774			47,156,205
Diluted net income (loss) per share	$	0.02	$	(0.12	)	$	(0.35	)	$	0.05

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Basic income (loss) per share calculation:
Net income (loss) attributable to Envestnet, Inc. $ 2,954
$ (1,320 ) $ 5,532
$ (20,925 )

Basic number of weighted-average shares outstanding 45,475,884
44,044,527
45,087,932
43,604,869
Basic net income (loss) per share $ 0.06
$ (0.03 ) $ 0.12
$ (0.48 )

Diluted income (loss) per share calculation:
Net income (loss) attributable to Envestnet, Inc. $ 2,954
$ (1,320 ) $ 5,532
$ (20,925 )

Basic number of weighted-average shares outstanding 45,475,884
44,044,527
45,087,932
43,604,869
Effect of dilutive shares:
Options to purchase common stock 1,323,712
—
1,348,699
—
Unvested restricted stock units 719,564
—
832,848
—
Diluted number of weighted-average shares outstanding 47,519,160
44,044,527
47,269,479
43,604,869
Diluted net income (loss) per share $ 0.06
$ (0.03 ) $ 0.12
$ (0.48 )

Securities that were anti-dilutive ~~for~~and therefore excluded from the ~~three and nine months ended September 30, 2018 and 2017 were~~computation of diluted lossper share are as follows:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019	2018	2019	2018
Options to purchase common stock	—	2,077,874	1,654,241	9,045
Unvested restricted stock awards and units	—	1,880,744	1,989,437	—
Warrants	—	—	470,000	—
Convertible Notes	—	7,793,826	7,793,826	7,793,826
Total	—	11,752,444	11,907,504	7,802,871

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Options to purchase common stock —
2,667,329
—
2,667,329
Unvested restricted stock awards and units —
1,901,080
—
1,901,080
Convertible Notes 7,793,826
2,743,321
7,793,826
2,743,321
Total 7,793,826

7,311,730

7,793,826

7,311,730


~~18.~~16.	Commitments and Contingencies

Purchase Obligations and Indemnifications

The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability in the condensed consolidated balance sheets.

The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Legal Proceedings

The Company and its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps, LLC (“FinancialApps”) in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief. An unopposed scheduling motion is pending which, if granted, would require Envestnet and Yodlee to file their responsive pleadings, including counterclaims, by September 17, 2019. The Company believes the allegations in the complaint are without merit and intends to defend the action vigorously.

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. ~~Legal proceedings accruals are recorded when and if it is determined that a loss is both probable and reasonably estimable.~~ For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of ~~September~~June 30, ~~2018.~~2019. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company's results of operations or cash flow in a particular quarter or year.

Contingencies

Certain of the Company’s revenues are subject to sales and use taxes in certain jurisdictions where it conducts business in the United States. As of ~~September~~June 30, 2019 and December 31, 2018, the Company estimated a sales and use tax liability of ~~$9,405.~~$10,989 and $8,643, respectively, related to revenues in multiple jurisdictions. This amount is included in accrued expenses and other liabilities on the condensed consolidated balance ~~sheet.~~sheets. The Company also estimated a sales and use tax receivable of ~~$3,488~~$5,139 and $5,246, respectively, related to the estimated recoverability of amounts due from customers. This amount is included in prepaid expenses and other current assets on the condensed consolidated balance ~~sheet. As a result, a net sales and use tax liability of $5,917 related to multiple jurisdictions with respect to revenues in the three months ended September 30, 2018 and prior periods was probable.~~sheets. Additional future information obtained from the applicable jurisdictions may affect the ~~Company’s~~Company's estimate of its sales and use tax liability, but such change in the estimate cannot currently be made.


17.	Leases

On January 1, 2019, the Company adopted ASU 2016-02 and all subsequent ASUs that modified Topic 842 (“ASC 842”) using the effective date transition method. We elected the available package of practical expedients. The Company has elected to apply the short-term lease exemption to all of its classes of underlying assets.

The standard had a material impact on the Company's condensed consolidated balance sheets, but did not have an impact on the Company's condensed consolidated statements of operations. The most significant impact was the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases. Adoption of the standard had no impact to previously reported results.

At inception, the Company determines if an arrangement is a lease. Operating leases are included in ROU assets, current lease liabilities and non-current lease liabilities on our consolidated balance sheets. The Company does not have material finance leases.

ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the remaining lease term. As none of the Company's leases provide an implicit rate, the Company uses an estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

includes prepaid payments and excludes lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components. The Company has elected the practical expedient to account for non-lease components as part of the lease component for all asset classes. The majority of the Company's lease agreements are real estate leases.

The Company has operating leases for corporate offices and certain equipment, some of which may include options to extend the leases for up to 20 years, and some of which may include options to terminate the leases within 90 days. The Company's leases have remaining lease terms of 1 month to 14 years. For the three and six months ended June 30, 2019, the total operating lease cost was $4,377 and $8,495, respectively. The Company did not have significant sublease income, short-term lease cost, or variable lease cost for the three and six months ended June 30, 2019. As of June 30, 2019, the weighted average remaining lease term was 8.9 years and the weighted average discount rate was 6.3%. Cash paid for amounts included in the measurement of the operating lease liability for the three and six months ended June 30, 2019, was $4,730 and $9,386, respectively.

Future minimum lease payments under non-cancellable leases, as of June 30, 2019, were as follows:



	Operating
	Leases
Years Ending December 31,
Remainder of 2019	$	9,096
2020	17,558
2021	15,975
2022	11,850
2023	10,571
Thereafter	52,862
Total future minimum lease payments	117,912
Less imputed interest	(27,563		)
Total operating lease liabilities	$	90,349

As of June 30, 2019, the Company has several additional operating leases that have not yet commenced but will commence in 2019 with lease terms of 1 to 3 years.

For the year ended December 31, 2018, the Company disclosed the following information related to its leases:

The Company rents office space under leases that expire at various dates through 2030. ~~As of September 30, 2018, the Company’s future~~Future minimum lease commitments under these operating leases, ~~totaled $109,048.~~as of December 31, 2018, were as follows:



Years ending December 31,
2019	$	15,997
2020	15,437
2021	14,705
2022	10,816
2023	9,910
Thereafter	39,449
Total	$	106,314

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


~~19.~~18.	Segment Information

Business segments are generally organized around our business services. Our business segments are:

•Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions.

•Envestnet ~~| Yodlee~~Data & Analytics – a leading data aggregation and data ~~analytics~~intelligence platform powering dynamic, cloud-based innovation for digital financial services.

The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment expenses include salary and benefits for certain corporate employees and officers, certain types of professional ~~fees,~~service expenses and insurance, acquisition related transaction costs, restructuring charges, and other non-recurring and/or non-operationally related expenses.Inter-segment revenues were not material for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

See “Note 11—Revenue” for detail of revenues by segment.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~(in thousands, except share and per share amounts)~~

~~The following table presents revenue by segment:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Revenue:

Envestnet $ 157,467
$ 135,948
$ 470,383
$ 386,638
Envestnet | Yodlee 45,689
39,666
131,900
114,179
Consolidated revenue $ 203,156

$ 175,614

$ 602,283

$ 500,817
Fidelity revenue as a percentage of Envestnet segment revenue: 21 % 22 % 21 % 22 %

~~No single customer amounts for Envestnet | Yodlee exceeded 10% of the segment total for any period presented.~~

The following table presents a reconciliation from income (loss) from operations by segment to condensed consolidated net income (loss) attributable to Envestnet, Inc.:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Envestnet Wealth Solutions	$	12,379		$	16,359		$	29,223		$	32,220
Envestnet Data & Analytics	(8,960		)	(3,296		)	(16,888		)	(7,705		)
Total segment income from operations	3,419			13,063			12,335			24,515
Nonsegment operating expenses	(23,676		)	(13,058		)	(41,329		)	(25,248		)
Other expense, net	(7,512		)	(5,430		)	(13,275		)	(10,684		)
Consolidated loss before income tax provision (benefit)	(27,769		)	(5,425		)	(42,269		)	(11,417		)
Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)
Consolidated net income (loss)	613			(5,991		)	(17,655		)	2,011
Add: Net loss attributable to non-controlling interest	280			465			363			567
Consolidated net income (loss) attributable to Envestnet, Inc.	$	893		$	(5,526	)	$	(17,292	)	$	2,578

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Envestnet $ 16,549
$ 18,955
$ 48,769
$ 48,277
Envestnet | Yodlee (1,103 ) (3,364 ) (8,808 ) (16,707 )
Total segment income from operations 15,446

15,591

39,961

31,570
Nonsegment operating expenses (12,051 ) (11,243 ) (37,299 ) (27,833 )
Other expense, net (6,118 ) (3,986 ) (16,802 ) (13,838 )
Consolidated income (loss) before income tax provision (benefit) (2,723 )
362

(14,140 )
(10,101 )
Income tax provision (benefit) (5,234 ) 1,682
(18,662 ) 10,824
Consolidated net income (loss) 2,511
(1,320 ) 4,522
(20,925 )
Add: Net loss attributable to non-controlling interest 443
—
1,010
—
Consolidated net income (loss) attributable to Envestnet, Inc. $ 2,954

$ (1,320 )
$ 5,532

$ (20,925 )

Segment assets consist of cash, accounts receivable, prepaid expenses and other current assets, property ~~plant~~ and equipment, net, internally developed software, net, goodwill, and ~~other intangibles,~~intangible assets, net, and other non-current assets. Segment capital expenditures consist of property and equipment and internally developed software expenditures.

A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital expenditures follows:


	September 30,		December 31,		June 30,		December 31,
	2018		2017		2019		2018
Segment assets:
Envestnet	$	676,892	$	353,048
Envestnet \| Yodlee	506,123		509,004
Envestnet Wealth Solutions					$	1,279,408	$	810,971
Envestnet Data & Analytics					532,932		502,776
Consolidated total assets	$	1,183,015	$	862,052	$	1,812,340	$	1,313,747

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Segment depreciation and amortization:
Envestnet	$	11,421	$	6,414	$	33,920	$	19,196
Envestnet \| Yodlee	8,142		9,078		24,374		27,596
Envestnet Wealth Solutions									$	16,376	$	11,026	$	27,643	$	22,499
Envestnet Data & Analytics									10,539		8,159		18,789		16,232
Consolidated depreciation and amortization	$	19,563	$	15,492	$	58,294	$	46,792	$	26,915	$	19,185	$	46,432	$	38,731



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Segment capital expenditures:
Envestnet Wealth Solutions	$	10,027	$	8,344	$	20,865	$	16,536
Envestnet Data & Analytics	1,939		2,260		3,533		3,655
Consolidated capital expenditures	$	11,966	$	10,604	$	24,398	$	20,191

Three Months Ended Nine Months Ended
September 30, September 30,
2018 2017 2018 2017
Segment capital expenditures:
Envestnet $ 11,320
$ 4,406
$ 27,856
$ 17,337
Envestnet | Yodlee 3,188
1,404
6,843
3,305
Consolidated capital expenditures $ 14,508
$ 5,810

$ 34,699

$ 20,642


~~20.~~19.	Geographical Information

The following table sets forth property and equipment, net by geographic area:



	June 30,		December 31,
	2019		2018
United States	$	45,759	$	39,412
India	3,919		3,969
Other	1,338		1,610
Total	$	51,016	$	44,991

September 30, December 31,
2018 2017
United States $ 39,195
$ 30,647
India 4,117
4,907
Other 1,401
355
Total $ 44,713
$ 35,909

See “Note 11—Revenue” for detail of revenues by geographic area.


~~21.~~	~~Subsequent Events~~

~~On November 1, 2018, the Company acquired the remaining outstanding units in ERS for cash consideration of approximately $6,600. This increased the Company's ownership in ERS from 81.5% to 100%.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.

Unless otherwise indicated, all amounts are in thousands, except share and per share information, numbers of financial advisors and client accounts.

~~Forward-Looking Statements~~

This quarterly report on Form 10-Q contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are based on our current expectations and projections about future events and are identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. Forward-looking statements may include, among others, statements relating to:

difficulty in sustaining rapid revenue growth, which may place significant demands on our administrative, operational and financial resources,

our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies,

the possibility that the anticipated benefits of acquisitions will not be realized to the extent or when expected,

our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner,

the amount of our debt and our ability to service our debt,

the variability of our revenue from period to period,

the targeting of some of our sales efforts at large financial institutions and large internet services companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales,

the deployment of our solutions by customers and potential delays and risks inherent in the process,

the competitiveness of our solutions and services as compared to those of others,

the concentration ~~of nearly all~~ of our revenues from the delivery of our solutions and services to clients in the financial services industry,

our reliance on a limited number of clients for a material portion of our revenue,

the ~~renegotiation of fee percentages or termination of our services by our clients,~~

~~our ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies,~~

~~the impact of market and economic conditions on revenues,~~

~~our inability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner,~~

our ability to expand our relationships with existing customers, grow the number of customers and derive revenue from new offerings such as our data analytics solutions and market research services and premium financial applications (“FinApps”),

~~compliance failures,~~

~~adverse judicial or regulatory proceedings against us,~~

~~liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest,~~

~~changes in laws and regulations, including tax laws and regulations,~~

~~general economic conditions, political and regulatory conditions,~~

~~the~~ impact of fluctuations in market ~~condition~~conditions and interest rates on the demand for our products and services and the value of assets under management or administration,

changes in investing patterns on the ~~impact~~assets on which we derive revenue,

the renegotiation of ~~market conditions on~~ fees by our clients,

our ability to ~~issue debt~~introduce new solutions and ~~equity,~~

~~the impact of fluctuations in interest rates on our cost of borrowing,~~

~~our financial performance,~~

~~the amount of our debt and our ability to service our debt,~~

~~the results of our investments in research and development, our data center and other infrastructure,~~services,

our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal information and potential liabilities for data security breaches,

the effect of privacy regulations on how we operate our business,

liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest,

failure of our solutions, services or systems, or those of third parties on which we rely, to work properly,

failure of our insurance to adequately protect us,

our dependence on our senior management team,

our ability to ~~realize operating efficiencies,~~recruit and retain qualified employees,

~~the advantages of our solutions as compared to those of others,~~regulatory compliance failures,

changes in laws and regulations, including tax laws and regulations,

adverse judicial or regulatory proceedings against us,

the failure to protect our intellectual property rights,

~~our ability to establish and maintain~~potential claims by third parties for infringement or their intellectual property rights,

risks associated with our ~~ability~~international operations,

the impact of fluctuations in interest rates and turmoil in market conditions on our cost of borrowing and access to ~~retain~~additional capital,

the impact of fluctuations in foreign currency exchange rates,

the uncertainty of the application and ~~hire necessary employees~~interpretation of certain tax laws,

changes in accounting principles and ~~appropriately staff~~standards,

issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our ~~operations,~~existing stockholders,

general economic conditions, political and regulatory conditions, and


•	management’s response to these factors.

~~management’s response to these factors.~~

In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward‑looking statements. All forward‑looking statements contained in this quarterly report and documents incorporated herein by reference are qualified in their entirety by this cautionary statement. Forward‑looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward‑looking statements to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward‑looking statements, no inference should be made that we will make additional updates with respect to those or other forward‑looking statements.

Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.

These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this quarterly report are set forth in Part I under “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”); accordingly,

investors should not place undue reliance upon our forward-looking statements. We undertake no obligation to update any of the forward-looking statements after the date of this report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

You should read this quarterly report on Form 10-Q and ~~our annual report on~~the 2018 Form 10-K ~~for the year ended December 31, 2017 (the “2017 Form 10-K”)~~ completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.

The following discussion and analysis should also be read along with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and the consolidated financial statements and related notes included in our ~~2017~~2018 Form 10-K. Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

Overview

Envestnet is a leading provider of intelligent systems for wealth management and financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management ~~process, delivering unparalleled flexibility, accuracy, performance, and value.~~process. Envestnet ~~enables a transparent, independent, objective, and fiduciary standard of care, and~~ empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.

More than ~~3,500~~4,100 companies, including 15 17of the 20 largest U.S. banks, 43 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“~~RIA”~~RIAs”), and hundreds of ~~Internet~~internet services companies, leverage Envestnet technology and services. Envestnet solutions enhance knowledge of the client, accelerate client on-boarding, improve client digital experiences, and help drive better outcomes for enterprises, advisors and their clients.

Founded in 1999, Envestnet has been a leader in helping transform wealth management, working towards its goal of building a holistic financial wellness network that supports advisors and their clients.

Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a financial network connecting software, services and data, delivering better intelligence and enabling its customers to drive better outcomes.

Envestnet serves clients from its headquarters based in Chicago, Illinois, as well as other locations throughout the United States, India and other international locations.

We believe that our business model results in a high degree of recurring and predictable financial results.

Recent Events

Acquisition of ~~FolioDynamix~~private company

On January 2, ~~2018,~~2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet ~~acquired (the “Acquisition”) Folio Dynamics Holdings,~~and a private company, the private company merged into Yodlee Inc., a ~~Delaware corporation (“FolioDynamix”) through a merger of FolioDynamix with and into a wholly owned~~wholly-owned subsidiary of ~~Envestnet.~~ours (the “Private Company Acquisition”). The completion of the Private Company Acquisition on January 2, ~~2018~~2019 followed the receipt of all necessary regulatory approvals and third party consents.

In connection with the Private Company Acquisition, ~~Envestnet paid~~we incurred estimated consideration of ~~$193,484~~approximately $25,063, inclusive of estimated contingent consideration of $7,580, for ~~FolioDynamix,~~all of the outstanding shares of the private company, subject to certain closing and post-closing adjustments.

Through the use of conversational artificial intelligence tools and applications that leverages the latest wave of customer-centric capabilities, we believe that the private company improves the way Financial Service Providers (“FSPs”) can interact with and support their customers. The technology and operations of the private company have been integrated into our Envestnet Data & Analytics segment.

Acquisition of PortfolioCenter business

performance-measurement tools, as well as customizable accounting, reporting, and billing functions delivered through the commercial software application products known as PortfolioCenter Desktop, PortfolioCenter Hosted, PortfolioServices and Service Bureau.

Tamarac acquired the PortfolioCenter Business to better serve small and mid-size RIA firms. The PortfolioCenter Business has become a part of our Envestnet Wealth Solutions segment.

In connection with the PortfolioCenter Acquisition, Tamarac paid $17,500 in cash and funded the acquisition with available cash resources. The Seller is also entitled to an earn-out payment based on a percentage of the PortfolioCenter Business’ eligible revenue for the twelve-month period beginning April 1, 2020. The discounted amount of the contingent consideration liability is estimated to be $8,300.

Acquisition ~~price~~of PIEtech

On May 1, 2019, we acquired all of the outstanding shares of capital stock of PIEtech, Inc., a Virginia corporation (“PIEtech”). PIEtech empowers financial advisors to use financial planning to efficiently motivate their clients to create, implement and maintain financial plans that best meet their lifetime financial goals. The technology and operations of PIEtech, which now operates as Envestnet | MoneyGuide, has been integrated into our Envestnet Wealth Solutions segment.

The acquisition of PIEtech establishes us as a leader in financial planning solutions, providing advisors and their clients with access to a ~~combination~~full spectrum of financial planning capabilities, and offering a broad range of data-driven, financial plan-informed financial wellness solutions, both domestically and internationally over time. Integration of PIEtech's MoneyGuide software with the Company's integrated technology platform is expected to reduce friction and enhance productivity for advisors.

In connection with the PIEtech Acquisition, we paid net cash onconsideration of $299,370, subject to the ~~Company’s balance sheet, purchase consideration liabilities~~working capital adjustments set forth in the Merger Agreement, and issued 3,184,713 shares of Envestnet common stock, par value $0.005 per share, to the sellers. We funded the PIEtech Acquisition with available cash resources and borrowings under its revolving credit facility.

FolioDynamix provides financial institutions, RIAs, and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios, research, and overlay management services.

The acquisition of FolioDynamix added complementary trading tools as well as commission and brokerage support to Envestnet’s existing suite of offerings. The Company expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management business, enabling the Company to further leverage its operating scale and data analytics capabilities. FolioDynamix is included in the Envestnet segment.

~~Investment in Private Company~~

On March 16, 2018, the Company purchased 4,000 units representing approximately 47% of the outstanding membership interests of a private company for cash consideration of $1,333. The Company uses the consolidation method of accounting for this investment. The private company was formed to enable financial advisors to provide insurance and income protection products to their clients.

~~Private Offering of Convertible Notes due 2023~~

In May 2018, we issued $345,000 of Convertible Notes maturing June 1, 2023. Net proceeds from the offering were $335,513. The Convertible Notes due 2023 bear interest at a rate of 1.75 percent per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2018.

The Convertible Notes due 2023 are general unsecured obligations, subordinated in right of payment to our obligations under our Credit Agreement. The Convertible Notes due 2023 are convertible into shares of the Company's common stock under certain circumstances prior to maturity at a conversion rate of 14.6381 shares per $1 principal amount of the Convertible Notes due 2023, which represents a conversion price of $68.31 per share, subject to adjustment under certain conditions. For more information on the Convertible Notes due 2023, see “Note 12 – Debt” in the notes to these unaudited condensed consolidated financial statements.

~~Acquisition of Private Company~~

I~~n August 2018, the Company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics.~~ In connection with the ~~private company acquisition,~~PIEtech Merger, we established a retention bonus pool consisting of approximately $30,000 of cash and restricted stock units to be granted to employees and management of PIEtech as inducement grants. As a result, we adopted the Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (the “2019 Equity Plan”) in order to make inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. We agreed to grant at future dates, not earlier than the sixty day anniversary of the PIEtech Merger, up to 301,469 shares of Envestnet common stock in the form of restricted stock units (“RSUs”) and performance stock units (“PSUs”) pursuant to the 2019 Equity Plan and made cash retention payments of approximately $8,800 to certain legacy PIEtech employees who joined Envestnet | MoneyGuide. As of June 30, 2019, we have issued approximately 62,200 of RSUs and 24,900 of PSUs under the Equity Plan to legacy PIEtech employees. At this time we expect to issue approximately 214,000 of additional RSUs and PSUs and expect to pay approximately $5,300 in cash bonus payments over the next three years in connection with the PIEtech Acquisition.

We also granted membership interests in certain of our equity method investments to two PIEtech executives with an estimated fair market value of $8,900. These membership interests will vest and become exercisable in future periods. As of June 30, 2019, the Company ~~paid estimated net consideration~~has recorded approximately $1,480 as a component of ~~$6,585, subject to certain closing~~compensation and ~~post-closing adjustments.~~benefits in the condensed consolidated statement of operations with a corresponding liability in other non-current liabilities in the condensed consolidated balance sheets.

Segments

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in “Note ~~19 –~~ 18—Segment Information” to the condensed consolidated financial ~~statements.~~statements included in Item 1 of this Quarterly Report on Form 10-Q. Our business segments are as follows:


•	Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions.


•	Envestnet Data & Analytics – a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services.

~~Envestnet~~ ~~– a leading provider of unified wealth management software and services to empower financial advisors and institutions.~~36

~~Envestnet | Yodlee~~ ~~– a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services.~~

Envestnet Wealth Solutions Segment

Envestnet empowers financial advisors at broker-dealers, banks, and RIAs with all the tools they require to deliver holistic wealth management to their end clients. In addition, the firm provides advisors with practice management support so that they can grow their practices and operate more efficiently. By ~~September~~June 30, ~~2018,~~2019, Envestnet’s platform assets grew to approximately $3 trillion in ~~10.5~~11.6 million accounts overseen by ~~approximately 92 thousand~~more than 99,000 advisors.

Services provided to advisors include: financial planning, risk assessment ~~and selection of~~tools, investment strategies and solutions, asset allocation models, research, ~~and due diligence,~~ portfolio construction, proposal generation and paperwork preparation, model management and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi‑custodian performance reporting and communication tools, plus data analytics. ~~Envestnet has~~We have access to a wide range of leading third‑party asset custodians.

We offer these solutions principally through the following ~~product and~~ product/services suites:

•

Envestnet | Enterprise provides an end-to-end open architecture wealth management platform through which advisors can construct portfolios for clients. It begins with aggregated household data, which then leads to the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 19,900 investment products. Envestnet | Enterprise also sells data aggregation and reporting, data analytics and digital advice capabilities to customers.


•	Envestnet \| Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high‑end RIAs.


•	Envestnet \| MoneyGuide provides leading goals-based financial planning solutions to the financial services industry. The highly adaptable software helps financial advisors add significant value for their clients using best-in-class technology with enhanced integrations to generate financial plans.


•	Envestnet \| Retirement Solutions(“ERS”)offers a comprehensive suite of services for advisor-sold retirement plans. Leveraging integrated technology, ERS addresses the regulatory, data, and investment needs of retirement plans and delivers the information holistically.

•

Envestnet | PMC®, or Portfolio Management Consultants (“PMC”) provides research and consulting services to assist advisors in creating investment solutions for their clients. These solutions include nearly 4,500 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as over 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.

~~Envestnet | Tamarac~~™ ~~provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high‑end RIAs.~~

Key Metrics

~~Key metrics as of September 30, 2018 include impact of the acquisition of FolioDynamix on January 2, 2018, detailed within the following table.~~

FolioDynamix Assets Accounts Advisors
AUM $ 8,736
57,163

AUA 33,182
79,131

AUM/A 41,918
136,294
3,838
Subscription 796,545
2,796,878
15,308
Total Platform $ 838,463
2,933,172
19,146

Additionally, beginning March 31, 2018 and for periods thereafter, subscription metrics include assets, accounts and advisors associated with Envestnet | Tamarac performance reporting, where applicable. Previously, Envestnet | Tamarac’s metrics were limited to those associated with its rebalancer solution. Prior period metrics have been conformed to the new definition in the table shown on the next page.

The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and investor accounts in the periods ~~indicated.~~indicated:


	As of										As of
	September 30,		December 31,		March 31,		June 30,		September 30,		June 30,		September 30,		December 31,		March 31,		June 30,
	2017		2017		2018		2018		2018		2018		2018		2018		2019		2019
	(in millions except accounts and advisors data)										(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (AUM)	$	131,809	$	141,518	$	143,945	$	148,537	$	153,862
Assets under Administration (AUA)	293,963		308,480		353,379		360,850		388,066
Assets under Management (“AUM”)											$	148,537	$	153,862	$	150,591	$	176,144	$	182,143
Assets under Administration (“AUA”)											360,850		388,066		291,934		319,129		330,226
Total AUM/A	425,772		449,998		497,324		509,387		541,928		509,387		541,928		442,525		495,273		512,369
Subscription	1,161,893		1,253,528		2,076,382		2,167,084		2,297,593		2,167,084		2,297,593		2,314,253		2,546,483		2,835,780
Total Platform Assets	$	1,587,665	$	1,703,526	$	2,573,706	$	2,676,471	$	2,839,521	$	2,676,471	$	2,839,521	$	2,756,778	$	3,041,756	$	3,348,149
Platform Accounts
AUM	652,060		685,925		724,774		759,926		776,705		759,926		776,705		816,354		874,574		907,034
AUA	1,145,050		1,217,697		1,389,489		1,417,795		1,517,297		1,417,795		1,517,297		1,182,764		1,187,589		1,196,114
Total AUM/A	1,797,110		1,903,622		2,114,263		2,177,721		2,294,002		2,177,721		2,294,002		1,999,118		2,062,163		2,103,148
Subscription	4,944,640		5,054,015		7,985,777		8,042,900		8,185,667		8,042,900		8,185,667		8,865,435		8,909,581		9,492,653
Total Platform Accounts	6,741,750		6,957,637		10,100,040		10,220,621		10,479,669		10,220,621		10,479,669		10,864,553		10,971,744		11,595,801
Advisors
AUM/A	40,379		40,485		44,790		44,900		47,292		44,900		47,292		40,103		39,035		39,727
Subscription	24,501		25,566		43,037		43,700		45,619		43,700		45,619		56,237		57,594		59,292
Total Advisors	64,880		66,051		87,827		88,600		92,911		88,600		92,911		96,340		96,629		99,019

The following ~~tables provide~~table provides information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods ~~indicated.~~indicated:



	Asset Rollforward - Three Months Ended June 30, 2019
	As of		Gross					Net		Market		Reclass to			As of
	3/31/2019		Sales		Redemptions			Flows		Impact		Subscription			6/30/2019
	(in millions except account data)
AUM	$	176,144	$	15,130	$	(7,415	)	$	7,715	$	4,846	$	(6,562	)	$	182,143
AUA	319,129		21,203		(17,611		)	3,592		7,862		(357		)	330,226
Total AUM/A	$	495,273	$	36,333	$	(25,026	)	$	11,307	$	12,708	$	(6,919	)	$	512,369
Fee-Based Accounts	2,062,163							45,714				(4,729		)	2,103,148

Asset Rollforward - Three Months Ended September 30, 2018
As of Gross Net Market Reclass to As of
6/30/2018 Sales Redemptions Flows Impact Subscription 9/30/2018
(in millions except account data)
AUM $ 148,537
$ 13,086
$ (8,587 ) $ 4,499
$ 3,920
$ (3,094 ) $ 153,862
AUA 360,850
33,648
(18,677 ) 14,971
12,245
—
388,066
Total AUM/A $ 509,387
$ 46,734
$ (27,264 ) $ 19,470
$ 16,165
$ (3,094 ) $ 541,928
Fee-Based Accounts 2,177,721

120,183
(3,902 ) 2,294,002

The above AUM/A gross sales figures include ~~$8.7~~$2.3 billion in new client conversions. ~~The Company~~We onboarded an additional ~~$34.5~~$169.4 billion in subscription conversions during the three months ended ~~September~~June 30, ~~2018,~~2019 bringing total conversions for the second quarter to ~~$43.2~~$171.7 billion.


	Asset Rollforward - Nine Months Ended September 30, 2018																		Asset Rollforward - Six Months Ended June 30, 2019
	As of				Gross					Net		Market		Reclass to			As of		As of		Gross					Net		Market		Reclass to			As of
	12/31/2017		FolioDynamix		Sales		Redemptions			Flows		Impact		Subscription			9/30/2018		12/31/2018		Sales		Redemptions			Flows		Impact		Subscription			6/30/2019
	(in millions except account data)																		(in millions, except account data)
AUM	$	141,518	$	8,736	$	42,720	$	(36,701	)	$	6,019	$	2,798	$	(5,209	)	$	153,862	$	150,591	$	36,818	$	(16,570	)	$	20,248	$	17,866	$	(6,562	)	$	182,143
AUA	308,480		33,182		104,535		(70,086		)	34,449		13,336		(1,381		)	388,066		291,934		49,194		(38,532		)	10,662		31,481		(3,851		)	330,226
Total AUM/A	$	449,998	$	41,918	$	147,255	$	(106,787	)	$	40,468	$	16,134	$	(6,590	)	$	541,928	$	442,525	$	86,012	$	(55,102	)	$	30,910	$	49,347	$	(10,413	)	$	512,369
Fee-Based Accounts	1,903,622		136,294							260,045				(5,959		)	2,294,002		1,999,118							125,891				(21,861		)	2,103,148

The above AUM/A gross sales figures include ~~$37.2~~$22.4 billion in new client conversions. ~~The Company~~We onboarded an additional ~~$76.1~~$197.0 billion in subscription conversions during the ~~nine~~six months ended ~~September~~June 30, 2019 bringing total conversions for the ~~three~~two quarters to ~~$113.3~~$219.4 billion.

Envestnet ~~| Yodlee~~Data & Analytics Segment

Envestnet ~~| Yodlee~~Data & Analytics is a leading data aggregation and data ~~analytics~~intelligence platform. As ~~a “big data”~~an artificial intelligence (“AI”) and data specialist, Envestnet ~~| Yodlee~~Data & Analytics gathers, refines and aggregates a massive set of end-user permissioned transaction level data ~~which it then provides to customers as de-identified data analytics solutions~~ and combines them with financial applications, reports, market research ~~services.~~

analysis and application programming interfaces (“APIs”) for its customers.

Over ~~1,100~~1,200 financial institutions, financial technology innovators and financial advisory firms, including 15 of the 20 largest U.S. banks, subscribe to the Envestnet ~~| Yodlee~~Data & Analytics platform to underpin personalized financial apps and services for over 2324 million paid subscribers.

~~Yodlee~~Envestnet Data & Analytics serves two main customer groups: financial institutions (“FI”) and financial technology innovators, which we refer to as Yodlee Interactive (“YI”) customers.

•

The Financial Institutions group provides customers with secure access to open APIs, end-user facing applications powered by our platform and APIs (“FinApps”), and reports. Customers receive end user-permissioned transaction data elements that we aggregate and cleanse. Envestnet Data & Analytics also enables customers to develop their own applications through its open APIs, which deliver secure data, money movement solutions, and other functionality. FinApps can be subscribed to individually or in combinations that include personal financial management, wealth management, credit card, payments and small-medium business solutions. They are targeted at the retail financial, wealth management, small business, credit card, lenders, and other financial services sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. For example, Envestnet Data & Analytic's Expense FinApp helps consumers track their spending, and a Payroll FinApp from a third party helps small businesses process their payroll. The suite of reports is designed to supplement traditional credit reports by utilizing consumer permissioned aggregated data from over 21,000 sources, including banking, investment, loan and credit card information.

•

The Yodlee Interactive group enables customers to develop new applications and enhance existing solutions. These customers operate in a number of sub-vertical markets, including wealth management, personal financial management, small business accounting, small business lending and authentication. They use the Envestnet Data & Analytics platform to build solutions that leverage our open APIs and provide access to a large end user base. In addition to aggregated transaction-level account data elements, we provide YI customers with secure access to account verification, money movement and risk assessment tools via our APIs. We play a critical role in transferring innovation from financial technology innovators to financial institutions. For example, YI customers use Yodlee applications to provide working capital to small businesses online; personalized financial management, planning and advisory services; e-commerce payment solutions; and online accounting systems for small businesses. We provide access to our solutions across multiple channels, including web, tablet and mobile.

~~The Financial Institutions~~ group provides customers with secure access to open application programming interfaces (“APIs”), end-user facing applications powered by our platform and APIs (“FinApps”), and also reports. Customers receive end user-permissioned transaction data elements that we aggregate and cleanse. Envestnet | Yodlee also enables customers to develop their own applications through its open APIs, which deliver secure data, money movement solutions, and other functionality. FinApps can be subscribed to individually or in combinations that include personal financial management, wealth management, card, payments and small-medium business solutions. They are targeted at the retail financial, wealth management, small business, card, lenders, and other financial services sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. For example, Yodlee’s Expense FinApp helps consumers track their spending, and a Payroll FinApp from a third party helps small businesses process their payroll. The suite of reports is designed to supplement traditional credit reports by utilizing consumer permissioned aggregated data from over 20,000 sources, including banking, investment, loan, and credit card information.

~~The Yodlee Interactive~~ group enables customers to develop new applications and enhance existing solutions. These customers operate in a number of sub-vertical markets, including wealth management, personal financial management, small business accounting, small business lending and authentication. They use the Envestnet | Yodlee platform to build solutions that leverage our open APIs and access to a large end user base. In addition to aggregated transaction-level account data elements, we provide YI customers with secure access to account verification, money movement and risk assessment tools via our APIs. We play a critical role in transferring innovation from financial technology innovators to financial institutions. For example, YI customers use Yodlee applications to provide working capital to small businesses online; personalized financial management, planning and advisory services; e-commerce payment solutions; and online accounting systems for small businesses. We provide access to our solutions across multiple channels, including web, tablet and mobile.

Both FI and YI channels benefit customers by improving end-user satisfaction and retention, accelerating speed to market, creating technology savings and enhancing their data analytics solutions and market research capabilities. End users receive better access to their financial information and have more control over their finances, leading to more informed and personalized decision making. For customers who are members of the developer community, Envestnet ~~| Yodlee~~Data & Analytics solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.

We believe that our brand leadership, innovative technology and intellectual property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to generate strong growth.

•

Envestnet | Analytics provides data analytics, mobile sales solutions, and online educational tools to financial advisors, asset managers and enterprises. These tools empower financial services firms to extract key business insights to run their business better and provide timely and focused support to advisors. Our dashboards deliver segmentation analytics, multi-dimensional benchmarking, and practice pattern analyses that provide critical insights to clients.

~~Envestnet Analytics~~ provides data analytics, mobile sales solutions, and online education tools to financial advisors, asset managers and enterprises. These tools empower financial services firms to extract key business insights to run their business better and provide timely and focused support to advisors.39

~~Our dashboards deliver segmentation analytics, multi-dimensional benchmarking, and practice pattern analyses that provide mission-critical insights to clients.~~

Operational Highlights

Asset-based recurring revenues increased ~~12%~~2% from ~~$106,147~~$118,111 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$119,097~~$120,070 in the three months ended ~~September~~June 30, ~~2018.~~2019. Subscription-based recurring ~~revenue~~revenues increased ~~21%~~29% from ~~$62,963~~$71,779 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$76,194~~$92,258 in the three months ended ~~September~~June 30, ~~2018.~~2019. Total revenues, which include professional services and other revenues, increased ~~16%~~12% from ~~$175,614~~$201,116 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$203,156~~$224,445 in the three months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase in~~PortfolioCenter Acquisition and the PIEtech Acquisition contributed revenues of $2,017 and $6,632, respectively, to total revenues ~~was primarily a result of an increase of $16,404 related to~~in the ~~acquisition of FolioDynamix.~~three months ended June 30, 2019. The Envestnet ~~segment~~Wealth Solutions segment's total ~~revenue~~revenues, excluding ~~FolioDynamix~~the PortfolioCenter Acquisition and the PIEtech Acquisition, increased ~~$5,115~~by $11,313 primarily due to the ~~positive effects~~net impact of ~~new account growth and positive net flows~~an increase in asset-based revenues of ~~AUM/A along~~$1,959 combined with an increase in subscription-based revenues of ~~$4,723.~~$9,180. The Envestnet ~~| Yodlee segment~~Data & Analytics segment's total ~~revenue~~revenues increased by ~~$6,023~~$3,367 primarily due to an increase in subscription-based revenue of ~~$4,015.~~$3,424.

Asset-based recurring revenues ~~increased 20%~~decreased 4% from ~~$299,268~~$239,264 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$358,361~~$229,004 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Subscription-based recurring ~~revenue~~revenues increased ~~20%~~24% from ~~$180,675~~$141,474 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$217,668~~$175,345 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. Total revenues, which include professional services and other revenues, increased ~~20%~~6% from ~~$500,817~~$399,127 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$602,283~~$424,111 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~PortfolioCenter Acquisition and PIEtech Acquisition added revenues of $2,017 and $6,632, respectively, in the six months ended June 30, 2019. The Envestnet Wealth Solutions segment's total revenues ~~was primarily a result of an increase of $51,204 related to~~excluding the ~~acquisition of FolioDynamix. The Envestnet segment total revenue excluding FolioDynamix~~PortfolioCenter Acquisition and the PIEtech Acquisition increased ~~$32,541~~by $8,030 primarily due to the ~~positive effects~~net impact of ~~new account growth and positive net flows of AUM/A as well as~~ an increase in

subscription-based revenues of ~~$10,653.~~$17,621 offset by a decrease in asset-based revenues of $10,260. The Envestnet ~~| Yodlee segment~~Data & Analytics segment's total ~~revenue~~revenues increased by ~~$17,721~~$8,305 primarily due to an increase in subscription-based revenue of ~~$12,877.~~$8,375.

~~The net~~Net income attributable to Envestnet, Inc. for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$2,954,~~$893, or ~~$0.06~~$0.02 per diluted share, compared to a net loss attributable to Envestnet, Inc. of ~~$1,320~~$5,526 or ~~$0.03~~$0.12 per diluted share, for the three months ended ~~September~~June 30, ~~2017. The~~2018. Net loss attributable to Envestnet, Inc. for the six months ended June 30, 2019 was $17,292, or $0.35 per diluted share, compared to net income attributable to Envestnet, Inc. ~~for the nine months ended September 30, 2018 was $5,532,~~of $2,578 or ~~$0.12 per diluted share, compared to a net loss attributable to Envestnet, Inc. of $20,925 or $0.48~~$0.05 per diluted share for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Adjusted revenues for the three months ended ~~September~~June 30, ~~2018 was $203,182, an increase~~2019 were $227,859, compared to adjusted revenues of ~~16% from $175,629~~$201,178 in the prior year period. Adjusted net revenues, a new non-GAAP metric introduced as of January 1, 2019, were $167,566 for the three months ended June 30, 2019, compared to adjusted net revenues of $144,430 in the prior year period. Adjusted EBITDA for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$42,580, an increase~~$43,211, compared to adjusted EBITDA of ~~22% from $34,789~~$34,759 in the prior year period. Adjusted net income for the three months ended ~~September~~June 30, ~~2018~~2019 was ~~$25,279,~~$24,470, or ~~$0.53~~$0.46 per diluted share, compared to adjusted net income of ~~$17,283,~~$19,277, or ~~$0.37~~$0.41 per diluted share in the prior year period.

Adjusted revenues for the six months ended June 30, 2019 were $427,531, compared to adjusted revenues of $399,193 in the prior year period. Adjusted net revenues were $313,396 for the six months ended June 30, 2019, compared to adjusted net revenues of $284,873 in the prior year period. Adjusted EBITDA for the six months ended June 30, 2019 was $77,213, compared to adjusted EBITDA of $67,512 in the prior year period. Adjusted net income for the six months ended June 30, 2019 was $43,881, or $0.85 per diluted share, compared to adjusted net income of $36,931, or $0.78 per diluted share in the prior year period.

Adjusted revenues, for the nine months ended September 30, 2018 was $602,375, an increase of 20% from $500,937 in the prior year period. Adjusted EBITDA for the nine months ended September 30, 2018 was $110,092, an increase of 22% from $90,152 in the prior year period. Adjusted net income for the nine months ended September 30, 2018 was $62,210, or $1.32 per diluted share, compared to adjusted net ~~income of $41,948, or $0.91 per diluted share in the prior year period.~~

~~Adjusted~~ revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a discussion of non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures.

Results of Operations


	Three Months Ended								Nine Months Ended								Three Months Ended								Six Months Ended
	September 30,						Percent		September 30,						Percent		June 30,						Percent		June 30,						Percent
	2018			2017			Change		2018			2017			Change		2019			2018			Change		2019			2018			Change
	(in thousands)								(in thousands)								(in thousands)								(in thousands)
Revenues:
Asset-based	$	119,097		$	106,147		12	%	$	358,361		$	299,268		20	%	$	120,070		$	118,111		2	%	$	229,004		$	239,264		(4	)%
Subscription-based	76,194			62,963			21	%	217,668			180,675			20	%	92,258			71,779			29	%	175,345			141,474			24	%
Total recurring revenues	195,291			169,110			15	%	576,029			479,943			20	%	212,328			189,890			12	%	404,349			380,738			6	%
Professional services and other revenues	7,865			6,504			21	%	26,254			20,874			26	%	12,117			11,226			8	%	19,762			18,389			7	%
Total revenues	203,156			175,614			16	%	602,283			500,817			20	%	224,445			201,116			12	%	424,111			399,127			6	%
Operating expenses:
Cost of revenues	64,964			56,070			16	%	195,525			161,031			21	%	72,080			67,627			7	%	133,725			130,561			2	%
Compensation and benefits	80,424			68,551			17	%	244,174			199,079			23	%	103,286			80,210			29	%	190,003			163,750			16	%
General and administration	34,810			31,153			12	%	101,628			90,178			13	%	42,421			34,089			24	%	82,945			66,818			24	%
Depreciation and amortization	19,563			15,492			26	%	58,294			46,792			25	%	26,915			19,185			40	%	46,432			38,731			20	%
Total operating expenses	199,761			171,266			17	%	599,621			497,080			21	%	244,702			201,111			22	%	453,105			399,860			13	%
Income (loss) from operations	3,395			4,348			(22	)%	2,662			3,737			(29	)%	(20,257		)	5			*		(28,994		)	(733		)	*
Other expense, net	(6,118		)	(3,986		)	53	%	(16,802		)	(13,838		)	21	%	(7,512		)	(5,430		)	38	%	(13,275		)	(10,684		)	24	%
Income (loss) before income tax provision (benefit)	(2,723		)	362			*		(14,140		)	(10,101		)	40	%
Loss before income tax provision (benefit)																	(27,769		)	(5,425		)	*		(42,269		)	(11,417		)	*
Income tax provision (benefit)	(5,234		)	1,682			*		(18,662		)	10,824			*		(28,382		)	566			*		(24,614		)	(13,428		)	83	%
Net income (loss)	2,511			(1,320		)	*		4,522			(20,925		)	(122	)%	613			(5,991		)	*		(17,655		)	2,011			*
Add: Net loss attributable to non-controlling interest	443			—			*		1,010			—			*		280			465			(40	)%	363			567			(36	)%
Net income (loss) attributable to Envestnet, Inc.	$	2,954		$	(1,320	)	*		$	5,532		$	(20,925	)	(126	)%	$	893		$	(5,526	)	*		$	(17,292	)	$	2,578		*

*Not meaningful.

Three months ended ~~September~~June 30, ~~2018~~2019 compared to three months ended ~~September~~June 30, ~~2017~~2018

~~Revenues~~Asset-based recurring revenues

~~Total~~Asset-based recurring revenues increased ~~16%~~2% from ~~$175,614~~$118,111 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$203,156~~$120,070 in the three months ended ~~September~~June 30, ~~2018.~~2019. The increase was primarily due to an increase in revenues from asset-based recurring and subscription-based recurring revenues of $12,950 and $13,231, respectively. Asset-based revenue was 59% of total revenue in the three months ended September 30, 2017 and 2018.

~~Asset-based recurring revenues~~

Asset-based recurring revenues increased 12% from $106,147 the three months ended September 30, 2017 to $119,097 in three months ended September 30, 2018. The increase was primarily due to the 2018 acquisition of FolioDynamix which comprised $11,847 of the increase as well as an increase in asset values applicable to our current quarterly billing cycle as a result of an upswing in ~~2018,~~the equity markets relative to the ~~corresponding period in 2017.~~comparable 2018 period. In the ~~third~~second quarter of ~~2018,~~2019, revenues were also positively affected by new account growth and positive net flows of AUM/A. The increase was offset by a reclassification of revenues to subscription-based recurring revenues for certain customers. Excluding the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenues decreased from 59% of total revenue in the three months ended June 30, 2018 to 56% of total revenue in the three months ended June 30, 2019.

The number of financial advisors with asset-based recurring revenue on our technology platforms ~~increased~~decreased from ~~40,379~~44,900 as of ~~September~~June 30, ~~2017~~2018 to ~~47,292~~39,727 as of ~~September~~June 30, ~~2018~~2019 and the number of AUM/A client accounts ~~increased~~decreased from approximately ~~1,800,000~~2,200,000 as of ~~September~~June 30, ~~2017~~2018 to approximately ~~2,300,000~~2,100,000 as of ~~September~~June 30, 2019. The decline in advisors was due to a reclassification to subscription-based pricing models in 2018.

Subscription-based recurring revenues

Subscription-based recurring ~~revenue~~revenues increased ~~21%~~29% from ~~$62,963~~$71,779 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$76,194~~$92,258 in the three months ended ~~September~~June 30, ~~2018.~~2019. This increase was primarily due to an increase of$17,055 in theEnvestnet Wealth Solutionssegment and an increase of $3,424 in the ~~2018 acquisition of FolioDynamix which comprised $4,493 of the total $9,216~~ Envestnet ~~segment increase and Envestnet | Yodlee contributing an additional $4,015.~~ Data & Analytics segment.

The increase in theEnvestnet Wealth Solutionssegment ~~revenue~~was primarily due to the acquisitions of PortfolioCenter and PIEtech which contributed revenues of $2,014 and $5,861, respectively, to subscription-based recurring revenues in the three months ended June 30, 2019. The remaining increase of $9,180 within the Envestnet Wealth Solutions segment is a result of ~~continuing to add~~the addition of new clients and selling additional services to existing clients. The increase was also due to a change in classification of revenues from asset-based recurring revenues for certain customers.

The increase in the Envestnet ~~| Yodlee~~Data & Analytics segment revenue is primarily due to broad increases in revenue from existing customers.

Professional services and other revenues

Professional services and other revenues increased ~~21%~~8% from ~~$6,504~~$11,226 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$7,865~~$12,117 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~timing~~an increase of ~~new data analytics customer deployments and upgrades of existing data analytics customers in~~$771 contributed from the ~~Envestnet | Yodlee segment.~~PIEtech Acquisition.

Cost of revenues

Cost of revenues increased ~~16%~~7% from ~~$56,070~~$67,627 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$64,964~~$72,080 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~a corresponding~~an increase in asset-based ~~recurring revenues, the mix of such revenues, which is partially attributable to FolioDynamix, and an increase in~~ cost of revenues ~~associated~~of $3,545, which are directly correlated with ~~subscription-based~~the increase to asset-based recurring ~~revenues.~~revenues during the period. The acquisitions of PortfolioCenter and PIEtech had an immaterial impact to cost of revenues in the three months ended June 30, 2019. As a percentage of total revenues, cost of revenues ~~remained consistent at 32%~~decreased from 34% in the three months ended ~~September~~June 30, ~~2017 and 2018.~~2018 to 32% in three months ended June 30, 2019.

Compensation and benefits

Compensation and benefits increased ~~17%~~29% from ~~$68,551~~$80,210 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$80,424~~$103,286 in ~~the~~ three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~an increase~~increases in incentive compensation of $7,875, salaries, benefits and related payroll taxes of ~~$6,967, primarily a result~~$7,803, non-cash compensation expense of $5,290 and severance expense of $2,231. Included in the ~~2018 FolioDynamix acquisition as well as an~~ increase in ~~headcount~~incentive compensation is approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition. The acquisitions of PortfolioCenter and PIEtech contributed compensation and benefit expenses of $1,253 and $4,403, respectively, to ~~support organic growth. Also contributing to the growth in~~total compensation and benefits ~~were increases~~expense in ~~non-cash compensation of $2,555, severance expense of $2,811 and various other immaterial cost increases, offset by a decrease in incentive compensation of $1,439.~~the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increased from ~~39% in the three months ended September 30, 2017 to~~ 40% in the three months ended ~~September~~June 30, ~~2018.~~2018 to 46% in the three months ended June 30, 2019. The increase as a percentage of revenue was primarily a result of retention bonuses paid in connection with the PIEtech Acquisition.

General and administration

General and administration expenses increased ~~12%~~24% from ~~$31,153~~$34,089 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$34,810~~$42,421 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to increases in ~~systems costs~~rent expense of ~~$1,839, external data and research services of $917, occupancy costs of $870, professional and~~$2,126, legal fees of ~~$606~~$1,781, systems development expense of $1,121 and ~~various other immaterial cost increases partially offset by a decrease~~communications and research expense of $966. The acquisitions of PortfolioCenter and PIEtech contributed general and administration expenses of $1,768 and $1,050, respectively, to general and administrative expense in ~~restructuring and transaction costs of $1,099.~~the three months ended June 30, 2019. As a percentage of total revenues, general and administration expenses ~~decreased~~increased from ~~18% in the three months ended September 30, 2017 to~~ 17% in the three months ended ~~September~~June 30, ~~2018.~~2018 to 19% in the three months ended June 30, 2019.

Depreciation and amortization

Depreciation and amortization expense increased ~~26%~~40% from ~~$15,492~~$19,185 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$19,563~~$26,915 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~increases~~an increase in internally developed software amortization expense of $1,264 and an increase in intangible asset amortization expense of ~~$3,100, mainly attributable to~~$3,635, primarily a result of additional intangible assets from the ~~2018 acquisition~~acquisitions of ~~FolioDynamix,~~PortfolioCenter and ~~amortization of internally developed software of $796 driven by continued investment in our platforms.~~PIEtech. As a percentage of total revenues, depreciation and amortization expense increased from ~~9% in the three months ended September 30, 2017 to~~ 10% in the three months ended ~~September~~June 30, ~~2018.~~2018 to 12% in the three months ended June 30, 2019.

Income tax provision (benefit)


	Three Months Ended						Three Months Ended
	September 30,						June 30,
	2018			2017			2019			2018
Income (loss) before income tax provision (benefit)	$	(2,723	)	$	362
Loss before income tax provision (benefit)							$	(27,769	)	$	(5,425	)
Income tax provision (benefit)	(5,234		)	1,682			(28,382		)	566
Effective tax rate	192.2		%	464.6		%	102.2		%	(10.4		)%

For the three months ended ~~September~~June 30, ~~2018,~~2019, our effective tax rate differed from the statutory rate primarily due to the release of ~~the Company's~~our valuation allowance of $21,907 primarily as a result of additional deferred tax liabilities recorded with the ~~acquisition of FolioDynamix as well as differences between~~

PIEtech Acquisition, the ~~foreign~~windfall from share-based compensation, federal and state research and development (“R&D") credits, and additional accruals for uncertain tax ~~rates and statutory US tax rate.~~positions.

For the three months ended ~~September~~June 30, ~~2017,~~2018, our effective tax rate differed from the statutory rate primarily due to the valuation allowance the Company ~~had~~ placed on all US deferreds with the exception of ~~indefinite-lived~~indefinite lived intangibles, the impact of clarifying Base Erosion and ~~unrepatriated~~Anti Abuse tax positions, additional accruals for uncertain tax positions as well as differences between the foreign ~~earnings~~tax rates and ~~profits, resulting in no benefit being recognized for the~~statutory US tax ~~loss in the US.~~rate.

~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~nine~~six months ended ~~September~~June 30, ~~2017~~

~~Revenues~~

Total revenues increased 20% from $500,817 in the nine months ended September 30, 2017 to $602,283 in the nine months ended September 30, 2018. The increase was primarily due to an increase in revenues from asset-based recurring and subscription-based recurring revenues of $59,093 and $36,993, respectively. Asset-based revenue was 60% of total revenue in the nine months ended September 30, 2017 and 2018 ~~respectively.~~

Asset-based recurring revenues

Asset-based recurring revenues ~~increased 20%~~decreased 4% from ~~$299,268~~$239,264 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$358,361~~$229,004 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~the 2018 acquisition of FolioDynamix which comprised $37,281 of the increase as well as an increase~~a decrease in asset values applicable to our quarterly billing ~~cycle~~cycles in ~~2018, relative~~the six months ended June 30, 2019 compared to the ~~corresponding period~~six months ended June 30, 2018, due to a downturn in ~~2017. In~~ the ~~first two quarters~~equity markets during the fourth quarter of ~~2018,~~2018. The decrease was also due to a change in the classification of revenues ~~were also positively affected~~to subscription-based recurring revenues for certain customers, partially offset by the impact of new account growth and positive net flows of AUM/A.A in the second quarter of 2019. Excluding the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenues decreased from 60% of total revenue in the six months ended June 30, 2018 to 55% of total revenue in the six months ended June 30, 2019.

The number of financial advisors with asset-based recurring revenue on our technology platforms ~~increased~~decreased from ~~40,379~~44,900 as of ~~September~~June 30, ~~2017~~2018 to ~~47,292~~39,727 as of ~~September~~June 30, ~~2018~~2019 and the number of AUM/A client accounts ~~increased~~decreased from approximately ~~1,800,000~~2,200,000 as of ~~September~~June 30, ~~2017~~2018 to approximately ~~2,300,000~~2,100,000 as of ~~September~~June 30, 2019. The decline was due to reclassifications to subscription-based pricing models in 2018.

Subscription-based recurring revenues

Subscription-based recurring revenue increased ~~20%~~24% from ~~$180,675~~$141,474 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$217,668~~$175,345 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. This increase was primarily due to an increase of$25,496 in theEnvestnet Wealth Solutionssegment and an increase of $8,375 in the ~~2018 acquisition of FolioDynamix which comprised $13,463 of the total $24,116~~ Envestnet ~~segment increase and Envestnet | Yodlee contributing an additional $12,877.~~ Data & Analytics segment.

The increase in the Envestnet Wealth Solutions segment ~~revenue~~was primary due to the acquisitions of PortfolioCenter and PIEtech, which contributed revenues of $2,014 and $5,861, respectively, to subscription-based recurring revenues in the six months ended June 30, 2019. The remaining increase of $17,621 within the Envestnet Wealth Solutions segment is a result of continuing to add clients and selling additional services to existing clients. The increase was also due to a change in classification of revenues from asset-based recurring revenues for certain customers.

The increase in Envestnet ~~| Yodlee~~Data & Analytics revenue is primarily due to broad increases in revenue from existing customers.

Professional services and other revenues

Professional services and other revenues increased ~~26%~~7% from ~~$20,874~~$18,389 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$26,254~~$19,762 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~the timing of new data analytics customer deployments and upgrades of~~an increase in revenues from existing ~~data analytics~~ customers ~~in the Envestnet | Yodlee segment,~~ and an ~~overall~~ increase ~~in existing customer revenue attributable to~~of $771 contributed from the ~~Envestnet segment.~~PIEtech Acquisition.

Cost of revenues

Cost of revenues increased ~~21%~~2% from ~~$161,031~~$130,561 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$195,525~~$133,725 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~a corresponding~~an increase in asset-based ~~recurring revenues, the mix of such revenues, which is partially attributable to FolioDynamix, an increase in~~ cost of revenues ~~associated~~of $2,859, directly correlated with ~~subscription-based~~the increase to asset-based recurring revenues ~~as well as~~during the period. The acquisitions of PortfolioCenter and PIEtech had an ~~increase~~immaterial impact to total cost of revenues in ~~Advisor Summit related costs.~~the six months ended June 30, 2019. As a percentage of total revenues, cost of revenues ~~remained consistent at~~decreased from 33% in the six months ended June 30, 2018 to 32% in ~~the nine~~six months ended ~~September~~June 30, ~~2017 and 2018.~~2019.

Compensation and benefits

Compensation and benefits increased ~~23%~~16% from ~~$199,079~~$163,750 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$244,174~~$190,003 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~an increase~~increases in salaries, benefits and related payroll taxes of ~~$24,680, primarily a result~~$11,486, non-cash compensation expense of $9,622, incentive compensation expense of $3,535 and severance expense of $1,898. Included in the ~~2018 FolioDynamix acquisition as well as an~~ increase in ~~headcount~~incentive compensation is approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition. The acquisitions of PortfolioCenter and PIEtech contributed compensation and benefit expenses of $1,253 and $4,403, respectively, to ~~support organic growth. Also~~

~~contributing to the growth in~~total compensation and benefits ~~were increases~~expense in ~~non-cash compensation of $6,123, severance expense of $6,009, incentive compensation of $5,611, contract labor costs of $2,993 and various other immaterial cost increases.~~the six months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increased from ~~40% in the nine months ended September 30, 2017 to~~ 41% in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2018 to 45% in the six months ended June 30, 2019. The increase as a percentage of revenue was primarily a result of the retention bonuses paid in connection with the PIEtech Acquisition.

General and administration

General and administration expenses increased ~~13%~~24% from ~~$90,178~~$66,818 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$101,628~~$82,945 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to increases in transaction related expense of $5,575, systems ~~costs~~development expense of ~~$5,067, external data~~$2,524, rent expense of $1,952, communications and research ~~services~~expense of ~~$3,598, occupancy costs of $2,732, professional~~$1,389 and legal fees of ~~$1,626, and travel and entertainment expense of $1,276, partially offset by decreases in non-income tax expense of $1,858 and litigation related expense of $1,026.~~$1,182. As a percentage of total revenues, general and administration expenses ~~decreased~~increased from ~~18% in the nine months ended September 30, 2017 to~~ 17% in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2018 to 20% in the six months ended June 30, 2019. The acquisitions of PortfolioCenter and PIEtech contributed general and administration expenses of $1,768 and $1,050, respectively, to general and administrative expense in the six months ended June 30, 2019.

Depreciation and amortization

Depreciation and amortization expense increased ~~25%~~20% from ~~$46,792~~$38,731 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$58,294~~$46,432 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to increases in property and equipment depreciation expense of $1,039, internally developed software amortization expense of $2,212 and an increase in intangible asset amortization expense of ~~$9,498, mainly attributable to~~$2,228, primarily a result of additional intangible assets from the ~~2018 acquisition~~acquisitions of ~~FolioDynamix,~~PortfolioCenter and ~~amortization of internally developed software of $1,917 driven by continued investment in our platforms.~~PIEtech. As a percentage of total revenues, depreciation and amortization expense increased from ~~9% in the nine months ended September 30, 2017 to~~ 10% in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2018 to 11% in the six months ended June 30, 2019.

Income tax provision (benefit)

Nine Months Ended
September 30,
2018 2017
Income (loss) before income tax provision (benefit) $ (14,140 ) $ (10,101 )
Income tax provision (benefit) (18,662 ) 10,824
Effective tax rate 132.0 % (107.2 )%



	Six Months Ended
	June 30,
	2019			2018
Loss before income tax provision (benefit)	$	(42,269	)	$	(11,417	)
Income tax benefit	(24,614		)	(13,428		)
Effective tax rate	58.2		%	117.6		%

For the ~~nine~~six months ended ~~September~~June 30, 2019, our effective tax rate differed from the statutory rate primarily due to the release of our valuation allowance of $21,907 primarily as a result of additional deferred tax liabilities recorded with the PIEtech Acquisition, the windfall from share-based compensation, federal and state R&D credits, and additional accruals for uncertain tax positions.

For the six months ended June 30, 2018, our effective tax rate differed from the statutory rate primarily due to the partial release of ~~the Company’s~~our valuation allowance as a result of additional deferred tax liabilities recorded with the acquisition of FolioDynamix, additional accruals for uncertain tax positions as well as differences between the foreign tax rates and statutory US tax rate.

~~Segments~~Segment Results

Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in “Note ~~19 –~~ 18—Segment Information” to the condensed consolidated financial statements. Our business segments are as follows:


•	Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions.

~~Envestnet~~ ~~– a leading provider of unified wealth management software and services to empower financial advisors and institutions.~~44


•	Envestnet Data & Analytics – a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services.

~~Envestnet | Yodlee~~ ~~– a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services.~~

The following table reconciles income (loss) from operations by segment to ~~consolidate~~ net income (loss) attributable to Envestnet, Inc.:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Envestnet	$	16,549		$	18,955		$	48,769		$	48,277
Envestnet \| Yodlee	(1,103		)	(3,364		)	(8,808		)	(16,707		)
Envestnet Wealth Solutions													$	12,379		$	16,359		$	29,223		$	32,220
Envestnet Data & Analytics													(8,960		)	(3,296		)	(16,888		)	(7,705		)
Total segment income from operations	15,446			15,591			39,961			31,570			3,419			13,063			12,335			24,515
Nonsegment operating expenses	(12,051		)	(11,243		)	(37,299		)	(27,833		)	(23,676		)	(13,058		)	(41,329		)	(25,248		)
Other expense, net	(6,118		)	(3,986		)	(16,802		)	(13,838		)	(7,512		)	(5,430		)	(13,275		)	(10,684		)
Consolidated income (loss) before income tax provision (benefit)	(2,723		)	362			(14,140		)	(10,101		)
Consolidated loss before income tax provision (benefit)													(27,769		)	(5,425		)	(42,269		)	(11,417		)
Income tax provision (benefit)	(5,234		)	1,682			(18,662		)	10,824			(28,382		)	566			(24,614		)	(13,428		)
Consolidated net income (loss)	2,511			(1,320		)	4,522			(20,925		)	613			(5,991		)	(17,655		)	2,011
Add: Net loss attributable to non-controlling interest	443			—			1,010			—			280			465			363			567
Consolidated net income (loss) attributable to Envestnet, Inc.	$	2,954		$	(1,320	)	$	5,532		$	(20,925	)	$	893		$	(5,526	)	$	(17,292	)	$	2,578

Envestnet Wealth Solutions Segment

The following table presents income from operations for the Envestnet Wealth Solutions segment:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,				Percent		September 30,				Percent		June 30,				Percent		June 30,				Percent
	2018		2017		Change		2018		2017		Change		2019		2018		Change		2019		2018		Change
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Revenues:
Asset-based	$	119,097	$	106,147	12	%	$	358,361	$	299,268	20	%	$	120,070	$	118,111	2	%	$	229,004	$	239,264	(4	)%
Subscription-based	36,228		27,012		34	%	101,836		77,720		31	%	50,078		33,023		52	%	91,104		65,608		39	%
Total recurring revenues	155,325		133,159		17	%	460,197		376,988		22	%	170,148		151,134		13	%	320,108		304,872		5	%
Professional services and other revenues	2,142		2,789		(23	)%	10,186		9,650		6	%	6,742		5,794		16	%	9,487		8,044		18	%
Total revenues	157,467		135,948		16	%	470,383		386,638		22	%	176,890		156,928		13	%	329,595		312,916		5	%
Operating expenses:
Cost of revenues	60,275		52,957		14	%	182,212		151,430		20	%	66,250		62,914		5	%	122,105		121,937		—	%
Compensation and benefits	49,454		41,158		20	%	149,391		119,378		25	%	56,219		48,026		17	%	104,774		99,937		5	%
General and administration	19,767		16,464		20	%	56,090		48,357		16	%	25,666		18,603		38	%	45,850		36,323		26	%
Depreciation and amortization	11,422		6,414		78	%	33,921		19,196		77	%	16,376		11,026		49	%	27,643		22,499		23	%
Total operating expenses	140,918		116,993		20	%	421,614		338,361		25	%	164,511		140,569		17	%	300,372		280,696		7	%
Income from operations	$	16,549	$	18,955	(13	)%	$	48,769	$	48,277	1	%	$	12,379	$	16,359	(24	)%	$	29,223	$	32,220	(9	)%

Three months ended ~~September~~June 30, ~~2018~~2019 compared to three months ended ~~September~~June 30, ~~2017~~2018 for the Envestnet Wealth Solutions segment

~~Revenues~~Asset-based recurring revenues

~~Total~~Asset-based recurring revenues increased ~~16%~~2% from ~~$135,948~~$118,111 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$157,467~~$120,070 in the three months ended ~~September~~June 30, ~~2018.~~2019. The increase was primarily due to an increase in asset-based revenues of $12,950 and an increase in subscription-based revenues of $9,216. Revenues from asset-based revenues decreased from 78% of total revenues in the three months ended September 30, 2017 to 76% of total revenues in the three months ended September 30, 2018.

~~Asset-based recurring revenues~~

Asset-based recurring revenues increased 12% from $106,147 in the three months ended September 30, 2017 to $119,097 in the three months ended September 30, 2018. The increase was primarily due to the 2018 acquisition of FolioDynamix which comprised $11,847 of the increase as well as an increase in asset values applicable to our current quarterly billing cycle as a result of an upswing in ~~2018,~~the equity markets relative to the ~~corresponding period in 2017.~~comparable 2018 period. In the ~~third~~second quarter of ~~2018,~~2019, revenues were also positively affected by new account growth and positive net flows of AUM/A.

Excluding the revenue impact from the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenue decreased from 75% of total revenue in the three months ended June 30, 2018 to 71% in three months ended June 30, 2019.

approximately ~~1,800,000~~2,200,000 as of ~~September~~June 30, ~~2017~~2018 to approximately ~~2,300,000~~2,100,000 as of ~~September~~June 30, 2019. The decline in advisors was due to a reclassification to subscription-based pricing models in 2018.

Subscription-based recurring revenues

Subscription-based recurring revenues increased ~~34%~~52% from ~~$27,012~~$33,023 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$36,228~~$50,078 in the three months ended ~~September~~June 30, ~~2018, primarily due~~2019.

The acquisitions of PortfolioCenter and PIEtech contributed revenues of $2,014 and $5,861, respectively, to subscription-based recurring revenues in the ~~2018 acquisition~~three months ended June 30, 2019. Excluding these revenues, the remaining increase of ~~FolioDynamix which comprised $4,493~~$9,180 is a result of ~~the increase as well as~~ continuing to add new clients, ~~and~~ selling additional services to existing ~~clients.~~clients, and a change in classification of revenues from asset-based recurring revenues for certain customers.

Professional services and other revenues

Professional services and other revenues ~~decreased 23%~~increased 16% from ~~$2,789~~$5,794 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$2,142~~$6,742 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to ~~a decrease in existing customer revenue attributable to Envestnet | Enterprise.~~an increase of $771 contributed from the PIEtech Acquisition.

Cost of revenues

Cost of revenues increased ~~14%~~5% from ~~$52,957~~$62,914 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$60,275~~$66,250 in the three months ended ~~September~~June 30, ~~2018,~~2019, primarily ~~due to the corresponding~~as a result of an increase in asset-based ~~recurring~~cost of revenues. The acquisitions of PortfolioCenter and PIEtech had an immaterial impact to total cost of revenues ~~and~~in the ~~mix of such revenues, which is partially attributable to FolioDynamix.~~three months ended June 30, 2019. As a percentage of total revenues, cost of revenues decreased from ~~39%~~40% in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~38%~~37% in the three months ended ~~September~~June 30, ~~2018.~~2019, due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.

Compensation and benefits

Compensation and benefits increased ~~20%~~17% from ~~$41,158~~$48,026 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$49,454~~$56,219 in the three months ended ~~September~~June 30, ~~2018,~~2019. This increase is primarily due to an increase in salaries, benefits and related payroll taxes of ~~$4,237, primarily a result of the 2018 acquisition of FolioDynamix~~$3,928 and an increase in ~~headcount to support organic growth. An increase in severance of $2,862,~~ non-cash compensation expense of ~~$1,331, contract labor costs~~$4,269. The acquisitions of ~~$813,~~PortfolioCenter and ~~various other immaterial cost increases also~~PIEtech contributed compensation and benefit expenses of $1,253 and $4,403, respectively, to ~~the increase in~~total compensation and benefits ~~partially offset by a decrease~~expense in ~~incentive compensation of $1,189.~~the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increased from ~~30% in the three months ended September 30, 2017 to~~ 31% in the three months ended ~~September~~June 30, ~~2018.~~2018 to 32% in the three months ended June 30, 2019.

General and administration

General and administration expenses increased ~~20%~~38% from ~~$16,464~~$18,603 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$19,767~~$25,666 in the three months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to increases in ~~restructuring charges and transaction costs~~rent expense of ~~$2,102, occupancy costs~~$2,077, legal fees of ~~$684, external data and research services expenses of $683,~~$1,481 and systems development ~~costs of $592 partially offset by decreases in non-income tax~~ expense of ~~$593~~$1,117. The acquisitions of PortfolioCenter and ~~marketing costs~~PIEtech contributed general and administration expenses of ~~$234.~~$1,768 and $1,050, respectively, to total general and administration expense in the three months ended June 30, 2019. As a percentage of total revenues, general and administration expenses increased from 12% in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~13%~~15% in the three months ended ~~September~~June 30, ~~2018.~~2019. The increase in general and administration expenses as a percentage of revenues is primarily due to higher growth in general and administration expenses compared to lower growth in revenues.

Depreciation and amortization

Depreciation and amortization expense increased ~~78%~~49% from ~~$6,414~~$11,026 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$11,422~~$16,376 in the three months ended ~~September~~June 30, 2018. The increase was primarily due to the addition of intangible assets related to the 2018 FolioDynamix acquisition. As a percentage of total revenues, depreciation and amortization expense increased from 5% in the three months ended September 30, 2017 to 7% in the three months ended September 30, 2018. The increase in depreciation and amortization expense as a percentage of total revenues is primarily due to the intangible asset amortization related to the acquisition of FolioDynamix.

~~Nine months ended September 30, 2018 compared to nine months ended September 30, 2017 for the Envestnet segment~~

~~Revenues~~

~~Total revenues increased 22% from $386,638 in the nine months ended September 30, 2017 to $470,383 in the nine months ended September 30, 2018.~~2019. The increase was primarily due to an increase in ~~asset-based revenues~~internally developed software amortization expense of ~~$59,093~~$1,266 and an increase in ~~subscription-based~~intangible asset amortization expense of $3,729, primarily a result of additional intangible assets related to the acquisitions of PortfolioCenter and PIEtech. As a percentage of revenues, ~~of $24,116. Revenues~~depreciation and amortization expense increased from ~~asset-based revenues decreased from 77% of total revenues~~7% in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~76%~~9% in the ~~nine~~three months ended ~~September~~June 30, ~~2018.~~2019.

Six months ended June 30, 2019 compared to six months ended June 30, 2018 for the Envestnet Wealth Solutions segment

Asset-based recurring revenues

Asset-based recurring revenues ~~increased 20%~~decreased 4% from ~~$299,268~~$239,264 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$358,361~~$229,004 in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily due to ~~the 2018 acquisition of FolioDynamix which comprised $37,281 of the increase as well as an increase~~a decrease in asset values applicable to our quarterly billing ~~cycle~~cycles in ~~2018, relative~~the six months ended June 30, 2019 compared to the ~~corresponding period~~six months ended June 30, 2018, due to a downturn in ~~2017. In~~ the ~~first two quarters~~equity markets during the fourth quarter of ~~2018,~~2018. The decrease was also due to a change in classification of revenues ~~were also positively affected~~to subscription-based recurring revenues for certain customers, partially offset by the impact of new account growth and positive net flows of AUM/A.A in the second quarter of 2019.

Excluding the revenues contributed by the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenue decreased from 76% of total revenue in the six months ended June 30, 2018 to 71% of total revenue in the six months ended June 30, 2019.

Subscription-based recurring revenues

Subscription-based recurring revenues increased ~~31%~~39% from ~~$77,720~~$65,608 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$101,836~~$91,104 in the ~~nine~~six months ended ~~September~~June 30, ~~2018, primarily due~~2019.

The acquisitions of PortfolioCenter and PIEtech contributed revenues of $2,014 and $5,861, respectively, to subscription-based recurring revenues in the ~~2018 acquisition~~three months ended June 30, 2019. The remaining increase of ~~FolioDynamix which comprised $13,463~~$17,621 is a result of ~~the Envestnet segment increase as well as~~ continuing to add new clients, ~~and~~ selling additional services to existing ~~clients.~~clients, and a change in classification of revenues from asset-based recurring revenues for certain customers.

Professional services and other revenues

Professional services and other revenues increased 6%18% from ~~$9,650~~$8,044 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$10,186~~$9,487 in the ~~nine~~six months ended ~~September~~June 30, ~~2018, primarily due to an overall increase in existing customers.~~

~~Cost of revenues~~

Cost of revenues increased 20% from $151,430 in the nine months ended September 30, 2017 to $182,212 in the nine months ended September 30, 2018, primarily due to the corresponding increase in asset-based recurring revenues, and the mix of such revenues, which is partially attributable to FolioDynamix, as well as an increase in Advisor Summit related costs. As a percentage of total revenues, cost of revenues remained consistent at 39% in the nine months ended September 30, 2017 and 2018.

~~Compensation and benefits~~

Compensation and benefits increased 25% from $119,378 in the nine months ended September 30, 2017 to $149,391 in the nine months ended September 30, 2018, primarily due to an increase in salaries, benefits and related payroll taxes of $16,689, primarily a result of the 2018 acquisition of FolioDynamix and an increase in headcount to support organic growth. An increase in severance of $5,916, contract labor costs of $2,579, non-cash compensation of $2,573, and incentive compensation of $1,769 also contributed to the increase in compensation and benefits. As a percentage of total revenues, compensation and benefits increased from 31% in the nine months ended September 30, 2017 to 32% in the nine months ended September 30, 2018.

~~General and administration~~

General and administration expenses increased 16% from $48,357 in the nine months ended September 30, 2017 to $56,090 in the nine months ended September 30, 2018, primarily due to increases in external data and research services expenses of $3,371, systems development costs of $2,511, occupancy costs of $2,189 and travel and entertainment costs of $953, partially offset by a decrease in non-income tax expense of $1,858. As a percentage of total revenues, general and administration expenses decreased from 13% in the nine months ended September 30, 2017 to 12% in the nine months ended September 30, 2018.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 77% from $19,196 in the nine months ended September 30, 2017 to $33,921 in the nine months ended September 30, 2018. The increase was primarily due to the addition of intangible assets related to the 2018 FolioDynamix acquisition. As a percentage of total revenues, depreciation and amortization expense increased from 5% in the nine months ended September 30, 2017 to 7% in the nine months ended September 30, 2018. The increase in depreciation and amortization expense as a percentage of total revenues is primarily due to the intangible asset amortization related to the acquisition of FolioDynamix.

~~Envestnet | Yodlee~~

~~The following table presents loss from operations for the Envestnet | Yodlee segment:~~

Three Months Ended
Nine Months Ended
September 30, Percent September 30, Percent
2018 2017 Change 2018 2017 Change
(in thousands) (in thousands)
Revenues:

Subscription-based $ 39,966
$ 35,951
11 % $ 115,832
$ 102,955
13 %
Professional services and other revenues 5,723
3,715
54 % 16,068
11,224
43 %
Total revenues 45,689
39,666
15 % 131,900
114,179
16 %
Operating expenses:

Cost of revenues 4,689
3,113
51 % 13,313
9,601
39 %
Compensation and benefits 25,495
23,463
9 % 77,501
70,055
11 %
General and administration 8,467
7,376
15 % 25,521
23,634
8 %
Depreciation and amortization 8,141
9,078
(10 )% 24,373
27,596
(12 )%
Total operating expenses 46,792
43,030
9 % 140,708
130,886
8 %
Loss from operations $ (1,103 ) $ (3,364 ) (67 )% $ (8,808 ) $ (16,707 ) (47 )%

~~Three months ended September 30, 2018 compared to three months ended September 30, 2017 for the Envestnet | Yodlee segment~~

~~Revenues~~

~~Total revenues increased 15% from $39,666 in the three months ended September 30, 2017 to $45,689 in the three months ended September 30, 2018.~~2019. The increase was primarily due to an increase in revenues from ~~subscription-based recurring revenues~~existing customers and an increase of ~~$4,015. Revenues~~$771 contributed from ~~professional services and other increased by $2,008.~~the PIEtech Acquisition.

~~Subscription-based recurring revenues~~

Subscription-based recurring revenues increased 11% from $35,951 in the three months ended September 30, 2017 to $39,966 in the three months ended September 30, 2018, primarily due to broad increases in revenue from existing customers.

~~Professional services and other revenues~~

Professional services and other revenues increased 54% from $3,715 in the three months ended September 30, 2017 to $5,723 in the three months ended September 30, 2018, primarily due to timing of new data analytics customer deployments and upgrades of existing data analytics customers.

Cost of revenues

Cost of revenues ~~increased 51%~~remained consistent from ~~$3,113~~$121,937 in the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$4,689~~$122,105 in the ~~three~~six months ended ~~September~~June 30, ~~2018, primarily due~~2019. The acquisitions of PortfolioCenter and PIEtech had an immaterial impact to ~~increases~~total cost of revenues in ~~hosting and payment processing services of $1,576 to support our overall revenue growth.~~the six months ended June 30, 2019. As a percentage of total revenues, cost of revenues ~~increased~~decreased from 8%39% in the ~~three~~six months ended

~~September~~ June 30, ~~2017~~2018 to ~~10%~~37% in the ~~three~~six months ended ~~September~~June 30, ~~2018. The increase in cost of revenues as a percentage of total revenues is primarily due to a higher increase in expense compared to lower growth in quarterly revenues.~~2019.

Compensation and benefits

Compensation and benefits increased 9%5% from ~~$23,463~~$99,937 in the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$25,495~~$104,774 in the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase is primarily due to ~~an increase~~increases in salaries, benefits and related payroll taxes of ~~$2,151 as a result of increased headcount to support organic growth, an increase in~~$3,951 and non-cash compensation expense of ~~$490 and employee training and recruiting of $237. These increases were~~$5,876, partially offset by ~~a decrease~~decreases in incentive compensation expense of ~~$518.~~$1,738 and severance expense of $2,310. The acquisitions of PortfolioCenter and PIEtech contributed compensation and benefit expenses of $1,253 and $4,403, respectively, to compensation and benefits expense in the six months ended June 30, 2019. As a percentage of total revenues, compensation and benefits ~~decreased from 59%~~remained consistent at 32% in the ~~three~~six months ended ~~September~~June 30, ~~2017 to 56% in the three months ended September 30, 2018. The decrease in compensation~~2018 and ~~benefits as a percentage of total revenues is primarily due to a higher revenue increase compared to lower growth in compensation and benefit expenses.~~2019.

General and administration

General and administration expenses increased ~~15%~~26% from ~~$7,376~~$36,323 in the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$8,467~~$45,850 in the ~~three~~six months ended ~~September~~June 30, ~~2018,~~2019. The increase was primarily due to increases in ~~non-recurring~~rent expense of $1,866, systems development expense of $1,798, communications and research expense of $1,459, legal fees of $1,209, transaction related

expense of $813 and travel and entertainment expense of $757. The acquisitions of PortfolioCenter and PIEtech contributed general and administrative expenses of ~~$334, software purchase~~$1,768 and ~~maintenance of $322, occupancy cost of $183.~~$1,050, respectively, to total general and administrative expense in the six months ended June 30, 2019. As a percentage of total revenues, general and administration expenses ~~remained consistent at 19%~~increased from 12% in the ~~three~~six months ended ~~September~~June 30, ~~2017 and 2018.~~ 2018 to 14% in the six months ended June 30, 2019.

Depreciation and amortization

Depreciation and amortization expense ~~decreased 10%~~increased 23% from ~~$9,078~~$22,499 in the ~~three~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$8,141~~$27,643 in the ~~three~~six months ended ~~September~~June 30, 2018, primarily due to a decrease in intangible asset amortization of $1,146 mainly related to amortization of Yodlee backlog intangible asset which is reaching the end of its useful life in November 2019 and is therefore amortizing at a significantly lower rate in 2018 compared to 2017 as a result of accelerated amortization in the early years. This decrease was partially offset by an increase of $209 in depreciation expense compared to the same period last year. As a percentage of total revenues, depreciation and amortization expense decreased from 23% in the three months ended September 30, 2017 to 18% in the three months ended September 30, 2018. The decrease in depreciation and amortization as a percentage of total revenues is primarily due to a higher revenue increase and a decrease in amortization expense.

~~Nine months ended September 30, 2018 compared to nine months ended September 30, 2017 for the Envestnet | Yodlee segment~~

~~Revenues~~

~~Total revenues increased 16% from $114,179 in the nine months ended September 30, 2017 to $131,900 in the nine months ended September 30, 2018.~~2019. The increase was primarily due to an increase in internally developed software amortization expense of $2,212 and an increase in intangible asset amortization expense of $2,337, primarily a result of additional intangible assets related to the acquisitions PortfolioCenter Acquisition and the PIEtech Acquisition. As a percentage of revenues, ~~from subscription-based recurring revenues of $12,877. Revenues from professional services~~depreciation and ~~other~~amortization expense increased from ~~10% of total revenues~~7% in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~12%~~8% in the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019.

Envestnet Data & Analytics Segment

The following table presents loss from operations for the Envestnet Data & Analytics segment:



	Three Months Ended								Six Months Ended
	June 30,						Percent		June 30,						Percent
	2019			2018			Change		2019			2018			Change
	(in thousands)								(in thousands)
Revenues:
Subscription-based	$	42,180		$	38,756		9	%	$	84,241		$	75,866		11	%
Professional services and other revenues	5,375			5,432			(1	)%	10,275			10,345			(1	)%
Total revenues	47,555			44,188			8	%	94,516			86,211			10	%
Operating expenses:
Cost of revenues	5,830			4,713			24	%	11,620			8,624			35	%
Compensation and benefits	31,593			25,848			22	%	62,957			52,006			21	%
General and administration	8,553			8,764			(2	)%	18,038			17,054			6	%
Depreciation and amortization	10,539			8,159			29	%	18,789			16,232			16	%
Total operating expenses	56,515			47,484			19	%	111,404			93,916			19	%
Loss from operations	$	(8,960	)	$	(3,296	)	172	%	$	(16,888	)	$	(7,705	)	119	%

Three Months Ended June 30, 2019 compared to three months ended June 30, 2018 for the Envestnet Data & Analytics segment

Subscription-based recurring revenues

Subscription-based recurring revenues increased ~~13%~~9% from ~~$102,955~~$38,756 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$115,832~~$42,180 in the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to broad increases in revenue from existing customers.

Professional services and other revenues

Professional services and other revenues ~~increased 43%~~remained consistent from ~~$11,224~~$5,432 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$16,068~~$5,375 in the ~~nine~~three months ended ~~September~~June 30, ~~2018, primarily due to timing of new data analytics customer deployments and upgrades of existing data analytics customers.~~2019.

Cost of revenues

Cost of revenues increased ~~39%~~24% from ~~$9,601~~$4,713 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$13,313~~$5,830 in the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, primarily ~~driven by higher professional services and support revenues. Third party consulting and related services increased $1,556~~ due to ~~new data analytics customer deployments and hosting and payment processing services increased $2,156~~an increase in ~~support of our overall revenue growth.~~subscription-based recurring revenues. As a percentage of total revenues, cost of revenues increased from 8%11% in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~10%~~12% in the ~~nine~~three months ended ~~September~~June 30, ~~2018.~~

2019.

Compensation and benefits

Compensation and benefits increased ~~11%~~22% from ~~$70,055~~$25,848 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$77,501~~$31,593 in the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to an increase in salaries, benefits and related payroll taxes of ~~$5,080,~~$3,499 as a result of increased headcount to support organic growth, an increase in ~~incentive and variable compensation of $1,001, third party contract, employee training and recruiting costs totaling $514 and~~ non-cash compensation ~~expenses totaling $428.~~expense of $843 and severance

expense of $2,449 partially offset by a decrease in incentive compensation expense of $1,046. As a percentage of total revenues, compensation and benefits ~~decreased~~increased from ~~61%~~58% in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~59%~~66% in the ~~nine~~three months ended ~~September~~June 30, ~~2018.~~2019. The ~~decrease~~increase in compensation and benefits as a percentage of total revenues is primarily due to aincreased severance expense as well as higher ~~revenue increase~~growth in compensation and benefits expense compared to lower growth in ~~compensation and benefit expenses.~~revenue.

General and administration

General and administration expenses ~~increased 8%~~decreased 2% from ~~$23,634~~$8,764 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$25,521~~$8,553 in the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~increases~~a decrease in ~~restructuring and~~ transaction ~~costs~~related expense of ~~$937, software purchase and maintenance of $840, occupancy cost of $541, marketing of $256 and non-recurring related expenses of $187~~$599, partially offset by ~~a decrease~~an increase of $212 in ~~litigation related expenses of $1,026.~~legal fees. As a percentage of total revenues, general and administration expenses decreased from ~~21% in~~20% to 18% for the ~~nine~~three months ended ~~September~~June 30, ~~2017 to 19% in the nine months ended September 30, 2018. The decrease in general~~2018 and ~~administration as a percentage of total revenues is primarily due to a higher revenue increase compared to lower growth in general and administration expenses.~~2019.

Depreciation and amortization

Depreciation and amortization expense ~~decreased 12%~~increased 29% from ~~$27,596~~$8,159 in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 to ~~$24,373~~$10,539 in the ~~nine~~three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to a decrease in intangible asset amortization of $3,400 mainly related to amortization of Yodlee backlog intangible asset which is reaching the end of its useful life in November 2019 and is therefore amortizing at a significantly lower rate in 2018 compared to 2017 as a result of accelerated amortization in the early years. This decrease was partially offset by an increase in depreciation of property and ~~amortization expense~~equipment of ~~$178 compared to the same period last year.~~

$2,224 resulting from a purchase price accounting adjustment. As a percentage of total revenues, depreciation and amortization expense ~~decreased~~increased from ~~24% in the nine months ended September 30, 2017 to~~ 18% in the ~~nine~~three months ended ~~September~~June 30, ~~2018. The~~2018 to 22% in the three months ended June 30, 2019.

Six months ended June 30, 2019 compared to six months ended June 30, 2018 for the Envestnet Data & Analytics segment

Subscription-based recurring revenues

Subscription-based recurring revenues increased 11% from $75,866 in the six months ended June 30, 2018 to $84,241 in the six months ended June 30, 2019, primarily due to broad increases in revenue from existing customers.

Professional services and other revenues

Professional services and other revenues remained consistentfrom $10,345 in the six months ended June 30, 2018 to $10,275 in the six months ended June 30, 2019.

Cost of revenues

Cost of revenues increased 35% from $8,624 in the six months ended June 30, 2018 to $11,620 in the six months ended June 30, 2019, primarily due to an increase in subscription-based recurring revenues. As a percentage of total revenues, cost of revenues increased from 10% in the six months ended June 30, 2018 to 12% in the six months ended June 30, 2019.

Compensation and benefits

Compensation and benefits increased 21% from $52,006 in the six months ended June 30, 2018 to $62,957 in the six months ended June 30, 2019, primarily due to an increase in salaries, benefits and related payroll taxes of $6,984 as a result of increased headcount to support organic growth,an increase in non-cash compensation expense of $2,555 and severance expense of $4,113 partially offset by a decrease in ~~depreciation~~incentive compensation expense of $3,060. As a percentage of total revenues, compensation and ~~amortization~~benefits increased from 60% in the six months ended June 30, 2018 to 67% in the six months ended June 30, 2019. The increase in compensation and benefits as a percentage of total revenues is primarily due to aincreased severance expense as well as higher ~~revenue increase~~growth in compensation and benefits expense compared to lower growth in revenue.

General and administration

General and administration expenses increased 6% from $17,054 in the six months ended June 30, 2018 to $18,038 in the six months ended June 30, 2019, primarily due to increases in travel and entertainment expense of $233, website development expense of $272 and other miscellaneous increases, partially offset by a decrease in communications and research expense of $319. As a percentage of total revenues, general and administration expenses decreased from 20% to 19% for the six months ended June 30, 2018 and 2019.

Depreciation and amortization

Depreciation and amortization ~~expense.~~expense increased 16% from $16,232 in the six months ended June 30, 2018 to $18,789 in the six months ended June 30, 2019, primarily due to an increase in depreciation of property and equipment of

$2,224 resulting from a purchase price accounting adjustment. As a percentage of total revenues, depreciation and amortization expense increased from 19% in the six months ended June 30, 2018 to 20% in the six months ended June 30, 2019.

Nonsegment

The following table presents nonsegment operating expenses:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,				Percent		September 30,				Percent		June 30,				Percent		June 30,				Percent
	2018		2017		Change		2018		2017		Change		2019		2018		Change		2019		2018		Change
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Operating expenses:
Compensation and benefits	$	5,478	$	3,930	39	%	$	17,285	$	9,646	79	%	$	15,474	$	6,336	144	%	$	22,272	$	11,807	89	%
General and administration	6,573		7,313		(10	)%	20,014		18,187		10	%	8,202		6,722		22	%	19,057		13,441		42	%
Nonsegment operating expenses	$	12,051	$	11,243	7	%	$	37,299	$	27,833	34	%	$	23,676	$	13,058	81	%	$	41,329	$	25,248	64	%

Three ~~months ended September~~Months Ended June 30, ~~2018~~2019 compared to three months ended ~~September~~June 30, ~~2017~~2018 for Nonsegment

Compensation and benefits

Compensation and benefits increased ~~39%~~144% from ~~$3,930~~$6,336 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$5,478~~$15,474 in the three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~increases~~an increase of $8,496 in ~~non-cash compensation of $733, salaries, benefits and related payroll taxes of $580, and~~ incentive compensation, primarily a result of ~~$269.~~approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition.

General and administration

General and administration expenses ~~decreased 10%~~increased 22% from ~~$7,313~~$6,722 in the three months ended ~~September~~June 30, ~~2017~~2018 to ~~$6,573~~$8,202 in the three months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~a decrease~~an increase in ~~restructuring charges and~~ transaction ~~costs~~related expenses of $853.

~~$2,940 offset by increases in systems development costs of $927, professional and legal fees of $591 and other immaterial increases.~~

~~Nine~~Six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 for Nonsegment

Compensation and benefits

Compensation and benefits increased ~~79%~~89% from ~~$9,646~~$11,807 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$17,285~~$22,272 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~increases~~an increase in incentive compensation of $8,378, primarily a result of approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition, and an increase in non-cash based compensation expense of ~~$3,122,~~$1,191 and salaries and benefits ~~and related payroll taxes~~ of ~~$2,911, and incentive compensation of $1,759.~~$583.

General and administration

General and administration expenses increased ~~10%~~42% from ~~$18,187~~$13,441 in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~$20,014~~$19,057 in the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, primarily due to ~~increases~~an increase in transaction related expense of $4,637, increased website and systems development ~~costs~~expense of ~~$1,717, professional and legal fees of $1,679, insurance costs of $357, travel and entertainment costs of $334~~$454 and other ~~immaterial increases offset by a decrease in restructuring charges and transaction costs of $2,770.~~miscellaneous increases.

Non-GAAP Financial Measures

In addition to reporting results according to ~~U.S.~~ GAAP, we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include “adjusted ~~revenues”, “adjusted EBITDA”,~~revenues,” “adjusted net revenues,” “adjusted EBITDA,” “adjusted net income”, and “adjusted net income per ~~share”.~~share.”

We introduced adjusted net revenues as a non-GAAP financial metric in the first quarter of 2019 to eliminate the effects of asset-based costs of revenue, which is included in both asset-based recurring revenue and cost of revenue in the our condensed consolidated statements of operations. As our business model moves towards a more subscription-based recurring revenue model, excluding this portion of our revenue from certain analysis performed by management improves the usefulness and comparability of such analysis when evaluating the growth and profitability of the overall business, and in comparing segment performance. While the amounts included in the calculation of adjusted net revenues are disclosed in our condensed consolidated financial statements and footnotes, management believes providing more transparency into this metric is beneficial to investors who wish to evaluate our performance in this fashion.

“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. Under ~~U.S.~~ GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the full amount of revenue that would have been recorded by these entities had they remained stand‑alone entities.

“Adjusted net revenues” represents adjusted revenues less asset-based costs of revenues. Under GAAP, we are required to recognize as revenue certain fees paid to investment managers and other third parties needed for implementation of investment solutions included in our assets under management. Those fees also are required to be recorded as cost of revenues. This non-GAAP metric presents adjusted revenues without such fees included, as they have no impact on our profitability.

“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, accretion on contingent consideration and purchase liability, income tax provision (benefit), depreciation and amortization, non‑cash compensation expense, restructuring charges and transaction costs, severance, litigation related expense, foreign currency, non-income tax expense adjustment, loss allocation from equity method investment and loss attributable to non‑controlling interest.

“Adjusted net income” represents net income (loss) before deferred revenue fair value adjustment, accretion on contingent consideration and purchase liability, non‑cash interest expense, non‑cash compensation expense, restructuring charges and transaction costs, severance, amortization of acquired intangibles, litigation related expense, foreign currency, non-income tax expense adjustment, loss allocation from equity method investment and loss attributable to non‑controlling interest. Reconciling items are presented gross of tax, and a normalized tax rate is applied to the total of all reconciling items to arrive at adjusted net income.

“Adjusted net income per share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted‑average shares outstanding.

Our Board of Directors and ~~our~~ management use ~~adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share:~~these non-GAAP financial measures:

As measures of operating performance;

For planning purposes, including the preparation of annual budgets;

To allocate resources to enhance the financial performance of our business;

To evaluate the effectiveness of our business strategies; and

In communications with our Board of Directors concerning our financial performance.

Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, among other factors, when determining management’s incentive compensation.

We also present adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental performance measures because we believe that they provide our Board of Directors, management and investors with additional information to assess our performance. Adjusted revenues provide comparisons from period to period by

excluding the effect of purchase accounting on the fair value of acquired deferred revenue. Adjusted EBITDA provides comparisons from period to period by excluding potential differences caused by variations in the age and book depreciation of fixed assets affecting relative depreciation expense and amortization of internally developed software, amortization of acquired intangible assets, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, accretion on contingent consideration and purchase liability, severance, litigation related expense, pre-tax loss attributable to non-controlling interest, and changes in interest expense and interest income that are influenced by capital structure decisions and capital market conditions. Our management also believes it is useful to exclude non-cash stock-based compensation expense from adjusted EBITDA and adjusted net income because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time.

We believe adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are useful to investors in evaluating our operating performance because securities analysts use adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investor and analyst presentations will include adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share.

Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are not measurements of our financial performance under ~~U.S.~~ GAAP and should not be considered as an alternative to revenues, net income, operating income or any other performance measures derived in accordance with ~~U.S.~~ GAAP, or as an alternative to cash flows from operating activities as a measure of our profitability or liquidity.

We understand that, although adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are frequently used by securities analysts and others in their evaluation of companies, these measures have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as reported under ~~U.S.~~ GAAP. In particular you should consider:

Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect changes in, or cash requirements for, our working capital needs;

Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect non-cash components of employee compensation;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;

Due to either net losses before income tax expense or the use of federal and state net operating loss carryforwards we ~~had~~paid net cash ~~paid~~ of ~~$3,874~~$6,121 and ~~$(1,449)~~$2,225 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. In the event that we begin to generate taxable income and our existing net operating loss carryforwards for federal and state income taxes have been fully utilized or have expired, income tax payments will be higher; and

Other companies in our industry may calculate adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share differently than we do, limiting their usefulness as a comparative measure.

Management compensates for the inherent limitations associated with using adjusted revenues, adjusted ~~EBITDA,~~net revenues, adjusted ~~operating income,~~EBITDA, adjusted net income and adjusted net income per share through disclosure of such limitations, presentation of our financial statements in accordance with ~~U.S.~~ GAAP and reconciliation of adjusted revenues and adjusted net revenues to revenues, the most directly comparable ~~U.S.~~ GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per share to net income and net income per share, the most directly comparable ~~U.S.~~ GAAP measure. Further, our management also reviews ~~U.S.~~ GAAP measures and evaluates individual measures that are not included in some or all of our non-U.S. GAAP financial measures, such as our level of capital expenditures and interest income, among other measures.

The following table sets forth a reconciliation of total revenues to adjusted revenues and adjusted net revenues based on our historical results:


	Three Months Ended				Nine Months Ended				Three Months Ended						Six Months Ended
	September 30,				September 30,				June 30,						June 30,
	2018		2017		2018		2017		2019			2018			2019			2018
	(in thousands)				(in thousands)				(in thousands)						(in thousands)
Total revenues	$	203,156	$	175,614	$	602,283	$	500,817	$	224,445		$	201,116		$	424,111		$	399,127
Deferred revenue fair value adjustment	26		15		92		120		3,414			62			3,420			66
Adjusted revenues	$	203,182	$	175,629	$	602,375	$	500,937	227,859			201,178			427,531			399,193
Less: Asset-based cost of revenues									(60,293		)	(56,748		)	(114,135		)	(114,320		)
Adjusted net revenues									$	167,566		$	144,430		$	313,396		$	284,873

The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Net income (loss)	$	2,511		$	(1,320	)	$	4,522		$	(20,925	)	$	613		$	(5,991	)	$	(17,655	)	$	2,011
Add (deduct):
Deferred revenue fair value adjustment	26			15			92			120			3,414			62			3,420			66
Interest income	(619		)	(58		)	(1,403		)	(108		)	(901		)	(374		)	(2,411		)	(784		)
Interest expense	6,920			3,858			18,148			12,671			8,263			5,992			15,359			11,228
Accretion on contingent consideration and purchase liability	13			104			209			408			502			95			742			196
Income tax provision (benefit)	(5,234		)	1,682			(18,662		)	10,824			(28,382		)	566			(24,614		)	(13,428		)
Depreciation and amortization	19,563			15,492			58,294			46,792			26,915			19,185			46,432			38,731
Non-cash compensation expense	10,603			8,048			29,574			23,451			14,988			10,476			27,852			18,971
Restructuring charges and transaction costs	4,096			4,608			10,033			10,235			13,208			3,345			20,574			5,937
Severance	4,408			1,597			8,269			2,260			3,280			1,049			5,760			3,861
Litigation related expense	—			—			—			1,033
Foreign currency	(431		)	(116		)	(1,002		)	296			(154		)	(339		)	(155		)	(571		)
Non-income tax expense adjustment	(23		)	571			(124		)	1,734			908			27			1,118			(101		)
Loss allocation from equity method investment	258			282			1,069			984			347			151			550			811
Loss attributable to non-controlling interest	488			26			1,072			377			210			515			241			584
Adjusted EBITDA	$	42,580		$	34,789		$	110,092		$	90,152		$	43,211		$	34,759		$	77,213		$	67,512

The following table sets forth the reconciliation of net income (loss) to adjusted net income and adjusted net income per diluted share based on our historical results:


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
Net income (loss)	$	2,511		$	(1,320	)	$	4,522		$	(20,925	)	$	613		$	(5,991	)	$	(17,655	)	$	2,011
Income tax provision (benefit) (1)	(5,234		)	1,682			(18,662		)	10,824			(28,382		)	566			(24,614		)	(13,428		)
Loss before income tax provision (benefit)	(2,723		)	362			(14,140		)	(10,101		)	(27,769		)	(5,425		)	(42,269		)	(11,417		)
Add (deduct):
Deferred revenue fair value adjustment	26			15			92			120			3,414			62			3,420			66
Accretion on contingent consideration and purchase liability	13			104			209			408			502			95			742			196
Non-cash interest expense	4,435			2,931			9,335			7,784			4,646			3,032			9,262			4,900
Non-cash compensation expense	10,603			8,048			29,574			23,451			14,988			10,476			27,852			18,971
Restructuring charges and transaction costs	4,096			4,608			10,033			10,235			13,208			3,345			20,574			5,937
Severance	4,408			1,597			8,269			2,260			3,280			1,049			5,760			3,861
Amortization of acquired intangibles	13,477			10,377			40,831			31,333
Litigation related expense	—			—			—			1,033
Amortization of acquired intangibles and fair value adjustment to property and equipment, net													19,278			13,419			31,806			27,354
Foreign currency	(431		)	(116		)	(1,002		)	296			(154		)	(339		)	(155		)	(571		)
Non-income tax expense adjustment	(23		)	571			(124		)	1,734			908			27			1,118			(101		)
Loss allocation from equity method investment	258			282			1,069			984			347			151			550			811
Loss attributable to non-controlling interest	488			26			1,072			377			210			515			241			584
Adjusted net income before income tax effect	34,627			28,805			85,218			69,914			32,858			26,407			58,901			50,591
Income tax effect (2)	(9,348		)	(11,522		)	(23,008		)	(27,966		)	(8,388		)	(7,130		)	(15,020		)	(13,660		)
Adjusted net income	$	25,279		$	17,283		$	62,210		$	41,948		$	24,470		$	19,277		$	43,881		$	36,931

Basic number of weighted-average shares outstanding	45,475,884			44,044,527			45,087,932			43,604,869			50,870,296			45,247,331			49,526,774			44,963,735
Effect of dilutive shares:
Options to purchase common stock	1,323,712			1,664,351			1,348,699			1,669,092			1,164,246			1,325,947			1,185,480			1,360,300
Unvested restricted stock units	719,564			736,657			832,848			637,580			662,853			643,319			666,116			832,170
Convertible notes													261,075			—			12,532			—
Warrants													24,218			—			—			—
Diluted number of weighted-average shares outstanding	47,519,160			46,445,535			47,269,479			45,911,541			52,982,688			47,216,597			51,390,902			47,156,205
Adjusted net income per share - diluted	$	0.53		$	0.37		$	1.32		$	0.91		$	0.46		$	0.41		$	0.85		$	0.78

(1)

For the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the effective tax rate computed in accordance with US GAAP equaled ~~192.2%~~102.2% and ~~464.6%~~(10.4)%, respectively. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the effective tax rate computed in accordance with US GAAP equaled ~~132.0%~~58.2% and ~~(107.2)%~~117.6%, respectively.


(2)	Estimated normalized effective tax rates of ~~27%~~25.5% and ~~40%~~27.0% have been used to compute adjusted net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

Note on Income Taxes: As of December 31, ~~2017 the Company~~2018 we had net operating loss carryforwards of ~~$249,653~~approximately $267,000 and ~~$143,775~~$153,000 for federal and state income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes ~~the Company pays~~we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with ~~U.S.~~ GAAP, and from the normalized rate shown above.

The following tables set forth the reconciliation of revenues to adjusted revenues and income (loss) from operations to adjusted EBITDA based on our historical results for each segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~

2018:


	Three months ended September 30, 2018												Three months ended June 30, 2019
	Envestnet			Envestnet \| Yodlee			Nonsegment			Total			Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)												(in thousands)
Revenues	$	157,467		$	45,689		$	—		$	203,156		$	176,890		$	47,555		$	—		$	224,445
Deferred revenue fair value adjustment	26			—			—			26			3,414			—			—			3,414
Adjusted revenues	$	157,493		$	45,689		$	—		$	203,182		180,304			47,555			—			227,859
Less: Asset-based cost of revenues													(60,293		)	—			—			(60,293		)
Adjusted net revenues													$	120,011		$	47,555		$	—		$	167,566

Income (loss) from operations	$	16,549		$	(1,103	)	$	(12,051	)	$	3,395		$	12,379		$	(8,960	)	$	(23,676	)	$	(20,257	)
Add:
Deferred revenue fair value adjustment	26			—			—			26			3,414			—			—			3,414
Accretion on contingent consideration and purchase liability	13			—			—			13			502			—			—			502
Depreciation and amortization	11,422			8,141			—			19,563			16,376			10,539			—			26,915
Non-cash compensation expense	5,010			3,165			2,428			10,603			8,592			3,767			2,629			14,988
Restructuring charges and transaction costs	2,198			310			1,588			4,096			794			(196		)	12,610			13,208
Non-income tax expense adjustment	(147		)	—			—			(147		)	908			—			—			908
Severance	4,381			—			27			4,408			818			2,448			14			3,280
Other loss	—			—			135			135
Other													43			—			—			43
Loss attributable to non-controlling interest	488			—			—			488			210			—			—			210
Adjusted EBITDA	$	39,940		$	10,513		$	(7,873	)	$	42,580		$	44,036		$	7,598		$	(8,423	)	$	43,211


	Three Months Ended September 30, 2017											Three Months Ended June 30, 2018
	Envestnet		Envestnet \| Yodlee			Nonsegment			Total			Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)											(in thousands)
Revenues	$	135,948	$	39,666		$	—		$	175,614		$	156,928		$	44,188		$	—		$	201,116
Deferred revenue fair value adjustment	—		15			—			15			60			2			—			62
Adjusted revenues	$	135,948	$	39,681		$	—		$	175,629		156,988			44,190			—			201,178
Less: Asset-based cost of revenues												(56,748		)	—			—			(56,748		)
Adjusted net revenues												$	100,240		$	44,190		$	—		$	144,430

Income (loss) from operations	$	18,955	$	(3,364	)	$	(11,243	)	$	4,348		$	16,359		$	(3,296	)	$	(13,058	)	$	5
Add:
Deferred revenue fair value adjustment	—		15			—			15			60			2			—			62
Accretion on contingent consideration and purchase liability	104		—			—			104			95			—			—			95
Depreciation and amortization	6,414		9,078			—			15,492			11,026			8,159			—			19,185
Non-cash compensation expense	3,679		2,675			1,694			8,048			5,080			2,936			2,460			10,476
Restructuring charges and transaction costs	73		—			4,535			4,608			188			403			2,754			3,345
Non-income tax expense adjustment	571		—			—			571			27			—			—			27
Severance	1,519		78			—			1,597			1,049			—			—			1,049
Litigation related expense	—		—			—			—
Other gain	—		—			(20		)	(20		)
Loss attributable to non-controlling interest	26					—			26			515						—			515
Adjusted EBITDA	$	31,341	$	8,482		$	(5,034	)	$	34,789		$	34,399		$	8,204		$	(7,844	)	$	34,759


	Nine months ended September 30, 2018												Six months ended June 30, 2019
	Envestnet			Envestnet \| Yodlee			Nonsegment			Total			Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)												(in thousands)
Revenues	$	470,383		$	131,900		$	—		$	602,283		$	329,595		$	94,516		$	—		$	424,111
Deferred revenue fair value adjustment	84			8			—			92			3,420			—			—			3,420
Adjusted revenues	$	470,467		$	131,908		$	—		$	602,375		333,015			94,516			—			427,531
Less: Asset-based cost of revenues													(114,135		)	—			—			(114,135		)
Adjusted net revenues													$	218,880		$	94,516		$	—		$	313,396

Income (loss) from operations	$	48,769		$	(8,808	)	$	(37,299	)	$	2,662		$	29,223		$	(16,888	)	$	(41,329	)	$	(28,994	)
Add:
Deferred revenue fair value adjustment	84			8			—			92			3,420			—			—			3,420
Accretion on contingent consideration and purchase liability	209			—			—			209			742			—			—			742
Depreciation and amortization	33,921			24,373			—			58,294			27,643			18,789			—			46,432
Non-cash compensation expense	14,144			8,565			6,865			29,574			14,269			7,955			5,628			27,852
Restructuring charges and transaction costs	2,423			913			6,697			10,033			1,056			769			18,749			20,574
Non-income tax expense adjustment	(124		)	—			—			(124		)	1,108			10			—			1,118
Severance	7,859			383			27			8,269			1,168			4,496			96			5,760
Other loss	—			—			11			11
Other													65			1			2			68
Loss attributable to non-controlling interest	1,072			—			—			1,072			241			—			—			241
Adjusted EBITDA	$	108,357		$	25,434		$	(23,699	)	$	110,092		$	78,935		$	15,132		$	(16,854	)	$	77,213


	Nine Months Ended September 30, 2017										Six Months Ended June 30, 2018
	Envestnet		Envestnet \| Yodlee			Nonsegment			Total		Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)										(in thousands)
Revenues	$	386,638	$	114,179		$	—		$	500,817	$	312,916		$	86,211		$	—		$	399,127
Deferred revenue fair value adjustment	36		84			—			120		58			8			—			66
Adjusted revenues	$	386,674	$	114,263		$	—		$	500,937	312,974			86,219			—			399,193
Less: Asset-based cost of revenues											(114,320		)	—			—			(114,320		)
Adjusted net revenues											$	198,654		$	86,219		$	—		$	284,873

Income (loss) from operations	$	48,277	$	(16,707	)	$	(27,833	)	$	3,737	$	32,220		$	(7,705	)	$	(25,248	)	$	(733	)
Add:
Deferred revenue fair value adjustment	36		84			—			120		58			8			—			66
Accretion on contingent consideration and purchase liability	408		—			—			408		196			—			—			196
Depreciation and amortization	19,196		27,596			—			46,792		22,499			16,232			—			38,731
Non-cash compensation expense	11,571		8,137			3,743			23,451		9,134			5,400			4,437			18,971
Restructuring charges and transaction costs	768		—			9,467			10,235		225			603			5,109			5,937
Non-income tax expense adjustment	1,734		—			—			1,734		(101		)	—			—			(101		)
Severance	1,942		302			16			2,260		3,478			383			—			3,861
Litigation related expense	—		1,033			—			1,033
Other loss	—		—			5			5
Loss attributable to non-controlling interest	377		—			—			377		584			—			—			584
Adjusted EBITDA	$	84,309	$	20,445		$	(14,602	)	$	90,152	$	68,293		$	14,921		$	(15,702	)	$	67,512

Liquidity and Capital Resources

As of ~~September~~June 30, ~~2018,~~2019, we had total cash and cash equivalents of ~~$153,542~~$77,717 compared to ~~$60,115~~$289,345 as of December 31, ~~2017.~~2018. We plan to use existing cash as of ~~September~~June 30, ~~2018 and~~2019, cash generated in the ongoing operations of our business and amounts available under our revolving credit facility to fund our current operations, capital expenditures and possible acquisitions or other strategic activity, and to meet our debt service obligations. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to borrow under our revolving credit facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. ~~The Company~~As of June 30, 2019, we had $205,000 available to borrow under our revolving credit facility, subject to covenant compliance. We funded the ~~FolioDynamix~~May 1, 2019 PIEtech acquisition with a combination of cash on ~~the Company’s~~our balance sheet ~~purchase consideration liabilities~~ and additional borrowings under ~~its~~our revolving credit facility. As a result of these borrowings, we expect our cash interest payments to increase. Our Convertible Notes due 2019 mature on December 15, 2019. We plan to either use cash on hand or borrow on our revolving credit facility to settle the Convertible Notes due 2019.

Cash Flows

The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the periods indicated:


	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2018			2017			2019			2018
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	83,314		$	71,246		$	2,391		$	40,954
Net cash used in investing activities	(229,658		)	(22,092		)	(347,969		)	(208,536		)
Net cash provided by (used in) financing activities	238,976			(53,212		)
Net cash provided by financing activities							133,784			240,299
Effect of exchange rate on changes on cash	(1,047		)	170			166			(572		)
Net decrease in cash, cash equivalents and restricted cash	91,585			(3,888		)
Net increase (decrease) in cash, cash equivalents and restricted cash							(211,628		)	72,145
Cash, cash equivalents and restricted cash, end of period	153,700			50,704			78,043			134,260

Operating Activities

Net cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$83,314 as~~$2,391 compared to net cash provided by operating activities of ~~$71,246~~$40,954 for the same period in ~~2017.~~2018. The ~~increase~~decrease was primarily due ~~to net income of $4,522 in the nine months ended September 30, 2018 compared~~ to a net loss of ~~$20,925~~$17,655 in the six months ended June 30, 2019 compared to net income of $2,011 for the ~~nine months ended September 30, 2017, an increase~~same period in ~~depreciation and amortization of $11,502, an increase in stock based compensation of $6,123, partially offset by the~~2018, a change in deferred income taxes of ~~$28,500~~$11,898 and a net decrease in the change in operating assets and liabilities of ~~$6,460.~~$26,274, partially offset by an increase in non-cash compensation of $8,881, an increase in depreciation and amortization of $7,701 and an increase in non-cash interest expense of $4,266.

Investing Activities

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$229,658~~$347,969 compared to net cash used in investing activities of ~~$22,092~~$208,536 for the same period in ~~2017.~~2018. The change was primarily a result of an increase in cash disbursements for acquisitions of ~~$193,509 combined with~~$133,226 and an increase in capitalization of internally developed software of ~~$8,401 and purchases of fixed assets of $5,656.~~$4,961.

Financing Activities

Net cash provided by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~$238,976~~$133,784 compared to net cash ~~used in~~provided by financing activities of ~~$53,212~~$240,299 for the same period in ~~2017.~~2018. The change was primarily the result of ~~an increase~~a decrease in proceeds from a May 2018 issuance of ~~the Convertible Notes due 2023~~convertible notes of $345,000 and ~~an increase in proceeds from~~reduced borrowings on ~~the~~our revolving credit facility of ~~$160,000,~~$20,000, partially offset by ~~increases~~a decrease in payments on ~~the~~our revolving credit facility of ~~$233,668, and debt issuance costs paid of $9,982.~~$246,168.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with ~~U.S.~~ GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. “Note ~~2 –~~ 2—Summary of Significant Accounting Policies” to the consolidated financial statements in our ~~most recent~~2018 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements and “Note ~~4 – Revenue”~~17—Leases” to the condensed consolidated financial statements in this accompanying Form 10-Q describes the updated accounting policies for ~~revenue recognition, fees receivable including unbilled accounts receivable~~right of use assets and ~~deferred sales incentive compensation~~operating lease liabilities that were updated as a result of adopting ASC ~~606.~~842. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial

Condition and Results of Operations in

Part II, Item 7 of our ~~most recent~~2018 Form 10-K and “Note ~~4 – Revenue”~~17—Leases” to the condensed consolidated financial statements in this accompanying Form 10-Q include, but are not limited to, the discussion of estimates used for recognition of revenues,the determination of the period of benefit for deferred sales incentive commissions, purchase accounting, impairment of goodwill and acquired intangible assets and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements, and actual results could differ materially from the amounts reported.

Commitments and Off-Balance Sheet Arrangements

Purchase Obligations and Indemnifications

~~The Company includes~~We include various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. ~~The Company has~~We have experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to ~~such~~these indemnification and guarantee provisions. ~~The Company believes~~We believe that it is unlikely itthat we will have to make material payments under these arrangements and therefore ~~has~~we have not recorded a contingent liability in the condensed consolidated balance sheets.

~~The Company enters~~We enter into unconditional purchase obligations arrangements for certain of ~~its~~our services that ~~it receives~~we receive in the normal course of business.

Legal Proceedings

The Company and its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps, LLC (“FinancialApps”) in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief. An unopposed scheduling motion is pending which, if granted, would require Envestnet and Yodlee to file their responsive pleadings, including counterclaims, by September 17, 2019. We believe the allegations in the complaint are without merit and intends to defend the action vigorously.

We are involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. ~~The Company~~We will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. Legal proceedings accruals are recorded when and if it is determined that a loss is both probable and reasonably estimable. For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. ~~The Company believes~~We believe that liabilities associated with any claims, while possible, are not probable, and therefore ~~has~~we have not recorded any accrual for any claims as of ~~September~~June 30, ~~2018.~~2019. Further, while any possible range of loss cannot be reasonably estimated at this time, ~~the Company does~~we do not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to ~~it,~~us, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on ~~the Company's~~our results of operations or cash flow in a particular quarter or year.

Leases

~~The Company rents office space~~We have operating leases for corporate offices and certain equipment, some of which may include options to extend the leases for up to 20 years, and some of which may include options to terminate the leases within 90 days. Our leases have remaining lease terms of 1 to 14 years. For the three and six months ended June 30, 2019, our total operating lease cost was $4,377 and $8,495, respectively.

Future minimum lease payments under non-cancellable leases, as of June 30, 2019, were as follows:



	Operating
	Leases
Years Ending December 31,
Remainder of 2019	$	9,096
2020	17,558
2021	15,975
2022	11,850
2023	10,571
Thereafter	52,862
Total future minimum lease payments	117,912
Less imputed interest	(27,563		)
Total operating lease liabilities	$	90,349

As of June 30, 2019, we have entered into several additional operating leases that ~~expire at various dates through 2030. As~~have not yet commenced but will commence in 2019 with lease terms of ~~September 30, 2018, the Company’s future minimum lease commitments under these operating leases totaled $109,048.~~1 to 3 years.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk

Our exposure to market risk is directly related to asset-based recurring revenues earned based upon a contractual percentage of AUM or AUA. In the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, 59% and 60%, respectively,~~2019, 54% of our revenues were derived from revenues based on the market value of AUM or AUA. We expect this percentage to vary over time. A decrease in the aggregate value of AUM or AUA may cause our revenue to decline and our net income to decrease.

Foreign currency risk

The expenses of our India subsidiary, which primarily consist of expenditures related to compensation and benefits, are paid using the Indian Rupee. We are directly exposed to changes in foreign currency exchange rates through the translation of these monthly expenditures into U.S. dollars. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we estimate that a hypothetical 10% increase in the value of the Indian Rupee to the U.S. dollar would result in a decrease of ~~$1,251~~$286 and ~~$3,615,~~

~~respectively,~~$265 to pre‑tax earnings, respectively, and a hypothetical 10% decrease in the value of the Indian Rupee to the U.S. dollar would result in an increase of ~~$1,024~~$234 and ~~$2,957, respectively,~~$217 to pre‑tax ~~earnings.~~earnings, respectively.

A portion of our revenues are billed in various foreign currencies. We are directly exposed to changes in foreign currency exchange rates through the translation of these monthly revenues into U.S. dollars. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we estimate that a hypothetical 10% change in the value of various foreign currencies to the U.S. dollar would result in a corresponding increase or decrease of ~~$572~~approximately $472 and ~~$1,800, respectively,~~$941 to pre‑tax ~~earnings.~~earnings, respectively.

Interest rate risk

We are subject to market risk from changes in interest rates. The Company has a revolving credit facility that bears interest at LIBOR plus an applicable margin between ~~1.50 percent~~1.50% and ~~3.25 percent.~~3.25%. As the LIBOR rates fluctuate, so too will the interest expense on amounts borrowed under the Credit Agreement. Interest charged on the revolving credit facility for the second quarter of 2019 was approximately 5.2%. As of ~~September~~June 30, ~~2018,~~2019, there was $0$145,000 of revolving credit amounts outstanding under the Credit Agreement. The Company incurred interest expense of $1,353 and $1,569 for the three and six months ended June 30, 2019, respectively, related to the Credit Agreement. A sensitivity analysis performed on the interest expense indicated that a hypothetical 0.25% increase or decrease in our interest rate would increase or decrease interest expense by approximately $340 on an annual basis.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2018.~~2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on their evaluation of our disclosure controls and procedures as of ~~September~~June 30, ~~2018,~~2019, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting during the three months ended ~~September~~June 30, ~~2018~~2019, that have materially affected, or are reasonably likely to materially affect, our internal ~~control~~controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. ~~Legal proceedings accruals are recorded when and if it is determined that a loss is both probable and reasonably estimable.~~ For ~~legal proceedings~~litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of ~~September~~June 30, ~~2018.~~2019. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on ~~Envestnet’s~~the Company’s results of operations or cash flow in a particular quarter or year.

Item 1A. Risk Factors

Investment in our securities involves risk. An investor or potential investor should consider the risks summarized under the caption “Risk Factors” in Part I, Item 1A of our ~~2017~~2018 Form 10-K, when making investment decisions regarding our securities. The risk factors that were disclosed in our ~~2017~~2018 Form 10-K have not materially changed since the date our ~~2017~~2018 Form 10-K was filed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Maximum number (or
Total number of approximate dollar
shares purchased value) of shares
Total number Average as part of publically that may yet be
of shares price paid announced plans purchased under the
purchased per share or programs plans or programs
July 1, 2018 through July 31, 2018 2,432
$ 60.42
—
1,956,390
August 1, 2018 through August 31, 2018 24,024
61.30
—
1,956,390
September 1, 2018 through September 30, 2018 6,231
62.00
—
1,956,390

Maximum number (or

Total number of

approximate dollar

shares purchased

value) of shares

Total number

Average

as part of publicly

that may yet be

of shares

price paid

announced plans

purchased under the

purchased

per share

or programs

plans or programs

April 1, 2019 through April 30, 2019

3,306

68.68

—

1,956,390

May 1, 2019 through May 31, 2019

63,562

68.86

—

1,956,390

June 1, 2019 through June 30, 2019

1,091

68.48

—

1,956,390

On February 25, 2016, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company may repurchase up to 2,000,000 shares of its common stock. The timing and volume of share repurchases will be determined by the Company’s management based on its ongoing assessments of the capital needs of the business, the market price of its common stock and general market conditions. No time limit has been set for the completion of the repurchase program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other forward transactions or otherwise, all in compliance with applicable laws and other restrictions. As of ~~September~~June 30, ~~2018,~~2019, 1,956,390 of shares could still be purchased under this program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

See the exhibit index, which is incorporated herein by reference.

INDEX TO EXHIBITS



Exhibit No.			Description
31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1₍₁₎			Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2₍₁₎			Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document ***
101.SCH			XBRL Taxonomy Extension Schema Document ***
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document ***
101.LAB			XBRL Taxonomy Extension Label Linkbase Document ***
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document ***
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document ***

(1)

The material contained in Exhibit 32.1 and 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

* Management contract or compensation plan.

** Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017;~~2018; (ii) the Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; (iii) the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; (iv) the Condensed Consolidated ~~Statement~~Statements of Equity for the ~~nine~~six months ended ~~September~~June 30, 2019 and 2018; (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017;~~2018; (vi) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~November~~August 8, ~~2018.~~2019.



	ENVESTNET, INC.

	By:	/s/ Judson Bergman
		Judson Bergman
		Chairman and Chief Executive Officer
		Principal Executive Officer

	By:	/s/ Peter H. D’Arrigo
		Peter H. D’Arrigo
		Chief Financial Officer
		Principal Financial Officer

	By:	/s/ Matthew J. Majoros
		Matthew J. Majoros
		Senior Vice President, Financial Reporting
		Principal Accounting Officer

6563



CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	62,115		54,592

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	153,700	$	50,704

Supplemental disclosure of cash flow information - net cash paid (refunded) during the period for income taxes	$	3,874	$	(1,449	)
Supplemental disclosure of cash flow information - cash paid during the period for interest	5,780		4,887
Supplemental disclosure of non-cash operating, investing and financing activities:
Leasehold improvements funded by lease incentive	1,780		2,098
Non-cash debt issuance costs	—		2,230
Purchase liabilities included in accrued expenses and other liabilities	719		837
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,441		505



				Measurement
	Preliminary			Period			Revised
	Estimate			Adjustments			Estimate
Cash consideration	$	187,580		$	12,297		$	199,877
Purchase consideration liability	12,297			(12,297		)	—
Working capital and other adjustments	(3,893		)	(2,500		)	(6,393		)
Total	$	195,984		$	(2,500	)	$	193,484



	Three Months Ended			Nine Months Ended
	September 30, 2017			September 30, 2017
Revenues	$	185,717		$	530,231
Net loss	(12,290		)	(37,112		)
Net loss per share:
Basic	(0.28		)	(0.85		)
Diluted	(0.28		)	(0.85		)



				Cumulative
	Balance at			Catch-up			Balance at
	December 31, 2017			Adjustments			January 1, 2018
Balance Sheets
Assets:
Other non-current assets	$	17,176		$	5,315		$	22,491
Liabilities:
Deferred revenue, current	21,246			(1,122		)	20,124
Deferred revenue, non-current	12,047			(2,780		)	9,267
Equity:
Accumulated deficit	(73,854		)	9,217			(64,637		)



	Three Months Ended September 30, 2018
			Without Adoption of		Effect of Change
	As Reported		ASC 606		Higher/(Lower)
Statements of Operations
Revenues:
Asset-based	$	119,097	$	122,770	$	(3,673	)
Subscription-based	76,194		76,194		—
Total recurring revenues	195,291		198,964		(3,673		)
Professional services and other revenues	7,865		7,849		16
Total revenues	203,156		206,813		(3,657		)
Operating expenses:
Cost of revenues	64,964		68,637		(3,673		)
Compensation and benefits	80,424		80,955		(531		)
Total operating expenses	199,761		203,965		(4,204		)

Income from operations	3,395		2,848		547

Net income	2,511		1,964		547

Net income attributable to Envestnet, Inc.	2,954		2,407		547



	At September 30, 2018
				Without Adoption of			Effect of Change
	As Reported			ASC 606			Higher/(Lower)
Balance Sheets
Assets:
Fees receivable, net	$	64,635		$	63,631		$	1,004
Other non-current assets	23,893			17,600			6,293
Liabilities:
Accounts payable	20,577			19,573			1,004
Deferred revenue, current	24,423			24,908			(485		)
Deferred revenue, non-current	7,283			10,520			(3,237		)
Equity:
Accumulated deficit	(59,105		)	(69,120		)	10,015



	Three Months Ended September 30,
	2018						2017
	Envestnet		Envestnet \| Yodlee		Consolidated		Envestnet(1)		Envestnet \| Yodlee(1)		Consolidated(1)
Revenues:
Asset-based	$	119,097	$	—	$	119,097	$	106,147	$	—	$	106,147
Subscription-based	36,228		39,966		76,194		27,012		35,951		62,963
Total recurring revenues	155,325		39,966		195,291		133,159		35,951		169,110
Professional services and other revenues	2,142		5,723		7,865		2,789		3,715		6,504
Total revenues	$	157,467	$	45,689	$	203,156	$	135,948	$	39,666	$	175,614



	Nine Months Ended September 30,
	2018						2017
	Envestnet		Envestnet \| Yodlee		Consolidated		Envestnet(1)		Envestnet \| Yodlee(1)		Consolidated(1)
Revenues:
Asset-based	$	358,361	$	—	$	358,361	$	299,268	$	—	$	299,268
Subscription-based	101,836		115,832		217,668		77,720		102,955		180,675
Total recurring revenues	460,197		115,832		576,029		376,988		102,955		479,943
Professional services and other revenues	10,186		16,068		26,254		9,650		11,224		20,874
Total revenues	$	470,383	$	131,900	$	602,283	$	386,638	$	114,179	$	500,817



Years ending December 31,
Remainder of 2018	$	52,301
2019	168,264
2020	101,449
2021	58,544
2022	44,319
Thereafter	56,336
Total	$	481,213



	Receivables,		Unbilled receivables,
	which are included in		which are included in		Deferred Revenue		Deferred Revenue
	Fees receivable, net		Fees receivable, net		(current)		(non-current)
Opening balance as of January 1, 2018	$	36,605	$	13,229	$	20,124	$	9,267
Increase/(decrease), net	11,421		3,380		4,299		(1,984		)
Ending balance as of September 30, 2018	$	48,026	$	16,609	$	24,423	$	7,283



Years ending December 31,
Remainder of 2018	$	12,984
2019	48,334
2020	44,380
2021	35,744
2022	33,266
Thereafter	143,559
	$	318,267



	Fair Value of
	Assets to Fund
	Deferred
	Compensation
	Liability
Balance at December 31, 2017	$	5,185
Contributions and fair value adjustments	1,694
Balance at September 30, 2018	$	6,879



	Fair Value of
	Contingent
	Consideration
	Liabilities
Balance at December 31, 2017	$	2,781
Payment of contingent consideration liability	(2,193		)
Accretion on contingent consideration	131
Balance at September 30, 2018	$	719



			Weighted-
			Average Grant
	Number of		Date Fair Value
	Shares		per Share
Outstanding as of December 31, 2017	1,766,639		$	32.48
Granted	925,641		55.21
Vested	(503,668	)	34.05
Forfeited	(27,265	)	30.79
Outstanding as of March 31, 2018	2,161,347		41.59
Vested	(253,279	)	31.13
Forfeited	(27,324	)	39.78
Outstanding as of June 30, 2018	1,880,744		43.36
Granted	58,359		58.51
Vested	(159,783	)	31.23
Forfeited	(31,828	)	44.25
Outstanding as of September 30, 2018	1,747,492		44.98



FolioDynamix	Assets		Accounts	Advisors
AUM	$	8,736	57,163
AUA	33,182		79,131
AUM/A	41,918		136,294	3,838
Subscription	796,545		2,796,878	15,308
Total Platform	$	838,463	2,933,172	19,146