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, 20192020
 
☐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
Delaware
20-1409613
(State or other jurisdiction of

incorporation or organization)
(I.R.S Employer

Identification No.)
35 East Wacker Drive, Suite 2400,Chicago,Illinois60601
(Address of principal executive offices)(Zip Code)
 
Registrant’s telephone number, including area code:
(312) (312) 827-2800

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of exchange on which registered
Common Stock, par value $0.005 per shareENVNew 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 Yesý☒  No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  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 filerýAccelerated filer☐
Large accelerated filerýAccelerated 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 1, 2019,July 31, 2020, Envestnet, Inc. had 52,182,22853,772,483 shares of common stock outstanding.




TABLE OF CONTENTS

Page
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2019 30, 2020 and December 31, 20182019
3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 30, 2020 and 20182019
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 20192020 and 20182019
5
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30 2019, 2020 and 20182019
6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 30, 2020 and 20182019
8
Notes to Unaudited Condensed Consolidated Financial Statements
910
Forward-Looking Statements
3328
Overview
3530
Results of Operations
4136
Liquidity and Capital Resources
5753
5954
6055
6055
6055
6156
6156
6156
6156
6156
57
58

2



Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
June 30,December 31,
20202019
Assets
Current assets:
Cash and cash equivalents$92,244  $82,505  
Fees receivable, net74,871  67,815  
Prepaid expenses and other current assets38,665  32,183  
Total current assets205,780  182,503  
Property and equipment, net49,752  53,756  
Internally developed software, net78,024  60,263  
Intangible assets, net471,091  505,589  
Goodwill906,499  879,850  
Operating lease right-of-use assets, net73,537  82,796  
Other non-current assets46,722  37,127  
Total assets$1,831,405  $1,801,884  
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities$134,763  $137,944  
Accounts payable16,132  17,277  
Operating lease liabilities13,926  13,816  
Contingent consideration1,603  —  
Deferred revenue42,861  34,753  
Total current liabilities209,285  203,790  
Convertible Notes due 2023311,031  305,513  
Revolving credit facility275,000  260,000  
Contingent consideration11,422  9,045  
Deferred revenue5,231  5,754  
Non-current operating lease liabilities81,600  88,365  
Deferred tax liabilities, net27,106  29,481  
Other non-current liabilities36,993  32,360  
Total liabilities957,668  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; 67,396,243 and 66,320,706 shares issued as of June 30, 2020 and December 31, 2019, respectively; 53,743,382 and 52,841,706 shares outstanding as of June 30, 2020 and December 31, 2019, respectively337  331  
Additional paid-in capital1,071,502  1,037,141  
Accumulated deficit(89,065) (75,664) 
Treasury stock at cost, 13,652,861 and 13,479,000 shares as of June 30, 2020 and December 31, 2019, respectively(103,781) (90,965) 
Accumulated other comprehensive loss(3,198) (1,749) 
Total stockholders’ equity875,795  869,094  
Non-controlling interest(2,058) (1,518) 
Total equity873,737  867,576  
Total liabilities and equity$1,831,405  $1,801,884  
  June 30, December 31,
  2019 2018
Assets:    
Current assets:    
Cash and cash equivalents $77,717
 $289,345
Fees receivable, net 71,632
 68,004
Prepaid expenses and other current assets 40,046
 23,557
Total current assets 189,395

380,906
     
Property and equipment, net 51,016
 44,991
Internally developed software, net 48,059
 38,209
Intangible assets, net 509,159
 305,241
Goodwill 908,686
 519,102
Operating lease right-of-use assets, net 72,191
 —
Other non-current assets 33,834
 25,298
Total assets $1,812,340

$1,313,747
     
Liabilities and Equity:    
Current liabilities:    
Accrued expenses and other liabilities $118,608
 $133,298
Accounts payable 15,165
 19,567
Operating lease liabilities 12,918
 —
Convertible Notes due 2019 169,182
 165,711
Contingent consideration —
 732
Deferred revenue 37,601
 23,988
Total current liabilities 353,474

343,296
     
Convertible Notes due 2023 300,078
 294,725
Revolving credit facility 145,000
 —
Contingent consideration 16,423
 —
Deferred revenue 6,659
 6,910
Non-current operating lease liabilities 77,431
 —
Deferred rent and lease incentive —
 17,569
Deferred tax liabilities, net 31,292
 640
Other non-current liabilities 28,193
 18,005
Total liabilities 958,550
 681,145
     
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
Additional paid-in capital 1,015,578
 761,128
Accumulated deficit (76,174) (58,882)
Treasury stock at cost, 13,345,514 and 13,117,098 shares as of June 30, 2019 and December 31, 2018, respectively (83,820) (67,858)
Accumulated other comprehensive loss (660) (994)
Total stockholders’ equity 855,251
 633,700
Non-controlling interest (1,461) (1,098)
Total equity 853,790
 632,602
Total liabilities and equity $1,812,340

$1,313,747

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

3

Envestnet, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)

Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Revenues:
Asset-based$122,246  $120,070  $257,057  $229,004  
Subscription-based104,979  92,258  209,530  175,345  
Total recurring revenues227,225  212,328  466,587  404,349  
Professional services and other revenues8,088  12,117  15,265  19,762  
Total revenues235,313  224,445  481,852  424,111  
Operating expenses:
Cost of revenues68,849  72,080  143,782  133,725  
Compensation and benefits95,565  103,286  205,995  190,003  
General and administration38,448  42,421  79,558  82,945  
Depreciation and amortization28,443  26,915  56,126  46,432  
Total operating expenses231,305  244,702  485,461  453,105  
Income (loss) from operations4,008  (20,257) (3,609) (28,994) 
Other expense, net(8,173) (7,512) (9,710) (13,275) 
Loss before income tax provision (benefit)(4,165) (27,769) (13,319) (42,269) 
Income tax provision (benefit)1,306  (28,382) (658) (24,614) 
Net income (loss)(5,471) 613  (12,661) (17,655) 
Add: Net loss attributable to non-controlling interest547  280  401  363  
Net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
Net income (loss) per share attributable to Envestnet, Inc.:
Basic$(0.09) $0.02  $(0.23) $(0.35) 
Diluted$(0.09) $0.02  $(0.23) $(0.35) 
Weighted average common shares outstanding:
Basic53,562,850  50,870,296  53,288,741  49,526,774  
Diluted53,562,850  52,982,688  53,288,741  49,526,774  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Revenues:        
Asset-based $120,070
 $118,111
 $229,004
 $239,264
Subscription-based 92,258
 71,779
 175,345
 141,474
Total recurring revenues 212,328

189,890

404,349

380,738
Professional services and other revenues 12,117
 11,226
 19,762
 18,389
Total revenues 224,445
 201,116
 424,111

399,127
         
Operating expenses:        
Cost of revenues 72,080
 67,627
 133,725
 130,561
Compensation and benefits 103,286
 80,210
 190,003
 163,750
General and administration 42,421
 34,089
 82,945
 66,818
Depreciation and amortization 26,915
 19,185
 46,432
 38,731
Total operating expenses 244,702

201,111

453,105

399,860
         
Income (loss) from operations (20,257) 5
 (28,994) (733)
Other expense, net (7,512) (5,430) (13,275)
(10,684)
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)
         
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 income (loss) per share attributable to Envestnet, Inc.:        
Basic $0.02
 $(0.12) $(0.35) $0.06
Diluted $0.02
 $(0.12) $(0.35) $0.05
         
Weighted average common shares outstanding:        
Basic 50,870,296
 45,247,331
 49,526,774
 44,963,735
Diluted 52,982,688
 45,247,331
 49,526,774
 47,156,205

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

4

Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
Foreign currency translation gains (losses), net of taxes
1,575  112  (1,449) 334  
Comprehensive income (loss) attributable to Envestnet, Inc.$(3,349) $1,005  $(13,709) $(16,958) 
  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

See accompanying notes to unaudited Condensed Consolidated Financial Statements.


5

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


Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalIncome (Loss)DeficitInterestEquity
Balance, December 31, 201966,320,706  $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 options357,974  2  —  —  3,406  —  —  —  3,408  
Issuance of common stock - vesting of restricted stock units398,881  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 gain (loss)—  —  —  —  —  (3,024) —  —  (3,024) 
Net income (loss)—  —  —  —  —  —  (7,336) 146  (7,190) 
Balance, March 31, 202067,077,561  $335  (13,609,164) $(100,164) $1,054,312  $(4,773) $(84,141) $(1,372) $864,197  
Exercise of stock options184,475  1  —  —  3,274  —  —  —  3,275  
Issuance of common stock - vesting of restricted stock units134,207  1  —  —  —  —  —  —  1  
Stock-based compensation expense—  —  —  —  13,006  —  —  —  13,006  
Purchase of treasury stock for stock-based tax withholdings—  —  (43,697) (3,617) —  —  —  —  (3,617) 
Transfer of non-controlling units—  —  —  —  910  —  —  (139) 771  
Foreign currency translation gain (loss)—  —  —  —  —  1,575  —  —  1,575  
Net income (loss)—  —  —  —  —  —  (4,924) (547) (5,471) 
Balance, June 30, 202067,396,243  $337  (13,652,861) $(103,781) $1,071,502  $(3,198) $(89,065) $(2,058) $873,737  

See accompanying notes to unaudited Condensed Consolidated Financial StatementsStatements.
.










6


Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)
Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalIncome (Loss)DeficitInterestEquity
Balance, December 31, 201861,238,898  $306  (13,117,098) $(67,858) $761,128  $(994) $(58,882) $(1,098) $632,602  
Exercise of stock options200,326  1  —  —  3,162  —  —  —  3,163  
Issuance of common stock - vesting of restricted stock units479,479  2  —  —  —  —  —  —  2  
Acquisition of business15,755  —  —  —  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, 201961,934,458  309  (13,277,554) (77,677) 777,926  (772) (77,067) (1,181) 621,538  
Exercise of stock options114,109  1  —  —  1,750  —  —  —  1,751  
Issuance of common stock - vesting of restricted stock units182,390  1  —  —  —  —  —  —  1  
Acquisition of business3,184,713  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, 201965,415,670  $327  (13,345,514) $(83,820) $1,015,578  $(660) $(76,174) $(1,461) $853,790  
            Accumulated      
  Common Stock Treasury Stock Additional Other   Non-  
      Common   Paid-in Comprehensive Accumulated controlling Total
  Shares Amount Shares Amount Capital Income (Loss) Deficit Interest Equity
Balance, December 31, 2017 57,450,056
 $287
 (12,749,415) $(47,042) $556,257
 $624
 $(73,854) $398
 $436,670
Adoption of ASC 606 —
 —
 —
 —
 —
 —
 9,217
 —
 9,217
Exercise of stock options 162,857
 1
 —
 —
 2,403
 —
 —
 —
 2,404
Issuance of common stock - vesting of restricted stock units 503,668
 2
 —
 —
 —
 —
 —
 —
 2
Stock-based compensation expense —
 —
 —
 —
 8,495
 —
 —
 —
 8,495
Purchase of treasury stock for stock-based tax withholdings —
 —
 (166,217) (9,296) —
 —
 —
 —
 (9,296)
Issuance of non-controlling units in private company —
 —
 —
 —
 —
 —
 —
 873
 873
Foreign currency translation gain (loss) —
 —
 —
 —
 —
 (327) —
 —
 (327)
Net income (loss) —
 —
 —
 —
 —
 —
 8,104
 (102) 8,002
Balance, March 31, 2018 58,116,581
 290
 (12,915,632) (56,338) 567,155
 297
 (56,533) 1,169
 456,040
Exercise of stock options 12,166
 —
 —
 —
 136
 —
 —
 —
 136
Issuance of common stock - vesting of restricted stock units 253,279
 1
 —
 —
 —
 —
 —
 —
 1
Stock-based compensation expense —
 —
 —
 —
 10,476
 —
 —
 —
 10,476
Purchase of treasury stock for stock-based tax withholdings —
 —
 (90,800) (5,099) —
 —
 —
 —
 (5,099)
Issuance of Convertible Notes due 2023, net of offering costs —
 —
 —
 —
 46,611
 —
 —
 —
 46,611
Foreign currency translation gain (loss) —
 —
 —
 —
 —
 (1,036) —
 —
 (1,036)
Net income (loss) —
 —
 —
 —
 —
 —
 (5,526) (465) (5,991)
Balance, June 30, 2018 58,382,026
 $291
 (13,006,432) $(61,437) $624,378
 $(739) $(62,059) $704
 $501,138


See accompanying notes to unaudited Condensed Consolidated Financial Statements.


7

Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Six Months EndedSix Months Ended
 June 30,June 30,
 2019 201820202019
OPERATING ACTIVITIES:    OPERATING ACTIVITIES:
Net income (loss) $(17,655) $2,011
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Net lossNet loss$(12,661) $(17,655) 
Adjustments to reconcile net loss to net cash provided by operating activities:Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 46,432
 38,731
Depreciation and amortization56,126  46,432  
Deferred rent and lease incentive amortization —
 1,069
Provision for doubtful accounts 713
 924
Provision for doubtful accounts1,515  713  
Deferred income taxes (28,991) (17,093)Deferred income taxes(1,598) (28,991) 
Non-cash based compensation expense 27,852
 18,971
Non-cash compensation expenseNon-cash compensation expense29,869  27,852  
Non-cash interest expense 9,896
 5,630
Non-cash interest expense5,907  9,896  
Accretion on contingent consideration and purchase liability 742
 196
Accretion on contingent consideration and purchase liability910  742  
Payments of contingent consideration (578) —
Payments of contingent consideration—  (578) 
Loss allocation from equity method investment 550
 811
Fair market value adjustment to contingent consideration liabilityFair market value adjustment to contingent consideration liability(1,982) —  
Gain on acquisition of equity method investmentGain on acquisition of equity method investment(4,230) —  
Loss allocation from equity method investmentsLoss allocation from equity method investments3,286  550  
Impairment of right of use assetsImpairment of right of use assets1,426  —  
OtherOther556  —  
Changes in operating assets and liabilities, net of acquisitions:    Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net (536) (8,204)Fees receivable, net(8,560) (536) 
Prepaid expenses and other current assets (15,507) (3,426)Prepaid expenses and other current assets(7,756) (15,507) 
Other non-current assets (3,241) (2,450)Other non-current assets(353) (3,241) 
Accrued expenses and other liabilities (19,060) (5,438)Accrued expenses and other liabilities(4,484) (19,060) 
Accounts payable (4,768) 4,166
Accounts payable(2,130) (4,768) 
Deferred revenue 3,940
 3,478
Deferred revenue7,236  3,940  
Other non-current liabilities 2,602
 1,578
Other non-current liabilities1,946  2,602  
Net cash provided by operating activities 2,391
 40,954
Net cash provided by operating activities65,023  2,391  
    
INVESTING ACTIVITIES:    INVESTING ACTIVITIES:
Purchases of property and equipment (8,815) (9,569)Purchases of property and equipment(4,329) (8,815) 
Capitalization of internally developed software (15,583) (10,622)Capitalization of internally developed software(25,703) (15,583) 
Investments in private companiesInvestments in private companies(12,625) (2,000) 
Acquisitions of businesses, net of cash acquired (321,571) (188,345)Acquisitions of businesses, net of cash acquired(20,257) (321,571) 
Other (2,000) —
Net cash used in investing activities (347,969) (208,536)Net cash used in investing activities(62,914) (347,969) 
    
FINANCING ACTIVITIES:    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
Proceeds from borrowings on revolving credit facility45,000  175,000  
Payments on revolving credit facility (30,000) (276,168)Payments on revolving credit facility(30,000) (30,000) 
Payments of contingent consideration (171) (2,193)Payments of contingent consideration—  (171) 
Proceeds from exercise of stock options 4,914
 2,540
Proceeds from exercise of stock options6,683  4,914  
Purchase of treasury stock for stock-based tax withholdings (15,962) (14,395)Purchase of treasury stock for stock-based tax withholdings(12,816) (15,962) 
Issuance of restricted stock units 3
 3
Issuance of restricted stock units3  3  
Net cash provided by financing activities 133,784
 240,299
Net cash provided by financing activities8,870  133,784  
    
EFFECT OF EXCHANGE RATE CHANGES ON CASH 166
 (572)EFFECT OF EXCHANGE RATE CHANGES ON CASH(1,342) 166  
    
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (211,628)
72,145
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH9,637  (211,628) 
    
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 289,671
 62,115
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD82,755  289,671  
    
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2) $78,043
 $134,260
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)$92,392  $78,043  
    
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes $6,121
 $2,225
Supplemental disclosure of cash flow information - cash paid during the period for interest 5,952
 4,271
Supplemental disclosure of non-cash operating, investing and financing activities:    
Common stock issued in acquisition of business 222,484
 —
Contingent consideration issued in acquisition of businesses 15,880
 —
Purchase liabilities included in other non-current liabilities 5,468
 —
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities 1,567
 1,188
Membership interest liabilities included in other non-current liabilities 1,480
 —
Common stock issued to settle purchase liability 772
 —
Leasehold improvements funded by lease incentive 648
 1,080
Purchase liabilities included in accrued expenses and other liabilities —
 1,422
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
8

Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
Six Months Ended
June 30,
20202019
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes$2,136  $6,121  
Supplemental disclosure of cash flow information - cash paid during the period for interest7,861  5,952  
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 businesses5,239  15,880  
Purchase liabilities included in other non-current liabilities—  5,468  
Purchase liabilities included in accrued expenses and other liabilities632  —  
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities1,139  1,567  
Membership interest liabilities included in other non-current liabilities3,098  1,480  
Common stock issued to settle purchase liability—  772  
Leasehold improvements funded by lease incentive1,710  648  
Transfer of non-controlling units771  —  

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
9
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)


1.Organization and Description of Business
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 two2 primary, complementary business segments. Financial information about each business segment is contained in “Note 18—15—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.
2.Basis of Presentation

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, 20192020 and for the three and six months ended June 30, 20192020 and 20182019 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, 20182019 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, 20192020 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, 20192020 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 principlesin 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,
  2019 2018
Cash and cash equivalents $77,717
 $289,345
Restricted cash included in prepaid expenses and other current assets 158
 158
Restricted cash included in other non-current assets 168
 168
Total cash, cash equivalents and restricted cash $78,043
 $289,671

June 30,June 30,
20202019
Cash and cash equivalents$92,244  $77,717  
Restricted cash included in prepaid expenses and other current assets—  158  
Restricted cash included in other non-current assets148  168  
Total cash, cash equivalents and restricted cash$92,392  $78,043  
 
Recent Accounting Pronouncements
10
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 consensusTable of the FASB Emerging Issues Task Force).” This update is intended to guide entities in evaluating theContents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Financial Impacts Related To COVID-19
accounting for fees paid by
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, a customer innovel strain of Coronavirus, a cloud computing arrangement by providing guidance for determining whenglobal 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 adoptionvirus spreads. The extent of the standardeffect 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 adoptedunable 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 nottime, if the pandemic continues, it could have a material impactadverse effect on the Company'sCompany’s business, results of operations, financial condition and cash flows. As of June 30, 2020, these condensed consolidated financial statements.statements do not reflect any adjustments as a result of the pandemic.
Not Yet
Recent Accounting Pronouncements

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 newThis 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. EarlyThese 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, net of tax, 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 impactresults of this guidanceits 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 Measurement2019-12, “Income Taxes (Topic 820)740): Disclosure Framework—Changes toSimplifying the Disclosure RequirementsAccounting for Fair Value Measurement.Income Taxes.” This update aims to improvereduce complexity within the effectiveness of disclosure requirements on fair value measurementaccounting 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
3. Acquisitions and Other Investments

Investment in Private Services Company

On January 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 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 $2,384 and $5,073 in the three and six months ended June 30, 2020. As of June 30, 2020, the Company had recorded a net receivable of $1,468 from the private services company.

Acquisition of private companyPrivate Technology Company

On January 2, 2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet and a private company,February 18, 2020, the private company merged into Yodlee Inc., aCompany, through it's wholly owned subsidiary of the CompanyYodlee, Inc. (“Yodlee”), acquired a private technology company (the “Private Technology Company Acquisition”). The private technology company provides conversational artificial intelligence toolsenables the consent generation and applications todata 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 inhave been integrated into the Company’s Envestnet Data & Analytics segment.

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

The consideration transferred in the acquisition was as follows:
  Preliminary Estimate
Cash consideration $11,173
Purchase consideration liability 6,240
Contingent consideration liability 7,580
Working capital adjustment 70
Total $25,063


11
The estimated fair values
Table 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 informationContents
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 measurementsIn connection with the Private Technology Company Acquisition, the Company acquired all of fair values reflected arethe outstanding shares and paid cash consideration of $2,343, net of cash acquired, subject to changecertain 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 to finalizerecorded a liability as of the valuationdate 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.

The following table summarizesof $5,239, which represented the estimated fair valuesvalue of the assets acquired and liabilities assumed atcontingent consideration on the date of acquisition: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

In June 2020, the Company determined that certain performance targets for this acquisition would not be met. As a result, the Company reduced the contingent consideration liability plus accrued interest associated with this acquisition by $1,982 and recorded this as a reduction to general and administration expenses. Future changes to the estimated fair value of the contingent consideration, if any, will be recognized in earnings of the Company.

The Company recorded estimated 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 ofpurposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible assets acquired estimated useful lives and amortization method is as follows:liabilities assumed were not material.
  Preliminary Estimate Estimated Useful Life in Years Amortization Method
Proprietary technology $4,100
 4 Straight-line


The results of the private technology company's operations are included in the condensed consolidated statements of operations beginning January 2, 2019February 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 the 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 in the first quarter of 2020 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.

12
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
For the three and six months ended June 30, 2019,2020, acquisition related costs for the Private Company AcquisitionCompany's 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.

AcquisitionThe goodwill arising from these acquisitions represents the expected synergistic benefits of PortfolioCenter business

On April 1, 2019, pursuantthese transactions, primarily related to an asset purchase agreement, Tamarac, Inc. (“Tamarac”),increase in future revenues as a wholly owned subsidiaryresult of Envestnet, acquiredpotential new business and cross selling opportunities, as well as enhancements to our existing technologies.

For the Company's 2020 acquisitions, the estimated fair values of 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 intangiblethese estimated assets and goodwill balances and complete the acquisition accountingliabilities as soon as reasonably practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

On April 1, 2020.
The following table summarizes2019, the estimated fair valuesCompany acquired certain of the assets, acquiredprimarily consisting of intangible assets, and liabilities assumed at the dateassumption 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 represents the expected synergistic benefitscertain liabilities of the transaction, primarily related to an increase in future revenues asPortfolioCenter business (“PortfolioCenter”) from Performance Technologies, Inc., a resultwholly-owned subsidiary 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

Charles Schwab Corporation. 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, 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.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
  Preliminary Estimate Estimated Useful Life in Years Amortization Method
Customer lists $181,000
 10-16 Accelerated
Proprietary technologies 25,000
 5 Straight-line
Trade names 11,000
 6 Straight-line
Total $217,000
    

The results of PIEtech's operations are included in the condensed consolidated statements of operations beginning May 1, 2019. PIEtech's revenues for the three and six months ended June 30, 2019 totaled $6,632. PIEtech's pre-tax loss for the three and six months ended June 30, 2019 totaled $3,422. The pre-tax loss includes estimated acquired intangible asset amortization of $4,142 for the three and six months ended June 30, 2019.
For the three and six months ended June 30, 2019, acquisition related costs for the PIEtech Acquisition totaled approximately $11,269 and$16,189, respectively, and are included in general and administration expenses. Included in these amounts are approximately $8,800 in one-time cash retention bonuses, which are included the Company's corporate non-segment operating expenses in the condensed consolidated statements of operations. The Company may incur additional acquisition related costs over the remainder of 2019.
Pro forma financial information

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, 2019 and 2018. The pro forma financial information presentsassumes the results as if the acquisitionacquisitions of PortfolioCenter and PIEtech had occurred as of the beginning of 2018. The results of the private company acquisitionCompany'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 paymentscosts 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,
20192019
Revenues$228,522  $443,275  
Net loss attributable to Envestnet, Inc.$(7,612) $(18,857) 
Net loss per share attributable to Envestnet, Inc.:
Basic$(0.15) $(0.37) 
Diluted$(0.15) $(0.37) 
  Three Months Ended June 30, Six Months Ended June 30,
  2019 2018 2019 2018
Revenues $228,522
 $215,240
 $443,275
 $426,291
Net income (loss) attributable to Envestnet, Inc. (7,612) (1,661) (18,857) 5,186
Net income (loss) per share attributable to Envestnet, Inc.:        
Basic $(0.15) $(0.03) $(0.37) $0.11
Diluted $(0.15) $(0.03) $(0.37) $0.10


13
Table of Contents
4.Prepaid Expenses and Other Current Assets
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
4.Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets consistconsisted of the following:
  June 30, December 31,
  2019 2018
Prepaid technology $9,801
 $6,766
Advance payroll taxes and benefits 10,802
 —
Non-income tax receivables 8,279
 6,240
Prepaid outside information services 1,989
 1,515
Other 9,175
 9,036
Total $40,046
 $23,557

June 30,December 31,
 20202019
Prepaid technology$9,611  $8,178  
Non-income tax receivables5,851  5,555  
Advance payroll taxes and benefits4,922  5,446  
Income tax receivables3,124  —  
Prepaid outside information services2,553  2,209  
Prepaid insurance1,976  1,919  
Other10,628  8,876  
Total prepaid expenses and other current assets$38,665  $32,183  
 
5.Property and Equipment
5.Property and Equipment, Net
 
Property and equipment, net consists of the following:
  June 30,December 31,
 Estimated Useful Life20202019
Cost:   
Computer equipment and software3 years$71,090  $72,190  
Leasehold improvementsShorter of the lease term or useful life of the asset37,271  34,645  
Office furniture and fixtures3-7 years10,668  10,832  
Office equipment and other3-5 years6,925  6,850  
Building and building improvements7-39 years2,669  2,647  
LandNot applicable940  940  
  129,563  128,104  
Less: accumulated depreciation and amortization(79,811) (74,348) 
Total property and equipment, net$49,752  $53,756  
    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, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $2,903 and $4,495, respectively. During the three and six months ended June 30, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $117 and $684, 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 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, 2020 and 2019 were not material.

During the threeDepreciation and six months ended June 30, 2018, the Company retired property and equipment thatamortization expense was no longer in service for the Envestnet Wealth Solutions segment with an historical costas follows:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Depreciation and amortization expense$5,363  $6,751  $10,680  $11,117  
14
Table 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 theContents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Envestnet Data & Analytics segment with an historical cost of $2,525 and $3,401, respectively. Gains and losses on asset retirements during the three and six months ended June 30, 2018 were not material.
Depreciation and amortization expense was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Depreciation and amortization expense $6,751
 $3,920
 $11,117
 $7,838

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

  June 30,December 31,
 Estimated Useful Life20202019
Internally developed software5 years$130,406  $104,703  
Less: accumulated amortization (52,382) (44,440) 
Internally developed software, net $78,024  $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 EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Amortization expense$4,334  $3,110  $7,942  $5,733  
 
7.Goodwill and Intangible Assets, Net
7.Goodwill and Intangible Assets, Net
 
Changes in the carrying amount of goodwill were as follows:
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
Balance at December 31, 2019$583,247  $296,603  $879,850  
Acquisitions20,173  7,017  27,190  
Foreign currency and other(70) (471) (541) 
Balance at June 30, 2020$603,350  $303,149  $906,499  
  Envestnet Wealth Solutions Envestnet Data & Analytics Total
Balance at December 31, 2018 $243,809
 $275,293
 $519,102
Private company acquisition —
 21,448
 21,448
PortfolioCenter acquisition 14,987
 —
 14,987
PIEtech acquisition 353,085
 —
 353,085
Foreign currency —
 90
 90
Other (26) —
 (26)
Balance at June 30, 2019 $611,855
 $296,831
 $908,686


Intangible assets, net consist of the following:
 June 30, 2020December 31, 2019
 Gross NetGross Net
 CarryingAccumulatedCarryingCarryingAccumulatedCarrying
 AmountAmortizationAmountAmountAmortizationAmount
Customer lists$591,520  $(173,895) $417,625  $591,520  $(148,517) $443,003  
Proprietary technologies90,714  (53,822) 36,892  87,714  (44,165) 43,549  
Trade names33,700  (17,126) 16,574  33,700  (14,663) 19,037  
Total intangible assets$715,934  $(244,843) $471,091  $712,934  $(207,345) $505,589  
    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

There were no material retirements of intangible assets during the three and six months ended June 30, 2020 and 2019.

Amortization expense was as follows:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Amortization expense$18,746  $17,054  $37,504  $29,582  
15
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

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

8.
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
202071,524
202161,555
202257,857
202346,748
Thereafter233,588
Total$509,159


8.
Accrued Expenses and Other Liabilities
 
Accrued expenses and other liabilities consistconsisted of the following:
June 30,December 31,
 20202019
Accrued investment manager fees$56,061  $48,720  
Accrued compensation and related taxes44,231  53,627  
Non-income tax payables10,307  11,040  
Accrued professional services5,321  3,833  
Accrued technology3,521  3,042  
Accrued transaction costs2,761  2,482  
Accrued charitable contribution—  5,020  
Other accrued expenses12,561  10,180  
Total accrued expenses and other liabilities$134,763  $137,944  
  June 30, December 31,
  2019 2018
Accrued investment manager fees $43,966
 $50,635
Accrued compensation and related taxes 44,411
 50,598
Sales and use tax payable 12,006
 9,733
Accrued transaction costs 4,812
 4,543
Accrued professional services 2,599
 4,517
Other accrued expenses 10,814
 13,272
Total $118,608
 $133,298

In the fourth quarter of 2019, the Company 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 approximately $12,000 of severance expense during the six months ended June 30, 2020. As of June 30, 2020, the Company has accrued approximately $868 in 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. These payments will extend through 2030.
9.Debt
9.Debt
 
The Company’s outstanding debt obligations as of June 30, 20192020 and December 31, 20182019 were as follows: 
 June 30,December 31,
 20202019
Revolving credit facility balance$275,000  $260,000  
Convertible Notes due 2023$345,000  $345,000  
Unaccreted discount on Convertible Notes due 2023(28,811) (33,491) 
Unamortized issuance costs on Convertible Notes due 2023(5,158) (5,996) 
Convertible Notes due 2023 carrying value(1)
$311,031  $305,513  
  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
 $—
(1) The effective interest rate on the liability component of the Convertible Notes due 2023 was 6% for the three and six months ended June 30, 2020 and 2019.

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 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.  
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Accretion of debt discount$2,349  $3,784  $4,680  $7,542  
Interest on revolving credit facility2,009  1,196  4,527  1,196  
Coupon interest1,510  2,264  3,011  4,528  
Amortization of issuance costs633  862  1,264  1,720  
Undrawn and other fees133  157  286  373  
 Total interest expense$6,634  $8,263  $13,768  $15,359  
 
The Company incurs interest on borrowings madecredit agreement under which the Second Amended and Restatedabove revolving credit facility was issued (the “Amended 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 AgreementAgreement”) includes certain financial covenants and, as of June 30, 2019,2020, the Company was in compliance with these requirements.

16
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

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 attributesSee “Note 14—Net Income (Loss) Per Share” for similar typesfurther discussion of assets and liabilities and to more easily understand the effect of the Company’s choice to use fair valueconversion 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.net income (loss) per common share.

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:
10.Fair Value Measurements
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, 20192020 and December 31, 2018,2019, based on the three-tier fair value hierarchy:
 June 30, 2020
 Fair ValueLevel ILevel IILevel III
Assets:    
Money market funds$47,351  $47,351  $—  $—  
Assets to fund deferred compensation liability9,076  —  —  9,076  
Total assets$56,427  $47,351  $—  $9,076  
Liabilities:    
Contingent consideration$13,025  $—  $—  $13,025  
Deferred compensation liability7,596  7,596  —  —  
Total liabilities$20,621  $7,596  $—  $13,025  
 December 31, 2019
 Fair ValueLevel ILevel IILevel III
Assets:    
Money market funds$37,730  $37,730  $—  $—  
Assets to fund deferred compensation liability8,390  —  —  8,390  
Total assets$46,120  $37,730  $—  $8,390  
Liabilities:    
Contingent consideration$9,045  $—  $—  $9,045  
Deferred compensation liability8,208  8,208  —  —  
Total liabilities$17,253  $8,208  $—  $9,045  
 
  June 30, 2019
  Fair Value Level I Level II Level III
Assets:        
Money market funds and other (1)
 $40,016
 $40,016
 $—
 $—
Assets to fund deferred compensation liability(2)
 8,091
 —
 —
 8,091
Total assets $48,107
 $40,016
 $—
 $8,091
Liabilities:  
  
  
  
Contingent consideration $16,423
 $—
 $—
 $16,423
Deferred compensation liability(3)
 7,974
 7,974
 —
 —
Total liabilities $24,397
 $7,974
 $—
 $16,423

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

  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 ourits 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 driversubsequent periods from the date of acquisition, which management believes are appropriately discounted considering the valuation, to arrive atuncertainties associated with these obligations, and are calculated in accordance with the fair valuesterms of their respective contingent consideration. agreements.

The Company will continue to reassess the fair values of itsthe 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 administrativeadministration expenses onin the condensed consolidated statements of operations.

The table below presents a reconciliation of the Company's contingent consideration liabilities, which were measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2019 to June 30, 2020: 
Fair Value of Contingent Consideration Liabilities
Balance at December 31, 2019$9,045 
Private technology company acquisition5,239 
Fair market value adjustment on contingent consideration liability(1,982)
Accretion on contingent consideration723 
Balance at June 30, 2020$13,025 
17
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

The table below presents a reconciliation of contingent consideration liabilities, which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2018 to June 30, 2019:
  Fair Value of Contingent Consideration Liabilities
Balance at December 31, 2018 $732
Private company acquisition 7,580
PortfolioCenter acquisition 8,300
Settlement of contingent consideration liability (749)
Accretion on contingent consideration 560
Balance at June 30, 2019 $16,423


The table below presents a reconciliation of 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, 20182019 to June 30, 2019:2020:

  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 
Contributions1,060 
Fair value adjustments(374)
Balance at June 30, 2020$9,076 
 
The assetfair 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 due to funding of the plan, and gainspartially offset by losses on the underlying investment vehicles. These losses are recognized in the Company's earnings and included in general and administration 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 changewhen changes in circumstances that caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the six months ended June 30, 2019.2020.
 
On December 15, 2014, the Company issued $172,500 of Convertible Notes due 2019. As of June 30, 20192020 and December 31, 2018,2019, the carrying value of the Convertible Notes due 20192023 equaled $169,182$311,031 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, 20192020 and December 31, 2018,2019, the estimated fair value of the Convertible Notes due 20192023 was $193,983$419,430 and $174,101,$414,852, respectively. The Company considered the Convertible Notes due 20192023 to be a Level II liability at June 30, 20192020 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 and $339,024, respectively. The Company considered the Convertible Notes due 2023 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 2023 in an over-the-counter market on June 30, 20192020 (See “Note 9—Debt”).

As of June 30, 20192020 and December 31, 2018,2019, there was $145,000$275,000 and $0,$260,000, respectively, outstanding on the revolving credit facility under the Second Amended and Restated Credit Agreement. As of June 30, 2019,2020, 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, 20192020 and December 31, 20182019 (See “Note 9—Debt”).

We considerThe 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, 20192020 based upon the short-term nature of these assets and liabilities.
18
11.Revenue

DisaggregationTable of revenue
The following table presents the Company’s revenues disaggregated by major source:
  Three Months Ended June 30,
  2019 2018
  Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
Revenues:            
Asset-based $120,070
 $—
 $120,070
 $118,111
 $—
 $118,111
Subscription-based 50,078
 42,180
 92,258
 33,023
 38,756
 71,779
Total recurring revenues 170,148
 42,180
 212,328
 151,134
 38,756
 189,890
Professional services and other revenues 6,742
 5,375
 12,117
 5,794
 5,432
 11,226
Total revenues $176,890
 $47,555
 $224,445
 $156,928
 $44,188
 $201,116
Contents
  Six Months Ended June 30,
  2019 2018
  Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
Revenues:            
Asset-based $229,004
 $—
 $229,004
 $239,264
 $—
 $239,264
Subscription-based 91,104
 84,241
 175,345
 65,608
 75,866
 141,474
Total recurring revenues 320,108
 84,241
 404,349
 304,872
 75,866
 380,738
Professional services and other revenues 9,487
 10,275
 19,762
 8,044
 10,345
 18,389
Total revenues $329,595
 $94,516
 $424,111
 $312,916
 $86,211
 $399,127


One customer accounted for more than 10% of the Company’s total revenues:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Fidelity 15% 16% 15% 16%

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

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

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
11.Revenues and Cost of Revenues

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

Three Months Ended June 30,
20202019
Envestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidatedEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidated
Revenues:
Asset-based$122,246  $—  $122,246  $120,070  $—  $120,070  
Subscription-based61,410  43,569  104,979  50,078  42,180  92,258  
Total recurring revenues183,656  43,569  227,225  170,148  42,180  212,328  
Professional services and other revenues4,029  4,059  8,088  6,742  5,375  12,117  
Total revenues$187,685  $47,628  $235,313  $176,890  $47,555  $224,445  
 Six Months Ended June 30,
 20202019
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidatedEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidated
Revenues:      
Asset-based$257,057  $—  $257,057  $229,004  $—  $229,004  
Subscription-based121,733  87,797  209,530  91,104  84,241  175,345  
Total recurring revenues378,790  87,797  466,587  320,108  84,241  404,349  
Professional services and other revenues7,315  7,950  15,265  9,487  10,275  19,762  
Total revenues$386,105  $95,747  $481,852  $329,595  $94,516  $424,111  

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

 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Fidelity15 %15 %15 %15 %
Fidelity accounted for 18% and 18% of the Envestnet Wealth Solutions segment's revenues for the three and six months ended June 30, 2020, respectively. Fidelity accounted for 19% and 20% of the Envestnet Wealth Solutions segment's revenues for the three and six months ended June 30, 2019, respectively.

No single customer accounted for over 10% of the Envestnet Data & Analytics segment's revenue for any period presented.


19
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
United States$230,102  $217,462  $470,554  $409,581  
International (1)
5,211  6,983  11,298  14,530  
Total revenues$235,313  $224,445  $481,852  $424,111  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
United States $217,462
 $193,237
 $409,581
 $381,552
International (1)
 6,983
 7,879
 14,530
 17,575
Total $224,445
 $201,116
 $424,111
 $399,127
(1) No foreign country accounted for more than 10% of the Company's total revenues.
(1)No foreign country accounted for more than 10% of the Company's total revenues.

Remaining performance obligationsPerformance 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, 2019:2020: 
Years ending December 31, 
Remainder of 2020$114,905  
2021181,322  
2022135,410  
202365,759  
202435,319  
Thereafter35,393  
Total$568,108  
Years ending December 31,  
Remainder of 2019 $122,303
2020 171,252
2021 106,389
2022 70,046
2023 32,354
Thereafter 41,237
Total $543,581


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

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

Contract balancesBalances

Total deferred revenue as of June 30, 20192020 increased by $13,362, which is primarily the result of the PIEtech and PortfolioCenter acquisitions and an increase in deferred revenue related to subscription-based services$7,585 during the six months ended June 30, 2019,2020, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of whichthe Company's deferred revenue 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$10,350 and $5,737$6,865 for the three months ended June 30, 20192020 and 2018,2019, respectively. The amount of revenue recognized that was included in the opening deferred revenue balance was $16,588$25,829 and $13,253$16,588 for the six months ended June 30, 20192020 and 2018,2019, 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 compensationSales Incentive Compensation

Deferred sales incentive compensation was $9,598$10,072 and $7,014$9,387 as of June 30, 20192020 and December 31, 2018,2019, respectively. Amortization expense for the deferred sales incentive compensation was $753$1,043 and $536$753 for the three months ended June 30, 2019,2020, and 2018,2019, respectively. Amortization expense for the deferred sales incentive compensation was $1,404$2,072 and $1,018$1,404 for the six months ended June 30, 2020, and 2019, respectively. Deferred sales incentive compensation is included in other non-current assets on the condensed consolidated balance sheets and 2018, respectively. Noamortization expense is included in compensation and benefits expenses on the condensed consolidated statements of operations. NaN significant impairment loss for capitalized costs was recorded during the period.periods.

20
Table of Contents
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.

Cost of Revenues
12.Cost of Revenues

The following table summarizes cost of revenues by revenue category:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Asset-based$61,875  $60,293  $130,467  $114,135  
Subscription-based6,807  6,697  13,084  14,374  
Professional services and other167  5,090  231  5,216  
Total cost of revenues$68,849  $72,080  $143,782  $133,725  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Asset-based $60,293
 $56,748
 $114,135
 $114,320
Subscription-based 6,697
 6,213
 14,374
 11,439
Professional services and other 5,090
 4,666
 5,216
 4,802
Total $72,080

$67,627

$133,725
 $130,561


12.Stock-Based Compensation
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.Incentive Plan (the “2019 Equity Plan”).

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

As of June 30, 2019,2020, the maximum number of common shares available for future issuance under the Company’s plans is 2,233,604.1,372,807.  
 
Stock-based compensation expense under the Company’s plans was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Stock-based compensation expense $13,434
 $10,476
 $26,298
 $18,971
Tax effect on stock-based compensation expense (3,504) (2,650) (6,859) (4,800)
Net effect on income $9,930

$7,826

$19,439
 $14,171

 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Stock-based compensation expense$13,006  $13,434  $26,771  $26,298  
Tax effect on stock-based compensation expense(3,317) (3,504) (6,826) (6,859) 
Net effect on income$9,689  $9,930  $19,945  $19,439  
 
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% and 26.1% for the three and six months ended June 30, 2019. 2020 and 2019, respectively.

Stock Options
The tax effect on stock-based compensation expense above was calculated using a blended statutory ratefollowing weighted average assumptions were used to value options granted during the periods indicated:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Grant date fair value of options$—  $—  $—  $21.55  
Volatility— %— %— %40.0 %
Risk-free interest rate— %— %— %2.5 %
Dividend yield— %— %— %— %
Expected term (in years)0.00.00.06.5
21
Table of 25.3% for the three and six months ended June 30, 2018.

Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Stock Options
The following weighted average assumptions were used to value options granted during the periods indicated:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Grant date fair value of options $—
 $—
 $21.55
 $—
Volatility —% —% 40.0% —%
Risk-free interest rate —% —% 2.5% —%
Dividend yield —% —% —% —%
Expected term (in years) —
 —
 6.5
 —

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

   Weighted-Average 
  Weighted-Remaining 
  AverageContractual LifeAggregate
 OptionsExercise Price(Years)Intrinsic Value
Outstanding as of December 31, 20191,150,586  $25.66  3.4$50,590  
Granted—  —  
Exercised(542,449) 16.97   
Forfeited(7,213) 48.70   
Outstanding as of June 30, 2020600,924  33.23  4.024,225  
Options exercisable560,745  $32.10  3.7$23,238  
 
Exercise prices of stock options outstanding as of June 30, 20192020 range from $7.15$9.00 to $55.29. At June 30, 2019,2020, there was $1,806$468 of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 2.31.6 years.
 
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

Restricted Stock Units and Restricted Stock Awards
 
Periodically, the Company grants restricted stock unitunits and awards and performanceperformance-based stock units and awards to employees. Performance-based restricted unitstock 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 unitunits 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:
RSUsPSUs
 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, 20191,318,870  $58.88  254,118  $67.96  
Granted951,428  74.52  67,793  81.42  
Vested(533,088) 56.77  —  —  
Forfeited(103,133) 59.89  (33,010) 64.70  
Outstanding as of June 30, 20201,634,077  68.61  288,901  71.49  
  RSUs PSUs
  
Number of
Shares
 
Weighted-
Average Grant
Date Fair Value
per Share
 Number of
Shares		 Weighted-
Average Grant
Date Fair Value
per Share
Outstanding as of December 31, 2018 1,461,468
 $46.59
 124,320
 $44.64
Granted 872,104
 60.94
 68,510
 64.32
Vested (479,479) 45.98
 —
 —
Forfeited (20,830) 48.31
 (4,036) 61.27
Outstanding as of March 31, 2019 1,833,263
 53.67
 188,794
 51.42
Granted 48,032
 68.50
 123,812
 73.60
Vested (114,056) 47.94
 (68,334) 31.03
Forfeited (22,074) 56.55
 —
 —
Outstanding as of June 30, 2019 1,745,165
 $54.40
 244,272
 $67.78


At June 30, 2019,2020, there was $82,846$99,676 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 years. At June 30, 2019,2020, there was $17,371$9,578 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 2.72.1 years.
 
14.
13. Income Taxes

Income Taxes
The following table includes the Company’s loss before income tax provision (benefit), income tax provision (benefit) and effective tax rate:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Loss before income tax provision (benefit)$(4,165) $(27,769) $(13,319) $(42,269) 
Income tax provision (benefit)1,306  (28,382) (658) (24,614) 
Effective tax rate(31.4)%102.2 %4.9 %58.2 %
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Loss before income tax provision (benefit)
 $(27,769) $(5,425) $(42,269) $(11,417)
Income tax provision (benefit) (28,382) 566
 (24,614) (13,428)
Effective tax rate 102.2% (10.4)% 58.2% 117.6%
22
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
 For the three and six months ended June 30, 2020, the Company’s effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) related to net operating loss carryback, and research and experimentation credits.

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,acquisition, the windfall from share-basedstock-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 of FolioDynamix, additional accruals for uncertain tax positions as well as differences between the foreign tax rates and statutory US tax rate.

In December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was enacted into United States law. Beginning in 2018, the Tax Act includes the global intangible low-taxed income (“GILTI”) and BEAT provisions. The Company elected to account for GILTI tax in the period in which it is incurred. The GILTI provision requires the Company to include in its U.S. income tax return foreign subsidiary earnings in excess 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.

The Company's total gross liability for unrecognized tax benefits, exclusive of interest and penalties, was $18,102$20,261 and $15,628$18,939 at June 30, 20192020 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 $6,411was $6,977 and $4,429$6,504 at June 30, 20192020 and December 31, 2018,2019, respectively.
 
At June 30, 2019,2020, the amount of unrecognized tax benefits, including interest and penalties, that would benefit the Company’sCompany's effective tax rate, if recognized, was $12,116. At this time, the$14,618. The Company estimates that the liability for unrecognized tax benefits could decrease by $12,000 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 benefitsThese amounts were not material for the three and six months ended June 30, 20192020 and 2018, respectively.2019. The Company had accrued interest and penalties of $6,924$8,000 and $5,977$7,336 as of June 30, 20192020 and December 31, 2018,2019, respectively.

15.Net Income (Loss) Per Share
14.Net Income (Loss) Per Share
 
Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted net income (loss) per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants, restricted stock awards, restricted stock units and convertible notes using the treasury stock method, if dilutive. 
The Company accounts for the effect of its convertible notes (See “Note 9—Debt”) on diluted earningsnet income (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 earningsnet income (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 earningsnet income (loss) per share if they are settled in cash and will have an impact on dilutive earningsnet income (loss) per share if they are settled in shares upon conversion.
23
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)

The following table provides the numerators and denominators used in computing basic and diluted net income (loss) per share attributable to Envestnet, Inc.:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Basic income (loss) per share calculation:        
Net loss attributable to Envestnet, Inc. $893
 $(5,526) $(17,292) $2,578
         
Basic number of weighted-average shares outstanding 50,870,296
 45,247,331
 49,526,774
 44,963,735
Basic net income (loss) per share $0.02
 $(0.12) $(0.35) $0.06
         
Diluted income (loss) per share calculation:        
Net income (loss) attributable to Envestnet, Inc. $893
 $(5,526) $(17,292) $2,578
         
Basic number of weighted-average shares outstanding 50,870,296
 45,247,331
 49,526,774
 44,963,735
Effect of dilutive shares:        
Options to purchase common stock 1,164,246
 —
 —
 1,360,300
Unvested restricted stock units 662,853
 —
 —
 832,170
Convertible notes 261,075
 —
 —
 —
Warrants 24,218
 —
 —
 —
Diluted number of weighted-average shares outstanding 52,982,688
 45,247,331
 49,526,774
 47,156,205
Diluted net income (loss) per share
 $0.02
 $(0.12) $(0.35) $0.05

 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Basic net income (loss) per share calculation:    
Net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
Basic number of weighted-average shares outstanding53,562,850  50,870,296  53,288,741  49,526,774  
Basic net income (loss) per share$(0.09) $0.02  $(0.23) $(0.35) 
Diluted net income (loss) per share calculation:
Net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
Basic number of weighted-average shares outstanding53,562,850  50,870,296  53,288,741  49,526,774  
Effect of dilutive shares:
Options to purchase common stock—  1,164,246  —  —  
Unvested restricted stock units—  662,853  —  —  
Convertible notes—  261,075  —  —  
Warrants—  24,218  —  —  
Diluted number of weighted-average shares outstanding53,562,850  52,982,688  53,288,741  49,526,774  
Diluted net income (loss) per share
$(0.09) $0.02  $(0.23) $(0.35) 
Securities that were anti-dilutive and therefore excluded from the computation of diluted net loss per share arewere as follows:
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Options to purchase common stock600,924  —  600,924  1,654,241  
Unvested restricted stock awards and units1,922,978  —  1,922,978  1,989,437  
Warrants470,000  —  470,000  470,000  
Convertible Notes5,050,505  —  5,050,505  7,793,826  
Total anti-dilutive securities8,044,407  —  8,044,407  11,907,504  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
Options to purchase common stock —
 2,077,874
 1,654,241
 9,045
Unvested restricted stock awards and units —
 1,880,744
 1,989,437
 —
Warrants —
 —
 470,000
 —
Convertible Notes —
 7,793,826
 7,793,826
 7,793,826
Total —

11,752,444

11,907,504
 7,802,871

15.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 and six months ended June 30, 2020 and 2019.
See “Note 11—Revenues and Cost of Revenues” for detail of revenues by segment.
24
Table of Contents
16.Commitments and Contingencies
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table presents a reconciliation from Income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Envestnet Wealth Solutions$19,867  $12,379  $31,207  $29,223  
Envestnet Data & Analytics(941) (8,960) (5,526) (16,888) 
Nonsegment operating expenses(14,918) (23,676) (29,290) (41,329) 
Income (loss) from operations4,008  (20,257) (3,609) (28,994) 
Other expense, net(8,173) (7,512) (9,710) (13,275) 
Consolidated loss before income tax provision (benefit)(4,165) (27,769) (13,319) (42,269) 
Income tax provision (benefit)1,306  (28,382) (658) (24,614) 
Consolidated net income (loss)(5,471) 613  (12,661) (17,655) 
Add: Net loss attributable to non-controlling interest547  280  401  363  
Consolidated net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital expenditures follows:
June 30,December 31,
 20202019
Segment assets:  
Envestnet Wealth Solutions$1,323,409  $1,297,891  
Envestnet Data & Analytics507,996  503,993  
Consolidated assets$1,831,405  $1,801,884  

 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Segment depreciation and amortization:    
Envestnet Wealth Solutions$20,081  $16,376  $39,501  $27,643  
Envestnet Data & Analytics8,362  10,539  16,625  18,789  
Consolidated depreciation and amortization$28,443  $26,915  $56,126  $46,432  
Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Segment capital expenditures:    
Envestnet Wealth Solutions$11,200  $10,027  $21,390  $20,865  
Envestnet Data & Analytics5,100  1,939  8,642  3,533  
Consolidated capital expenditures$16,300  $11,966  $30,032  $24,398  
25
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
16.Geographical Information
The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:
 June 30,December 31,
 20202019
United States$123,130  $108,992  
India3,950  3,988  
Other696  1,039  
Total long-lived assets, net$127,776  $114,019  
See “Note 11—Revenues and Cost of Revenues” for detail of revenues by geographic area.

17.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.
 
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 District 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 motion to dismiss is fully briefed, and the parties are awaiting a decision from the District Court. The Company believes theFinancialApps’s allegations in the complaint are without merit and intends to defend the action and litigate the counterclaims vigorously.

26
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
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 anyan accrual for any claims as of June 30, 2019.2020. 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, 20192020 and December 31, 2018,2019, the Company estimated a sales and use tax liability of $10,989$9,195 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 June 30, 2020 and December 31, 2019, the Company also estimated a sales and use tax receivable of $5,139$3,372 and $5,246,$3,346, respectively, related to the estimated recoverability of amounts duea 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.
 
27
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,” “should” or “should”“will,” 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-lookingThe potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements mayin 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;
28

•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,operations;
the impact of fluctuations in interest rates and turmoil in market conditions on our cost of borrowing and access to additional capital,
•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‑lookingforward-looking statements. All forward‑lookingforward-looking statements contained in this quarterly report and documents incorporated herein by reference are qualified in-in their entirety by this cautionary statement. Forward‑lookingForward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward‑lookingforward-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‑lookingforward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward‑lookingforward-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 “RiskItem 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, 20182019 (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 20182019 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 20182019 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.

29

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 4,1004,900 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 EventsDevelopments

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 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.

At the start of the COVID-19 pandemic, significant declines occurred 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 and six months ended June 30, 2020, approximately 52% and 53% of our revenues resulted from asset-based fee billing arrangements. Asset-based recurring revenues primarily consisted 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.

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. While we experienced a decrease to our asset-based revenues in the second quarter of 2020 compared to the first quarter of 2020 as a result of the decline in the equity markets as of March 31, 2020, we expect minimal negative impact to our asset-based revenues in the third quarter of 2020 as the equity
30

markets have generally recovered to pre-pandemic levels as of June 30, 2020. During the three and six months ended June 30, 2020, we experienced no business interruptions, nor did we lose any significant customers.

For the three and six months ended June 30, 2020, approximately 45% and 43% of revenues were subscription-based. These revenues primarily consisted 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.

In the event that the equity markets fall again as a result of COVID-19 or for any other reason, our revenues will be negatively impacted. Based on our most recent internal forecasts and other qualitative factors, we have determined that we currently have no impairments to our assets as of June 30, 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. 

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 andFebruary 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 completionprivate 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

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 has become a part of our Envestnet Wealth Solutions segment.
In connection with the PortfolioCenterPrivate 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.

In June 2020, the Company determined that certain performance targets for this acquisition would not be met. As a result, the Company reduced the contingent consideration liability plus accrued interest associated with this acquisition by $1,982 and recorded this as a reduction to general and administration expenses. Future changes to the estimated fair value of the contingent consideration, if any, will be recognized in our earnings.

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 advisorsThe private cloud technology company enables enterprises to use financial planningdesign 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, hasthe 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 PIEtechPrivate Cloud Technology Company Acquisition, we paid net cashestimated 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.

31

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 forthfair value of its previously held interest, which is included in other expense, net in the Merger Agreement, and issued 3,184,713 sharescondensed 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 establishedrecorded 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 consistingmember of approximately $30,000the Board and Stuart DePina, whom has served as Chief Executive of cash and restricted stock units to be grantedEnvestnet Data & Analytics since January 2019, was named President of Envestnet. James Fox, a current member of our Board, was named 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 managementyears 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 adoptedhave recorded approximately $12,000 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.six months ended June 30, 2020. As of June 30, 2019,2020, we have issuedaccrued 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$868 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 liabilityrelated taxes and $2,336 recorded in other non-current liabilitiesliabilities. These payments will extend through 2030. As of December 31, 2019, we accrued approximately $1,733 in the condensed consolidated balance sheets.accrued compensation and related taxes and $599 recorded in other non-current liabilities.

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—15—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 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, 2019,2020, Envestnet’s platform assets grew to approximately $3$4 trillion in 11.612.3 million accounts overseen by more than 99,000103 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
32

and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi‑custodianmulti-custodian performance reporting and communication tools, plus data analytics. We have access to a wide range of leading third‑partythird-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
•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 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 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.


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

•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 4,600 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as nearly 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
June 30,September 30,December 31,March 31,June 30,
20192019201920202020
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)$182,143  $188,739  $207,083  $185,065  $215,994  
Assets under Administration (“AUA”)330,226  316,742  343,505  312,472  344,957  
Total AUM/A512,369  505,481  550,588  497,537  560,951  
Subscription2,835,780  2,947,582  3,205,281  2,875,394  3,247,400  
Total Platform Assets$3,348,149  $3,453,063  $3,755,869  $3,372,931  $3,808,351  
Platform Accounts
AUM907,034934,811935,039970,8961,007,386
AUA1,196,1141,136,4301,193,8821,254,8561,252,247
Total AUM/A2,103,1482,071,2412,128,9212,225,7522,259,633
Subscription9,492,6539,692,7149,793,17510,090,17210,003,156
Total Platform Accounts11,595,80111,763,95511,922,09612,315,92412,262,789
Advisors
AUM/A39,72739,73540,56340,97141,206
Subscription59,29260,31961,18062,07762,404
Total Advisors99,019100,054101,743103,048103,610
 
33
  As of
  June 30, September 30, December 31, March 31, June 30,
  2018 2018 2018 2019 2019
  (in millions, except accounts and advisors data)
Platform Assets          
Assets under Management (“AUM”) $148,537
 $153,862
 $150,591
 $176,144
 $182,143
Assets under Administration (“AUA”) 360,850
 388,066
 291,934
 319,129
 330,226
Total AUM/A 509,387
 541,928
 442,525
 495,273
 512,369
Subscription 2,167,084
 2,297,593
 2,314,253
 2,546,483
 2,835,780
Total Platform Assets $2,676,471
 $2,839,521
 $2,756,778
 $3,041,756
 $3,348,149
Platform Accounts          
AUM 759,926
 776,705
 816,354
 874,574
 907,034
AUA 1,417,795
 1,517,297
 1,182,764
 1,187,589
 1,196,114
Total AUM/A 2,177,721
 2,294,002
 1,999,118
 2,062,163
 2,103,148
Subscription 8,042,900
 8,185,667
 8,865,435
 8,909,581
 9,492,653
Total Platform Accounts 10,220,621
 10,479,669
 10,864,553
 10,971,744
 11,595,801
Advisors          
AUM/A 44,900
 47,292
 40,103
 39,035
 39,727
Subscription 43,700
 45,619
 56,237
 57,594
 59,292
Total Advisors 88,600
 92,911
 96,340
 96,629
 99,019

The following table providestables provide 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 June 30, 2020
As ofGrossNetMarketAs of
3/31/2020SalesRedemptionsFlowsImpact6/30/2020
(in millions, except account data)
AUM$185,065  $16,843  $(9,860) $6,983  $23,946  $215,994  
AUA312,472  16,526  (23,025) (6,499) 38,984  344,957  
Total AUM/A$497,537  $33,369  $(32,885) $484  $62,930  $560,951  
Fee-Based Accounts2,225,752  33,881  2,259,633  

The above AUM/A gross sales figures include $2.3$1.6 billion in new client conversions. We onboarded an additional $169.4$24.1 billion in subscription conversions during the three months ended June 30, 20192020 bringing total conversions for the second quarterthree months ended June 30, 2020 to $171.7$25.7 billion.

 Asset Rollforward - Six Months Ended June 30, 2020
 As ofGrossNetMarketReclass toAs of
 12/31/2019SalesRedemptionsFlowsImpactSubscription6/30/2020
 (in millions, except account data)
AUM$207,083  $37,829  $(20,959) $16,870  $(7,959) $—  $215,994  
AUA343,505  56,460  (41,903) 14,557  (11,160) (1,945) 344,957  
Total AUM/A$550,588  $94,289  $(62,862) $31,427  $(19,119) $(1,945) $560,951  
Fee-Based Accounts2,128,921  151,554  (20,842) 2,259,633  
  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 figures include $22.4$21.7 billion in new client conversions. We onboarded an additional $197.0$49.1 billion in subscription conversions during the six months ended June 30, 20192020 bringing total conversions for the two quarterssix months ended June 30, 2020 to $219.4$70.8 billion.



Asset and account figures in the “Reclass to Subscription” columns for the six months ended June 30, 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 platform assets or accounts. Periodically clients chose to change the way they pay for our solution, whereby they switch from an asset-based pricing model to 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 1,2001,400 financial institutions, financial technology innovators and financial advisory firms, including 15 of the 20 largest U.S. banks, subscribe to the Envestnet Data & Analytics platform to underpin personalized financial apps and services for over 2427 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
34

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 17,000 sources, including banking, investment, loan and credit card information.

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

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

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

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% from $118,111 in the three months ended June 30, 2018 to $120,070 in the three months ended June 30, 2019. Subscription-based recurring revenues increased 29% from $71,7792019 to $122,246 in the three months ended June 30, 2018 to2020. Subscription-based recurring revenues increased 14% from $92,258 in the three months ended June 30, 2019.2019 to $104,979 in the three months ended June 30, 2020. Total revenues, which include professional services and other revenues, increased 12%5% from $201,116 in the three months ended June 30, 2018 to $224,445 in the three months ended June 30, 2019. The PortfolioCenter Acquisition and the PIEtech Acquisition contributed revenues of $2,017 and $6,632, respectively,2019 to total revenues$235,313 in the three months ended June 30, 2019.2020. The Envestnet Wealth Solutions segment's total revenues increased by $10,795 primarily due to an increase in subscription-based revenues of $11,332 and an increase in asset-based revenues of $2,176, partially offset by a decrease in professional services and other revenues of $2,713. The Envestnet Data & Analytics segment's total revenues remained consistent as increases in subscription-based revenues were offset by decreases in professional services and other revenues.

Asset-based recurring revenues increased 12% from $229,004 in the six months ended June 30, 2019 to $257,057 in the six months ended June 30, 2020. Subscription-based recurring revenues increased 19% from $175,345 in the six months ended June 30, 2019 to $209,530 in the six months ended June 30, 2020. Total revenues, which include professional services and other revenues, increased 14% from $424,111 in the six months ended June 30, 2019 to $481,852 in the six months ended June 30, 2020. The acquisitions of PortfolioCenter on April 1, 2019 and PIEtech on May 1, 2019 (collectively, the "2019 Acquisitions"), contributed revenues of $8,649 and $33,487 in the six months ended June 30, 2019 and 2020. The Envestnet Wealth Solutions segment's total revenues, excluding the PortfolioCenter Acquisition andrevenues contributed from the PIEtech Acquisition,2019 acquisitions, increased by $11,313$31,672 primarily due to the net impact of an increase in asset-based revenues of $1,959 combined with$28,053, and an increase in subscription-based revenues of $9,180.$6,882, partially offset by a decrease in professional services and other revenues of $3,263. The Envestnet Data & Analytics segment's total revenues increased by $3,367$1,231 primarily due to an increase in subscription-based revenuerevenues of $3,424.

Asset-based recurring revenues decreased 4% from $239,264$3,556, 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.$2,325.

Net incomeloss attributable to Envestnet, Inc. for the three months ended June 30, 20192020 was $893,$4,924, or $0.02$0.09 per diluted share, compared to a net lossincome attributable to Envestnet, Inc. of $5,526$893, or $0.12$0.02 per diluted share, for the three months ended June 30, 2018. 2019.
35

Net loss attributable to Envestnet, Inc. for the six months ended June 30, 20192020 was $17,292,$12,260, or $0.35$0.23 per diluted share, compared to net incomeloss attributable to Envestnet, Inc. of $2,578$17,292, or $0.05$0.35 per diluted share, for the six months ended June 30, 2018.2019.

Adjusted revenues for the three months ended June 30, 20192020 were $227,859,$235,390, compared to adjusted revenues of $201,178$227,859 in the prior year period. Adjusted net revenues a new non-GAAP metric introduced as of January 1, 2019, were $167,566$173,515 for the three months ended June 30, 2019,2020, compared to adjusted net revenues of $144,430$167,566 in the prior year period. Adjusted EBITDA for the three months ended June 30, 20192020 was $43,211,$55,808, compared to adjusted EBITDA of $34,759$43,211 in the prior year period. Adjusted net income for the three months ended June 30, 20192020 was $24,470,$31,773, or $0.46$0.59 per diluted share, compared to adjusted net income of $19,277,$24,470, or $0.41$0.46 per diluted share in the prior year period.

Adjusted revenues for the six months ended June 30, 20192020 were $427,531,$482,368, compared to adjusted revenues of $399,193$427,531 in the prior year period. Adjusted net revenues were $313,396$351,901 for the six months ended June 30, 2019,2020, compared to adjusted net revenues of $284,873$313,396 in the prior year period. Adjusted EBITDA for the six months ended June 30, 20192020 was $77,213,$110,386, compared to adjusted EBITDA of $67,512$77,213 in the prior year period. Adjusted net income for the six months ended June 30, 20192020 was $43,881,$62,975, or $0.85$1.16 per diluted share, compared to adjusted net income of $36,931,$43,881, or $0.78$0.85 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 Six Months Ended 
 June 30, 
 Percent
 June 30, 
 Percent
 June 30,
 Percent
June 30,
 Percent
 2019 2018 Change 2019 2018 Change 20202019Change20202019Change
 (in thousands)   (in thousands)   (in thousands) (in thousands) 
Revenues:            Revenues:      
Asset-based $120,070
 $118,111
 2 % $229,004
 $239,264
 (4)%Asset-based$122,246  $120,070  2 %$257,057  $229,004  12 %
Subscription-based 92,258
 71,779
 29 % 175,345
 141,474
 24 %Subscription-based104,979  92,258  14 %209,530  175,345  19 %
Total recurring revenues 212,328
 189,890
 12 % 404,349
 380,738
 6 %Total recurring revenues227,225  212,328  7 %466,587  404,349  15 %
Professional services and other revenues 12,117
 11,226
 8 % 19,762
 18,389
 7 %Professional services and other revenues8,088  12,117  (33)%15,265  19,762  (23)%
Total revenues 224,445
 201,116
 12 % 424,111
 399,127
 6 %Total revenues235,313  224,445  5 %481,852  424,111  14 %
Operating expenses:      
      
Operating expenses:      
Cost of revenues 72,080
 67,627
 7 % 133,725
 130,561
 2 %Cost of revenues68,849  72,080  (4)%143,782  133,725  8 %
Compensation and benefits 103,286
 80,210
 29 % 190,003
 163,750
 16 %Compensation and benefits95,565  103,286  (7)%205,995  190,003  8 %
General and administration 42,421
 34,089
 24 % 82,945
 66,818
 24 %General and administration38,448  42,421  (9)%79,558  82,945  (4)%
Depreciation and amortization 26,915
 19,185
 40 % 46,432
 38,731
 20 %Depreciation and amortization28,443  26,915  6 %56,126  46,432  21 %
Total operating expenses 244,702
 201,111
 22 % 453,105
 399,860
 13 %Total operating expenses231,305  244,702  (5)%485,461  453,105  7 %
Income (loss) from operations (20,257) 5
 *
 (28,994) (733) *
Income (loss) from operations4,008  (20,257) *(3,609) (28,994) (88)%
Other expense, net (7,512) (5,430) 38 % (13,275) (10,684) 24 %Other expense, net(8,173) (7,512) 9 %(9,710) (13,275) (27)%
Loss before income tax provision (benefit) (27,769) (5,425) *
 (42,269) (11,417) *
Loss before income tax provision (benefit)(4,165) (27,769) *(13,319) (42,269) (68)%
Income tax provision (benefit) (28,382) 566
 *
 (24,614) (13,428) 83 %Income tax provision (benefit)1,306  (28,382) *(658) (24,614) (97)%
Net income (loss) 613
 (5,991) *
 (17,655) 2,011
 *
Net income (loss)(5,471) 613  *(12,661) (17,655) (28)%
Add: Net loss attributable to non-controlling interest 280
 465
 (40)% 363
 567
 (36)%Add: Net loss attributable to non-controlling interest547  280  95 %401  363  *
Net income (loss) attributable to Envestnet, Inc. $893
 $(5,526) *
 $(17,292) $2,578
 *
Net income (loss) attributable to Envestnet, Inc.$(4,924) $893  *$(12,260) $(17,292) (29)%
*Not meaningful.
 
36

Three months ended June 30, 20192020 compared to three months ended June 30, 20182019
 
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, 2019.2019 to $122,246 in the three months ended June 30, 2020. The increase was primarily due to an increasein asset values applicable to our current quarterly billing cycle as a result of an upswingcycles in the equity markets relativethree months ended June 30, 2020 compared to the comparable 2018 period. Inthree months ended June 30, 2019, and the second quarterimpact of 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 revenueA in the three months ended June 30, 2018 to 56%second quarter of total revenue in the three months ended June 30, 2019.2020.
 
The number of financial advisors with asset-based recurring revenue on our technology platforms decreasedincreased from 44,900 as of June 30, 2018 to 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts decreasedincreased from approximately 2,200,000 as of June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenues decreased from 53% in advisors was duethe three months ended June 30, 2019 to a reclassification to subscription-based pricing models52% in 2018.three months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenuesrevenue increased 29%14% from $71,779 in the three months ended June 30, 2018 to $92,258 in the three months ended June 30, 2019.2019 to $104,979 in the three months ended June 30, 2020. This increase was primarily due to an increase of$17,055 $11,332 in the Envestnet Wealth Solutions segment and an increase of $3,424$1,389 in the Envestnet Data & Analytics segment.

The increase in theEnvestnet Wealth Solutions segment wasegment wass primarily due to the acquisitionsone additional month of PortfolioCenter andoperations from 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 within2020 compared to the Envestnet Wealth Solutions segment is a result ofthree months ended June 30, 2019, and 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 new and existing customers.

Professional services and other revenues
 
Professional services and other revenues increased 8%decreased 33% from $11,226 in the three months ended June 30, 2018 to $12,117 in the three months ended June 30, 2019.2019 to $8,088 in the three months ended June 30, 2020. The increasedecrease was primarily due to an increasea decrease in revenues as a result of $771 contributed from the PIEtech Acquisition.cancellation of our 2020 Advisor Summit.

Cost of revenues
 
Cost of revenues increased 7%decreased 4% from $67,627 in the three months ended June 30, 2018 to $72,080 in the three months ended June 30, 2019.2019 to $68,849 in the three months ended June 30, 2020. The increasedecrease was primarily due to a decrease in professional services and other cost of revenues of $4,923, primarily a result of the cancellation of our 2020 Advisor Summit, partially offset by an increase in asset-based cost of revenues of $3,545, which are$1,582, 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%32% in the three months ended June 30, 20182019 to 32%29% in three months ended June 30, 2019.2020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.

Compensation and benefits

Compensation and benefits increased 29%decreased 7% from $80,210$103,286 in the three months ended June 30, 20182019 to $103,286$95,565 in the three months ended June 30, 2019.2020. The increasedecrease was primarily due to increasesdecreases in incentive compensation of $7,875, salaries, benefits and related payroll taxes of $7,803,$5,425, non-cash compensation expense of $5,290$1,892, and severance expense of $2,231. Included$1,411, partially offset by one additional month of operations from PIEtech 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,three months ended June 30, 2020 compared to total compensation and benefits expense in the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increaseddecreased 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 was2019 to 41% in the three months ended June 30, 2020 primarily a result ofdue to approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition.Acquisition in the three months ended June 30, 2019.
37

General and administration
 
General and administration expenses increased 24%decreased 9% 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 due2019 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$38,448 in the three months ended June 30, 2019.2020. The decrease was primarily due to decreases in travel and entertainment of $4,525, a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, non-income tax expense of $1,550, occupancy costs of $1,441, professional and legal fees of $1,240 and marketing expense of $828. These decreases were partially offset by increases in litigation related and non-recurring expenses of $5,620 and system development costs of $1,565. As a percentage of total revenues, general and administration expenses increaseddecreased from 17% in the three months ended June 30, 2018 to 19% in the three months ended June 30, 2019.2019 to 16% in the three months ended June 30, 2020 primarily due to decreased travel and entertainment expense as a result of actions taken by the Company as a result of COVID-19.

Depreciation and amortization
 
Depreciation and amortization expense increased 40%6% from $19,185 in the three months ended June 30, 2018 to $26,915 in the three months ended June 30, 2019.2019 to $28,443 in the three months ended June 30, 2020. 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$1,693, the direct result of amortizing additional intangible assets from the acquisitions of PortfolioCenter and PIEtech.related to our 2019 Acquisitions. As a percentage of total revenues, depreciation and amortization expense increased from 10% in the three months ended June 30, 2018 toremained consistent at 12% in the three months ended June 30, 2019.

2019 and 2020.

Other expense, net

Other expense, net increased 9% from $7,512 in the three months ended June 30, 2019 to $8,173 in the three months ended June 30, 2020. The increase was primarily due to increased losses recorded for our equity method investees and increased losses on foreign exchange, partially offset by decreased interest expense, net in the three months ended June 30, 2020 as compared to the comparable prior year period.
Income tax provision (benefit)
 Three Months Ended
 June 30,
 20202019
Loss before income tax provision (benefit)$(4,165) $(27,769) 
Income tax provision (benefit)1,306  (28,382) 
Effective tax rate(31.4)%102.2 %

For the three months ended June 30, 2020, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the CARES Act related to net operating loss carryback, and research and experimentation credits.
  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-basedstock-based compensation, federal and state research and development (“R&D"&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, 20192020 compared to six months ended June 30, 20182019
 
Asset-based recurring revenues
 
Asset-based recurring revenues decreased 4%increased 12% from $239,264 in the six months ended June 30, 2018 to $229,004 in the six months ended June 30, 2019.2019 to $257,057 in the six months ended June 30, 2020. The decreaseincrease was primarily due to a decreasean increase in asset values applicable to our quarterly billing cycles in the six months ended June 30, 20192020 compared to the six months ended June 30, 2018,2019, due to a downturn in the equity markets during the fourth quarter of 2018. The decrease was also due to a change in the 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 quarterfirst half of 2019. Excluding the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenues decreased from 60% of total revenue in the six months ended June 30, 2018 to 55% of total revenue in the six months ended June 30, 2019.2020.
 
 The number of financial advisors with asset-based recurring revenue on our technology platforms decreasedincreased from 44,900 as of June 30, 2018 to 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts decreasedincreased from approximately 2,200,000 as of June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline was due2019 to reclassificationsapproximately 2,300,000 as of June 30, 2020.

38

Asset-based recurring revenues decreased from 54% of total revenue in the six months ended June 30, 2019 to subscription-based pricing models53% of total revenue in 2018.the six months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenue increased 24%19% from $141,474 in the six months ended June 30, 2018 to $175,345 in the six months ended June 30, 2019.2019 to $209,530 in the six months ended June 30, 2020. This increase was primarily due to an increase of $25,49630,629 in the Envestnet Wealth Solutions segment and an increase of $8,375$3,556 in the Envestnet Data & Analytics segment.

The increase in the Envestnet Wealth Solutions segment was primaryprimarily due to the acquisitions of PortfolioCenter and PIEtech,2019 Acquisitions, which contributed incremental revenues of $2,014 and $5,861, respectively,$23,747 to subscription-based recurring revenues in the six months ended June 30, 2019.2020. The remaining increase of $17,621$6,882 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 23% from $18,389 in the six months ended June 30, 2018 to $19,762 in the six months ended June 30, 2019.2019 to $15,265 in the six months ended June 30, 2020. The increasedecrease was primarily due to an increasea decrease in revenues from existing customers and an increase of $771 contributedresulting from the PIEtech Acquisition.cancellation of our 2020 Advisor Summit.

Cost of revenues
 
Cost of revenues increased 2%8% from $130,561 in the six months ended June 30, 2018 to $133,725 in the six months ended June 30, 2019.2019 to $143,782 in the six months ended June 30, 2020. The increase was primarily due to an increase in asset-based cost of revenues of $2,859,$16,332, directly correlated with the increase to asset-based recurring revenues during the period. This increase was partially offset by a decrease in professional services and other cost of revenues of $4,985, primarily a result of the cancellation of our 2020 Advisor Summit. The acquisitions of PortfolioCenter and PIEtech2019 Acquisitions had an immaterial impact to total cost of revenues in the six months ended June 30, 2019.2020. As a percentage of total revenues, cost of revenues decreased from 33%32% in the six months ended June 30, 20182019 to 32%30% in six months ended June 30, 2019.2020.
 


Compensation and benefits
 
Compensation and benefits increased 16%8% from $163,750 in the six months ended June 30, 2018 to $190,003 in the six months ended June 30, 2019.2019 to $205,995 in the six months ended June 30, 2020. The increase was primarily due to increases in severance expense of $10,091, salaries, benefits and related payroll taxes of $11,486,$4,654, and non-cash compensation expense of $9,622, incentive compensation expense of $3,535 and severance expense of $1,898. Included in the increase$1,275, partially offset by a decrease in incentive compensation of $1,849. The increase in severance expense is approximately $8,800primarily related the Early Retirement Program in retention bonuses paid in connection with the PIEtech Acquisition.three months ended March 31, 2020. The acquisitions of PortfolioCenter and PIEtech2019 Acquisitions contributed compensation and benefit expenses of $1,253$5,656 and $4,403, respectively,$15,798 to total compensation and benefits expense in the six months ended June 30, 2019.2019 and 2020, respectively. As a percentage of total revenues, compensation and benefits increaseddecreased from 41% in the six months ended June 30, 2018 to 45% in the six months ended June 30, 2019. The increase as a percentage of revenue was primarily a result of2019 to 43% in the retention bonuses paid in connection with the PIEtech Acquisition.six months ended June 30, 2020.

General and administration
 
General and administration expenses increased 24%decreased 4% from $66,818 in the six months ended June 30, 2018 to $82,945 in the six months ended June 30, 2019.2019 to $79,558 in the six months ended June 30, 2020. The increasedecrease was primarily due to decreases in travel and entertainment expense of $4,830, a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, non-income tax expense of $1,572, marketing expenses of $1,174 and occupancy costs of $1,100. These decreases were partially offset by increases in transaction relatedsystem development costs of $2,147, trade errors expense of $5,575, systems development$1,813, litigation related and non-recurring expenses of $881, bad debt expense of $2,524, rent expense of $1,952, communications$804, permits, licenses and research expense of $1,389 and legal fees of $1,182.$602 and other miscellaneous increases. General and administration expenses contributed from the 2019 Acquisitions remained consistent in the six months ended June 30, 2019 and 2020. As a percentage of total revenues, general and administration expenses increaseddecreased from 20% in the six months ended June 30, 2019 to 17% in the six months ended June 30, 20182020 primarily due to 20% indecreased travel and entertainment expense as a result of actions taken by the six months ended June 30, 2019. The acquisitionsCompany as a result of PortfolioCenter and PIEtech contributed general and administration expenses of $1,768 and $1,050, respectively, to general and administrative expense in the six months ended June 30, 2019.

COVID-19.

39

Depreciation and amortization
 
Depreciation and amortization expense increased 20%21% from $38,731 in the six months ended June 30, 2018 to $46,432 in the six months ended June 30, 2019.2019 to $56,126 in the six months ended June 30, 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$7,922, the direct result of amortizing additional intangible assets from the acquisitionsrelated to our 2019 Acquisitions, and an increase in internally developed software amortization expense of PortfolioCenter and PIEtech.$2,209. As a percentage of total revenues, depreciation and amortization expense increased from 10%11% in the six months ended June 30, 20182019 to 11%12% in the six months ended June 30, 2020.

Other expense, net

Other expense, net decreased 27% from $13,275 in the six months ended June 30, 2019 to $9,710 in the six months ended June 30, 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 six months ended June 30, 2020 as compared to six months ended June 30, 2019.
 
Income tax provision (benefit)
 Six Months Ended
 June 30,
 20202019
Loss before income tax provision (benefit)$(13,319) $(42,269) 
Income tax provision (benefit)(658) (24,614) 
Effective tax rate4.9 %58.2 %
  Six Months Ended
  June 30,
  2019 2018
Loss before income tax provision (benefit) $(42,269) $(11,417)
Income tax benefit (24,614) (13,428)
Effective tax rate 58.2% 117.6%

For the six months ended June 30, 2020, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the CARES Act related to net operating loss carryback, and research and experimentation credits.

For the six 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 withfrom the PIEtech Acquisition, the windfall from share-basedstock-based compensation, federal and state R&D credits, and additional accruals for uncertain tax positions.

For the six months ended June 30, 2018, our effective tax rate differed from the statutory rate primarily due to the partial release of 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.

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—15—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) attributable to Envestnet, Inc.:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
Envestnet Wealth Solutions$19,867  $12,379  $31,207  $29,223  
Envestnet Data & Analytics(941) (8,960) (5,526) (16,888) 
Nonsegment operating expenses(14,918) (23,676) (29,290) (41,329) 
Income (loss) from operations4,008  (20,257) (3,609) (28,994) 
Other expense, net(8,173) (7,512) (9,710) (13,275) 
Consolidated loss before income tax provision (benefit)(4,165) (27,769) (13,319) (42,269) 
Income tax provision (benefit)1,306  (28,382) (658) (24,614) 
Consolidated net income (loss)(5,471) 613  (12,661) (17,655) 
Add: Net loss attributable to non-controlling interest547  280  401  363  
Consolidated net income (loss) attributable to Envestnet, Inc.$(4,924) $893  $(12,260) $(17,292) 
40

  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
Envestnet Wealth Solutions Segment
 
The following table presents income from operations for the Envestnet Wealth Solutions segment:
 Three Months Ended Six Months Ended 
 June 30,PercentJune 30,Percent
 20202019Change20202019Change
 (in thousands) (in thousands) 
Revenues:      
Asset-based$122,246  $120,070  2 %$257,057  $229,004  12 %
Subscription-based61,410  50,078  23 %121,733  91,104  34 %
Total recurring revenues183,656  170,148  8 %378,790  320,108  18 %
Professional services and other revenues4,029  6,742  (40)%7,315  9,487  (23)%
Total revenues187,685  176,890  6 %386,105  329,595  17 %
Operating expenses:
Cost of revenues63,111  66,250  (5)%132,903  122,105  9 %
Compensation and benefits62,796  56,219  12 %135,384  104,774  29 %
General and administration21,830  25,666  (15)%47,110  45,850  3 %
Depreciation and amortization20,081  16,376  23 %39,501  27,643  43 %
Total operating expenses167,818  164,511  2 %354,898  300,372  18 %
Income from operations
$19,867  $12,379  60 %$31,207  $29,223  7 %
  Three Months Ended   Six Months Ended  
  June 30, Percent June 30, Percent
  2019 2018 Change 2019 2018 Change
  (in thousands)   (in thousands)  
Revenues:      
      
Asset-based $120,070
 $118,111
 2 % $229,004
 $239,264
 (4)%
Subscription-based 50,078
 33,023
 52 % 91,104
 65,608
 39 %
Total recurring revenues 170,148
 151,134
 13 % 320,108
 304,872
 5 %
Professional services and other revenues 6,742
 5,794
 16 % 9,487
 8,044
 18 %
Total revenues 176,890
 156,928
 13 % 329,595
 312,916
 5 %
Operating expenses:            
Cost of revenues 66,250
 62,914
 5 % 122,105
 121,937
 — %
Compensation and benefits 56,219
 48,026
 17 % 104,774
 99,937
 5 %
General and administration 25,666
 18,603
 38 % 45,850
 36,323
 26 %
Depreciation and amortization 16,376
 11,026
 49 % 27,643
 22,499
 23 %
Total operating expenses 164,511
 140,569
 17 % 300,372
 280,696
 7 %
Income from operations
 $12,379
 $16,359
 (24)% $29,223
 $32,220
 (9)%

Three months ended June 30, 20192020 compared to three months ended June 30, 20182019 for the Envestnet Wealth Solutions segment
  
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, 2019.2019 to $122,246 in the three months ended June 30, 2020. The increase was primarily due to an increasein asset values applicable to our current quarterly billing cycle as a result of an upswingcycles in the equity markets relativethree months ended June 30, 2020 compared to the comparable 2018 period. Inthree months ended June 30, 2019, due to the second quarterimpact of 2019, revenues were also positively affected by new account growth and positive net flows of AUM/A.

Excluding the revenue impact from the acquisitions of PortfolioCenter and PIEtech, asset-based recurring revenue decreased from 75% of total revenueA in the three months ended June 30, 2018 to 71% in three months ended June 30, 2019.second quarter of 2020.
 
The number of financial advisors with asset-based recurring revenue on our technology platforms decreasedincreased from 44,900 as of June 30, 2018 to 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts decreasedincreased from


approximately 2,200,000 as of June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenue decreased from 68% of total revenue in advisors wasthe three months ended June 30, 2019 to 65% of total revenue in the three months ended June 30, 2020 primarily due to a reclassification togrowth in subscription-based pricing models in 2018.revenues.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 52%23% from $33,023 in the three months ended June 30, 2018 to $50,078 in the three months ended June 30, 2019.

The acquisitions of PortfolioCenter and PIEtech contributed revenues of $2,014 and $5,861, respectively,2019 to subscription-based recurring revenues$61,410 in the three months ended June 30, 2019. Excluding these revenues,2020.

The increase was primarily due to one additional month of operations from PIEtech in the remaining increasethree months ended June 30, 2020 compared to the three months ended June 30, 2019, and the addition of $9,180 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%decreased 40% from $5,794 in the three months ended June 30, 2018 to $6,742 in the three months ended June 30, 2019.2019 to $4,029 in the three months ended June 30, 2020. The increasedecrease was primarily due to an increase of $771 contributeda decrease in revenues resulting from the PIEtech Acquisition.cancellation of our 2020 Advisor Summit.
41

Cost of revenues
 
Cost of revenues increaseddecreased 5% from $62,914 in the three months ended June 30, 2018 to $66,250 in the three months ended June 30, 2019 primarily as a result of an increase in asset-based cost of revenues. The acquisitions of PortfolioCenter and PIEtech had an immaterial impact to total cost of revenues$63,111 in the three months ended June 30, 2019.2020. The decrease was primarily due to a decrease in professional services and other cost of revenues of $4,832, primarily a result of the cancellation of our 2020 Advisor Summit, partially offset by an increase in asset-based cost of revenues of $1,582, directly correlated with the increase to asset-based recurring revenues during the period. 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, 2019 to 34% in the three months ended June 30, 2020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.
 
Compensation and benefits
 
Compensation and benefits increased 17%12% from $48,026 in the three months ended June 30, 2018 to $56,219 in the three months ended June 30, 2019. This2019 to $62,796 in the three months ended June 30, 2020. The increase is primarily due to an increaseincreases in salaries, benefits and related payroll taxes of $3,928$3,523, incentive compensation of $2,496 and an increaseone additional month of operations from PIEtech in non-cash compensation expense of $4,269. The acquisitions of PortfolioCenter and PIEtech contributed compensation and benefit expenses of $1,253 and $4,403, respectively,the three months ended June 30, 2020 compared 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 31% in the three months ended June 30, 2018 to 32% in the three months ended June 30, 2019.2019 to 33% in the three months ended June 30, 2020.

General and administration
 
General and administration expenses increased 38%decreased 15% from $18,603 in the three months ended June 30, 2018 to $25,666 in the three months ended June 30, 2019.2019 to $21,830 in the three months ended June 30, 2020. The increasedecrease was primarily due to increasesdecreases in renttravel and entertainment expense of $2,077,$3,107, non-income tax expense of $1,480, professional and legal fees of $1,481$1,437, occupancy costs of $980 and systems developmentmarketing expense of $1,117. The acquisitions of PortfolioCenter$798, partially offset by a increases in restructuring charges and PIEtech contributed general and administrationtransaction related expenses of $1,768$2,598, system development costs of $1,050 and $1,050, respectively,one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to total general and administration expense in the three months ended June 30, 2019. As a percentage of total revenues, general and administration expenses increaseddecreased from 15% in the three months ended June 30, 2019 to 12% in the three months ended June 30, 2018 to 15% in the three months ended June 30, 2019. The increase in general and administration expenses as a percentage of revenues is2020 primarily due to higher growth in generaldecreased travel and administration expenses compared to lower growth in revenues.entertainment expense as a result of actions taken by the Company as a result of COVID-19.

Depreciation and amortization
 
Depreciation and amortization expense increased 49%23% from $11,026 in the three months ended June 30, 2018 to $16,376 in the three months ended June 30, 2019.2019 to $20,081 in the three months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $1,800, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, an increase in internally developed software amortization expense of $1,266$1,078 and an increase in intangible asset amortizationproperty and equipment depreciation expense of $3,729, primarily a result of additional intangible assets related to the acquisitions of PortfolioCenter and PIEtech.$827. As a percentage of revenues, depreciation and amortization expense increased from 7% in the three months ended June 30, 2018 to 9% in the three months ended June 30, 2019.2019 to 11% in the three months ended June 30, 2020.



Six months ended June 30, 20192020 compared to six months ended June 30, 20182019 for the Envestnet Wealth Solutions segment
  
Asset-based recurring revenues
 
Asset-based recurring revenues decreased 4%increased 12% from $239,264 in the six months ended June 30, 2018 to $229,004 in the six months ended June 30, 2019.2019 to $257,057 in the six months ended June 30, 2020. The decreaseincrease was primarily due to a decreasean increase in asset values applicable to our quarterly billing cycles in the six months ended June 30, 20192020 compared to the six months ended June 30, 2018,2019, 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 quarterfirst half 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, 2019.2020.
 
The number of financial advisors with asset-based recurring revenue on our technology platforms decreasedincreased from 44,900 as of June 30, 2018 to 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts decreasedincreased from approximately 2,200,000 as of June 30, 2018 to approximately 2,100,000 as of June 30, 2019. The decline2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenue decreased from 69% of total revenue in advisors was duethe six months ended June 30, 2019 to a reclassification to subscription-based pricing models67% of total revenue in 2018.the six months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 39%34% from $65,608 in the six months ended June 30, 2018 to $91,104 in the six months ended June 30, 2019.2019 to $121,733 in the six months ended June 30, 2020.

42

The acquisitions of PortfolioCenter and PIEtech2019 Acquisitions contributed incremental revenues of $2,014 and $5,861, respectively,$23,747 to subscription-based recurring revenues in the threesix months ended June 30, 2019.2020. The remaining increase of $17,621$6,882 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 18%decreased 23% from $8,044 in the six months ended June 30, 2018 to $9,487 in the six months ended June 30, 2019.2019 to $7,315 in the six months ended June 30, 2020. The decrease was primarily due to a decrease in revenues as a result of the cancellation of our 2020 Advisor Summit.

Cost of revenues
Cost of revenues increased 9% from $122,105 in the six months ended June 30, 2019 to $132,903 in the six months ended June 30, 2020. The increase was primarily due to an increase in revenues from existing customers and an increase of $771 contributed from the PIEtech Acquisition.
Costasset-based cost of revenues
Cost of $16,332, directly correlated with the increase to asset-based recurring revenues during the period. This increase was partially offset by a decrease in professional services and other cost of revenues remained consistent from $121,937 inof $4,829, primarily a result of the six months ended June 30, 2018 to $122,105 in the six months ended June 30, 2019.cancellation of our 2020 Advisor Summit. The acquisitions of PortfolioCenter and PIEtech2019 Acquisitions had an immaterial impact to total cost of revenues in the six months ended June 30, 2019.2020. 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 $99,9372019 to 34% in the six months ended June 30, 20182020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.
Compensation and benefits
Compensation and benefits increased 29% from $104,774 in the six months ended June 30, 2019.2019 to $135,384 in the six months ended June 30, 2020. The increase is primarily due to increases in severance expense of $11,276, salaries, benefits and related payroll taxes of $3,951$9,739, incentive compensation of $5,137 and non-cash compensation expense of $5,876, partially offset by decreases$3,741. The increase in incentive compensation expense of $1,738 and severance expense of $2,310.is primarily related to several employees entering into the Early Retirement Program in the three months ended March 31, 2020. The acquisitions of PortfolioCenter and PIEtech2019 Acquisitions contributed compensation and benefit expenses of $1,253$5,656 and $4,403, respectively,$15,798 to total compensation and benefits expense in the six months ended June 30, 2019.2019 and 2020, respectively. As a percentage of total revenues, compensation and benefits remained consistent atincreased from 32% in the six months ended June 30, 2018 and 2019.

2019 to 35% in the six months ended June 30, 2020, primarily related to the increase in severance expense related to the Early Retirement Program.

General and administration
 
General and administration expenses increased 26%3% from $36,323 in the six months ended June 30, 2018 to $45,850 in the six months ended June 30, 2019.2019 to $47,110 in the six months ended June 30, 2020. The increase was primarily due to increases in rentrestructuring charges and transaction related expenses of $2,628, systems development costs of $1,843, trade errors expense of $1,866, systems development$1,768 and other miscellaneous increases. These increases were partially offset by decreases in travel and entertainment expenses of $3,001, non-income tax expense of $1,798, communications$1,429 and research expense of $1,459,professional and legal fees of $1,209, transaction related


expense of $813$1,338. General and travel and entertainment expense of $757. The acquisitions of PortfolioCenter and PIEtechadministration expenses contributed general and administrative expenses of $1,768 and $1,050, respectively, to total general and administrative expensefrom the 2019 Acquisitions remained consistent in the six months ended June 30, 2019.2019 and 2020. As a percentage of total revenues, general and administration expenses increaseddecreased from 14% in the six months ended June 30, 2019 to 12% in the six months ended June 30, 2018 to 14% in the six months ended June 30, 2019.2020.
 
Depreciation and amortization
 
Depreciation and amortization expense increased 23%43% from $22,499 in the six months ended June 30, 2018 to $27,643 in the six months ended June 30, 2019.2019 to $39,501 in the six months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $8,228, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, an increase in internally developed software amortization expense of $2,212$1,986 and an increase in intangible asset amortizationproperty and equipment depreciation expense of $2,337, primarily a result of additional intangible assets related to the acquisitions PortfolioCenter Acquisition and the PIEtech Acquisition.$1,643. 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, 2019.2019 to 10% in the six months ended June 30, 2020.
43

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 Six Months Ended 
 June 30, Percent June 30, Percent June 30,PercentJune 30,Percent
 2019 2018 Change 2019 2018 Change 20202019Change20202019Change
 (in thousands)   (in thousands)   (in thousands) (in thousands) 
Revenues:      
      
Revenues:      
Subscription-based $42,180
 $38,756
 9 % $84,241
 $75,866
 11 %Subscription-based$43,569  $42,180  3 %$87,797  $84,241  4 %
Professional services and other revenues 5,375
 5,432
 (1)% 10,275
 10,345
 (1)%Professional services and other revenues4,059  5,375  (24)%7,950  10,275  (23)%
Total revenues 47,555
 44,188
 8 % 94,516
 86,211
 10 %Total revenues47,628  47,555  — %95,747  94,516  1 %
Operating expenses:      
      
Operating expenses:  
Cost of revenues 5,830
 4,713
 24 % 11,620
 8,624
 35 %Cost of revenues5,738  5,830  (2)%10,879  11,620  (6)%
Compensation and benefits 31,593
 25,848
 22 % 62,957
 52,006
 21 %Compensation and benefits25,802  31,593  (18)%55,915  62,957  (11)%
General and administration 8,553
 8,764
 (2)% 18,038
 17,054
 6 %General and administration8,667  8,553  1 %17,854  18,038  (1)%
Depreciation and amortization 10,539
 8,159
 29 % 18,789
 16,232
 16 %Depreciation and amortization8,362  10,539  (21)%16,625  18,789  (12)%
Total operating expenses 56,515
 47,484
 19 % 111,404
 93,916
 19 %Total operating expenses48,569  56,515  (14)%101,273  111,404  (9)%
Loss from operations $(8,960) $(3,296) 172 % $(16,888) $(7,705) 119 %Loss from operations$(941) $(8,960) *$(5,526) $(16,888) (67)%
 
Three Months Endedmonths ended June 30, 20192020 compared to three months ended June 30, 20182019 for the Envestnet Data & Analytics segment
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 9%3% from $38,756 in the three months ended June 30, 2018 to $42,180 in the three months ended June 30, 2019 to $43,569 in the three months ended June 30, 2020, primarily due to broad increases in revenue from new and existing customers. 
 
Professional services and other revenues
 
Professional services and other revenues remained consistentdecreased24% from $5,432 in the three months ended June 30, 2018 to $5,375 in the three months ended June 30, 2019.2019 to $4,059 in the three months ended June 30, 2020 due to timing of the completion of customer projects and deployments.

Cost of revenues
 
Cost of revenues increased 24%decreased 2% 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$5,738 in subscription-based recurring revenues.the three months ended June 30, 2020. As a percentage of total revenues, cost of revenues increased from 11% in the three months ended June 30, 2018 toremained consistent at 12% in the three months ended June 30, 2019.2019 and 2020.
 
Compensation and benefits
 
Compensation and benefits increased 22%decreased 18% from $25,848 in the three months ended June 30, 2018 to $31,593 in the three months ended June 30, 2019 to $25,802 in the three months ended June 30, 2020. The decrease is primarily due to an increasedecreases in salaries, benefits and related payroll taxes of $3,499 as a result$4,678, severance expense of increased headcount to support organic growth, an increase in$2,017 and non-cash compensation expense of $843 and severance


expense of $2,449$798, partially offset by a decreasean increase in incentive compensation expense of $1,046.$1,242. As a percentage of total revenues, compensation and benefits increaseddecreased from 58% in the three months ended June 30, 2018 to 66% in the three months ended June 30, 2019.2019 to 54% in the three months ended June 30, 2020. The increasedecrease in compensation and benefits as a percentage of total revenues is primarily driven by increased capitalized labor costs related to internally developed software, decreased severance expense, and decreased salaries, benefits and related taxes due to increased severance expense as well as higher growthlower headcount for the three months ended June 30, 2020 in compensation and benefits expense comparedcomparison to lower growth in revenue.the three months ended June 30, 2019.

General and administration
 
General and administration expenses decreased 2%increased 1% from $8,764 in the three months ended June 30, 2018 to $8,553 in the three months ended June 30, 2019 to $8,667 in the three months ended June 30, 2020, primarily due to a decreasean increase in transaction related expenselegal and regulatory matters of $599,$3,517, partially offset by an increasea decrease of $212$1,982 to contingent consideration liability related to a fair value adjustment, decreases in legal fees.travel and entertainment expense of $1,239 and other miscellaneous decreases. As a percentage of total revenues, general and administration expenses decreased from 20% toremained consistent at 18% forin the three months ended June 30, 20182019 and 2019.2020.
 
44

Depreciation and amortization
 
Depreciation and amortization expense increased 29%decreased 21% from $8,159 in the three months ended June 30, 2018 to $10,539 in the three months ended June 30, 2019 to $8,362 in the three months ended June 30, 2020. The decrease is primarily due to an increasea decrease in depreciation of property and equipment of
$2,224 $2,224 resulting from a purchase price accounting adjustment.adjustment that occurred in the three months ended June 30, 2019. As a percentage of total revenues, depreciation and amortization expense increaseddecreased from 22% in the three months ended June 30, 2019 to 18% in the three months ended June 30, 20182020 primarily related to 22%the purchase price accounting adjustment in the three months ended June 30, 2019.prior year.

Six months ended June 30, 20192020 compared to six months ended June 30, 20182019 for the Envestnet Data & Analytics segment
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 11%4% from $75,866 in the six months ended June 30, 2018 to $84,241 in the six months ended June 30, 2019 to $87,797 in the six months ended June 30, 2020, primarily due to broad increases in revenue from new and existing customers. 
 
Professional services and other revenues
 
Professional services and other revenues remained consistentdecreased 23% from $10,345 in the six months ended June 30, 2018 to $10,275 in the six months ended June 30, 2019.2019 to $7,950 in the six months ended June 30, 2020 due to timing of the completion of customer projects and deployments.

Cost of revenues
 
Cost of revenues increased 35%decreased 6% from $8,624 in the six months ended June 30, 2018 to $11,620 in the six months ended June 30, 2019 to $10,879 in the six months ended June 30, 2020, primarily due to an increasedecreases in subscription-based recurring revenues.third party vendor expenses. As a percentage of total revenues, cost of revenues increaseddecreased from 10% in the six months ended June 30, 2018 to 12% in the six months ended June 30, 2019.2019 to 11% in the six months ended June 30, 2020.
 
Compensation and benefits
 
Compensation and benefits increased 21%decreased 11% from $52,006 in the six months ended June 30, 2018 to $62,957 in the six months ended June 30, 2019 to $55,915 in the six months ended June 30, 2020, primarily due to an increasedecreases in salaries, benefits, and related payroll taxes of $6,984 as a result of increased headcount to support organic growth,an increase in non-cash compensation expense of $2,555$7,248 and severance expense of $4,113$2,404, partially offset by a decreasean increase in incentive compensation expense of $3,060.$2,624. As a percentage of total revenues, compensation and benefits increaseddecreased from 60% in the six months ended June 30, 2018 to 67% in the six months ended June 30, 2019.2019 to 58% in the six months ended June 30, 2020. The increasedecrease in compensation and benefits as a percentage of total revenues is primarily driven by increased capitalized labor costs related to internally developed software, decreased severance expense, and decreased salaries, benefits and related taxes due to increased severance expense as well as higher growth in compensation and benefits expenselower headcount for the six months ended June 30, 2020 compared to lower growth in revenue.the six months ended June 30, 2019.

General and administration
 
General and administration expenses increased 6%decreased 1% from $17,054 in the six months ended June 30, 2018 to $18,038 in the six months ended June 30, 2019 to $17,854 in the six months ended June 30, 2020, primarily due to increasesa decrease of $1,982 to contingent consideration liability related to a fair value adjustment, decreases in travel and entertainment expense of $233, website development expense$1,576, occupancy costs of $272$614 and other miscellaneous increases,communication, research and data services costs of $523, partially offset by a decrease in communicationsan increase to legal and research expenseregulatory matters of $319.$4,220. As a percentage of total revenues, general and administration expenses decreased from 20% toremained consistent at 19% forin the six months ended June 30, 20182019 and 2019.2020.
 
Depreciation and amortization
 
Depreciation and amortization expense increased 16%decreased from $16,232 in the six months ended June 30, 2018 to $18,789 in the six months ended June 30, 2019 to $16,625 in the six months ended June 30, 2020. The decrease is primarily due to an increasea decrease in depreciation of property and equipment of


$2,224 $2,224 resulting from a purchase price accounting adjustment.adjustment that occurred in the six months ended June 30, 2019. As a percentage of total revenues, depreciation and amortization expense increaseddecreased from 19% in the six months ended June 30, 2018 to 20% in the six months ended June 30, 2019.2019 to 17% in the six months ended June 30, 2020 primarily due to the purchase price accounting adjustment in the prior year.  
45

Nonsegment
 
The following table presents nonsegment operating expenses:
 Three Months Ended Six Months Ended 
 June 30,PercentJune 30,Percent
 20202019Change20202019Change
 (in thousands) (in thousands) 
Operating expenses:      
Compensation and benefits$6,967  $15,474  (55)%$14,696  $22,272  (34)%
General and administration7,951  8,202  (3)%14,594  19,057  (23)%
Nonsegment operating expenses$14,918  $23,676  (37)%$29,290  $41,329  (29)%

  Three Months Ended  
 Six Months Ended  
  June 30, Percent June 30, Percent
  2019 2018 Change 2019 2018 Change
  (in thousands)   (in thousands)  
Operating expenses:            
Compensation and benefits $15,474
 $6,336
 144% $22,272
 $11,807
 89%
General and administration 8,202
 6,722
 22% 19,057
 13,441
 42%
Nonsegment operating expenses $23,676
 $13,058
 81% $41,329
 $25,248
 64%

Three Months Endedmonths ended June 30, 20192020 compared to three months ended June 30, 20182019 for Nonsegment
 
Compensation and benefits
 
Compensation and benefits increased 144%decreased 55% from $6,336 in the three months ended June 30, 2018 to $15,474 in the three months ended June 30, 2019 primarily due to an increase of $8,496 in incentive compensation, primarily a result of approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition.
General and administration
General and administration expenses increased 22% from $6,722$6,967 in the three months ended June 30, 2018 to $8,202 in the three months ended June 30, 2019,2020, primarily due to an increase in transaction related expenses of $853.

Six months ended June 30, 2019 compared to six months ended June 30, 2018 for Nonsegment
Compensation and benefits
Compensation 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 increasedecreases in incentive compensation of $8,378,$9,163 and non-cash compensation expense of $799, partially offset by increases in salaries, benefits and related payroll taxes of $1,018. The decrease in incentive compensation is 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.three months ended June 30, 2019.
 
General and administration
 
General and administration expenses increased 42%decreased 3% from $13,441$8,202 in the three months ended June 30, 2019 to $7,951 in the three months ended June 30, 2020, primarily due to a decrease in restructuring charges and transaction related expenses of $962, partially offset by immaterial increases in insurance and bank charges, systems development costs, and professional and legal fees. 

Six months ended June 30, 2020 compared to six months ended June 30, 2019 for Nonsegment
Compensation and benefits
Compensation and benefits decreased 34% from $22,272 in the six months ended June 30, 20182019 to $14,696 in the six months ended June 30, 2020, primarily due to decreases in incentive compensation of $9,610 and non-cash compensation expense of $1,718, partially offset by increases in salaries, benefits and related payroll taxes of $2,163 and severance expense of $1,219. The decrease in incentive compensation is primarily a result of approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition in the six months ended June 30, 2019.
General and administration
General and administration expenses decreased 23% from $19,057 in the six months ended June 30, 2019 to $14,594 in the six months ended June 30, 2020, primarily due to an increasea decrease in restructuring charges and transaction related expenseexpenses of $4,637, increased website$5,654, partially offset by increases in professional and systems development expenselegal fees of $454$674 and other miscellaneous increases.permits, licenses and fees of $552.
 
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‑alonestand-alone entities.

“Adjusted net revenues” represents adjusted revenues less asset-based costscost 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
46

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) 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‑cashnon-cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration liability, 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 investmentinvestments and (income) loss attributable to non‑controllingnon-controlling interest.
 
“Adjusted net income” represents net income (loss) before deferred revenue fair value adjustment, accretion on contingent consideration and purchase liability, non‑cashnon-cash interest expense, non‑cashnon-cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration liability, 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 investmentinvestments and (income) loss attributable to non‑controllingnon-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‑averageweighted-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 cost of revenues. 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, deferred revenue fair value adjustment, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, accretion on contingent consideration and purchase liability, severance, fair market value adjustment on contingent consideration liability, litigation and regulatory related expense, pre-taxexpenses, foreign currency, gain on acquisition of equity method investment, loss allocation from equity method investments, (income) 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.
 
47

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 paidmade net cashtax payments of $6,121$2,136 and $2,225$6,121 for the six months ended June 30, 20192020 and 2018,2019, 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. GAAPnon-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 EndedSix Months Ended
June 30,June 30,
2020201920202019
(in thousands)(in thousands)
Total revenues$235,313  $224,445  $481,852  $424,111  
Deferred revenue fair value adjustment77  3,414  516  3,420  
Adjusted revenues235,390  227,859  482,368  427,531  
Less: Asset-based cost of revenues(61,875) (60,293) (130,467) (114,135) 
Adjusted net revenues$173,515  $167,566  $351,901  $313,396  
  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


48


The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
(in thousands)(in thousands)
Net income (loss)$(5,471) $613  $(12,661) $(17,655) 
Add (deduct):    
Deferred revenue fair value adjustment77  3,414  516  3,420  
Interest income(197) (901) (588) (2,411) 
Interest expense6,634  8,263  13,768  15,359  
Accretion on contingent consideration and purchase liability311  502  910  742  
Income tax provision (benefit)1,306  (28,382) (658) (24,614) 
Depreciation and amortization28,443  26,915  56,126  46,432  
Non-cash compensation expense13,875  14,988  27,345  27,852  
Restructuring charges and transaction costs6,648  13,208  9,468  20,574  
Severance1,869  3,280  15,851  5,760  
Fair market value adjustment on contingent consideration liability(1,982) —  (1,982) —  
Litigation and regulatory related expenses3,517  —  4,220  —  
Foreign currency463  (154) (31) (155) 
Non-income tax expense adjustment(642) 908  (454) 1,118  
Gain on acquisition of equity method investment—  —  (4,230) —  
Loss allocation from equity method investments1,256  347  3,286  550  
(Income) loss attributable to non-controlling interest(299) 210  (500) 241  
Adjusted EBITDA$55,808  $43,211  $110,386  $77,213  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
  (in thousands) (in thousands)
Net income (loss) $613
 $(5,991) $(17,655) $2,011
Add (deduct):        
Deferred revenue fair value adjustment 3,414
 62
 3,420
 66
Interest income (901) (374) (2,411) (784)
Interest expense 8,263
 5,992
 15,359
 11,228
Accretion on contingent consideration and purchase liability 502
 95
 742
 196
Income tax provision (benefit) (28,382) 566
 (24,614) (13,428)
Depreciation and amortization 26,915
 19,185
 46,432
 38,731
Non-cash compensation expense 14,988
 10,476
 27,852
 18,971
Restructuring charges and transaction costs 13,208
 3,345
 20,574
 5,937
Severance 3,280
 1,049
 5,760
 3,861
Foreign currency (154) (339) (155) (571)
Non-income tax expense adjustment 908
 27
 1,118
 (101)
Loss allocation from equity method investment 347
 151
 550
 811
Loss attributable to non-controlling interest 210
 515
 241
 584
Adjusted EBITDA $43,211
 $34,759
 $77,213
 $67,512


49

The following table sets forth the reconciliation of net income (loss) to adjusted net income and adjusted net income per diluted share based on our historical results:
 Three Months EndedSix Months Ended
 June 30,June 30,
 2020201920202019
 (in thousands)(in thousands)
Net income (loss)$(5,471) $613  $(12,661) $(17,655) 
Income tax provision (benefit) (1)
1,306  (28,382) (658) (24,614) 
Loss before income tax provision (benefit)(4,165) (27,769) (13,319) (42,269) 
Add (deduct):
Deferred revenue fair value adjustment77  3,414  516  3,420  
Accretion on contingent consideration and purchase liability311  502  910  742  
Non-cash interest expense2,983  4,646  5,945  9,262  
Non-cash compensation expense13,875  14,988  27,345  27,852  
Restructuring charges and transaction costs6,648  13,208  9,468  20,574  
Severance1,869  3,280  15,851  5,760  
Fair market value adjustment on contingent consideration liability(1,982) —  (1,982) —  
Amortization of acquired intangibles18,746  19,278  37,504  31,806  
Litigation and regulatory related expenses3,517  —  4,220  —  
Foreign currency463  (154) (31) (155) 
Non-income tax expense adjustment(642) 908  (454) 1,118  
Gain on acquisition of equity method investment—  —  (4,230) —  
Loss allocation from equity method investments1,256  347  3,286  550  
(Income) loss attributable to non-controlling interest(299) 210  (500) 241  
Adjusted net income before income tax effect42,657  32,858  84,529  58,901  
Income tax effect (2)
(10,884) (8,388) (21,554) (15,020) 
Adjusted net income$31,773  $24,470  $62,975  $43,881  
Basic number of weighted-average shares outstanding53,562,850  50,870,296  53,288,741  49,526,774  
Effect of dilutive shares:
Options to purchase common stock374,070  1,164,246  519,886  1,185,480  
Unvested restricted stock units322,140  662,853  475,990  666,116  
Convertible notes—  261,075  11,719  12,532  
Warrants—  24,218  22,714  —  
Diluted number of weighted-average shares outstanding54,259,060  52,982,688  54,319,050  51,390,902  
Adjusted net income per share - diluted$0.59  $0.46  $1.16  $0.85  
  Three Months Ended Six Months Ended
  June 30, June 30,
  2019 2018 2019 2018
  (in thousands) (in thousands)
Net income (loss) $613
 $(5,991) $(17,655) $2,011
Income tax provision (benefit) (1)
 (28,382) 566
 (24,614) (13,428)
Loss before income tax provision (benefit) (27,769) (5,425) (42,269) (11,417)
Add (deduct):        
Deferred revenue fair value adjustment 3,414
 62
 3,420
 66
Accretion on contingent consideration and purchase liability 502
 95
 742
 196
Non-cash interest expense 4,646
 3,032
 9,262
 4,900
Non-cash compensation expense 14,988
 10,476
 27,852
 18,971
Restructuring charges and transaction costs 13,208
 3,345
 20,574
 5,937
Severance 3,280
 1,049
 5,760
 3,861
Amortization of acquired intangibles and fair value adjustment to property and equipment, net 19,278
 13,419
 31,806
 27,354
Foreign currency (154) (339) (155) (571)
Non-income tax expense adjustment 908
 27
 1,118
 (101)
Loss allocation from equity method investment 347
 151
 550
 811
Loss attributable to non-controlling interest 210
 515
 241
 584
Adjusted net income before income tax effect 32,858
 26,407
 58,901
 50,591
Income tax effect (2)
 (8,388) (7,130) (15,020) (13,660)
Adjusted net income $24,470
 $19,277
 $43,881
 $36,931
         
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
 1,325,947
 1,185,480
 1,360,300
Unvested restricted stock units 662,853
 643,319
 666,116
 832,170
Convertible notes 261,075
 —
 12,532
 —
Warrants 24,218
 —
 —
 —
Diluted number of weighted-average shares outstanding 52,982,688
 47,216,597
 51,390,902
 47,156,205
Adjusted net income per share - diluted $0.46
 $0.41
 $0.85
 $0.78
         
(1)For the three months ended June 30, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled (31.4)% and 102.2%, respectively. For the six months ended June 30, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled 4.9% and 58.2%, respectively.
(1)For the three months ended June 30, 2019 and 2018, the effective tax rate computed in accordance with GAAP equaled 102.2% and (10.4)%, 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 normalized effective tax rates of 25.5% and 27.0% have been used to compute adjusted net income for the three and six months ended June 30, 2019 and 2018, respectively.
(2)An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for the three and six months ended June 30, 2020 and 2019.

Note on Income Taxes: As of December 31, 20182019 we had net operating lossNOL carryforwards of approximately $267,000$261,000 and $153,000$211,000 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.



50

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, 20192020 and 2018:2019:

 Three Months Ended June 30, 2020
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$187,685  $47,628  $—  $235,313  
Deferred revenue fair value adjustment77  —  —  77  
Adjusted revenues187,762  47,628  —  235,390  
Less: Asset-based cost of revenues(61,875) —  —  (61,875) 
Adjusted net revenues$125,887  $47,628  $—  $173,515  
Income (loss) from operations$19,867  $(941) $(14,918) $4,008  
Add:
Deferred revenue fair value adjustment77  —  —  77  
Accretion on contingent consideration and purchase liability373  (62) —  311  
Depreciation and amortization20,081  8,362  —  28,443  
Non-cash compensation expense9,055  2,981  1,839  13,875  
Restructuring charges and transaction costs3,731  271  2,646  6,648  
Non-income tax expense adjustment(578) (64) —  (642) 
Severance1,437  432  —  1,869  
Fair market value adjustment on contingent consideration liability—  (1,982) —  (1,982) 
Litigation and regulatory related expenses—  3,517  —  3,517  
Income attributable to non-controlling interest(299) —  —  (299) 
Other(17) —  —  (17) 
Adjusted EBITDA$53,727  $12,514  $(10,433) $55,808  

 Three Months Ended June 30, 2019
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$176,890  $47,555  $—  $224,445  
Deferred revenue fair value adjustment3,414  —  —  3,414  
Adjusted revenues180,304  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 adjustment3,414  —  —  3,414  
Accretion on contingent consideration and purchase liability502  —  —  502  
Depreciation and amortization16,376  10,539  —  26,915  
Non-cash compensation expense8,592  3,767  2,629  14,988  
Restructuring charges and transaction costs794  (196) 12,610  13,208  
Non-income tax expense adjustment908  —  —  908  
Severance818  2,448  14  3,280  
Loss attributable to non-controlling interest210  —  —  210  
Other43  —  —  43  
Adjusted EBITDA$44,036  $7,598  $(8,423) $43,211  


51

 Three months ended June 30, 2019 Six Months Ended June 30, 2020
 Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands) (in thousands)
Revenues $176,890
 $47,555
 $—
 $224,445
Revenues$386,105  $95,747  $—  $481,852  
Deferred revenue fair value adjustment 3,414
 —
 —
 3,414
Deferred revenue fair value adjustment516  —  —  516  
Adjusted revenues 180,304
 47,555
 —
 227,859
Adjusted revenues386,621  95,747  —  482,368  
Less: Asset-based cost of revenues (60,293) —
 —
 (60,293)Less: Asset-based cost of revenues(130,467) —  —  (130,467) 
Adjusted net revenues $120,011
 $47,555
 $—
 $167,566
Adjusted net revenues$256,154  $95,747  $—  $351,901  
        
Income (loss) from operations $12,379
 $(8,960) $(23,676) $(20,257)Income (loss) from operations$31,207  $(5,526) $(29,290) $(3,609) 
Add:        Add:
Deferred revenue fair value adjustment 3,414
 —
 —
 3,414
Deferred revenue fair value adjustment516  —  —  516  
Accretion on contingent consideration and purchase liability 502
 —
 —
 502
Accretion on contingent consideration and purchase liability746  164  —  910  
Depreciation and amortization 16,376
 10,539
 —
 26,915
Depreciation and amortization39,501  16,625  —  56,126  
Non-cash compensation expense 8,592
 3,767
 2,629
 14,988
Non-cash compensation expense18,752  7,207  3,910  29,869  
Restructuring charges and transaction costs 794
 (196) 12,610
 13,208
Restructuring charges and transaction costs4,920  456  4,092  9,468  
Non-income tax expense adjustment 908
 —
 —
 908
Non-income tax expense adjustment(328) (126) —  (454) 
Severance 818
 2,448
 14
 3,280
Severance12,439  2,092  1,320  15,851  
Fair market value adjustment on contingent consideration liabilityFair market value adjustment on contingent consideration liability—  (1,982) —  (1,982) 
Litigation and regulatory related expensesLitigation and regulatory related expenses—  4,220  —  4,220  
Income attributable to non-controlling interestIncome attributable to non-controlling interest(500) —  —  (500) 
Other 43
 —
 —
 43
Other(29) —  —  (29) 
Loss attributable to non-controlling interest 210
 —
 —
 210
Adjusted EBITDA $44,036
 $7,598
 $(8,423) $43,211
Adjusted EBITDA$107,224  $23,130  $(19,968) $110,386  


 Six Months Ended June 30, 2019
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$329,595  $94,516  $—  $424,111  
Deferred revenue fair value adjustment3,420  —  —  3,420  
Adjusted revenues333,015  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 adjustment3,420  —  —  3,420  
Accretion on contingent consideration and purchase liability742  —  —  742  
Depreciation and amortization27,643  18,789  —  46,432  
Non-cash compensation expense14,269  7,955  5,628  27,852  
Restructuring charges and transaction costs1,056  769  18,749  20,574  
Non-income tax expense adjustment1,108  10  —  1,118  
Severance1,168  4,496  96  5,760  
Loss attributable to non-controlling interest241  —  —  241  
Other65  1  2  68  
Adjusted EBITDA$78,935  $15,132  $(16,854) $77,213  
52
  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
  Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
  (in thousands)
Revenues $312,916
 $86,211
 $—
 $399,127
Deferred revenue fair value adjustment 58
 8
 —
 66
Adjusted revenues 312,974
 86,219
 —
 399,193
Less: Asset-based cost of revenues (114,320) —
 —
 (114,320)
Adjusted net revenues $198,654
 $86,219
 $—
 $284,873
         
Income (loss) from operations $32,220
 $(7,705) $(25,248) $(733)
Add:        
Deferred revenue fair value adjustment 58
 8
 —
 66
Accretion on contingent consideration and purchase liability 196
 —
 —
 196
Depreciation and amortization 22,499
 16,232
 —
 38,731
Non-cash compensation expense 9,134
 5,400
 4,437
 18,971
Restructuring charges and transaction costs 225
 603
 5,109
 5,937
Non-income tax expense adjustment (101) —
 —
 (101)
Severance 3,478
 383
 —
 3,861
Loss attributable to non-controlling interest 584
 —
 —
 584
Adjusted EBITDA $68,293
 $14,921
 $(15,702) $67,512



Liquidity and Capital Resources
 
As of June 30, 2019,2020, we had total cash and cash equivalents of $77,717$92,244 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, 2019,2020, we had $205,000$225,000 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 Six Months Ended
 June 30, June 30,
 2019 2018 20202019
 (in thousands) (in thousands)
Net cash provided by operating activities $2,391
 $40,954
Net cash provided by operating activities$65,023  $2,391  
Net cash used in investing activities (347,969) (208,536)Net cash used in investing activities(62,914) (347,969) 
Net cash provided by financing activities 133,784
 240,299
Net cash provided by financing activities8,870  133,784  
Effect of exchange rate on changes on cash 166
 (572)Effect of exchange rate on changes on cash(1,342) 166  
Net increase (decrease) in cash, cash equivalents and restricted cash (211,628) 72,145
Net increase (decrease) in cash, cash equivalents and restricted cash9,637  (211,628) 
Cash, cash equivalents and restricted cash, end of period 78,043
 134,260
Cash, cash equivalents and restricted cash, end of period92,392  78,043  
 
Operating Activities
 
Net cash provided by operating activities for the six months ended June 30, 20192020 was $2,391$65,023 compared to net cash provided by operating activities of $40,954$2,391 for the same period in 2018.2019. The decreaseincrease was primarily due to ato:

•A decrease in net losslosses period over period 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$4,994;
•A decrease in deferred income taxes period over period of $11,898$27,393 primarily due to the 2019 reversal of a valuation allowance on certain of our deferred tax assets;
•An increase period over period for noncash addbacks for depreciation and a net decreaseamortization expense of $9,694; and
•An increase in the change in operating assets and liabilities of $26,274,$22,469 which is primarily timing related.

These increases were partially offset by a net decrease of $938 of non-cash activity related to our equity method investments and a non-cash gain of $1,982 related to a fair market value adjustment to 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.outstanding contingent consideration liability.
 
Investing Activities
 
Net cash used in investing activities for the six months ended June 30, 20192020 was $347,969$62,914 compared to net cash used in investing activities of $208,536$347,969 for the same period in 2018.2019. The change was primarily a result of an increasea decrease in cash disbursements for business acquisitions of $133,226 and an increase$301,314. In January 2020, 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 months ended June 30, 20192020 was $133,784$8,870 compared to net cash provided by financing activities of $240,299$133,784 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 reduceddecreased borrowings on our revolving credit facility of $20,000, partially offset by a decrease in payments on our revolving credit facility of $246,168.$130,000.
 
 

53

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 20182019 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 20182019 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 indemnificationSee “Part I, Note 17—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 unconditionalContingencies, 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 CompanySee “Part I, Note 17—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 CourtContingencies, 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.details.
 
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:
  Operating
  Leases
Years Ending December 31,  
Remainder of 2019 $9,096
2020 17,558
2021 15,975
2022 11,850
2023 10,571
Thereafter 52,862
Total future minimum lease payments 117,912
Less imputed interest (27,563)
Total operating lease liabilities $90,349

As of June 30, 2019, we have entered into several additional operating leases that have not yet commenced but will commence in 2019 with lease terms of 1 to 3 years.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
Market riskRisk
 
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%2020, 52% and 53% of our revenues, respectively, 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 incomeloss 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
 
ForeignA portion of our revenues are billed in various foreign currencies. We are directly exposed to changes in foreign currency riskexchange rates through the translation of these monthly revenues into U.S. dollars. For the three and six months ended June 30, 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 $325 and $843 to pre-tax earnings, respectively.

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, 2019,2020, 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 $286approximately $1,922 and $265$3,374 to pre‑taxpre-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 $234approximately $1,573 and $217$2,760 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‑taxpre-tax earnings, respectively.
 
Interest rate riskRate Risk
 
We are subject to market risk from changes in interest rates. The Company hasWe 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 quarter of 20192020 was approximately 5.2%2.6%. As of June 30, 2019,2020, there was $145,000$275,000 of revolving credit amounts outstanding under the Amended Credit Agreement. The CompanyWe incurred interest expense of $1,353$2,142 and $1,569$4,813 for the three and six months ended June 30, 2019,2020, respectively, 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$578 on an annual basis.

54


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, 2019.2020. 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, 2019,2020, 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, 2019,2020, 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 Companyinformation in Part I, Note 17—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.reference.

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.

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 20182019 Form 10-K when making investment decisions regarding our securities. TheOther than as provided below, the risk factors that were disclosed in our 20182019 Form 10-K have not materially changed since the date our 20182019 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-19”) 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.
55

For the six months ended June 30, 2020, approximately 53% 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. If current economic conditions 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 BoardThere were no purchases of Directors had authorized aequity 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 June 30, 2020. As of June 30, 2019,2020, 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.

56

INDEX TO EXHIBITS
Exhibit

No.
Description
31.1
31.2
32.1(1)

32.2(1)

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 **
*


(1)104The materialCover Page Interactive Data File (formatted as Inline XBRL and 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.101)


* 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, 20192020 and December 31, 2018; (ii)2019; (iii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20192020 and 2018; (iii)2019; (iv) the Condensed Consolidated Statement of Comprehensive Income (Loss)Loss for the three and six months ended June 30, 20192020 and 2018; (iv)2019; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 20192020 and 2018; (v)2019; (vi) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20192020 and 2018; (vi)2019; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.


57

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 8, 2019.10, 2020.
 
ENVESTNET, INC.
By:/s/ Judson BergmanWilliam C. Crager
Judson BergmanWilliam 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


6358