UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June 30, 2019~~March 31, 2020

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

For the transition period from __________ to __________

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,	Illinois	60601
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code:

(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. Yes ý☒ 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). Yes ý 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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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 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 ~~August~~May 1, ~~2019,~~2020, Envestnet, Inc. had ~~52,182,228~~53,513,623 shares of common stock outstanding.

TABLE OF CONTENTS



	Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	3
Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	4
Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	5
Condensed Consolidated Statements of Stockholders' Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	6
Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	87
Notes to Unaudited Condensed Consolidated Financial Statements	98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements	3324
Overview	3526
Results of Operations	4132
Liquidity and Capital Resources	5743

Item 3. Quantitative and Qualitative Disclosures About Market Risk	5944

Item 4. Controls and Procedures	6045

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	6045

Item 1A. Risk Factors	6045

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6146

Item 3. Defaults Upon Senior Securities	6146

Item 4. Mine Safety Disclosures	6146

Item 5. Other Information	6146

Item 6. Exhibits	6146

Index to Exhibits	47

Signatures	48

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	June 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Assets:
Assets
Current assets:
Cash and cash equivalents	$	77,717		$	289,345		$	68,601		$	82,505
Fees receivable, net	71,632			68,004			81,133			67,815
Prepaid expenses and other current assets	40,046			23,557			37,699			32,183
Total current assets	189,395			380,906			187,433			182,503

Property and equipment, net	51,016			44,991			53,190			53,756
Internally developed software, net	48,059			38,209			68,227			60,263
Intangible assets, net	509,159			305,241			489,840			505,589
Goodwill	908,686			519,102			906,501			879,850
Operating lease right-of-use assets, net	72,191			—			78,860			82,796
Other non-current assets	33,834			25,298			46,407			37,127
Total assets	$	1,812,340		$	1,313,747		$	1,830,458		$	1,801,884

Liabilities and Equity:
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	118,608		$	133,298		$	132,142		$	137,944
Accounts payable	15,165			19,567			14,294			17,277
Operating lease liabilities	12,918			—			13,736			13,816
Convertible Notes due 2019	169,182			165,711
Contingent consideration	—			732			2,569			—
Deferred revenue	37,601			23,988			40,177			34,753
Total current liabilities	353,474			343,296			202,918			203,790

Convertible Notes due 2023	300,078			294,725			308,262			305,513
Revolving credit facility	145,000			—			290,000			260,000
Contingent consideration	16,423			—			12,222			9,045
Deferred revenue	6,659			6,910			6,277			5,754
Non-current operating lease liabilities	77,431			—			84,935			88,365
Deferred rent and lease incentive	—			17,569
Deferred tax liabilities, net	31,292			640			26,680			29,481
Other non-current liabilities	28,193			18,005			34,967			32,360
Total liabilities	958,550			681,145			966,261			934,308

Commitments and contingencies

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; 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
Common stock, par value $0.005, 500,000,000 shares authorized; 67,077,561 and 66,320,706 shares issued as of March 31, 2020 and December 31, 2019, respectively; 53,468,397 and 52,841,706 shares outstanding as of March 31, 2020 and December 31, 2019, respectively							335			331
Additional paid-in capital	1,015,578			761,128			1,054,312			1,037,141
Accumulated deficit	(76,174		)	(58,882		)	(84,141		)	(75,664		)
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		)
Treasury stock at cost, 13,609,164 and 13,479,000 shares as of March 31, 2020 and December 31, 2019, respectively							(100,164		)	(90,965		)
Accumulated other comprehensive loss	(660		)	(994		)	(4,773		)	(1,749		)
Total stockholders’ equity	855,251			633,700			865,569			869,094
Non-controlling interest	(1,461		)	(1,098		)	(1,372		)	(1,518		)
Total equity	853,790			632,602			864,197			867,576
Total liabilities and equity	$	1,812,340		$	1,313,747		$	1,830,458		$	1,801,884

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						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Revenues:
Asset-based	$	120,070		$	118,111		$	229,004		$	239,264		$	134,811		$	108,934
Subscription-based	92,258			71,779			175,345			141,474			104,551			83,087
Total recurring revenues	212,328			189,890			404,349			380,738			239,362			192,021
Professional services and other revenues	12,117			11,226			19,762			18,389			7,177			7,645
Total revenues	224,445			201,116			424,111			399,127			246,539			199,666

Operating expenses:
Cost of revenues	72,080			67,627			133,725			130,561			74,933			61,645
Compensation and benefits	103,286			80,210			190,003			163,750			110,430			86,717
General and administration	42,421			34,089			82,945			66,818			41,110			40,524
Depreciation and amortization	26,915			19,185			46,432			38,731			27,683			19,517
Total operating expenses	244,702			201,111			453,105			399,860			254,156			208,403

Income (loss) from operations	(20,257		)	5			(28,994		)	(733		)
Loss from operations													(7,617		)	(8,737		)
Other expense, net	(7,512		)	(5,430		)	(13,275		)	(10,684		)	(1,537		)	(5,763		)
Loss before income tax provision (benefit)	(27,769		)	(5,425		)	(42,269		)	(11,417		)	(9,154		)	(14,500		)

Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)	(1,964		)	3,768

Net income (loss)	613			(5,991		)	(17,655		)	2,011
Add: Net loss attributable to non-controlling interest	280			465			363			567
Net income (loss) attributable to Envestnet, Inc.	$	893		$	(5,526	)	$	(17,292	)	$	2,578
Net loss													(7,190		)	(18,268		)
Add: Net (income) loss attributable to non-controlling interest													(146		)	83
Net loss attributable to Envestnet, Inc.													$	(7,336	)	$	(18,185	)

Net income (loss) per share attributable to Envestnet, Inc.:
Net loss per share attributable to Envestnet, Inc.:
Basic	$	0.02		$	(0.12	)	$	(0.35	)	$	0.06		$	(0.14	)	$	(0.38	)
Diluted	$	0.02		$	(0.12	)	$	(0.35	)	$	0.05		$	(0.14	)	$	(0.38	)

Weighted average common shares outstanding:
Basic	50,870,296			45,247,331			49,526,774			44,963,735			53,016,511			48,237,265
Diluted	52,982,688			45,247,331			49,526,774			47,156,205			53,016,511			48,237,265

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss

(in thousands)

(unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Net income (loss) attributable to Envestnet, Inc. $ 893
$ (5,526 ) $ (17,292 ) $ 2,578
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss)
112
(1,036 ) 334
(1,363 )
Comprehensive income (loss) attributable to Envestnet, Inc.
$ 1,005

$ (6,562 )
$ (16,958 )
$ 1,215



	Three Months Ended
	March 31,
	2020			2019
Net loss attributable to Envestnet, Inc.	$	(7,336	)	$	(18,185	)
Other comprehensive loss, net of taxes:
Foreign currency translation gains (losses), net	(3,024		)	222
Comprehensive loss attributable to Envestnet, Inc.	$	(10,360	)	$	(17,963	)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' 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, 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~~.



											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, 2019	66,320,706	$	331	(13,479,000	)	$	(90,965	)	$	1,037,141	$	(1,749	)	$	(75,664	)	$	(1,518	)	$	867,576
Adoption of ASC 326	—	—		—		—			—		—			(1,141		)	—			$	(1,141	)
Exercise of stock options	357,974	2		—		—			3,406		—			—			—			3,408
Issuance of common stock - vesting of restricted stock units	398,881	2		—		—			—		—			—			—			2
Stock-based compensation expense	—	—		—		—			13,765		—			—			—			13,765
Purchase of treasury stock for stock-based tax withholdings	—	—		(130,164	)	(9,199		)	—		—			—			—			(9,199		)
Foreign currency translation loss	—	—		—		—			—		(3,024		)	—			—			(3,024		)
Net income (loss)	—	—		—		—			—		—			(7,336		)	146			(7,190		)
Balance, March 31, 2020	67,077,561	$	335	(13,609,164	)	$	(100,164	)	$	1,054,312	$	(4,773	)	$	(84,141	)	$	(1,372	)	$	864,197

~~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



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	—	—		—		—			—		222			—			—			222
Net 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

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
OPERATING ACTIVITIES:
Net income (loss)	$	(17,655	)	$	2,011
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net loss							$	(7,190	)	$	(18,268	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	46,432			38,731			27,683			19,517
Deferred rent and lease incentive amortization	—			1,069
Provision for doubtful accounts	713			924			1,026			451
Deferred income taxes	(28,991		)	(17,093		)	(1,587		)	169
Non-cash based compensation expense	27,852			18,971
Non-cash compensation expense							15,985			12,864
Non-cash interest expense	9,896			5,630			4,463			6,880
Accretion on contingent consideration and purchase liability	742			196			599			240
Payments of contingent consideration	(578		)	—
Loss allocation from equity method investment	550			811
Gain on acquisition of equity method investment							(4,230		)	—
Loss allocation from equity method investments							2,030			203
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	(536		)	(8,204		)	(14,333		)	1,198
Prepaid expenses and other current assets	(15,507		)	(3,426		)	(6,793		)	(13,346		)
Other non-current assets	(3,241		)	(2,450		)	641			(1,060		)
Accrued expenses and other liabilities	(19,060		)	(5,438		)	(11,554		)	(34,495		)
Accounts payable	(4,768		)	4,166			(3,205		)	5,179
Deferred revenue	3,940			3,478			5,598			7,039
Other non-current liabilities	2,602			1,578			(145		)	854
Net cash provided by operating activities	2,391			40,954
Net cash provided by (used in) operating activities							8,988			(12,575		)

INVESTING ACTIVITIES:
Purchases of property and equipment	(8,815		)	(9,569		)	(2,160		)	(5,247		)
Capitalization of internally developed software	(15,583		)	(10,622		)	(11,572		)	(7,185		)
Investments in private companies							(11,700		)	(1,000		)
Acquisitions of businesses, net of cash acquired	(321,571		)	(188,345		)	(20,257		)	(11,061		)
Other	(2,000		)	—
Net cash used in investing activities	(347,969		)	(208,536		)	(45,689		)	(24,493		)

FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2023	—			345,000
Convertible Notes due 2023 issuance costs	—			(9,488		)
Proceeds from borrowings on revolving credit facility	175,000			195,000			45,000			—
Payments on revolving credit facility	(30,000		)	(276,168		)	(15,000		)	—
Payments of contingent consideration	(171		)	(2,193		)
Proceeds from exercise of stock options	4,914			2,540			3,408			3,163
Purchase of treasury stock for stock-based tax withholdings	(15,962		)	(14,395		)	(9,199		)	(9,819		)
Issuance of restricted stock units	3			3			2			2
Net cash provided by financing activities	133,784			240,299
Net cash provided by (used in) financing activities							24,211			(6,654		)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	166			(572		)	(1,496		)	112

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(211,628		)	72,145
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH							(13,986		)	(43,610		)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	289,671			62,115			82,755			289,671

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	78,043		$	134,260		$	68,769		$	246,061

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	6,121		$	2,225		$	814		$	4,998
Supplemental disclosure of cash flow information - cash paid during the period for interest	5,952			4,271			2,740			216
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			—			5,239			7,580
Purchase liabilities included in accrued expenses and other liabilities							375			—
Purchase liabilities included in other non-current liabilities	5,468			—			257			5,468
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,567			1,188			1,752			359
Membership interest liabilities included in other non-current liabilities	1,480			—			2,220			—
Common stock issued to settle purchase liability	772			—			—			772
Leasehold improvements funded by lease incentive	648			1,080			894			489
Purchase liabilities included in accrued expenses and other liabilities	—			1,422

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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~~2 primary, complementary business segments. Financial information about each business segment is contained in “Note ~~18—~~16—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 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 \| 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 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 (“FINRA”).


2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of ~~June 30, 2019~~March 31, 2020 and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 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, ~~2018~~2019 and reflect all normal recurring adjustments which are,

~~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 ~~June 30, 2019~~March 31, 2020 and the results of operations, equity, comprehensive ~~income (loss)~~loss and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of 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 Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a 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' equity. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 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 U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification™, sometimes referred to as the codification or “ASC.” These unaudited condensed consolidated 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, ~~2018,~~2019, filed with the SEC on ~~March 1, 2019.~~February 28, 2020.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these 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,		March 31,		March 31,
	2019		2018		2020		2019
Cash and cash equivalents	$	77,717	$	289,345	$	68,601	$	245,735
Restricted cash included in prepaid expenses and other current assets	158		158		—		158
Restricted cash included in other non-current assets	168		168		168		168
Total cash, cash equivalents and restricted cash	$	78,043	$	289,671	$	68,769	$	246,061

~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Pronouncements~~—In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases,” which amends the requirements for assets and liabilities recognized for all leases longer than twelve months. This standard is effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. These changes became effective for the Company’s fiscal year beginning January 1, 2019 and have been reflected in these condensed consolidated financial statements (See “Note 17—Leases”).

~~In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718):~~Improvements to Non-employee Share-Based Payment Accounting.” This update clarifies the accounting for share-based payment transactions for acquiring goods and services from non-employees. Specifically, the update aligns the accounting for payments to 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.

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

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~accounting for fees paid by~~Financial Impacts Related To COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, a ~~customer in~~novel strain of Coronavirus, a ~~cloud computing arrangement by providing guidance for determining when~~global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as 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~~virus spreads. The extent of the ~~standard~~effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is ~~permitted. The Company early adopted~~unable to estimate the overall financial effect of the pandemic at this ~~standard beginning January 1, 2019, noting that this standard will be applied prospectively. Adoption of this standard did not~~time, if the pandemic continues, it could have a material ~~impact~~adverse effect on the ~~Company's~~Company’s business, results of operations, financial condition and cash flows. As of March 31, 2020, these condensed consolidated financial ~~statements.~~statements do not reflect any adjustments as a result of the pandemic.

Recent Accounting Pronouncements

~~Not Yet~~Recently Adopted Accounting Pronouncements—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~~This standard requires that 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~~These changes became effective for the Company's fiscal year beginning January 1, 2020. The Company recognized the cumulative effect of the initial application of ASU 2016-13 as an adjustment of $1,141 to the opening balance of accumulated deficit. The Company does not expect the adoption of ASU 2016-13 to have a material impact to the ~~standard is permitted. The Company is currently evaluating the potential impact~~results of ~~this guidance~~its operations on ~~its condensed consolidated financial statements.~~an ongoing basis.

Not Yet Adopted Accounting Pronouncements—In ~~August 2018,~~December 2019, the FASB issued ASU ~~2018-13, “Fair Value Measurement~~2019-12, “Income Taxes (Topic ~~820)~~740): ~~Disclosure Framework—Changes to~~Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurement.~~Income Taxes.” This update aims to ~~improve~~reduce complexity within the ~~effectiveness of disclosure requirements on fair value measurement~~accounting for income taxes as part of the ~~disclosure framework project.~~simplification initiative. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, ~~2019.~~2020. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.


3.	~~Business~~ Acquisitions and Other Investments

~~Acquisition of private company~~Investment in Private Services Company

On January ~~2, 2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet and~~8, 2020, the Company acquired a 4.25% membership interest in a private services company for cash consideration of $11,000. The private services company partners with independent network advisory firms to help them grow, become more profitable and run more efficiently. The Company will use the equity method of accounting to record its portion of the private services company’s net income or loss on a one quarter lag from the actual results of operations. The Company uses the equity method of accounting because of its less than 50% ownership and lack of control and does not otherwise exercise control over the significant economic decisions of the private services company.

The private services company ~~merged into Yodlee Inc.,~~is and remains a client of the Company and has thus been determined to be a related party. Revenues from the private services company totaled $2,689 in the three months ended March 31, 2020. As of March 31, 2020, the Company had recorded a net receivable of $1,963 from the private services company.

Acquisition of Private Technology Company

On February 18, 2020, the Company, through it's wholly owned subsidiary ~~of the Company~~Yodlee, Inc. (“Yodlee”), acquired a private technology company (the “Private Technology Company Acquisition”). The private technology company ~~provides conversational artificial intelligence tools~~enables the consent generation and ~~applications to~~data flow between financial information providers, such as banks and financial institutions, and financial information users, such as financial technology lenders and other 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 waveagencies, through a network of ~~customer-centric capabilities.~~

cloud-based interoperable interfaces or application programming interfaces. The technology and operations of the private technology company ~~is included in the Company’s~~have been integrated into our 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 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

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~necessary to finalize those fair values. Therefore, provisional measurements~~In connection with the Private Technology Company Acquisition, the Company acquired all of ~~fair values reflected are~~the outstanding shares and paid cash consideration of $2,343, net of cash acquired, subject to ~~change~~certain closing and ~~such changes could be significant.~~post-closing adjustments, plus up to an additional $6,750 in contingent consideration, based upon achieving certain performance targets. The Company ~~expects~~recorded a liability as of the date of acquisition of $5,239, which represented the estimated fair value of contingent consideration on the date of acquisition. Future changes to ~~finalize~~ the ~~valuation~~estimated fair value of ~~tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and complete~~ the ~~acquisition accounting as soon as reasonably practicable but no later than January 2, 2020.~~contingent consideration, if any, are recognized in earnings of the Company.

The ~~following table summarizes the~~Company recorded estimated ~~fair values~~goodwill 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$7,017, which is not deductible for income tax ~~purposes.~~

~~A summary of~~purposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible 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

liabilities assumed were not material.

The results of the private technology company's operations are included in the condensed consolidated statements of operations beginning ~~January 2, 2019~~February 18, 2020 and were not considered material to the Company’s results of operations.

Acquisition of Private Cloud Technology Company

On March 2, 2020, the Company acquired certain assets of a private cloud technology company (the “Private Cloud Technology Company Acquisition”). The private cloud technology company enables enterprises to design and implement the digital transition from legacy systems and applications to a modern cloud computing platform. The technology and operations of the private cloud technology company have been integrated into our Envestnet Wealth Solutions segment.

In connection with the Private Cloud Technology Company Acquisition, the Company paid estimated consideration of $11,968, net of cash acquired. In connection with the acquisition, the Company recorded estimated goodwill of $10,932, which is deductible for income tax purposes. The tangible assets acquired and liabilities assumed were not material.

The results of the private cloud technology company's operations are included in the condensed consolidated statements of operations beginning March 2, 2020 and were not considered material to the Company’s results of operations.

Acquisition of Private Financial Technology Design Company

On March 3, 2020, the Company acquired the outstanding units of a private financial technology design company that were not owned by the Company and merged the acquired company into a wholly owned subsidiary of the Company (the “Private Financial Technology Design Company Acquisition”). The private financial technology design company designs integrated, intuitive digital technology applications for institutional financial services firms, bank wealth management organizations, independent advisor networks, and broker-dealers. The technology and operations of the private financial technology design company have been integrated into our Envestnet Wealth Solutions segment.

The Company previously owned approximately 45% of the outstanding units in this private financial technology design company, and accounted for it as an equity method investment. Based upon the estimated value of the private financial technology design company of $11,026, the Company paid estimated consideration of $5,946, net of cash acquired, for the remaining outstanding units. As a result of the acquisition, the Company recognized a gain of $4,230 on the re-measurement to fair value of its previously held interest, which is included in other expense, net in the condensed consolidated statements of operations

In connection with the Private Financial Technology Design Company Acquisition, the Company recorded estimated total goodwill of $9,241, of which approximately $1,800 is deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $2,000. The tangible assets acquired and liabilities assumed were not material.

The results of the private financial technology design company's operations are included in the condensed consolidated statements of operations beginning March 3, 2020 and were not considered material to the Company’s results of operations.

For the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, acquisition related costs for all of the ~~Private Company Acquisition~~Company's first quarter 2020 acquisitions were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of ~~2019.~~2020.

~~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 PortfolioCenter Acquisition with available cash resources. The PC Seller is also entitled to an earn-out payment based on the PortfolioCenter Business’ revenue for the twelve-month period beginning April 1, 2020. The discounted amount of the contingent consideration liability is estimated to be $8,300.

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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

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

The estimated fair values of the deferred income taxes, identifiable intangible assets, contingent consideration liability and goodwill balances are provisional and 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 deferred income taxes, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as practicable but no later than April 1, 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 $ 13
Total liabilities assumed (1,600 )
Identifiable intangible assets 12,400
Goodwill 14,987
Total net assets acquired $ 25,800

~~The~~ goodwill arising from ~~the acquisition~~these acquisitions 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. The goodwill is 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.

~~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 advisors.

In connection with the 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 Company has recorded approximately $1,480 as a component of compensation and benefits in the condensed consolidated statement of operations with a corresponding liability in other non-current liabilities in the 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 goodwill balances are provisional and 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 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.

~~Envestnet, Inc.~~

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

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

~~The 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 represents the expected synergistic benefits of the transaction,~~transactions, primarily related to an increase in future revenues as a result of potential new business and cross selling ~~opportunities. The goodwill is not deductible for income tax purposes.~~opportunities as well as enhancements to our existing technologies.

~~A summary~~Pro Forma Financial Information

On April 1, 2019, the Company acquired certain of ~~estimated~~the assets, primarily consisting of 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 assumption of certain liabilities of the PortfolioCenter business (“PortfolioCenter”) from Performance Technologies, Inc., a wholly-owned subsidiary of The ~~results of PIEtech's operations are included in the condensed consolidated statements of operations beginning~~Charles Schwab Corporation. On May 1, ~~2019. PIEtech's revenues for~~2019, the ~~three and six months ended June 30, 2019 totaled $6,632. PIEtech's pre-tax loss for~~Company acquired all of the ~~three and six months ended June 30, 2019 totaled $3,422. The pre-tax loss includes estimated acquired intangible asset amortization~~outstanding shares 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~~capital stock of 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 financial information~~

Inc. (“PIEtech”). The following pro forma financial information presents the combined results of operations of Envestnet, PortfolioCenter and PIEtech for the three ~~and six~~ months ended ~~June 30,~~March 31, 2019 and ~~2018. The pro forma financial information presents~~assumes the ~~results as if the acquisition~~acquisitions of PortfolioCenter and PIEtech had occurred as of the beginning of 2018. The results of the ~~private company acquisition~~Company's other acquisitions since January 1, 2019 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 below include amortization charges for acquired intangible assets, interest expense, stock-based compensation expense and income tax. The Company's ~~2018~~ pro forma information below includes the reversal of a valuation allowance on its deferred tax assets as of January 1, 2018 and the reversal of transaction ~~fee payments and retention bonus payments~~costs that were incurred in

~~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 2018.


	Three Months Ended June 30,						Six Months Ended June 30,					Three Months Ended March 31,
	2019			2018			2019			2018		2019
Revenues	$	228,522		$	215,240		$	443,275		$	426,291	$	214,753
Net income (loss) attributable to Envestnet, Inc.	(7,612		)	(1,661		)	(18,857		)	5,186
Net income (loss) per share attributable to Envestnet, Inc.:
Net loss attributable to Envestnet, Inc.												(11,245		)
Net loss per share attributable to Envestnet, Inc.:
Basic	$	(0.15	)	$	(0.03	)	$	(0.37	)	$	0.11	$	(0.22	)
Diluted	$	(0.15	)	$	(0.03	)	$	(0.37	)	$	0.10	$	(0.22	)


4.	Prepaid Expenses and Other Current Assets

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


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Prepaid technology	$	9,801	$	6,766	$	10,653	$	8,178
Non-income tax receivables					6,357		5,555
Advance payroll taxes and benefits	10,802		—		5,329		5,446
Non-income tax receivables	8,279		6,240
Prepaid insurance					2,509		1,919
Prepaid outside information services	1,989		1,515		2,131		2,209
Other	9,175		9,036		10,720		8,876
Total	$	40,046	$	23,557
Total prepaid expenses and other current assets					$	37,699	$	32,183


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

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


5.	Property and Equipment, Net

~~Envestnet Data & Analytics segment with~~

Property and equipment, net consists of the following:



		March 31,			December 31,
	Estimated Useful Life	2020			2019
Cost:
Computer equipment and software	3 years	$	72,700		$	72,190
Leasehold improvements	Shorter of the lease term or useful life of the asset	36,180			34,645
Office furniture and fixtures	3-7 years	10,846			10,832
Office equipment and other	3-5 years	6,898			6,850
Building and building improvements	7-39 years	2,647			2,647
Land	Not applicable	940			940
		130,211			128,104
Less: accumulated depreciation and amortization		(77,021		)	(74,348		)
Total property and equipment, net		$	53,190		$	53,756

During the three months ended March 31, 2020, the Company retired an ~~historical cost~~immaterial amount of ~~$2,525~~property and ~~$3,401, respectively.~~equipment that was no longer in service. Gains and losses on asset retirements during the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2020 and 2019 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
	March 31,
	2020		2019
Depreciation and amortization expense	$	5,317	$	4,366


6.	Internally Developed Software

Internally developed software consists of the following:


		June 30,			December 31,				March 31,			December 31,
	Estimated Useful Life	2019			2018			Estimated Useful Life	2020			2019
Internally developed software	5 years	$	85,993		$	70,410		5 years	$	116,275		$	104,703
Less: accumulated amortization		(37,934		)	(32,201		)		(48,048		)	(44,440		)
Internally developed software, net		$	48,059		$	38,209			$	68,227		$	60,263

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



	Three Months Ended
	March 31,
	2020		2019
Amortization expense	$	3,608	$	2,623


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



	Envestnet Wealth Solutions			Envestnet Data & Analytics			Total
Balance at December 31, 2019	$	583,247		$	296,603		$	879,850
Acquisitions	20,173			7,017			27,190
Foreign currency and other	(70		)	(469		)	(539		)
Balance at March 31, 2020	$	603,350		$	303,151		$	906,501

~~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

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Intangible assets, net consist of the following:



		March 31, 2020							December 31, 2019
		Gross					Net		Gross					Net
	Estimated	Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	Useful Life	Amount		Amortization			Amount		Amount		Amortization			Amount
Customer lists	7-16 years	$	591,520	$	(161,339	)	$	430,181	$	591,520	$	(148,517	)	$	443,003
Proprietary technologies	4-8 years	90,719		(48,865		)	41,854		87,714		(44,165		)	43,549
Trade names	2-7 years	33,700		(15,895		)	17,805		33,700		(14,663		)	19,037
Total intangible assets		$	715,939	$	(226,099	)	$	489,840	$	712,934	$	(207,345	)	$	505,589

There were no retirements of intangible assets during the three months ended March 31, 2020.

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
	March 31,
	2020		2019
Amortization expense	$	18,758	$	12,528

~~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 Expenses and Other Liabilities

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


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Accrued compensation and related taxes					$	54,336	$	53,627
Accrued investment manager fees	$	43,966	$	50,635	40,221		48,720
Accrued compensation and related taxes	44,411		50,598
Sales and use tax payable	12,006		9,733
Non-income tax payables					11,249		11,040
Accrued professional services					4,271		3,833
Accrued technology					3,967		3,042
Accrued transaction costs	4,812		4,543		2,456		2,482
Accrued professional services	2,599		4,517
Accrued charitable contribution					—		5,020
Other accrued expenses	10,814		13,272		15,642		10,180
Total	$	118,608	$	133,298
Total accrued expenses and other liabilities					$	132,142	$	137,944


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
$ —

~~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

~~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~~fourth quarter 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 (“Second Amended and Restated Credit Agreement”) with a group of banks (“Banks”). Pursuant to the Second Amended and Restated Credit Agreement, the Banks have agreed to provide to the Company revolving credit commitments (“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% and 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 June 30, 2019, the Company ~~was~~offered a voluntary early retirement program (the “Early Retirement Program”) to employees over a certain age, who have a combined age and years of experience with the Company of at least 65 years. Employees had until January 31, 2020 to voluntarily accept the program with separation of service no later than March 31, 2020. In connection with this program, the Company recorded $11,966 of severance expense during the three months ended March 31, 2020. As of March 31, 2020, the Company has accrued approximately $10,670 in ~~compliance~~accrued compensation and related taxes and $2,336 recorded in other non-current liabilities. As of December 31, 2019, the Company had accrued approximately $1,733 in accrued compensation and related taxes and $599 recorded in other non-current liabilities. The Company anticipates approximately $12,000 of payments in 2020 with ~~these requirements.~~the remainder paid through 2030.

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)


9.	Debt

The Company’s outstanding debt obligations as of March 31, 2020 and December 31, 2019 were as follows:



	March 31,			December 31,
	2020			2019
Revolving credit facility balance	$	290,000		$	260,000

Convertible Notes due 2023	$	345,000		$	345,000
Unaccreted discount on Convertible Notes due 2023	(31,160		)	(33,491		)
Unamortized issuance costs on Convertible Notes due 2023	(5,578		)	(5,996		)
Convertible Notes due 2023 carrying value⁽¹⁾	$	308,262		$	305,513

⁽¹⁾The effective interest rate on the liability component of the Convertible Notes due 2023 was 6% for the three months ended March 31, 2020 and 2019.

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



	Three Months Ended
	March 31,
	2020		2019
Interest on revolving credit facility	$	2,518	$	—
Accretion of debt discount	2,331		3,758
Coupon interest	1,501		2,264
Amortization of issuance costs	631		858
Undrawn and other fees	153		216
Total interest expense	$	7,134	$	7,096

The credit agreement under which the above revolving credit facility was issued (the “Amended Credit Agreement”) includes certain financial covenants and, as of March 31, 2020, the Company was in compliance with these requirements.

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


10.	Fair Value Measurements

The Company follows ASC 825-10, “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 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:



~~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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, based on the three-tier fair value hierarchy:


	June 30, 2019								March 31, 2020
	Fair Value		Level I		Level II		Level III		Fair Value		Level I		Level II		Level III
Assets:
Money market funds and other⁽¹⁾	$	40,016	$	40,016	$	—	$	—
Money market funds									$	29,076	$	29,076	$	—	$	—
Assets to fund deferred compensation liability⁽²⁾	8,091		—		—		8,091		7,173		—		—		7,173
Total assets	$	48,107	$	40,016	$	—	$	8,091	$	36,249	$	29,076	$	—	$	7,173
Liabilities:
Contingent consideration	$	16,423	$	—	$	—	$	16,423	$	14,791	$	—	$	—	$	14,791
Deferred compensation liability⁽³⁾	7,974		7,974		—		—		6,911		6,911		—		—
Total liabilities	$	24,397	$	7,974	$	—	$	16,423	$	21,702	$	6,911	$	—	$	14,791

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)



	December 31, 2019
	Fair Value		Level I		Level II		Level III
Assets:
Money market funds	$	37,730	$	37,730	$	—	$	—
Assets to fund deferred compensation liability	8,390		—		—		8,390
Total assets	$	46,120	$	37,730	$	—	$	8,390
Liabilities:
Contingent consideration	$	9,045	$	—	$	—	$	9,045
Deferred compensation liability	8,208		8,208		—		—
Total liabilities	$	17,253	$	8,208	$	—	$	9,045

December 31, 2018
Fair Value Level I Level II Level III
Assets:
Money market funds⁽¹⁾
$ 265,554
$ 265,554
$ —
$ —
Assets to fund deferred compensation liability⁽²⁾
6,346
—
—
6,346
Total assets $ 271,900

$ 265,554
$ —
$ 6,346
Liabilities:

Contingent consideration $ 732
$ —
$ —
$ 732
Deferred compensation liability⁽³⁾
6,196
6,196
—
—
Total liabilities $ 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.~~


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

Level I assets and liabilities include money market funds not insured by the Federal Deposit Insurance Corporation (“FDIC”) and deferred compensation liability. The Company periodically invests excess cash in 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 funds are considered Level I and are included in cash and cash equivalents in the condensed consolidated balance sheets. Time deposit account fair values are determined by trade confirmations which mature daily and 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.

Level III assets and liabilities consist of the estimated fair 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 its life insurance premiums.

The fair value of the contingent consideration liabilities related to certain of the Company's acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level III fair value measurement as defined in ASC 820, “Fair Value Measurements and Disclosures.“” The significant inputs in the Company's Level III fair value measurement not supported by market activity included ~~our~~its assessments of expected future cash flows related to 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 their respective agreements.

~~The Company utilized a discounted cash flow method with expected future performance of~~ these acquisitions and their ability to meet the target performance objectives asduring the ~~main driver~~subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the ~~valuation, to arrive at~~uncertainties associated with these obligations, and are calculated in accordance with the ~~fair values~~terms of their respective ~~contingent consideration.~~ agreements.

The Company will continue to reassess the fair values of ~~its~~the contingent consideration liabilities at each reporting date until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general and administrative expenses onin the condensed consolidated statements of operations.

~~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 Company's contingent consideration liabilities, which ~~the Company~~were measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, ~~2018~~2019 to ~~June 30, 2019:~~

March 31, 2020:

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



	Fair Value of Contingent Consideration Liabilities
Balance at December 31, 2019	$	9,045
Private technology company acquisition	5,239
Accretion on contingent consideration	507
Balance at March 31, 2020	$	14,791

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

March 31, 2020:

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 Assets to Fund Deferred Compensation Liability
Balance at December 31, 2019	$	8,390
Fair value adjustments	(1,217		)
Balance at March 31, 2020	$	7,173

The ~~asset~~fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which isare included in other non-current assets onin the condensed consolidated balance sheets, ~~increased~~decreased due to ~~funding of the plan and gains~~losses on the underlying investment vehicles. These losses are recognized in the Company's earnings and included in general and administrative expenses in the condensed consolidated statements of operations.

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~~when changes in circumstances ~~that~~ caused the transfer, in

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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 ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

~~On December 15, 2014, the Company issued $172,500 of Convertible Notes due 2019.~~ As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the carrying value of the Convertible Notes due ~~2019~~2023 equaled ~~$169,182~~$308,262 and ~~$165,711,~~$305,513, respectively, and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the estimated fair value of the Convertible Notes due 2019 was $193,983 and $174,101, respectively. The Company considered the Convertible Notes due 2019 to be a Level II liability at June 30, 2019 and 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 June 30, 2019 (See “Note 9—Debt”).

On May 25, 2018, the Company issued $345,000 of Convertible Notes due 2023. As of June 30, 2019 and December 31, 2018, the carrying value of the Convertible Notes due 2023 equaled $300,078 and $294,725, respectively, and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of June 30, 2019 and December 31, 2018, the fair value of the Convertible Notes due 2023 was ~~$411,896~~$369,074 and ~~$339,024,~~$414,852, respectively. The Company considered the Convertible Notes due 2023 to be a Level II liability at ~~June 30, 2019~~March 31, 2020 and 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 ~~June 30, 2019~~March 31, 2020 (See “Note 9—Debt”).

As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there was ~~$145,000~~$290,000 and ~~$0,~~$260,000, respectively, outstanding on the revolving credit facility under the ~~Second~~ Amended ~~and Restated~~ Credit Agreement. As of ~~June 30, 2019,~~March 31, 2020, the outstanding balance on the revolving credit facility approximated fair value as borrowings under the revolving credit facility bore interest at variable rates and ~~we believe our~~

~~Envestnet, Inc.~~

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

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

the Company believes its credit risk quality was consistent with when the debt originated. The Company considered the revolving credit facility to be a Level I liability as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (See “Note 9—Debt”).

~~We consider~~The Company considered 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 ~~June 30, 2019~~March 31, 2020 based upon the short-term nature of these assets and liabilities.


11.	Revenue

Disaggregation of ~~revenue~~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,												Three Months Ended March 31,
	2019						2018						2020						2019
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		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	$	134,811	$	—	$	134,811	$	108,934	$	—	$	108,934
Subscription-based	91,104		84,241		175,345		65,608		75,866		141,474		60,323		44,228		104,551		41,026		42,061		83,087
Total recurring revenues	320,108		84,241		404,349		304,872		75,866		380,738		195,134		44,228		239,362		149,960		42,061		192,021
Professional services and other revenues	9,487		10,275		19,762		8,044		10,345		18,389		3,286		3,891		7,177		2,745		4,900		7,645
Total revenues	$	329,595	$	94,516	$	424,111	$	312,916	$	86,211	$	399,127	$	198,420	$	48,119	$	246,539	$	152,705	$	46,961	$	199,666

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 the Envestnet Wealth Solutions segment's revenues for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 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~~accounted for over 10% of the Envestnet Data & Analytics ~~exceeded 10% of the segment total~~segment's revenue for any period presented.

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				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
United States	$	217,462	$	193,237	$	409,581	$	381,552	$	240,452	$	192,119
International ⁽¹⁾	6,983		7,879		14,530		17,575		6,087		7,547
Total	$	224,445	$	201,116	$	424,111	$	399,127
Total revenues									$	246,539	$	199,666


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

Remaining ~~performance obligations~~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:~~

March 31, 2020:


Years ending December 31,
Remainder of 2019	$	122,303
2020	171,252
Remainder of 2020			$	169,680
2021	106,389		166,469
2022	70,046		121,386
2023	32,354		57,523
2024			32,908
Thereafter	41,237		27,043
Total	$	543,581	$	575,009

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~~Balances

Total deferred revenue as of ~~June 30, 2019~~March 31, 2020 increased by ~~$13,362, which is~~$5,947 during the three months ended March 31, 2020, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of the ~~PIEtech and PortfolioCenter acquisitions and an increase in~~Company's 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~~$15,479 and ~~$5,737~~$9,723 for the three months ended ~~June 30,~~March 31, 2020 and 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~~Sales Incentive Compensation

Deferred sales incentive compensation was ~~$9,598~~$9,218 and ~~$7,014~~$9,387 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Amortization expense for the deferred sales incentive compensation was ~~$753~~$1,029 and ~~$536~~$651 for the three months ended ~~June 30,~~March 31, 2020, and 2019, ~~and 2018,~~ respectively. ~~Amortization expense for the deferred~~Deferred sales incentive compensation ~~was $1,404~~is included in other non-current assets on the condensed consolidated balance sheets and ~~$1,018 for~~amortization expense is included in compensation and benefits expenses on the ~~six months ended June 30, 2019, and 2018, respectively.~~condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the ~~period.~~periods.

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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 onin the condensed consolidated statements of operations.


12.	Cost of Revenues

The following table summarizes cost of revenues by revenue category:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Asset-based	$	60,293	$	56,748	$	114,135	$	114,320	$	68,592	$	53,842
Subscription-based	6,697		6,213		14,374		11,439		6,277		7,677
Professional services and other	5,090		4,666		5,216		4,802		64		126
Total	$	72,080	$	67,627	$	133,725	$	130,561
Total cost of revenues									$	74,933	$	61,645


13.	Stock-Based Compensation

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

~~As a result of the PIEtech Acquisition (See “Note 3—Business Acquisitions”), the Company adopted the 2019~~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 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.Plan”).

As of ~~June 30, 2019,~~March 31, 2020, the maximum number of common shares available for future issuance under the Company’s plans is ~~2,233,604.~~1,355,235.

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Stock-based compensation expense	$	13,434		$	10,476		$	26,298		$	18,971		$	13,765		$	12,864
Tax effect on stock-based compensation expense	(3,504		)	(2,650		)	(6,859		)	(4,800		)	(3,510		)	(3,256		)
Net effect on income	$	9,930		$	7,826		$	19,439		$	14,171		$	10,255		$	9,608

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of ~~26.1% for the three~~25.5% 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 six~~ months ended ~~June 30, 2018.~~

~~Envestnet, Inc.~~

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

~~(in thousands, except share~~March 31, 2020 and ~~per share amounts)~~

2019, respectively.

Stock Options

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Grant date fair value of options	$	—		$	—		$	21.55		$	—		$	—		$	21.55
Volatility	—		%	—		%	40.0		%	—		%	—		%	40.0		%
Risk-free interest rate	—		%	—		%	2.5		%	—		%	—		%	2.5		%
Dividend yield	—		%	—		%	—		%	—		%	—		%	—		%
Expected term (in years)	—			—			6.5			—			0			6.5

~~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

Exercise prices of stock options outstanding as of June 30, 2019 range from $7.15 to $55.29. At June 30, 2019, there was $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 2.3 years.

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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, 2019	1,150,586		$	25.66	3.4	$	50,590
Granted	—		—
Exercised	(357,974	)	16.57
Forfeited	(7,213	)	48.70
Outstanding as of March 31, 2020	785,399		29.60		3.6	19,010
Options exercisable	745,220		$	28.55	3.4	$	18,819

Exercise prices of stock options outstanding as of March 31, 2020 range from $9.00 to $55.29. At March 31, 2020, there was $539 of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 1.8 years.

Restricted Stock Units and Restricted Stock Awards

Periodically, the Company grants restricted stock ~~unit~~units and awards and ~~performance~~performance-based stock units and awards to employees. Performance-based ~~restricted unit~~stock units and awards vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based ~~restricted~~ stock ~~unit~~units and 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 3three years from the grant date.

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


	RSUs				PSUs				RSUs				PSUs
	Number of Shares		Weighted- Average Grant Date Fair Value per Share		Number of Shares		Weighted- Average Grant Date Fair Value per Share		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
Outstanding as of December 31, 2019									1,318,870		$	58.88	254,118		$	67.96
Granted	872,104		60.94		68,510		64.32		907,042		75.53		67,793		81.42
Vested	(479,479	)	45.98		—		—		(398,881	)	55.93		—		—
Forfeited	(20,830	)	48.31		(4,036	)	61.27		(41,175	)	59.74		(33,010	)	64.70
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
Outstanding as of March 31, 2020									1,785,856		67.98		288,901		71.49

At ~~June 30, 2019,~~March 31, 2020, there was ~~$82,846~~$112,196 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 ~~2.2~~2.4 years. At ~~June 30, 2019,~~March 31, 2020, there was ~~$17,371~~$14,656 of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units and awards, which the Company expects to recognize over a weighted-average period of ~~2.7~~2.3 years.


14.	Income Taxes

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Loss before income tax provision (benefit)	$	(27,769	)	$	(5,425	)	$	(42,269	)	$	(11,417	)	$	(9,154	)	$	(14,500	)
Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)	(1,964		)	3,768
Effective tax rate	102.2		%	(10.4		)%	58.2		%	117.6		%	21.5		%	(26.0		)%

For the three and six months ended June 30, 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 from the PIEtech Acquisition, the windfall from share-based compensation, federal and state research and development credits, and additional accruals for uncertain tax positions.

For the three months ended June 30, 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 intangibles, additional accruals for uncertain tax positions, the impact of clarifying Base Erosion and Anti Abuse (“BEAT”) tax positions, as well as differences between the foreign tax rates and statutory US tax rate.

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

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~acquisition~~For the three months ended March 31, 2020, the Company's effective tax rate differed from the statutory rate primarily due to increases in the valuation allowance the Company had placed on a portion of ~~FolioDynamix, additional accruals for uncertain~~its US deferred tax ~~positions as well as differences between~~assets, the ~~foreign~~windfall from stock-based compensation and the CARES Act net operating loss (“NOL”) carryback. For the three months ended March 31, 2019, the Company's effective tax ~~rates~~rate differed from the statutory rate primarily due to the impact of the Base Erosion and ~~statutory US tax rate.~~

~~In December 2017, the~~Anti-Abuse 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”~~BEAT”) and ~~BEAT provisions. The Company elected to account for GILTI tax~~increases in the ~~period in which it is incurred. The GILTI provision requires~~valuation allowance the Company ~~to include in its U.S. income~~had placed on all US deferred tax ~~return foreign subsidiary earnings in excess~~assets with the exception of an allowable return on the foreign subsidiary’s tangible assets. 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, the Company does not currently expect to be subject to BEAT. Additionally, the two Indian entities are no longer subject to GILTI.indefinite-lived intangibles.

The Company's total gross liability for unrecognized tax benefits, exclusive of interest and penalties, was ~~$18,102~~$19,370 and ~~$15,628~~$18,939 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, 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 $6,411~~was $6,433 and ~~$4,429~~$6,504 at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

At ~~June 30, 2019,~~March 31, 2020, the amount of unrecognized tax benefits, including interest and penalties, that would benefit the ~~Company’s~~Company's effective tax rate, if recognized, was ~~$12,116.~~$13,355. At this time, the Company estimates that the liability for unrecognized tax benefits could decrease in the next twelve months as it is anticipated that reviews by tax authorities will be completed.

The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. ~~Income tax expense includes $898 and $548 of potential interest and penalties related to unrecognized tax benefits~~These amounts were not material for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, respectively.~~2019. The Company had accrued interest and penalties of ~~$6,924~~$7,274 and ~~$5,977~~$7,336 as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.


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

Basic ~~income (loss)~~net loss per common share is computed by dividing net ~~income (loss)~~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)~~net 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 using the treasury stock method, if dilutive.

The Company accounts for the effect of its convertible notes (See “Note 9—Debt”) on diluted ~~earnings~~net loss 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~~net loss 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 meets certain criteria. In the period of conversion, the convertible notes will have no impact on diluted ~~earnings~~net loss per share if they are settled in cash and will have an impact on dilutive ~~earnings~~net loss per share if they are settled in shares upon conversion.

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



	Three Months Ended
	March 31,
	2020			2019
Basic and diluted net loss per share calculation:
Net loss attributable to Envestnet, Inc.	$	(7,336	)	$	(18,185	)

Basic and diluted number of weighted-average shares outstanding	53,016,511			48,237,265
Basic and diluted net loss per share	$	(0.14	)	$	(0.38	)

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

~~The following table provides~~ As the ~~numerators and denominators used~~Company was 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

a loss position for all periods presented, all potentially dilutive securities were anti-dilutive. Securities that were anti-dilutive and therefore excluded from the computation of diluted net loss per share ~~are~~were as follows:


	Three Months Ended		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
	2019	2018	2019	2018	2020	2019
Options to purchase common stock	—	2,077,874	1,654,241	9,045	785,399	1,768,350
Unvested restricted stock awards and units	—	1,880,744	1,989,437	—	2,074,757	2,022,057
Warrants	—	—	470,000	—	470,000	470,000
Convertible Notes	—	7,793,826	7,793,826	7,793,826	5,050,505	7,793,826
Total	—	11,752,444	11,907,504	7,802,871
Total anti-dilutive securities					8,380,661	12,054,233


16.	Segment Information

Business segments are generally organized around the Company's business services. The Company's business segments are:

•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 analytics 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 operating expenses include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, restructuring charges, and other non-recurring and/or non-operationally related expenses. Intersegment revenues were not material for the three months ended March 31, 2020 and 2019.

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

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



	Three Months Ended
	March 31,
	2020			2019
Envestnet Wealth Solutions	$	11,340		$	16,844
Envestnet Data & Analytics	(4,585		)	(7,928		)
Nonsegment operating expenses	(14,372		)	(17,653		)
Loss from operations	(7,617		)	(8,737		)
Other expense, net	(1,537		)	(5,763		)
Consolidated loss before income tax provision (benefit)	(9,154		)	(14,500		)
Income tax provision (benefit)	(1,964		)	3,768
Consolidated net loss	(7,190		)	(18,268		)
Add: Net (income) loss attributable to non-controlling interest	(146		)	83
Consolidated net loss attributable to Envestnet, Inc.	$	(7,336	)	$	(18,185	)

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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



	March 31,		December 31,
	2020		2019
Segment assets:
Envestnet Wealth Solutions	$	1,323,471	$	1,297,891
Envestnet Data & Analytics	506,987		503,993
Consolidated total assets	$	1,830,458	$	1,801,884



	Three Months Ended
	March 31,
	2020		2019
Segment depreciation and amortization:
Envestnet Wealth Solutions	$	19,420	$	11,267
Envestnet Data & Analytics	8,263		8,250
Consolidated depreciation and amortization	$	27,683	$	19,517



	Three Months Ended
	March 31,
	2020		2019
Segment capital expenditures:
Envestnet Wealth Solutions	$	10,190	$	10,838
Envestnet Data & Analytics	3,542		1,594
Consolidated capital expenditures	$	13,732	$	12,432


17.	Geographical Information

The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:



	March 31,		December 31,
	2020		2019
United States	$	116,182	$	108,992
India	4,385		3,988
Other	850		1,039
Total long-lived assets, net	$	121,417	$	114,019

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


18.	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 no0 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 associated with these arrangements in the condensed consolidated balance sheets.

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

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

~~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~~

On September 17, 2019, the Company and Yodlee filed a motion to ~~file their responsive pleadings,~~dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. The motion to dismiss is fully briefed, and the parties are awaiting a decision from the Court. On October 30, 2019, the Company and Yodlee filed counterclaims ~~by September 17, 2019.~~against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee's counterclaims. The Company believes ~~the~~FinancialApps’s allegations ~~in the complaint~~ are without merit and intends to defend the action and litigate the counterclaims 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. 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 ~~June 30, 2019.~~March 31, 2020. 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 ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company estimated a sales and use tax liability of ~~$10,989~~$10,709 and ~~$8,643,~~$10,220, respectively, related to revenues in multiple jurisdictions. This amount is included in accrued expenses and other liabilities onin the condensed consolidated balance sheets. ~~The~~

As of March 31, 2020 and December 31, 2019, the Company also estimated a sales and use tax receivable of ~~$5,139~~$3,689 and ~~$5,246,~~$3,346, respectively, related to the estimated recoverability of ~~amounts due~~a portion of the liability from customers. This amount is included in prepaid expenses and other current assets onin the condensed consolidated balance sheets.

Additional future information obtained from the applicable jurisdictions may affect the 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

~~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. Future minimum lease commitments under these operating leases, 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

~~Envestnet, Inc.~~

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

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


~~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 Data & Analytics –~~ ~~a leading data aggregation and data 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 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 six months ended June 30, 2019 and 2018.

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

~~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

Segment assets consist of cash, accounts receivable, prepaid expenses and other current assets, property and equipment, net, internally developed software, net, goodwill, and 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:~~

June 30, December 31,
2019 2018
Segment assets:
Envestnet Wealth Solutions $ 1,279,408
$ 810,971
Envestnet Data & Analytics 532,932
502,776
Consolidated total assets $ 1,812,340
$ 1,313,747

~~Envestnet, Inc.~~

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

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

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Segment depreciation and amortization:
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 $ 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


~~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

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

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.

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.”~~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~~The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements ~~may~~in this quarterly report include, ~~among others, statements relating to:~~but are not limited to,

a pandemic or health crisis, including the Coronavirus Disease 2019 (“COVID-19”) pandemic, and its impact on the global economy and capital markets, as well as our products, clients, vendors and employees, and our results of operations, the full extent of which may be unknown;

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

resources;

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

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

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

the variability of our revenue from period to ~~period,~~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,~~sales;

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

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

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

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

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

changes in investing patterns on the assets on which we derive revenue and the freedom of investors to redeem or withdraw investments generally at any time;

the renegotiation of fees by our ~~clients,~~clients;

our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients;

our ability to introduce new solutions and services and enhancements;

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,~~breaches;

the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations and the negative effects of failure to comply with these requirements on how we operate our ~~business,~~business;

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

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

harm to our reputation;

our failure to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities;

our inability to maintain our payment network with third-party service providers, or difficulties encountered by our disbursement partners;

limitations on our ability to access information from third parties or charges for accessing such information;

potential liability for use of inaccurate information by third parties provided by us;

the failure of our insurance to adequately protect ~~us,~~us;

our dependence on our senior management ~~team,~~team;

our ability to recruit and retain qualified ~~employees,~~employees;

regulatory compliance ~~failures,~~failures;

changes in laws and regulations, including tax laws and regulations, or the inability to continue to rely on exemptions from the applicability of certain laws or regulations;

the occurrence of a deemed “change of control”;

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

the failure to protect our intellectual property ~~rights,~~rights;

potential claims by third parties for infringement orof their intellectual property ~~rights,~~rights;

our use of open source coding;

protection of trade secrets and other proprietary information;

risks associated with our international ~~operations,~~

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

the impact of fluctuations in foreign currency exchange ~~rates,~~rates;

the uncertainty of the application and interpretation of certain tax ~~laws,~~laws;

changes in accounting principles and ~~standards,~~standards;

changes in the estimates of fair value of reporting units or of long-lived assets;

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

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

global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and


•	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~~Item 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, ~~2018~~2019 (the ~~“2018~~“2019 Form 10-K”);, as updated in Part II, Item 1A.“Risk Factors” of this Form 10-Q; 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 the ~~2018~~2019 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 ~~2018~~2019 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. Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.

More than ~~4,100~~4,900 companies, including 1716 of the 20 largest U.S. banks, 4346 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIAs”), and hundreds of 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.

Envestnet also operates five registered investment advisers (“RIAs”) registered with the U.S. Securities and Exchange Commission (“SEC”). We believe that our business model results in a high degree of recurring and predictable financial results.

Recent ~~Events~~Developments

Uncertainties Related to COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic disease. We are closely monitoring developments with the COVID-19 pandemic and are taking proactive measures to ensure business continuity. Our priority is to protect the well-being of our employees, while we continue to provide uninterrupted service and support to our clients. As part of our existing business continuity protocol, we created a pandemic steering committee that meets regularly and communicates information or guidance to our employees and customers.

We have instituted travel bans and are following mandatory stay-at-home orders where applicable. A majority of our employees are working from home as a result of these mandatory stay-at-home orders. Where permissible, we have also implemented in-office work rotations. For employees working at our offices, preventative measures have been taken, including the adapting of work spaces to allow for appropriate social distancing and enhanced cleaning regimens. We have also canceled our 2020 annual Advisor Summit Conference, which was set to take place in May 2020. We continue to monitor developments related to COVID-19 and, as the situation evolves, will continue to coordinate our operations response based on existing business continuity plans and on guidance from global health organizations, relevant governments and general response pandemic best practices.

The COVID-19 pandemic has resulted in significant declines within the equity markets. This is significant to us as we provide asset-based, subscription-based and professional services on a business-to-business-to-consumer basis to financial services clients, whereby customers offer solutions based on our platform to their end users. For the three months ended March 31, 2020, approximately 55% of our revenues result from asset-based fee billing arrangements. Asset-based recurring revenues primarily consist of fees for providing customers access to our platforms. These fees are generally based upon variable percentages of assets managed or administered under our platforms. Our fee percentages vary based on the level and type of services that we provide to our customers, as well as the values of existing customer accounts. The values of our customer accounts are affected by inflows or outflows of customer funds and market fluctuations. Approximately 90% of our asset-based fee arrangements are billed at the beginning of each quarter based on the market value of customer assets on our platforms as of the end of the prior quarter.

For the three months ended March 31, 2020, approximately 42% of revenues are subscription-based. These revenues primarily consist of fees for providing customers continuous access to our platforms. These subscription-based fees generally include fixed fees or usage-based fees. These fees vary based on the services being offered. Our subscription-based fee arrangements are typically established through multi-year contracts.

Our customers are primarily banks, financial institutions, financial advisors at broker-dealers and RIAs. As a result of the structure of our revenue arrangements and our customer-types, our revenues during the three months ended March 31, 2020 were not materially impacted by COVID-19. During the three months ended March 31, 2020, we experienced no business interruptions, nor did we lose any significant customers. In March 2020, our wealth management platform saw its highest use in our history.

Our revenues are expected to be negatively impacted by COVID-19 over the remainder of fiscal 2020, primarily due to market impacts and lower than expected customer growth. Based on forecasts and other qualitative factors, we have determined that we currently have no impairments to our assets as of March 31, 2020. We have also not modified our debt agreement in connection with the COVID-19 pandemic.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. One provision of the CARES Act provides a five-year carryback of Net Operating Losses (“NOLs”) generated in tax years beginning after December 31, 2017 and before January 1, 2021. We estimate a refund of approximately $1,200 from the carryback of NOLs. The CARES Act also provides for a payment delay of employer payroll taxes, which we plan on utilizing.

Investment in Private Services Company

On January 8, 2020, we acquired a 4.25% membership interest in a private services company for cash consideration of $11,000. The private services company partners with independent network advisory firms to help them grow, become more profitable and run more efficiently. We will account for this investment under the equity method basis of accounting.

Acquisition of ~~private company~~Private Technology Company

On ~~January 2, 2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet and~~February 18, 2020, through our wholly owned subsidiary Yodlee, Inc. (“Yodlee”), we acquired a private technology company ~~the private company merged into Yodlee Inc., a wholly-owned subsidiary of ours~~ (the “Private Technology Company Acquisition”). The ~~completion~~private technology company enables the consent generation and data flow between financial information providers, such as banks and financial institutions, and financial information users, such as financial technology lenders and other financial services agencies, through a network of the Private Company Acquisition on January 2, 2019 followed the receipt of all necessary regulatory approvals and third party consents. In connection with the Private Company Acquisition, we incurred estimated consideration of approximately $25,063, inclusive of estimated contingent consideration of $7,580, for 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.cloud-based interoperable interfaces or application programming interfaces. The technology and operations of the private technology 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~~Private Technology Company 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 of PIEtech~~

~~On May 1, 2019,~~ we acquired all of the outstanding shares and paid cash consideration of ~~capital stock~~$2,343, net of ~~PIEtech, Inc.,~~cash acquired, subject to certain closing and post-closing adjustments, plus up to an additional $6,750 in contingent consideration, based upon achieving certain performance targets. We recorded a ~~Virginia corporation (“PIEtech”~~liability as of the date of acquisition of approximately $5,239, which represented the estimated fair value of contingent consideration on the date of acquisition. Future changes to the estimated fair value of the contingent consideration, if any, are recognized in earnings of the Company.

We recorded estimated goodwill of $7,017, which is not deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible assets acquired and liabilities assumed were not material.

Acquisition of Private Cloud Technology Company

On March 2, 2020, we acquired certain assets of a private cloud technology company (the “Private Cloud Technology Company Acquisition”). ~~PIEtech empowers financial advisors~~The private cloud technology company enables enterprises to ~~use financial planning~~design and implement the digital transition from legacy systems and applications to ~~efficiently motivate their clients to create, implement and maintain financial plans that best meet their lifetime financial goals.~~a modern cloud computing platform. The technology and operations of ~~PIEtech, which now operates as Envestnet | MoneyGuide, has~~the private cloud technology company have 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 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~~Private Cloud Technology Company Acquisition, we paid ~~net cash~~estimated consideration of ~~$299,370, subject~~$11,968, net of cash acquired. In connection with the acquisition, we recorded estimated goodwill of $10,932, which is deductible for income tax purposes. The tangible assets acquired and liabilities assumed were not material.

Acquisition of Private Financial Technology Design Company

On March 3, 2020, we acquired the outstanding units of a private financial technology design company that were not owned by the Company and merged the acquired company into a wholly owned subsidiary of ours (the “Private Financial Technology Design Company Acquisition”). The private financial technology design company designs integrated, intuitive digital technology applications for institutional financial services firms, bank wealth management organizations, independent

advisor networks, and broker-dealers. The technology and operations of the private financial technology design company have been integrated into our Envestnet Wealth Solutions segment.

We previously owned approximately 45% of the outstanding units in this private financial technology design company, and accounted for it as an equity method investment. Based upon the estimated value of the private financial technology design company of $11,026, we paid estimated consideration of $5,946, net of cash acquired, for the remaining outstanding units. As a result of the acquisition, we recognized a gain of $4,230 on the re-measurement to ~~the working capital adjustments set forth~~fair value of its previously held interest, which is included in other expense, net in the ~~Merger Agreement, and issued 3,184,713 shares~~condensed consolidated statements 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.~~

operations

In connection with the ~~PIEtech Merger,~~Private Financial Technology Design Company Acquisition, we ~~established~~recorded estimated total goodwill of $9,241, of which approximately $1,800 is deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $2,000. The tangible assets acquired and liabilities assumed were not material.

Executive Leadership Appointments

On October 3, 2019, Jud Bergman, our Chairman and Chief Executive Officer, died in an automobile accident. At that time, Bill Crager, President of Envestnet and Chief Executive of Envestnet Wealth Solutions, was named our interim Chief Executive Officer, and Ross Chapin, our lead independent director, was named interim non-executive Chairman of our Board of Directors (the “Board”). On March 30, 2020, Mr. Crager was named Chief Executive Officer of Envestnet and a ~~retention bonus pool consisting~~member of ~~approximately $30,000~~the Board and Stuart DePina, whom has served as Chief Executive of ~~cash~~Envestnet Data & Analytics since January 2019, was named President of Envestnet. James Fox, a current member of the Board, was named Chairman and ~~restricted stock units to be granted~~Charles Roame, a current member of the Board, was named Vice Chairman of the Board.

Early Retirement Program

In the fourth quarter of 2019, we offered a voluntary early retirement program (the “Early Retirement Program”) to employees over a certain age, who have a combined age and ~~management~~years of ~~PIEtech as inducement grants. As a result,~~experience with the Company of at least 65 years. Employees had until January 31, 2020 to voluntarily accept the program with separation of service no later than March 31, 2020. In connection with this program, we ~~adopted~~recorded $11,966 of severance expense during 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.three months ended March 31, 2020. As of ~~June 30, 2019,~~March 31, 2020, we have ~~issued~~accrued 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$10,670 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 has recorded approximately $1,480 as a component ofaccrued compensation and ~~benefits in the condensed consolidated statement of operations with a corresponding liability~~related taxes and $2,336 recorded in other non-current ~~liabilities~~liabilities. As of December 31, 2019, we had accrued approximately $1,733 in accrued compensation and related taxes and $599 recorded in other non-current liabilities. We anticipate approximately $12,000 of payments in 2020 with the ~~condensed consolidated balance sheets.~~remainder paid through 2030.

Segments

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in Part I, Item 1, “Note ~~18—~~16—Segment Information” to the condensed consolidated financial 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 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 ~~June 30, 2019,~~March 31, 2020, Envestnet’s platform assets grew to approximately $3 trillion in ~~11.6~~12.3 million accounts overseen by more than ~~99,000~~103 thousand advisors.

Services provided to advisors include: financial planning, risk assessment tools, investment strategies and solutions, asset allocation models, research, 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. We have access to a wide range of leading third‑party asset custodians.

We offer these solutions principally through the following ~~product/~~product 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~~20,000 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~~approximately 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.

Key Metrics

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


	As of										As of
	June 30,		September 30,		December 31,		March 31,		June 30,		March 31,		June 30,		September 30,		December 31,		March 31,
	2018		2018		2018		2019		2019		2019		2019		2019		2019		2020
	(in millions, except accounts and advisors data)										(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)	$	148,537	$	153,862	$	150,591	$	176,144	$	182,143	$	176,144	$	182,143	$	188,739	$	207,083	$	185,065
Assets under Administration (“AUA”)	360,850		388,066		291,934		319,129		330,226		319,129		330,226		316,742		343,505		312,472
Total AUM/A	509,387		541,928		442,525		495,273		512,369		495,273		512,369		505,481		550,588		497,537
Subscription	2,167,084		2,297,593		2,314,253		2,546,483		2,835,780		2,546,483		2,835,780		2,947,582		3,205,281		2,875,394
Total Platform Assets	$	2,676,471	$	2,839,521	$	2,756,778	$	3,041,756	$	3,348,149	$	3,041,756	$	3,348,149	$	3,453,063	$	3,755,869	$	3,372,931
Platform Accounts
AUM	759,926		776,705		816,354		874,574		907,034		874,574		907,034		934,811		935,039		970,896
AUA	1,417,795		1,517,297		1,182,764		1,187,589		1,196,114		1,187,589		1,196,114		1,136,430		1,193,882		1,254,856
Total AUM/A	2,177,721		2,294,002		1,999,118		2,062,163		2,103,148		2,062,163		2,103,148		2,071,241		2,128,921		2,225,752
Subscription	8,042,900		8,185,667		8,865,435		8,909,581		9,492,653		8,909,581		9,492,653		9,692,714		9,793,175		10,090,172
Total Platform Accounts	10,220,621		10,479,669		10,864,553		10,971,744		11,595,801		10,971,744		11,595,801		11,763,955		11,922,096		12,315,924
Advisors
AUM/A	44,900		47,292		40,103		39,035		39,727		39,035		39,727		39,735		40,563		40,971
Subscription	43,700		45,619		56,237		57,594		59,292		57,594		59,292		60,319		61,180		62,077
Total Advisors	88,600		92,911		96,340		96,629		99,019		96,629		99,019		100,054		101,743		103,048

The following 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:

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 March 31, 2020
	As of		Gross					Net		Market			Reclass to			As of
	12/31/2019		Sales		Redemptions			Flows		Impact			Subscription			3/31/2020
	(in millions, except account data)
AUM	$	207,083	$	20,986	$	(11,099	)	$	9,887	$	(31,905	)	$	—		$	185,065
AUA	343,505		39,934		(18,878		)	21,056		(50,144		)	(1,945		)	312,472
Total AUM/A	$	550,588	$	60,920	$	(29,977	)	$	30,943	$	(82,049	)	$	(1,945	)	$	497,537
Fee-Based Accounts	2,128,921							117,673					(20,842		)	2,225,752

The above AUM/A gross sales figures include ~~$2.3~~$20.1 billion in new client conversions. We onboarded an additional ~~$169.4~~$25.0 billion in subscription conversions during the three months ended ~~June 30, 2019~~March 31, 2020 bringing total conversions for the ~~second quarter~~three months ended March 31, 2020 to ~~$171.7~~$45.1 billion.

Asset Rollforward - Six Months Ended June 30, 2019
As of Gross Net Market Reclass to As of
12/31/2018 Sales Redemptions Flows Impact Subscription 6/30/2019
(in millions, except account data)
AUM $ 150,591
$ 36,818
$ (16,570 ) $ 20,248
$ 17,866
$ (6,562 ) $ 182,143
AUA 291,934
49,194
(38,532 ) 10,662
31,481
(3,851 ) 330,226
Total AUM/A $ 442,525
$ 86,012
$ (55,102 ) $ 30,910
$ 49,347
$ (10,413 ) $ 512,369
Fee-Based Accounts 1,999,118
125,891
(21,861 ) 2,103,148

~~The above AUM/A gross sales~~Asset and account figures ~~include $22.4 billion~~ in ~~new client conversions. We onboarded an additional $197.0 billion in subscription conversions during~~ the ~~six~~“Reclass to Subscription” columns for the three months ended ~~June 30, 2019 bringing~~March 31, 2020 represent enterprise customers whose billing arrangements in future periods are subscription-based, rather than asset-based. Such amounts are included in Subscription metrics at the end of the quarter in which the reclassification occurred, with no impact on total ~~conversions~~platform assets or accounts. Periodically clients have chosen to change the way they pay for ~~the two quarters~~our solution, whereby they switch from an asset-based pricing model to ~~$219.4 billion.~~a subscription-based model, which has increased our subscription-based metrics.

Envestnet Data & Analytics Segment

Envestnet Data & Analytics is a leading data aggregation and data intelligence platform. As an artificial intelligence (“AI”) and data specialist, Envestnet Data & Analytics gathers, refines and aggregates a massive set of end-user permissioned transaction level data and combines them with financial applications, reports, market research analysis and application programming interfaces (“APIs”) for its customers.

Over ~~1,200~~1,300 financial institutions, financial technology innovators and financial advisory firms, including 1516 of the 20 largest U.S. banks, subscribe to the Envestnet Data & Analytics platform to underpin personalized financial apps and services for over 2426 million paid subscribers.

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

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, Yodlee Expense and Income Analysis 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 22,000 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 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.

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 Data & Analytics solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.

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.

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.

Operational Highlights

Asset-based recurring revenues increased 2%24% from ~~$118,111~~$108,934 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$120,070~~$134,811 in the three months ended ~~June 30, 2019.~~March 31, 2020. Subscription-based recurring revenues increased ~~29%~~26% from ~~$71,779~~$83,087 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$92,258~~$104,551 in the three months ended ~~June 30, 2019.~~March 31, 2020. Total revenues, which include professional services and other revenues, increased ~~12%~~23% from ~~$201,116~~$199,666 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$224,445~~$246,539 in the three months ended ~~June 30, 2019.~~March 31, 2020. The acquisitions of PortfolioCenter ~~Acquisition~~ and PIEtech, both of which occurred during the ~~PIEtech Acquisition~~second quarter of 2019 (the “2019 Acquisitions”), contributed additional revenues of ~~$2,017 and $6,632, respectively, to total revenues~~$16,526 in the three months ended ~~June 30, 2019.~~March 31, 2020. The Envestnet Wealth Solutions segment's total revenues excluding the ~~PortfolioCenter Acquisition and~~revenue contributed from the ~~PIEtech Acquisition,~~2019 acquisitions, increased by ~~$11,313~~$29,189 primarily due ~~to the net impact of~~ an increase in asset-based revenues of ~~$1,959 combined with~~$25,877 and an increase in subscription-based revenues of ~~$9,180.~~$3,778. The Envestnet Data & Analytics segment's total revenues increased by ~~$3,367~~$1,158 primarily due to an increase in subscription-based ~~revenue~~revenues of ~~$3,424.~~

~~Asset-based recurring revenues decreased 4% from $239,264~~$2,167, partially offset by a decrease in the six months ended June 30, 2018 to $229,004 in the six months ended June 30, 2019. Subscription-based recurring revenues increased 24% from $141,474 in the six months ended June 30, 2018 to $175,345 in the six months ended June 30, 2019. Total revenues, which include professional services and other revenues ~~increased 6% from $399,127 in the six months ended June 30, 2018 to $424,111 in the six months ended June 30, 2019. The 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 excluding the PortfolioCenter Acquisition and the PIEtech Acquisition increased by $8,030 primarily due to the net impact of an increase in subscription-based revenues of $17,621 offset by a decrease in asset-based revenues of $10,260. The Envestnet Data & Analytics segment's total revenues increased by $8,305 primarily due to an increase in subscription-based revenue of $8,375.$1,009.

Net ~~income~~loss attributable to Envestnet, Inc. for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$893,~~$7,336, or ~~$0.02~~$0.14 per diluted share, compared to a net loss attributable to Envestnet, Inc. of ~~$5,526~~$18,185, or ~~$0.12~~$0.38 per diluted share, for the three months ended June 30, 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. of $2,578 or $0.05 per diluted share for the six months ended June 30, 2018.March 31, 2019.

Adjusted revenues for the three months ended ~~June 30, 2019~~March 31, 2020 were ~~$227,859,~~$246,978, compared to adjusted revenues of ~~$201,178~~$199,672 in the prior year period. Adjusted net revenues ~~a new non-GAAP metric introduced as of January 1, 2019,~~ were ~~$167,566~~$178,386 for the three months ended ~~June 30, 2019,~~March 31, 2020, compared to adjusted net revenues of ~~$144,430~~$145,830 in the prior year period. Adjusted EBITDA for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$43,211,~~$54,578, compared to adjusted EBITDA of ~~$34,759~~$34,002 in the prior year period. Adjusted net income for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~$24,470,~~$31,202, or ~~$0.46~~$0.57 per diluted share, compared to adjusted net income of ~~$19,277,~~$19,411, or ~~$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$0.39 per diluted share in the prior year period.

Adjusted revenues, adjusted net 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								Six Months Ended								Three Months Ended
	June 30,						Percent		June 30,						Percent		March 31,						Percent
	2019			2018			Change		2019			2018			Change		2020			2019			Change
	(in thousands)								(in thousands)								(in thousands)
Revenues:
Asset-based	$	120,070		$	118,111		2	%	$	229,004		$	239,264		(4	)%	$	134,811		$	108,934		24	%
Subscription-based	92,258			71,779			29	%	175,345			141,474			24	%	104,551			83,087			26	%
Total recurring revenues	212,328			189,890			12	%	404,349			380,738			6	%	239,362			192,021			25	%
Professional services and other revenues	12,117			11,226			8	%	19,762			18,389			7	%	7,177			7,645			(6	)%
Total revenues	224,445			201,116			12	%	424,111			399,127			6	%	246,539			199,666			23	%
Operating expenses:
Cost of revenues	72,080			67,627			7	%	133,725			130,561			2	%	74,933			61,645			22	%
Compensation and benefits	103,286			80,210			29	%	190,003			163,750			16	%	110,430			86,717			27	%
General and administration	42,421			34,089			24	%	82,945			66,818			24	%	41,110			40,524			1	%
Depreciation and amortization	26,915			19,185			40	%	46,432			38,731			20	%	27,683			19,517			42	%
Total operating expenses	244,702			201,111			22	%	453,105			399,860			13	%	254,156			208,403			22	%
Income (loss) from operations	(20,257		)	5			*		(28,994		)	(733		)	*
Loss from operations																	(7,617		)	(8,737		)	(13	)%
Other expense, net	(7,512		)	(5,430		)	38	%	(13,275		)	(10,684		)	24	%	(1,537		)	(5,763		)	(73	)%
Loss before income tax provision (benefit)	(27,769		)	(5,425		)	*		(42,269		)	(11,417		)	*		(9,154		)	(14,500		)	(37	)%
Income tax provision (benefit)	(28,382		)	566			*		(24,614		)	(13,428		)	83	%	(1,964		)	3,768			(152	)%
Net income (loss)	613			(5,991		)	*		(17,655		)	2,011			*
Add: Net loss attributable to non-controlling interest	280			465			(40	)%	363			567			(36	)%
Net income (loss) attributable to Envestnet, Inc.	$	893		$	(5,526	)	*		$	(17,292	)	$	2,578		*
Net Loss																	(7,190		)	(18,268		)	(61	)%
Add: Net (income) loss attributable to non-controlling interest																	(146		)	83			*
Net Loss attributable to Envestnet, Inc.																	$	(7,336	)	$	(18,185	)	(60	)%

*Not meaningful.

Three months ended ~~June 30, 2019~~March 31, 2020 compared to three months ended ~~June 30, 2018~~

~~Asset-based recurring revenues~~

~~Asset-based recurring revenues increased 2% from $118,111 in the three months ended June 30, 2018 to $120,070 in the three months ended June 30, 2019. The increase was primarily due to an increasein asset values applicable to our current quarterly billing cycle as a result of an upswing in the equity markets relative to the comparable 2018 period. In the second quarter of~~March 31, 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 decreased from 44,900 as of June 30, 2018 to 39,727 as of June 30, 2019 and the number of AUM/A client accounts decreased from approximately 2,200,000 as of June 30, 2018 to approximately 2,100,000 as of 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 29% from $71,779 in the three months ended June 30, 2018 to $92,258 in the three months ended June 30, 2019. This increase was primarily due to an increase of~~$17,055 in theEnvestnet Wealth Solutionssegment and an increase of $3,424 in the Envestnet Data & Analytics segment.~~

~~The increase in theEnvestnet Wealth Solutions~~segment 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 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 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 8% from $11,226 in the three months ended June 30, 2018 to $12,117 in the three months ended June 30, 2019. The increase was primarily due to an increase of $771 contributed from the PIEtech Acquisition.

~~Cost of revenues~~

Cost of revenues increased 7% from $67,627 in the three months ended June 30, 2018 to $72,080 in the three months ended June 30, 2019. The increase was primarily due to an increase in asset-based cost of revenues of $3,545, which are directly correlated with the increase to asset-based recurring 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 decreased from 34% in the three months ended June 30, 2018 to 32% in three months ended June 30, 2019.

~~Compensation and benefits~~

Compensation and benefits increased 29% from $80,210 in the three months ended June 30, 2018 to $103,286 in three months ended June 30, 2019. The increase was primarily due to increases in incentive compensation of $7,875, salaries, benefits and related payroll taxes of $7,803, non-cash compensation expense of $5,290 and severance expense of $2,231. Included in the increase in 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 total compensation and benefits expense in the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increased from 40% in the three months ended June 30, 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 24% from $34,089 in the three months ended June 30, 2018 to $42,421 in the three months ended June 30, 2019. The increase was primarily due to increases in rent expense of $2,126, legal fees of $1,781, systems development expense of $1,121 and 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 the three months ended June 30, 2019. As a percentage of total revenues, general and administration expenses increased from 17% in the three months ended June 30, 2018 to 19% in the three months ended June 30, 2019.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 40% from $19,185 in the three months ended June 30, 2018 to $26,915 in the three months ended June 30, 2019. The increase was primarily due to an increase in internally developed software amortization expense of $1,264 and an increase in intangible asset amortization expense of $3,635, primarily a result of additional intangible assets from the acquisitions of PortfolioCenter and PIEtech. As a percentage of total revenues, depreciation and amortization expense increased from 10% in the three months ended June 30, 2018 to 12% in the three months ended June 30, 2019.

~~Income tax provision (benefit)~~

Three Months Ended
June 30,
2019 2018
Loss before income tax provision (benefit) $ (27,769 ) $ (5,425 )
Income tax provision (benefit) (28,382 ) 566
Effective tax rate 102.2 % (10.4 )%

For the three months ended 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 research and development (“R&D") credits, and additional accruals for uncertain tax positions.~~

For the three months ended June 30, 2018, our effective tax rate differed from the statutory rate primarily due to the valuation allowance the Company placed on all US deferreds with the exception of indefinite lived intangibles, the impact of clarifying Base Erosion and Anti Abuse tax positions, additional accruals for uncertain tax positions as well as differences between the foreign tax rates and statutory US tax rate.

~~Six months ended June 30, 2019 compared to six months ended June 30, 2018~~

Asset-based recurring revenues

Asset-based recurring revenues ~~decreased 4%~~increased 24% from ~~$239,264~~$108,934 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$229,004~~$134,811 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~increase was primarily due to ~~a decrease~~an increase in asset values applicable to our quarterly billing cycles in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the ~~six~~three months ended ~~June 30, 2018,~~March 31, 2019, due to ~~a downturn~~an upturn in the equity markets during the fourth quarter of ~~2018.~~2019 as compared to the prior year period. The ~~decrease was~~increase also ~~due to a change in the classification of revenues to subscription-based recurring revenues for certain customers, partially offset by~~includes the impact of new account growth and positive net flows of AUM/A in the ~~second~~first quarter of ~~2019.~~ 2020.

Excluding $16,526 of total revenue from the ~~acquisitions of PortfolioCenter and PIEtech,~~2019 Acquisitions, asset-based recurring revenues ~~decreased~~increased from ~~60% of total revenue in the six months ended June 30, 2018 to~~ 55% of total revenue in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2019 to 59% of total revenue in the three months ended March 31, 2020.

The number of financial advisors with asset-based recurring revenue on our technology platforms ~~decreased~~increased from ~~44,900~~39,035 as of ~~June 30, 2018~~March 31, 2019 to ~~39,727~~40,971 as of ~~June 30, 2019~~March 31, 2020 and the number of AUM/A client accounts ~~decreased~~increased from approximately 2,100,000 as of March 31, 2019 to approximately 2,200,000 as of ~~June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline was due to reclassifications to subscription-based pricing models in 2018.~~March 31, 2020.

Subscription-based recurring revenues

Subscription-based recurring revenue increased ~~24%~~26% from ~~$141,474~~$83,087 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$175,345~~$104,551 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. This increase was primarily due to an increase of $~~25,496~~19,297 in the Envestnet Wealth Solutions segment and an increase of ~~$8,375~~$2,167 in the Envestnet Data & Analytics segment.

The increase in the Envestnet Wealth Solutions segment was ~~primary~~primarily due to the ~~acquisitions of PortfolioCenter and PIEtech,~~2019 Acquisitions, which contributed revenues of ~~$2,014 and $5,861, respectively,~~$15,519 to subscription-based recurring revenues in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The remaining increase of ~~$17,621~~$3,778 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 Data & Analytics revenue is primarily due to broad increases in revenue from new and existing customers.

Professional services and other revenues

Professional services and other revenues ~~increased 7%~~decreased 6% from ~~$18,389~~$7,645 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$19,762~~$7,177 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease in revenues from existing ~~customers and an increase of $771 contributed from the PIEtech Acquisition.~~customers.

Cost of revenues

Cost of revenues increased 2%22% from ~~$130,561~~$61,645 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$133,725~~$74,933 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to an increase in asset-based cost of revenues of ~~$2,859, directly correlated with the increase to asset-based recurring~~$14,750, partially offset by a decrease in subscription-based cost of revenues ~~during the period.~~of $1,400. The ~~acquisitions of PortfolioCenter and PIEtech~~2019 Acquisitions had an immaterial impact to ~~total~~ cost of revenues in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. As a percentage of total revenues, cost of revenues decreased from ~~33%~~31% in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~32%~~30% in ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Compensation and benefits

Compensation and benefits increased ~~16%~~27% from ~~$163,750~~$86,717 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$190,003~~$110,430 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to increases in severance expense of $11,502, salaries, benefits and related payroll taxes of ~~$11,486,~~$4,792, incentive compensation of $3,575 and non-cash compensation expense of ~~$9,622, incentive compensation expense of $3,535 and~~$3,167. The increase in severance expense ~~of $1,898. Included~~is primarily related to the Early Retirement Program in the ~~increase in incentive compensation is approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition.~~three months ended March 31, 2020. The ~~acquisitions of PortfolioCenter and PIEtech~~2019 Acquisitions contributed compensation and benefit expenses of ~~$1,253 and $4,403, respectively,~~$8,630 to total compensation and benefits expense in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. As a percentage of total revenues, compensation and benefits increased from ~~41%~~43% in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to 45% in the ~~six~~three 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.~~March 31, 2020.

General and administration

General and administration expenses increased ~~24%~~1% from ~~$66,818~~$40,524 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$82,945~~$41,110 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to increases in ~~transaction related~~trade errors expense of ~~$5,575, systems development expense~~$1,585, permits, licenses & fees of ~~$2,524, rent expense of $1,952, communications and research expense of $1,389~~$650, professional and legal fees of ~~$1,182.~~$627, systems development costs of $582, bad debt expense of $575 and other increases primarily related to the cancellation of our 2020 Advisor Summit, partially offset by a decrease in transaction related expenses of $4,760. The 2019 Acquisitions contributed general and administration expenses of $1,660 to general and administrative expense in the three months ended March 31, 2020. As a percentage of total revenues, general and administration expenses ~~increased~~decreased from 20% in the three months ended March 31, 2019 to 17% in the ~~six~~three months ended ~~June 30, 2018 to 20%~~March 31, 2020. This decrease is primarily a result of the decrease in transaction related expenses partially offset by 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 expenseincrease in ~~the six months ended June 30, 2019.~~trade errors expense.

Depreciation and amortization

Depreciation and amortization expense increased ~~20%~~42% from ~~$38,731~~$19,517 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$46,432~~$27,683 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. 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 ~~$2,228, primarily a~~$6,230, the direct result of amortizing additional intangible assets ~~from the acquisitions~~related to our 2019 Acquisitions, an increase in internally developed software amortization expense of ~~PortfolioCenter~~$985 and ~~PIEtech.~~an increase in property and equipment depreciation expense of $951. As a percentage of total revenues, depreciation and amortization expense increased from 10% in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to 11% in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Other expense, net

Other expense, net decreased 73% from $5,763 in the three months ended March 31, 2019 to $1,537 in the three months ended March 31, 2020. The decrease was primarily due to a gain of $4,230 recognized in the three months ended March 31, 2020 on the remeasurement of our previously held interest in the private financial technology design company combined with a gain of $2,524 recorded in the three months ended March 31, 2020 as a result of a fair value adjustment upon settlement of our former Chief Executive Officer's stock options, partially offset by increased losses recorded for our equity method investees in the three months ended March 31, 2020 as compared to the comparable prior year period.

Income tax provision (benefit)


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
Loss before income tax provision (benefit)	$	(42,269	)	$	(11,417	)
Loss before income tax benefit							$	(9,154	)	$	(14,500	)
Income tax benefit	(24,614		)	(13,428		)	(1,964		)	3,768
Effective tax rate	58.2		%	117.6		%	21.5		%	(26.0		)%

For the ~~six~~three months ended ~~June 30,~~March 31, 2020, our effective tax rate differed from the statutory rate primarily due to increases in the valuation allowance we had placed on a portion of US deferred tax assets, the windfall from shared based compensation and the CARES Act net operating loss (“NOL”) carryback.

For the three months ended March 31, 2019, our effective tax rate differed from the statutory rate primarily due to the ~~release~~impact of ~~our~~the Base Erosion Anti-Abuse Tax (“BEAT”) and increases in the valuation allowance ~~of $21,907 primarily as a result of additional~~we had placed on all US deferred tax ~~liabilities recorded~~assets 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~~exception of 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.indefinite-lived intangibles.

Segment Results

Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in “Note ~~18—~~16—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 Data & Analytics~~ ~~– 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 consolidated net ~~income (loss)~~loss attributable to Envestnet, Inc.:


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Envestnet Wealth Solutions	$	12,379		$	16,359		$	29,223		$	32,220		$	11,340		$	16,844
Envestnet Data & Analytics	(8,960		)	(3,296		)	(16,888		)	(7,705		)	(4,585		)	(7,928		)
Total segment income from operations	3,419			13,063			12,335			24,515
Nonsegment operating expenses	(23,676		)	(13,058		)	(41,329		)	(25,248		)	(14,372		)	(17,653		)
Loss from operations													(7,617		)	(8,737		)
Other expense, net	(7,512		)	(5,430		)	(13,275		)	(10,684		)	(1,537		)	(5,763		)
Consolidated loss before income tax provision (benefit)	(27,769		)	(5,425		)	(42,269		)	(11,417		)	(9,154		)	(14,500		)
Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)	(1,964		)	3,768
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
Consolidated net loss													(7,190		)	(18,268		)
Add: Net (income) loss attributable to non-controlling interest													(146		)	83
Consolidated net loss attributable to Envestnet, Inc.													$	(7,336	)	$	(18,185	)

Envestnet Wealth Solutions ~~Segment~~

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,				Percent		June 30,				Percent		March 31,				Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change
	(in thousands)						(in thousands)						(in thousands)
Revenues:
Asset-based	$	120,070	$	118,111	2	%	$	229,004	$	239,264	(4	)%	$	134,811	$	108,934	24	%
Subscription-based	50,078		33,023		52	%	91,104		65,608		39	%	60,323		41,026		47	%
Total recurring revenues	170,148		151,134		13	%	320,108		304,872		5	%	195,134		149,960		30	%
Professional services and other revenues	6,742		5,794		16	%	9,487		8,044		18	%	3,286		2,745		20	%
Total revenues	176,890		156,928		13	%	329,595		312,916		5	%	198,420		152,705		30	%
Operating expenses:
Cost of revenues	66,250		62,914		5	%	122,105		121,937		—	%	69,792		55,855		25	%
Compensation and benefits	56,219		48,026		17	%	104,774		99,937		5	%	72,588		48,555		49	%
General and administration	25,666		18,603		38	%	45,850		36,323		26	%	25,280		20,184		25	%
Depreciation and amortization	16,376		11,026		49	%	27,643		22,499		23	%	19,420		11,267		72	%
Total operating expenses	164,511		140,569		17	%	300,372		280,696		7	%	187,080		135,861		38	%
Income from operations	$	12,379	$	16,359	(24	)%	$	29,223	$	32,220	(9	)%	$	11,340	$	16,844	(33	)%

Three months ended ~~June 30, 2019~~March 31, 2020 compared to three months ended ~~June 30, 2018~~March 31, 2019 for the Envestnet Wealth Solutions segment

Asset-based recurring revenues

Asset-based recurring revenues increased 2%24% from ~~$118,111~~$108,934 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$120,070~~$134,811 in the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to an increasein asset values applicable to our ~~current~~ quarterly billing ~~cycle as a result of~~cycles in the three months ended March 31, 2020 compared to the three months ended March 31, 2019, resulting from an ~~upswing~~upturn in the equity markets ~~relative to~~during the ~~comparable 2018 period. In the second~~fourth quarter of 2019 ~~revenues were also positively affected by new account growth and positive net flows of AUM/A.~~as compared to the prior year period.

Excluding ~~the~~$16,526 of total revenue ~~impact~~ from the ~~acquisitions of PortfolioCenter and PIEtech,~~2019 Acquisitions, asset-based recurring revenue ~~decreased~~increased from ~~75%~~71% of total revenue in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~71%~~74% of total revenue in the three months ended ~~June 30, 2019.~~March 31, 2020.

approximately 2,100,000 as of March 31, 2019 to approximately 2,200,000 as of ~~June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline in advisors was due to a reclassification to subscription-based pricing models in 2018.~~March 31, 2020.

Subscription-based recurring revenues

Subscription-based recurring revenues increased ~~52%~~47% from ~~$33,023~~$41,026 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$50,078~~$60,323 in the three months ended ~~June 30, 2019.~~March 31, 2020.

The ~~acquisitions of PortfolioCenter and PIEtech~~2019 Acquisitions contributed revenues of ~~$2,014 and $5,861, respectively,~~$15,519 to subscription-based recurring revenues in the three months ended ~~June 30, 2019. Excluding these revenues, the~~March 31, 2020. The remaining increase of ~~$9,180~~$3,778 is a result of continuing to add ~~new~~ clients and selling additional services to existing ~~clients, and a change in classification of revenues from asset-based recurring revenues for certain customers.~~clients.

Professional services and other revenues

Professional services and other revenues increased ~~16%~~20% from ~~$5,794~~$2,745 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$6,742~~$3,286 in the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to an increase of ~~$771~~$1,007 contributed from the ~~PIEtech Acquisition.~~2019 Acquisitions offset by a decrease in revenues from existing customers.

Cost of revenues

Cost of revenues increased 5%25% from ~~$62,914~~$55,855 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$66,250~~$69,792 in the three months ended ~~June 30, 2019,~~March 31, 2020, primarily as a result of an increase in asset-based cost of revenues. The ~~acquisitions of PortfolioCenter and PIEtech~~2019 Acquisitions had an immaterial impact to ~~total~~ cost of revenues in the three months ended ~~June 30, 2019.~~March 31, 2020. As a percentage of total revenues, cost of revenues decreased from ~~40% in the three months ended June 30, 2018 to~~ 37% in the three months ended ~~June 30,~~March 31, 2019 ~~due~~ to 35% in the ~~relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.~~

three months ended March 31, 2020.

Compensation and benefits

Compensation and benefits increased ~~17%~~49% from ~~$48,026~~$48,555 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$56,219~~$72,588 in the three months ended ~~June 30, 2019. This~~March 31, 2020. The increase is primarily due to ~~an increase~~increases in severance expense of $10,652, salaries, benefits and related payroll taxes of ~~$3,928 and an increase in~~$6,226, non-cash compensation expense of ~~$4,269.~~$4,036 and incentive compensation of $2,641. The ~~acquisitions of PortfolioCenter and PIEtech~~increase in severance expense is primarily related to the Early Retirement Program in the three months ended March 31, 2020. The 2019 Acquisitions contributed compensation and benefit expenses of ~~$1,253 and $4,403, respectively,~~$8,630 to total compensation and benefits expense in the three months ended ~~June 30, 2019.~~March 31, 2020. As a percentage of total revenues, compensation and benefits increased from ~~31% in the three months ended June 30, 2018 to~~ 32% in the three months ended ~~June 30, 2019.~~March 31, 2019 to 37% in the three months ended March 31, 2020, primarily related to the increase in severance expense related to the Early Retirement Program.

General and administration

General and administration expenses increased ~~38%~~25% from ~~$18,603~~$20,184 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$25,666~~$25,280 in the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to increases in ~~rent~~trade errors expense of ~~$2,077, legal fees of $1,481 and~~$1,540, systems development costs of $793, occupancy costs of $494, insurance and bank charges of $453, bad debt expense of ~~$1,117.~~$368 and other miscellaneous increases, partially offset by a decrease in marketing expense of $281. The ~~acquisitions of PortfolioCenter and PIEtech~~2019 Acquisitions contributed general and administration expenses of ~~$1,768 and $1,050, respectively,~~$1,660 to ~~total~~ general and ~~administration~~administrative expense in the three months ended ~~June 30, 2019.~~March 31, 2020. As a percentage of total revenues, general and administration expenses ~~increased from 12%~~remained consistent at 13% in the three months ended ~~June 30, 2018 to 15% in the three months ended June 30, 2019. The increase in general~~March 31, 2019 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.~~2020.

Depreciation and amortization

Depreciation and amortization expense increased ~~49%~~72% from ~~$11,026~~$11,267 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$16,376~~$19,420 in the three months ended ~~June 30, 2019.~~March 31, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $6,428, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, an increase in internally developed software amortization expense of ~~$1,266~~$908 and an increase in ~~intangible asset amortization~~property and equipment depreciation expense of ~~$3,729, primarily a result of additional intangible assets related to the acquisitions of PortfolioCenter and PIEtech.~~$816. As a percentage of revenues, depreciation and amortization expense increased from 7% in the three months ended ~~June 30, 2018~~March 31, 2019 to 9%10% 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 Wealth Solutions segment~~

~~Asset-based recurring revenues~~

Asset-based recurring revenues decreased 4% from $239,264 in the six months ended June 30, 2018 to $229,004 in the six months ended June 30, 2019. The decrease was primarily due to a decrease in asset values applicable to our quarterly billing cycles in the six months ended June 30, 2019 compared to the six months ended June 30, 2018, due to a downturn in the equity markets during the fourth quarter of 2018. The decrease was also due to a change in classification of revenues to subscription-based recurring revenues for certain customers, partially offset by the impact of new account growth and positive net flows of AUM/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 39% from $65,608 in the six months ended June 30, 2018 to $91,104 in the six months ended June 30, 2019.~~

The acquisitions of PortfolioCenter and PIEtech 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 $17,621 is a result of continuing to add new clients, selling additional services to existing 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 18% from $8,044 in the six months ended June 30, 2018 to $9,487 in the six months ended June 30, 2019.~~March 31, 2020. The increase ~~was primarily due to an increase~~ in ~~revenues from existing customers~~depreciation and ~~an increase of $771 contributed from the PIEtech Acquisition.~~

~~Cost of revenues~~

Cost of revenues remained consistent from $121,937 in the six months ended June 30, 2018 to $122,105 in the six months ended June 30, 2019. The acquisitions of PortfolioCenter and PIEtech had an immaterial impact to total cost of revenues in the six months ended June 30, 2019. Asamortization as a percentage of total revenues ~~cost of revenues decreased from 39% in the six months ended June 30, 2018 to 37% in the six months ended June 30, 2019.~~

~~Compensation and benefits~~

~~Compensation and benefits increased 5% from $99,937 in the six months ended June 30, 2018 to $104,774 in the six months ended June 30, 2019. The increase~~ is primarily due to ~~increases in salaries, benefits and~~amortization related payroll taxes of $3,951 and non-cash compensation expense of $5,876, partially offset by decreases in incentive compensation expense of $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~~finite-lived intangibles acquired from the ~~six months ended June 30, 2019. As a percentage of total revenues, compensation and benefits remained consistent at 32% in the six months ended June 30, 2018 and 2019.~~

~~General and administration~~2019 Acquisitions.

General and administration expenses increased 26% from $36,323 in the six months ended June 30, 2018 to $45,850 in the six months ended June 30, 2019. The increase was primarily due to increases in 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 $1,768 and $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 increased from 12% in the six months ended June 30, 2018 to 14% in the six months ended June 30, 2019.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 23% from $22,499 in the six months ended June 30, 2018 to $27,643 in the six months ended June 30, 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, depreciation and amortization expense increased from 7% in the six months ended June 30, 2018 to 8% in the six months ended June 30, 2019.

Envestnet Data & Analytics ~~Segment~~

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


	Three Months Ended								Six Months Ended								Three Months Ended
	June 30,						Percent		June 30,						Percent		March 31,						Percent
	2019			2018			Change		2019			2018			Change		2020			2019			Change
	(in thousands)								(in thousands)								(in thousands)
Revenues:
Subscription-based	$	42,180		$	38,756		9	%	$	84,241		$	75,866		11	%	$	44,228		$	42,061		5	%
Professional services and other revenues	5,375			5,432			(1	)%	10,275			10,345			(1	)%	3,891			4,900			(21	)%
Total revenues	47,555			44,188			8	%	94,516			86,211			10	%	48,119			46,961			2	%
Operating expenses:
Cost of revenues	5,830			4,713			24	%	11,620			8,624			35	%	5,141			5,790			(11	)%
Compensation and benefits	31,593			25,848			22	%	62,957			52,006			21	%	30,113			31,364			(4	)%
General and administration	8,553			8,764			(2	)%	18,038			17,054			6	%	9,187			9,485			(3	)%
Depreciation and amortization	10,539			8,159			29	%	18,789			16,232			16	%	8,263			8,250			—	%
Total operating expenses	56,515			47,484			19	%	111,404			93,916			19	%	52,704			54,889			(4	)%
Loss from operations	$	(8,960	)	$	(3,296	)	172	%	$	(16,888	)	$	(7,705	)	119	%	$	(4,585	)	$	(7,928	)	(42	)%

Three ~~Months Ended June 30, 2019~~months ended March 31, 2020 compared to three months ended ~~June 30, 2018~~March 31, 2019 for the Envestnet Data & Analytics segment

Subscription-based recurring revenues

Subscription-based recurring revenues increased 9%5% from ~~$38,756~~$42,061 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$42,180~~$44,228 in the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to broad increases in revenue from ~~existing customers.~~

~~Professional services~~new and ~~other revenues~~

~~Professional services and other revenues remained consistent from $5,432 in the three months ended June 30, 2018 to $5,375 in the three months ended June 30, 2019.~~

~~Cost of revenues~~

Cost of revenues increased 24% from $4,713 in the three months ended June 30, 2018 to $5,830 in the three 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 11% in the three months ended June 30, 2018 to 12% in the three months ended June 30, 2019.

~~Compensation and benefits~~

Compensation and benefits increased 22% from $25,848 in the three months ended June 30, 2018 to $31,593 in the three months ended June 30, 2019, primarily due to an increase in salaries, benefits and related payroll taxes of $3,499 as a result of increased headcount to support organic growth, an increase in non-cash compensation 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 increased from 58% in the three months ended June 30, 2018 to 66% in the three months ended June 30, 2019. The increase in compensation and benefits as a percentage of total revenues is primarily due to increased severance expense as well as higher growth in compensation and benefits expense compared to lower growth in revenue.

~~General and administration~~

General and administration expenses decreased 2% from $8,764 in the three months ended June 30, 2018 to $8,553 in the three months ended June 30, 2019, primarily due to a decrease in transaction related expense of $599, partially offset by an increase of $212 in legal fees. As a percentage of total revenues, general and administration expenses decreased from 20% to 18% for the three months ended June 30, 2018 and 2019.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 29% from $8,159 in the three months ended June 30, 2018 to $10,539 in the three 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 18% in the three months ended June 30, 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 consistent~~decreased 21% from ~~$10,345~~$4,900 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$10,275~~$3,891 in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020 due to timing of the completion of customer projects and deployments.

Cost of revenues

Cost of revenues ~~increased 35%~~decreased 11% from ~~$8,624~~$5,790 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$11,620~~$5,141 in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~an increase~~a decrease in ~~subscription-based recurring revenues.~~third party vendor expense. As a percentage of total revenues, cost of revenues ~~increased~~decreased from ~~10% in the six months ended June 30, 2018 to~~ 12% in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2019 to 11% in the three months ended March 31, 2020.

Compensation and benefits

Compensation and benefits ~~increased 21%~~decreased 4% from ~~$52,006~~$31,364 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$62,957~~$30,113 in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~an increase~~decreases in salaries, benefits, incentive compensation 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~~$2,570 and severance expense of ~~$4,113~~$387, partially offset by ~~a decrease~~an increase in incentive compensation of $1,382. The decrease in severance expense is primarily due to severance paid to a former executive of ~~$3,060.~~the company in the three months ended March 31, 2019, partially offset by severance associated with the Early Retirement Program in the three months ended March 31, 2020. As a percentage of total revenues, compensation and benefits ~~increased~~decreased from ~~60% in the six months ended June 30, 2018 to~~ 67% in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2019 to 63% in the three months ended March 31, 2020. The ~~increase~~decrease in compensation and benefits as a percentage of total revenues is primarily ~~due to increased severance expense~~driven by lower headcount as ~~well as higher growth in compensation and benefits expense~~of March 31, 2020 compared to ~~lower growth in revenue.~~March 31, 2019.

General and administration

General and administration expenses ~~increased 6%~~decreased 3% from ~~$17,054~~$9,485 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$18,038~~$9,187 in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~increases~~decreases in travel and entertainment expense of ~~$233, website development~~$337, transaction related expenses of $149, occupancy expenses of $154 and marketing expense of ~~$272 and other miscellaneous increases, partially~~$149, offset by ~~a decrease in communications~~expenses incurred for legal and ~~research expense~~regulatory matters of ~~$319.~~$703 (see “Part I, Note 18—Commitments and Contingencies”). As a percentage of total revenues, general and administration expenses decreased from 20% to 19% for the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 and ~~2019.~~2020.

Depreciation and amortization

Depreciation and amortization expense increased ~~16%~~ from ~~$16,232~~$8,250 in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~$18,789~~$8,263 in the ~~six~~three 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.~~March 31, 2020. As a percentage of total revenues, depreciation and amortization expense ~~increased~~decreased from ~~19%~~18% in the ~~six~~three months ended ~~June 30, 2018~~March 31, 2019 to ~~20%~~17% in the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

Nonsegment

The following table presents nonsegment operating expenses:


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,				Percent		June 30,				Percent		March 31,				Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change
	(in thousands)						(in thousands)						(in thousands)
Operating expenses:
Compensation and benefits	$	15,474	$	6,336	144	%	$	22,272	$	11,807	89	%	$	7,729	$	6,798	14	%
General and administration	8,202		6,722		22	%	19,057		13,441		42	%	6,643		10,855		(39	)%
Nonsegment operating expenses	$	23,676	$	13,058	81	%	$	41,329	$	25,248	64	%	$	14,372	$	17,653	(19	)%

Three ~~Months Ended June 30, 2019~~months ended March 31, 2020 compared to three months ended ~~June 30, 2018~~March 31, 2019 for Nonsegment

Compensation and benefits

Compensation and benefits increased ~~144%~~14% from ~~$6,336~~$6,798 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$15,474~~$7,729 in the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~an increase~~increases in severance expense of ~~$8,496~~$1,237 and salaries, benefits and related payroll taxes of $1,136, partially offset by decreases in non-cash compensation expense of $919 and incentive compensation of $447. The increase in severance expense is primarily ~~a result of approximately $8,800~~related to the Early Retirement Program in ~~retention bonuses paid in connection with~~ the ~~PIEtech Acquisition.~~three months ended March 31, 2020.

General and administration

General and administration expenses ~~increased 22%~~decreased 39% from ~~$6,722~~$10,855 in the three months ended ~~June 30, 2018~~March 31, 2019 to ~~$8,202~~$6,643 in the three months ended ~~June 30, 2019,~~March 31, 2020, primarily due to ~~an increase~~a decrease in transaction related expenses of ~~$853.~~

~~Six months ended June 30, 2019 compared to six months ended June 30, 2018 for Nonsegment~~

~~Compensation~~$4,692, partially offset by increases in permits, licenses and ~~benefits~~

~~Compensation~~fees of $548 and ~~benefits increased 89% from $11,807 in the six months ended June 30, 2018 to $22,272 in the six months ended June 30, 2019, primarily due to an increase in incentive compensation~~professional and legal fees 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 $1,191 and salaries and benefits of $583.

~~General and administration~~

General and administration expenses increased 42% from $13,441 in the six months ended June 30, 2018 to $19,057 in the six months ended June 30, 2019, primarily due to an increase in transaction related expense of $4,637, increased website and systems development expense of $454 and other miscellaneous increases.$482.

Non-GAAP Financial Measures

In addition to reporting results according to ~~GAAP,~~U.S. generally accepted accounting principles (“GAAP”), we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include “adjusted revenues,” “adjusted net revenues,” “adjusted EBITDA,” “adjusted net income” and “adjusted net income per 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 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 revenues and Adjusted net revenues have limitations as financial measures, should be considered as supplemental in nature and are not meant as a substitute for revenue prepared in accordance with GAAP.

“Adjusted EBITDA” represents net ~~income (loss)~~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 and regulatory related ~~expense,~~expenses, foreign currency, non-income tax expense adjustment, gain on acquisition of equity method investment, loss allocation from equity method ~~investment~~investments and (income) loss attributable to non‑controlling interest.

“Adjusted net income” represents net ~~income (loss)~~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 and regulatory related ~~expense,~~expenses, foreign currency, non-income tax expense adjustment, gain on acquisition of equity method investment, loss allocation from equity method ~~investment~~investments and (income) 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. The normalized tax rate is based solely on the estimated blended statutory income tax rates in the jurisdictions in which we operate. We monitor the normalized tax rate based on events or trends that could materially impact the rate, including tax legislation changes and changes in the geographic mix of our operations.

“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 management use 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, our 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 net revenues provide comparisons from period to period by excluding the effects of asset-based costs of revenue. 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 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 and regulatory related ~~expense,~~expenses, 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 GAAP and should not be considered as an alternative to revenues, net income, operating income or any other performance measures derived in accordance with 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 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 ~~paid~~made net ~~cash~~tax payments of ~~$6,121~~$814 and ~~$2,225~~$4,998 for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 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 net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted revenues and adjusted net revenues to revenues, the most directly comparable 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 GAAP measure. Further, our management also reviews 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 Six Months Ended
June 30, June 30,
2019 2018 2019 2018
(in thousands) (in thousands)
Total revenues $ 224,445
$ 201,116
$ 424,111
$ 399,127
Deferred revenue fair value adjustment 3,414
62
3,420
66
Adjusted revenues 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



	Three Months Ended
	March 31,
	2020			2019
	(in thousands)
Total revenues	$	246,539		$	199,666
Deferred revenue fair value adjustment	439			6
Adjusted revenues	246,978			199,672
Less: Asset-based cost of revenues	(68,592		)	(53,842		)
Adjusted net revenues	$	178,386		$	145,830

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)						(in thousands)						(in thousands)
Net income (loss)	$	613		$	(5,991	)	$	(17,655	)	$	2,011
Net loss													$	(7,190	)	$	(18,268	)
Add (deduct):
Deferred revenue fair value adjustment	3,414			62			3,420			66			439			6
Interest income	(901		)	(374		)	(2,411		)	(784		)	(391		)	(1,510		)
Interest expense	8,263			5,992			15,359			11,228			7,134			7,096
Accretion on contingent consideration and purchase liability	502			95			742			196			599			240
Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)	(1,964		)	3,768
Depreciation and amortization	26,915			19,185			46,432			38,731			27,683			19,517
Non-cash compensation expense	14,988			10,476			27,852			18,971			13,470			12,864
Restructuring charges and transaction costs	13,208			3,345			20,574			5,937			2,820			7,366
Severance	3,280			1,049			5,760			3,861			13,982			2,480
Litigation and regulatory related expenses													703			—
Foreign currency	(154		)	(339		)	(155		)	(571		)	(494		)	(1		)
Non-income tax expense adjustment	908			27			1,118			(101		)	188			210
Loss allocation from equity method investment	347			151			550			811
Loss attributable to non-controlling interest	210			515			241			584
Gain on acquisition of equity method investment													(4,230		)	—
Loss allocation from equity method investments													2,030			203
(Income) loss attributable to non-controlling interest													(201		)	31
Adjusted EBITDA	$	43,211		$	34,759		$	77,213		$	67,512		$	54,578		$	34,002

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


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
	(in thousands)						(in thousands)						(in thousands)
Net income (loss)	$	613		$	(5,991	)	$	(17,655	)	$	2,011
Net loss													$	(7,190	)	$	(18,268	)
Income tax provision (benefit) (1)	(28,382		)	566			(24,614		)	(13,428		)	(1,964		)	3,768
Loss before income tax provision (benefit)	(27,769		)	(5,425		)	(42,269		)	(11,417		)	(9,154		)	(14,500		)
Add (deduct):
Deferred revenue fair value adjustment	3,414			62			3,420			66			439			6
Accretion on contingent consideration and purchase liability	502			95			742			196			599			240
Non-cash interest expense	4,646			3,032			9,262			4,900			2,962			4,616
Non-cash compensation expense	14,988			10,476			27,852			18,971			13,470			12,864
Restructuring charges and transaction costs	13,208			3,345			20,574			5,937			2,820			7,366
Severance	3,280			1,049			5,760			3,861			13,982			2,480
Amortization of acquired intangibles and fair value adjustment to property and equipment, net	19,278			13,419			31,806			27,354
Amortization of acquired intangibles													18,758			12,528
Litigation and regulatory related expenses													703			—
Foreign currency	(154		)	(339		)	(155		)	(571		)	(494		)	(1		)
Non-income tax expense adjustment	908			27			1,118			(101		)	188			210
Loss allocation from equity method investment	347			151			550			811
Loss attributable to non-controlling interest	210			515			241			584
Gain on acquisition of equity method investment													(4,230		)	—
Loss allocation from equity method investments													2,030			203
(Income) Loss attributable to non-controlling interest													(201		)	31
Adjusted net income before income tax effect	32,858			26,407			58,901			50,591			41,872			26,043
Income tax effect (2)	(8,388		)	(7,130		)	(15,020		)	(13,660		)	(10,670		)	(6,632		)
Adjusted net income	$	24,470		$	19,277		$	43,881		$	36,931		$	31,202		$	19,411

Basic number of weighted-average shares outstanding	50,870,296			45,247,331			49,526,774			44,963,735			53,016,511			48,237,265
Effect of dilutive shares:
Options to purchase common stock	1,164,246			1,325,947			1,185,480			1,360,300			664,796			1,198,197
Unvested restricted stock units	662,853			643,319			666,116			832,170			600,567			656,798
Convertible notes	261,075			—			12,532			—			235,182			—
Warrants	24,218			—			—			—			42,551			—
Diluted number of weighted-average shares outstanding	52,982,688			47,216,597			51,390,902			47,156,205			54,559,607			50,092,260
Adjusted net income per share - diluted	$	0.46		$	0.41		$	0.85		$	0.78		$	0.57		$	0.39


(1)	For the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the effective tax rate computed in accordance with GAAP equaled ~~102.2%~~21.5% and ~~(10.4)~~(26.0)%~~, respectively. For the six months ended June 30, 2019 and 2018, the effective tax rate computed in accordance with GAAP equaled 58.2% and 117.6%~~, respectively.


(2)	~~Estimated~~An estimated normalized effective tax ~~rates~~rate of 25.5% ~~and 27.0% have~~has been used to compute adjusted net income for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018, respectively.~~2019.

Note on Income Taxes: As of December 31, ~~2018~~2019 we had ~~net operating loss~~NOL carryforwards of approximately ~~$267,000~~$258,000 and ~~$153,000~~$208,000 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 we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with 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 six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018:~~2019:

Three months ended June 30, 2019
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 176,890
$ 47,555
$ —
$ 224,445
Deferred revenue fair value adjustment 3,414
—
—
3,414
Adjusted revenues 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 $ 12,379
$ (8,960 ) $ (23,676 ) $ (20,257 )
Add:
Deferred revenue fair value adjustment 3,414
—
—
3,414
Accretion on contingent consideration and purchase liability 502
—
—
502
Depreciation and amortization 16,376
10,539
—
26,915
Non-cash compensation expense 8,592
3,767
2,629
14,988
Restructuring charges and transaction costs 794
(196 ) 12,610
13,208
Non-income tax expense adjustment 908
—
—
908
Severance 818
2,448
14
3,280
Other 43
—
—
43
Loss attributable to non-controlling interest 210
—
—
210
Adjusted EBITDA $ 44,036
$ 7,598
$ (8,423 ) $ 43,211



	Three months ended March 31, 2020
	Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)
Revenues	$	198,420		$	48,119		$	—		$	246,539
Deferred revenue fair value adjustment	439			—			—			439
Adjusted revenues	198,859			48,119			—			246,978
Less: Asset-based cost of revenues	(68,592		)	—			—			(68,592		)
Adjusted net revenues	$	130,267		$	48,119		$	—		$	178,386

Income (loss) from operations	$	11,340		$	(4,585	)	$	(14,372	)	$	(7,617	)
Add:
Deferred revenue fair value adjustment	439			—			—			439
Accretion on contingent consideration and purchase liability	373			226			—			599
Depreciation and amortization	19,420			8,263			—			27,683
Non-cash compensation expense	9,697			4,226			2,071			15,994
Restructuring charges and transaction costs	1,189			185			1,446			2,820
Non-income tax expense adjustment	250			(62		)	—			188
Severance	11,002			1,660			1,320			13,982
Litigation and regulatory related expenses	—			703			—			703
Income attributable to non-controlling interest	(201		)	—			—			(201		)
Other	(12		)	—			—			(12		)
Adjusted EBITDA	$	53,497		$	10,616		$	(9,535	)	$	54,578

Three Months Ended June 30, 2018
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 156,928
$ 44,188
$ —
$ 201,116
Deferred revenue fair value adjustment 60
2
—
62
Adjusted revenues 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 $ 16,359
$ (3,296 ) $ (13,058 ) $ 5
Add:
Deferred revenue fair value adjustment 60
2
—
62
Accretion on contingent consideration and purchase liability 95
—
—
95
Depreciation and amortization 11,026
8,159
—
19,185
Non-cash compensation expense 5,080
2,936
2,460
10,476
Restructuring charges and transaction costs 188
403
2,754
3,345
Non-income tax expense adjustment 27
—
—
27
Severance 1,049
—
—
1,049
Loss attributable to non-controlling interest 515
—
515
Adjusted EBITDA $ 34,399
$ 8,204
$ (7,844 ) $ 34,759

Six months ended June 30, 2019
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 329,595
$ 94,516
$ —
$ 424,111
Deferred revenue fair value adjustment 3,420
—
—
3,420
Adjusted revenues 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 $ 29,223
$ (16,888 ) $ (41,329 ) $ (28,994 )
Add:
Deferred revenue fair value adjustment 3,420
—
—
3,420
Accretion on contingent consideration and purchase liability 742
—
—
742
Depreciation and amortization 27,643
18,789
—
46,432
Non-cash compensation expense 14,269
7,955
5,628
27,852
Restructuring charges and transaction costs 1,056
769
18,749
20,574
Non-income tax expense adjustment 1,108
10
—
1,118
Severance 1,168
4,496
96
5,760
Other 65
1
2
68
Loss attributable to non-controlling interest 241
—
—
241
Adjusted EBITDA $ 78,935
$ 15,132
$ (16,854 ) $ 77,213


	Six Months Ended June 30, 2018												Three Months Ended March 31, 2019
	Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total			Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)												(in thousands)
Revenues	$	312,916		$	86,211		$	—		$	399,127		$	152,705		$	46,961		$	—		$	199,666
Deferred revenue fair value adjustment	58			8			—			66			6			—			—			6
Adjusted revenues	312,974			86,219			—			399,193			152,711			46,961			—			199,672
Less: Asset-based cost of revenues	(114,320		)	—			—			(114,320		)	(53,842		)	—			—			(53,842		)
Adjusted net revenues	$	198,654		$	86,219		$	—		$	284,873		$	98,869		$	46,961		$	—		$	145,830

Income (loss) from operations	$	32,220		$	(7,705	)	$	(25,248	)	$	(733	)	$	16,844		$	(7,928	)	$	(17,653	)	$	(8,737	)
Add:
Deferred revenue fair value adjustment	58			8			—			66			6			—			—			6
Accretion on contingent consideration and purchase liability	196			—			—			196			240			—			—			240
Depreciation and amortization	22,499			16,232			—			38,731			11,267			8,250			—			19,517
Non-cash compensation expense	9,134			5,400			4,437			18,971			5,677			4,188			2,999			12,864
Restructuring charges and transaction costs	225			603			5,109			5,937			262			965			6,139			7,366
Non-income tax expense adjustment	(101		)	—			—			(101		)	200			10			—			210
Severance	3,478			383			—			3,861			350			2,048			82			2,480
Loss attributable to non-controlling interest	584			—			—			584			31			—			—			31
Other													22			1			2			25
Adjusted EBITDA	$	68,293		$	14,921		$	(15,702	)	$	67,512		$	34,899		$	7,534		$	(8,431	)	$	34,002

Liquidity and Capital Resources

As of ~~June 30, 2019,~~March 31, 2020, we had total cash and cash equivalents of ~~$77,717~~$68,601 compared to ~~$289,345~~$82,505 as of December 31, ~~2018.~~2019. We plan to use existing cash, ~~as of June 30, 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.

As of ~~June 30, 2019,~~March 31, 2020, we had ~~$205,000~~$210,000 available to borrow under our revolving credit facility, subject to covenant compliance. We funded the May 1, 2019 PIEtech acquisition with a combination of cash on our balance sheet and additional borrowings under 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:


	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
	(in thousands)						(in thousands)
Net cash provided by operating activities	$	2,391		$	40,954
Net cash provided by (used in) operating activities							$	8,988		$	(12,575	)
Net cash used in investing activities	(347,969		)	(208,536		)	(45,689		)	(24,493		)
Net cash provided by financing activities	133,784			240,299
Net cash provided by (used in) financing activities							24,211			(6,654		)
Effect of exchange rate on changes on cash	166			(572		)	(1,496		)	112
Net increase (decrease) in cash, cash equivalents and restricted cash	(211,628		)	72,145
Net decrease in cash, cash equivalents and restricted cash							(13,986		)	(43,610		)
Cash, cash equivalents and restricted cash, end of period	78,043			134,260			68,769			246,061

Operating Activities

Net cash provided by operating activities for the ~~six~~three months ended ~~June 30,~~March 31, 2020 was $8,988 compared to net cash used in operating activities of $12,575 for the same period in 2019. The increase was primarily due to a decrease in net losses from $18,268 for the three months ended March 31, 2019 ~~was $2,391 compared~~ to a net loss of $7,190 in the three months ended March 31, 2020. An increase period over period for noncash addbacks for depreciation and amortization expense of $8,166 were partially offset by a non-cash gain of $4,230. Also contributing to the increase in net cash provided by operating activities of $40,954 for the same period in 2018. The decrease was primarily due to a net loss of $17,655 in the six months ended June 30, 2019 compared to net income of $2,011 for the same period in 2018, a change in deferred income taxes of $11,898 and a net decreaseis an increase in the change in operating assets and liabilities of ~~$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.~~$4,840, which is primarily timing related.

Investing Activities

Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~$347,969~~$45,689 compared to net cash used in investing activities of ~~$208,536~~$24,493 for the same period in ~~2018.~~2019. The change was primarily a result of an increase in cash disbursements for business acquisitions of ~~$133,226 and an increase~~$9,196. We also used $11,000 to acquire a 4.25% interest in ~~capitalization of internally developed software of $4,961.~~a privately held company.

Financing Activities

Net cash provided by financing activities for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~$133,784~~$24,211 compared to net cash ~~provided by~~used in financing activities of ~~$240,299~~$6,654 for the same period in ~~2018.~~2019. The change was primarily the result of ~~a decrease in proceeds from a May 2018 issuance of convertible notes of $345,000 and reduced~~increased borrowings on our revolving credit facility of ~~$20,000,~~$45,000, partially offset by ~~a decrease~~an increase in payments on our revolving credit facility of ~~$246,168.~~$15,000.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with 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—Summary of Significant Accounting Policies” to the consolidated financial statements in our ~~2018~~2019 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements and “Note 17—Leases” to the condensed consolidated financial statements in this accompanying Form 10-Q describes the updated accounting policies for right of use assets and operating lease liabilities that were updated as a result of adopting ASC 842.statements. 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 ~~2018~~2019 Form 10-K ~~and “Note 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

~~We include various types of indemnification~~See “Part I, Note 18—Commitments 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. We have experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to these indemnification and guarantee provisions. We believe that it is unlikely that we will have to make material payments under these arrangements and therefore we have not recorded a contingent liability in the condensed consolidated balance sheets.

~~We enter into unconditional~~Contingencies, Legal Proceedings” for purchase obligations ~~arrangements for certain of our services that we receive in the normal course of business.~~and indemnifications details.

Legal Proceedings

~~The Company~~See “Part I, Note 18—Commitments 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~~Contingencies, Legal Proceedings” 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. 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. We believe that liabilities associated with any claims, while possible, are not probable, and therefore we have not recorded any accrual for any claims as of June 30, 2019. Further, while any possible range of loss cannot be reasonably estimated at this time, we do not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to 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 our results of operations or cash flow in a particular quarter or year.

~~Leases~~

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:~~

~~As of June 30, 2019, we have entered into several additional operating leases that have not yet commenced but will commence in 2019 with lease terms of 1 to 3 years.~~details.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market ~~risk~~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 six~~ months ended ~~June 30, 2019, 54%~~March 31, 2020, 55% 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~~loss to ~~decrease.~~increase. If there are continued financial market declines for COVID-19 or any other matter, our asset-based revenues may negatively be impacted in future periods.

Foreign Currency Risk

~~Foreign~~A portion of our revenues are billed in various foreign currencies. We are directly exposed to changes in foreign currency ~~risk~~exchange rates through the translation of these monthly revenues into U.S. dollars. For the three months ended March 31, 2020, 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 approximately $519 to pre‑tax earnings.

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 six~~ months ended ~~June 30, 2019,~~March 31, 2020, 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 ~~$286 and $265~~approximately $1,451 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 ~~$234 and $217~~approximately $1,187 to pre‑tax ~~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 six months ended June 30, 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 approximately $472 and $941 to pre‑tax earnings, respectively.earnings.

Interest ~~rate risk~~Rate Risk

We are subject to market risk from changes in interest rates. ~~The Company has~~We have a revolving credit facility that bears interest at LIBOR plus an applicable margin between 1.50% and 3.25%. As ~~the~~ LIBOR rates fluctuate, so too will the interest expense on amounts borrowed under the Amended Credit Agreement. Interest charged on the revolving credit facility for the ~~second~~first quarter of ~~2019~~2020 was approximately ~~5.2%~~3.6%. As of ~~June 30, 2019,~~March 31, 2020, there was ~~$145,000~~$290,000 of revolving credit amounts outstanding under the Amended Credit Agreement. ~~The Company~~We incurred interest expense of ~~$1,353 and $1,569~~$2,671 for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, related to the Amended 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~~$497 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 ~~June 30, 2019.~~March 31, 2020. 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 ~~June 30, 2019,~~March 31, 2020, 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 ~~June 30, 2019,~~March 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The ~~Company~~information in Part I, Note 18—Commitments and ~~its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July 17, 2019,~~Contingencies - Legal Proceedings is incorporated herein 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. 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 June 30, 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.reference.

Item 1A. Risk Factors

Investment in our securities involves risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our ~~2018~~2019 Form 10-K when making investment decisions regarding our securities. ~~The~~Other than as provided below, the risk factors that were disclosed in our ~~2018~~2019 Form 10-K have not materially changed since the date our ~~2018~~2019 Form 10-K was filed.

The COVID-19 pandemic has caused, and is causing, significant harm to the global economy and may adversely affect our business, including our operations and financial condition, and may cause our assets under management or administration, revenue and earnings to decline.

On March 11, 2020, the World Health Organization declared Coronavirus Disease 2019 (“COVID-199”) a pandemic disease. The COVID-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including closures. These measures are, among other things, severely restricting global economic activity, which is disrupting supply chains, lowering asset and equity market valuations, significantly increasing unemployment and underemployment levels, decreasing liquidity in markets for certain securities and causing significant volatility and disruption in the financial markets.

In response to COVID-19 concerns, the Company has instituted a travel ban for all of its domestic and international employees and is following mandatory stay-at-home orders where applicable. A majority of the Company's employees are working from home as a result of these mandatory stay-at-home orders. Remote work-from-home restrictions makes us more dependent on certain technologies that allow us to operate our business remotely and collaborate without face-to-face meetings both internally and with our customers. To the extent we experience a technological disruption in our work-from-home capabilities, we would anticipate a negative impact on our business operations. Further, to the extent supply chains are disrupted, it may become more difficult to provide necessary technology to our employees working from remote locations.

For the three months ended March 31, 2020, approximately 55% of the Company's revenues result from asset-based fee billing arrangements. These fees are generally based upon variable percentages of assets managed or administered under the Company's platforms. Approximately 90% of the Company's asset-based fee arrangements are billed at the beginning of each quarter based on the market value of customer assets on its platforms as of the end of the prior quarter. While we experienced minimal impact on our asset-based revenues in the first quarter of 2020, we expect the impact of the pandemic to be more significant in the second quarter of 2020 as a result of declines within the equity markets. Should current economic conditions persist or deteriorate, there may be an ongoing adverse effect on our business, including our results of operations and financial condition, as a result of, among other things:

adverse equity market conditions, volatility in the financial markets and unforeseen investment trends resulting in a reduction in our asset-based fees;

a decline in new client conversions as a result of extended sales cycles and longer implementation periods as clients work remotely;

the negative impact of the pandemic on our clients and key vendors, market participants and other third-parties with whom we do business;

the disruption to our workforce due to illness and health concerns, potential limitations on our remote work environment, and government-imposed restrictions, laws and regulations.

The extent to which COVID-19, and the related global economic crisis, affect our business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties in response to the pandemic, and the effects on our products, clients, employees and vendors. If we are not able to respond to and manage the impact of such events effectively, our business, results of operations and financial condition may be materially and adversely affected.

The COVID-19 pandemic, and the related global economic crisis, could also precipitate or aggravate the other risk factors discussed in our Annual Report on Form 10-K, which could materially and adversely affect our business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks. For additional discussion of the impacts of the COVID-19 pandemic, which could be materially adverse to our operations and financial results, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Recent Developments, Uncertainties Related to COVID-19” section in Item 2 of Part I of this Quarterly Report on Form 10-Q.

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

(c)Issuer Purchases of Equity Securities

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~~There were no purchases of ~~Directors had authorized a~~equity securities made under our 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.three months ended March 31, 2020. As of ~~June 30, 2019,~~March 31, 2020, 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 **- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH			Inline XBRL Taxonomy Extension Schema Document ***
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document ***
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document ***
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document ***
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document ***
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

~~(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 theThe following materials are formatted in Inline XBRL (Extensible Business Reporting Language): (i) the cover page; (ii) the Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018; (ii)~~2019; (iii) the Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018; (iii)~~2019; (iv) the Condensed Consolidated Statement of Comprehensive ~~Income (Loss)~~Loss for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018; (iv)~~2019; (v) the Condensed Consolidated Statements of Stockholders' Equity for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018; (v)~~2019; (vi) the Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018; (vi)~~2019; (vii) 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 ~~August~~May 8, ~~2019.~~2020.



	ENVESTNET, INC.

	By:	/s/ ~~Judson Bergman~~William C. Crager
		~~Judson Bergman~~William C. Crager
		~~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

6348



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



	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



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



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



	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



	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



		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



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



	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



	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



	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



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



	Three months ended June 30, 2019
	Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)
Revenues	$	176,890		$	47,555		$	—		$	224,445
Deferred revenue fair value adjustment	3,414			—			—			3,414
Adjusted revenues	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	$	12,379		$	(8,960	)	$	(23,676	)	$	(20,257	)
Add:
Deferred revenue fair value adjustment	3,414			—			—			3,414
Accretion on contingent consideration and purchase liability	502			—			—			502
Depreciation and amortization	16,376			10,539			—			26,915
Non-cash compensation expense	8,592			3,767			2,629			14,988
Restructuring charges and transaction costs	794			(196		)	12,610			13,208
Non-income tax expense adjustment	908			—			—			908
Severance	818			2,448			14			3,280
Other	43			—			—			43
Loss attributable to non-controlling interest	210			—			—			210
Adjusted EBITDA	$	44,036		$	7,598		$	(8,423	)	$	43,211



	Three Months Ended June 30, 2018
	Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)
Revenues	$	156,928		$	44,188		$	—		$	201,116
Deferred revenue fair value adjustment	60			2			—			62
Adjusted revenues	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	$	16,359		$	(3,296	)	$	(13,058	)	$	5
Add:
Deferred revenue fair value adjustment	60			2			—			62
Accretion on contingent consideration and purchase liability	95			—			—			95
Depreciation and amortization	11,026			8,159			—			19,185
Non-cash compensation expense	5,080			2,936			2,460			10,476
Restructuring charges and transaction costs	188			403			2,754			3,345
Non-income tax expense adjustment	27			—			—			27
Severance	1,049			—			—			1,049
Loss attributable to non-controlling interest	515						—			515
Adjusted EBITDA	$	34,399		$	8,204		$	(7,844	)	$	34,759



	Six months ended June 30, 2019
	Envestnet Wealth Solutions			Envestnet Data & Analytics			Nonsegment			Total
	(in thousands)
Revenues	$	329,595		$	94,516		$	—		$	424,111
Deferred revenue fair value adjustment	3,420			—			—			3,420
Adjusted revenues	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	$	29,223		$	(16,888	)	$	(41,329	)	$	(28,994	)
Add:
Deferred revenue fair value adjustment	3,420			—			—			3,420
Accretion on contingent consideration and purchase liability	742			—			—			742
Depreciation and amortization	27,643			18,789			—			46,432
Non-cash compensation expense	14,269			7,955			5,628			27,852
Restructuring charges and transaction costs	1,056			769			18,749			20,574
Non-income tax expense adjustment	1,108			10			—			1,118
Severance	1,168			4,496			96			5,760
Other	65			1			2			68
Loss attributable to non-controlling interest	241			—			—			241
Adjusted EBITDA	$	78,935		$	15,132		$	(16,854	)	$	77,213

Three Months Ended