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, 2022March 31, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-34835
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 20-1409613 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S Employer Identification No.) |
| | | | | | | | | | | | | | |
1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania | | 19312 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code:
(312) 827-2800
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading symbol(s) | Name of exchange on which registered |
Common Stock, par value $0.005 per share | ENV | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
Large accelerated filer | ý | | Accelerated filer | ☐ |
| | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of July 29, 2022,April 28, 2023, Envestnet, Inc. had 55,196,88054,404,069 shares of common stock outstanding.
TABLE OF CONTENTS
Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
| | | June 30, | | December 31, | | March 31, | | December 31, |
| | 2022 | | 2021 | | 2023 | | 2022 |
Assets | Assets | | | | | Assets | | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 338,115 | | | $ | 429,279 | | Cash and cash equivalents | | $ | 52,664 | | | $ | 162,173 | |
Fees receivable, net | Fees receivable, net | | 82,878 | | | 95,291 | | Fees receivable, net | | 122,704 | | | 101,696 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 46,627 | | | 42,706 | | Prepaid expenses and other current assets | | 47,391 | | | 41,363 | |
Total current assets | Total current assets | | 467,620 | | | 567,276 | | Total current assets | | 222,759 | | | 305,232 | |
| Property and equipment, net | Property and equipment, net | | 61,392 | | | 50,215 | | Property and equipment, net | | 64,144 | | | 62,443 | |
Internally developed software, net | Internally developed software, net | | 159,751 | | | 133,659 | | Internally developed software, net | | 196,874 | | | 184,558 | |
Intangible assets, net | Intangible assets, net | | 386,231 | | | 400,396 | | Intangible assets, net | | 377,055 | | | 379,995 | |
Goodwill | Goodwill | | 936,054 | | | 925,154 | | Goodwill | | 998,428 | | | 998,414 | |
Operating lease right-of-use assets, net | Operating lease right-of-use assets, net | | 83,494 | | | 90,714 | | Operating lease right-of-use assets, net | | 79,553 | | | 81,596 | |
Other non-current assets | | 92,858 | | | 73,768 | | |
Other assets | | Other assets | | 117,644 | | | 99,927 | |
Total assets | Total assets | | $ | 2,187,400 | | | $ | 2,241,182 | | Total assets | | $ | 2,056,457 | | | $ | 2,112,165 | |
| Liabilities and Equity | | |
Liabilities and equity | | Liabilities and equity | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Accrued expenses and other liabilities | | $ | 198,230 | | | $ | 225,159 | | |
Accounts payable | | 20,444 | | | 19,092 | | |
Accounts payable, accrued expenses and other current liabilities | | Accounts payable, accrued expenses and other current liabilities | | $ | 195,983 | | | $ | 233,866 | |
Operating lease liabilities | Operating lease liabilities | | 10,852 | | | 10,999 | | Operating lease liabilities | | 12,270 | | | 11,949 | |
| Deferred revenue | Deferred revenue | | 37,453 | | | 33,473 | | Deferred revenue | | 44,445 | | | 36,363 | |
Current portion of long-term debt | | 343,057 | | | — | | |
Current portion of debt | | Current portion of debt | | 44,954 | | | 44,886 | |
Total current liabilities | Total current liabilities | | 610,036 | | | 288,723 | | Total current liabilities | | 297,652 | | | 327,064 | |
| Long-term debt, net of current portion | | 508,282 | | | 848,862 | | |
Non-current operating lease liabilities | | 110,623 | | | 105,920 | | |
Debt, net of current portion | | Debt, net of current portion | | 872,968 | | | 871,769 | |
Operating lease liabilities, net of current portion | | Operating lease liabilities, net of current portion | | 108,568 | | | 110,652 | |
Deferred tax liabilities, net | Deferred tax liabilities, net | | 12,912 | | | 21,021 | | Deferred tax liabilities, net | | 21,445 | | | 16,196 | |
Other non-current liabilities | | 11,555 | | | 17,114 | | |
Other liabilities | | Other liabilities | | 18,644 | | | 18,880 | |
Total liabilities | Total liabilities | | 1,253,408 | | | 1,281,640 | | Total liabilities | | 1,319,277 | | | 1,344,561 | |
| Commitments and contingencies | | 0 | | 0 | |
| Equity: | | |
Stockholders’ equity: | | |
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021 | | — | | | — | | |
Common stock, par value $0.005, 500,000,000 shares authorized; 69,666,983 and 68,879,152 shares issued as of June 30, 2022 and December 31, 2021, respectively; 55,179,401 and 54,793,088 shares outstanding as of June 30, 2022 and December 31, 2021, respectively | | 348 | | | 344 | | |
Commitments and contingencies (note 19) | | Commitments and contingencies (note 19) | |
Stockholders' equity | | Stockholders' equity | |
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022 | | Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2023 and December 31, 2022 | | — | | | — | |
Common stock, par value $0.005, 500,000,000 shares authorized; 70,587,503 and 70,025,733 shares issued as of March 31, 2023 and December 31, 2022, respectively; 54,401,984 and 54,013,826 shares outstanding as of March 31, 2023 and December 31, 2022, respectively | | Common stock, par value $0.005, 500,000,000 shares authorized; 70,587,503 and 70,025,733 shares issued as of March 31, 2023 and December 31, 2022, respectively; 54,401,984 and 54,013,826 shares outstanding as of March 31, 2023 and December 31, 2022, respectively | | 352 | | | 350 | |
Treasury stock at cost, 16,185,519 and 16,011,907 shares as of March 31, 2023 and December 31, 2022, respectively | | Treasury stock at cost, 16,185,519 and 16,011,907 shares as of March 31, 2023 and December 31, 2022, respectively | | (264,283) | | | (253,551) | |
Additional paid-in capital | Additional paid-in capital | | 1,176,763 | | | 1,131,628 | | Additional paid-in capital | | 1,154,012 | | | 1,135,284 | |
Accumulated deficit | Accumulated deficit | | (75,132) | | | (37,988) | | Accumulated deficit | | (160,155) | | | (118,927) | |
Treasury stock at cost, 14,487,582 and 14,086,064 shares as of June 30, 2022 and December 31, 2021, respectively | | (162,344) | | | (134,996) | | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (6,470) | | | (1,899) | | Accumulated other comprehensive loss | | (4,312) | | | (8,589) | |
Total stockholders’ equity | | 933,165 | | | 957,089 | | |
Total stockholders’ equity, attributable to Envestnet, Inc. | | Total stockholders’ equity, attributable to Envestnet, Inc. | | 725,614 | | | 754,567 | |
Non-controlling interest | Non-controlling interest | | 827 | | | 2,453 | | Non-controlling interest | | 11,566 | | | 13,037 | |
Total equity | Total equity | | 933,992 | | | 959,542 | | Total equity | | 737,180 | | | 767,604 | |
Total liabilities and equity | Total liabilities and equity | | $ | 2,187,400 | | | $ | 2,241,182 | | Total liabilities and equity | | $ | 2,056,457 | | | $ | 2,112,165 | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | | | | | | | | |
Asset-based | | $ | 191,972 | | | $ | 170,075 | | | $ | 394,689 | | | $ | 329,450 | |
Subscription-based | | 118,120 | | | 112,504 | | | 232,854 | | | 222,333 | |
Total recurring revenues | | 310,092 | | | 282,579 | | | 627,543 | | | 551,783 | |
Professional services and other revenues | | 8,760 | | | 6,159 | | | 12,672 | | | 12,060 | |
Total revenues | | 318,852 | | | 288,738 | | | 640,215 | | | 563,843 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Cost of revenues | | 126,482 | | | 100,494 | | | 251,764 | | | 193,363 | |
Compensation and benefits | | 125,767 | | | 105,548 | | | 252,616 | | | 206,262 | |
General and administration | | 66,144 | | | 41,755 | | | 110,479 | | | 78,070 | |
Depreciation and amortization | | 32,182 | | | 30,010 | | | 63,800 | | | 58,402 | |
Total operating expenses | | 350,575 | | | 277,807 | | | 678,659 | | | 536,097 | |
| | | | | | | | |
Income (loss) from operations | | (31,723) | | | 10,931 | | | (38,444) | | | 27,746 | |
Other income (expense), net | | 1,622 | | | (3,784) | | | (4,345) | | | (11,252) | |
Income (loss) before income tax provision (benefit) | | (30,101) | | | 7,147 | | | (42,789) | | | 16,494 | |
| | | | | | | | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | |
| | | | | | | | |
Net income (loss) | | (24,268) | | | (8,369) | | | (38,976) | | | 6,566 | |
Add: Net loss attributable to non-controlling interest | | 983 | | | 88 | | | 1,832 | | | 99 | |
Net income (loss) attributable to Envestnet, Inc. | | $ | (23,285) | | | $ | (8,281) | | | $ | (37,144) | | | $ | 6,665 | |
| | | | | | | | |
Net income (loss) per share attributable to Envestnet, Inc.: | | | | | | | | |
Basic | | $ | (0.42) | | | $ | (0.15) | | | $ | (0.67) | | | $ | 0.12 | |
Diluted | | $ | (0.42) | | | $ | (0.15) | | | $ | (0.67) | | | $ | 0.12 | |
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 54,325,353 | |
Diluted | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 55,136,946 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
Revenue: | | | | | | | | |
Asset-based | | | | | | $ | 176,932 | | | $ | 202,717 | |
Subscription-based | | | | | | 117,079 | | | 114,734 | |
Total recurring revenue | | | | | | 294,011 | | | 317,451 | |
Professional services and other revenue | | | | | | 4,696 | | | 3,912 | |
Total revenue | | | | | | 298,707 | | | 321,363 | |
Operating expenses: | | | | | | | | |
Direct expense | | | | | | 108,989 | | | 125,282 | |
Employee compensation | | | | | | 114,215 | | | 126,849 | |
General and administrative | | | | | | 53,619 | | | 44,335 | |
Depreciation and amortization | | | | | | 32,941 | | | 31,618 | |
Total operating expenses | | | | | | 309,764 | | | 328,084 | |
Loss from operations | | | | | | (11,057) | | | (6,721) | |
Other expense, net | | | | | | (7,935) | | | (5,967) | |
Loss before income tax provision | | | | | | (18,992) | | | (12,688) | |
Income tax provision | | | | | | 23,769 | | | 2,020 | |
Net loss | | | | | | (42,761) | | | (14,708) | |
Add: Net loss attributable to non-controlling interest | | | | | | 1,533 | | | 849 | |
Net loss attributable to Envestnet, Inc. | | | | | | $ | (41,228) | | | $ | (13,859) | |
Net loss attributable to Envestnet, Inc. per share: | | | | | | | | |
Basic and diluted | | | | | | $ | (0.76) | | | $ | (0.25) | |
Weighted average common shares outstanding: | | | | | | | | |
Basic and diluted | | | | | | 54,143,259 | | | 54,903,677 | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)Loss
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) attributable to Envestnet, Inc. | | $ | (23,285) | | | $ | (8,281) | | | $ | (37,144) | | | $ | 6,665 | |
Foreign currency translation losses, net of taxes | | (3,093) | | | (1,264) | | | (4,571) | | | (1,888) | |
Comprehensive income (loss) attributable to Envestnet, Inc. | | $ | (26,378) | | | $ | (9,545) | | | $ | (41,715) | | | $ | 4,777 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
Net loss attributable to Envestnet, Inc. | | | | | | $ | (41,228) | | | $ | (13,859) | |
Other comprehensive income (loss), net of tax: | | | | | | | | |
Foreign currency translation adjustments | | | | | | 4,277 | | | (1,478) | |
Total other comprehensive income (loss), net of tax | | | | | | 4,277 | | | (1,478) | |
Comprehensive loss attributable to Envestnet, Inc. | | | | | | $ | (36,951) | | | $ | (15,337) | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share information)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | |
| | Common Stock | | Treasury Stock | | Additional | | Other | | | | Non- | | |
| | | | | | Common | | | | Paid-in | | Comprehensive | | Accumulated | | controlling | | Total |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Loss | | Deficit | | Interest | | Equity |
Balance, December 31, 2021 | | 68,879,152 | | | $ | 344 | | | (14,086,064) | | | $ | (134,996) | | | $ | 1,131,628 | | | $ | (1,899) | | | $ | (37,988) | | | $ | 2,453 | | | $ | 959,542 | |
Exercise of stock options | | 38,681 | | | — | | | — | | | — | | | 658 | | | — | | | — | | | — | | | 658 | |
Issuance of common stock - vesting of restricted stock units | | 514,319 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 21,690 | | | — | | | — | | | — | | | 21,690 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (170,992) | | | (12,570) | | | — | | | — | | | — | | | — | | | (12,570) | |
| | | | | | | | | | | | | | | | | | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (1,478) | | | — | | | — | | | (1,478) | |
Other | | — | | | — | | | — | | | — | | | (84) | | | — | | | — | | | 102 | | | 18 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (13,859) | | | (849) | | | (14,708) | |
Balance, March 31, 2022 | | 69,432,152 | | | $ | 347 | | | (14,257,056) | | | $ | (147,566) | | | $ | 1,153,892 | | | $ | (3,377) | | | $ | (51,847) | | | $ | 1,706 | | | $ | 953,155 | |
Exercise of stock options | | 2,503 | | | — | | | — | | | — | | | 84 | | | — | | | — | | | — | | | 84 | |
Issuance of common stock - vesting of restricted stock units | | 232,328 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 22,876 | | | — | | | — | | | — | | | 22,876 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (78,506) | | | (5,543) | | | — | | | — | | | — | | | — | | | (5,543) | |
Share repurchases | | — | | | — | | | (152,020) | | | (9,235) | | | — | | | — | | | — | | | — | | | (9,235) | |
| | | | | | | | | | | | | | | | | | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (3,093) | | | — | | | — | | | (3,093) | |
Other | | — | | | — | | | — | | | — | | | (89) | | | — | | | — | | | 104 | | | 15 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (23,285) | | | (983) | | | (24,268) | |
Balance, June 30, 2022 | | 69,666,983 | | | $ | 348 | | | (14,487,582) | | | $ | (162,344) | | | $ | 1,176,763 | | | $ | (6,470) | | | $ | (75,132) | | | $ | 827 | | | $ | 933,992 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | |
| | | | | | Additional | | Other | | | | Non- | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Comprehensive | | Accumulated | | Controlling | | Total |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Loss | | Deficit | | Interest | | Equity |
Balance, December 31, 2022 | | 70,025,733 | | | $ | 350 | | | (16,011,907) | | | $ | (253,551) | | | $ | 1,135,284 | | | $ | (8,589) | | | $ | (118,927) | | | $ | 13,037 | | | $ | 767,604 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (41,228) | | | (1,533) | | | (42,761) | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | — | | | 4,277 | | | — | | | — | | | 4,277 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 19,345 | | | — | | | — | | | 108 | | | 19,453 | |
Issuance of common stock, vesting of RSUs and PSUs | | 524,316 | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | |
Net cash paid related to tax withholding for stock-based compensation | | — | | | — | | | (173,612) | | | (10,732) | | | — | | | — | | | — | | | — | | | (10,732) | |
Proceeds from the exercise of stock options | | 37,454 | | | — | | | — | | | — | | | 367 | | | — | | | — | | | — | | | 367 | |
| | | | | | | | | | | | | | | | | | |
Purchase of non-controlling units from third-party shareholders | | — | | | — | | | — | | | — | | | (984) | | | — | | | — | | | (24) | | | (1,008) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (22) | | | (22) | |
Balance, March 31, 2023 | | 70,587,503 | | | $ | 352 | | | (16,185,519) | | | $ | (264,283) | | | $ | 1,154,012 | | | $ | (4,312) | | | $ | (160,155) | | | $ | 11,566 | | | $ | 737,180 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | | |
| | | | | | Additional | | Other | | | | Non- | | | |
| | Common Stock | | Treasury Stock | | Paid-in | | Comprehensive | | Accumulated | | Controlling | | Total | |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Loss | | Deficit | | Interest | | Equity | |
Balance, December 31, 2021 | | 68,879,152 | | | $ | 344 | | | (14,086,064) | | | $ | (134,996) | | | $ | 1,131,628 | | | $ | (1,899) | | | $ | (37,988) | | | $ | 2,453 | | | $ | 959,542 | | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (13,859) | | | (849) | | | (14,708) | | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | — | | | (1,478) | | | — | | | — | | | (1,478) | | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 21,690 | | | — | | | — | | | — | | | 21,690 | | |
Issuance of common stock, vesting of RSUs and PSUs | | 514,319 | | | 3 | | | — | | | — | | | — | | | — | | | — | | | — | | | 3 | | |
Net cash paid related to tax withholding for stock-based compensation | | — | | | — | | | (170,992) | | | (12,570) | | | — | | | — | | | — | | | — | | | (12,570) | | |
Proceeds from the exercise of stock options | | 38,681 | | | — | | | — | | | — | | | 658 | | | — | | | — | | | — | | | 658 | | |
Other | | — | | | — | | | — | | | — | | | (84) | | | — | | | — | | | 102 | | | 18 | | |
Balance, March 31, 2022 | | 69,432,152 | | | $ | 347 | | | (14,257,056) | | | $ | (147,566) | | | $ | 1,153,892 | | | $ | (3,377) | | | $ | (51,847) | | | $ | 1,706 | | | $ | 953,155 | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | | | | |
| | Common Stock | | Treasury Stock | | Additional | | Other | | | | Non- | | |
| | | | | | Common | | | | Paid-in | | Comprehensive | | Accumulated | | controlling | | Total |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Loss | | Deficit | | Interest | | Equity |
Balance, December 31, 2020 | | 67,832,706 | | | $ | 339 | | | (13,739,171) | | | $ | (110,466) | | | $ | 1,166,774 | | | $ | (398) | | | $ | (79,912) | | | $ | (519) | | | $ | 975,818 | |
Adoption of ASU 2020-06, net of taxes of $7,641 | | — | | | — | | | — | | | — | | | (108,470) | | | — | | | 28,628 | | | — | | | (79,842) | |
Exercise of stock options | | 27,043 | | | — | | | — | | | — | | | 522 | | | — | | | — | | | — | | | 522 | |
Issuance of common stock - vesting of restricted stock units | | 455,349 | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 14,013 | | | — | | | — | | | — | | | 14,013 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (147,041) | | | (9,541) | | | — | | | — | | | — | | | — | | | (9,541) | |
Share repurchase | | — | | | — | | | (24,227) | | | (1,672) | | | — | | | — | | | — | | | — | | | (1,672) | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (624) | | | — | | | — | | | (624) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 118 | | | 118 | |
Net income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 14,946 | | | (11) | | | 14,935 | |
Balance, March 31, 2021 | | 68,315,098 | | | $ | 341 | | | (13,910,439) | | | $ | (121,679) | | | $ | 1,072,839 | | | $ | (1,022) | | | $ | (36,338) | | | $ | (412) | | | $ | 913,729 | |
Exercise of stock options | | 4,082 | | | — | | | — | | | — | | | 51 | | | — | | | — | | | — | | | 51 | |
Issuance of common stock - vesting of restricted stock units | | 140,082 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 17,161 | | | — | | | — | | | — | | | 17,161 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (46,699) | | | (3,479) | | | — | | | — | | | — | | | — | | | (3,479) | |
Share repurchase | | — | | | — | | | (6,261) | | | (425) | | | — | | | — | | | — | | | — | | | (425) | |
Capital contribution - non-controlling interest | | — | | | — | | | — | | | — | | | (788) | | | — | | | — | | | 811 | | | 23 | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (1,264) | | | — | | | — | | | (1,264) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 38 | | | 38 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,281) | | | (88) | | | (8,369) | |
Balance, June 30, 2021 | | 68,459,262 | | | $ | 342 | | | (13,963,399) | | | $ | (125,583) | | | $ | 1,089,263 | | | $ | (2,286) | | | $ | (44,619) | | | $ | 349 | | | $ | 917,466 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
OPERATING ACTIVITIES: | | | | |
Net income (loss) | | $ | (38,976) | | | $ | 6,566 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 63,800 | | | 58,402 | |
Provision for doubtful accounts | | (1,230) | | | 455 | |
Deferred income taxes | | (8,222) | | | 8,137 | |
Release of uncertain tax positions | | (3,095) | | | — | |
Non-cash compensation expense | | 45,318 | | | 31,422 | |
Non-cash interest expense | | 3,474 | | | 2,906 | |
Accretion on contingent consideration and purchase liability | | — | | | 575 | |
Payments of contingent consideration | | — | | | (2,360) | |
Fair market value adjustment to contingent consideration liability | | — | | | (140) | |
Fair market value adjustment to investment in private company | | — | | | (758) | |
| | | | |
Loss allocations from equity method investments | | 2,945 | | | 4,045 | |
Dilution gain on equity method investee share issuance | | (6,934) | | | — | |
Impairment of right of use assets | | 12,961 | | | 1,110 | |
Loss on property and equipment disposals - office closures | | 3,710 | | | — | |
Other | | 167 | | | 282 | |
Changes in operating assets and liabilities: | | | | |
Fees receivable, net | | 13,694 | | | (1,334) | |
Prepaid expenses and other current assets | | (2,721) | | | (155) | |
Other non-current assets | | (3,638) | | | 3,665 | |
Accrued expenses and other liabilities | | (31,962) | | | 527 | |
Accounts payable | | 1,368 | | | 2,333 | |
Deferred revenue | | 4,277 | | | 2,789 | |
Other non-current liabilities | | (2,294) | | | 692 | |
Net cash provided by operating activities | | 52,642 | | | 119,159 | |
| | | | |
INVESTING ACTIVITIES: | | | | |
Purchases of property and equipment | | (9,141) | | | (11,357) | |
Capitalization of internally developed software | | (43,045) | | | (31,802) | |
Acquisition of proprietary technology | | (15,000) | | | (25,517) | |
Acquisitions of businesses, net of cash acquired | | (14,472) | | | (33,143) | |
Investments in private companies | | (8,000) | | | (4,549) | |
Advance for technology solutions | | (4,000) | | | (3,000) | |
Issuance of notes receivable to equity method investees | | (4,350) | | | — | |
Net cash used in investing activities | | (98,008) | | | (109,368) | |
| | | | |
-continued-
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
FINANCING ACTIVITIES: | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Proceeds from exercise of stock options | | 742 | | | 573 | |
Capital contributions - non-controlling shareholders | | — | | | 23 | |
Taxes paid in lieu of shares issued for stock-based compensation | | (18,113) | | | (13,020) | |
Finance lease payments | | (14,517) | | | — | |
Share repurchases | | (9,235) | | | (2,097) | |
Revolving credit facility issuance costs | | (1,872) | | | — | |
Payments of contingent consideration | | (750) | | | (9,200) | |
Other | | 4 | | | (587) | |
Net cash used in financing activities | | (43,741) | | | (24,308) | |
| | | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | (2,057) | | | (524) | |
| | | | |
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | (91,164) | | | (15,041) | |
| | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | | 429,428 | | | 384,714 | |
| | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2) | | $ | 338,264 | | | $ | 369,673 | |
| | | | |
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes | | $ | 5,460 | | | $ | 3,077 | |
Supplemental disclosure of cash flow information - cash paid during the period for interest | | 5,591 | | | 5,533 | |
| | | | |
Supplemental disclosure of non-cash operating, investing and financing activities: | | | | |
| | | | |
| | | | |
| | | | |
Purchase liabilities included in other non-current liabilities | | — | | | 3,300 | |
Fixed assets acquired through finance lease | | 14,517 | | | — | |
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities | | 2,308 | | | 832 | |
Internally developed software costs included in accrued expenses and other liabilities | | 628 | | | — | |
Membership interest liabilities included in other non-current liabilities | | 752 | | | 248 | |
| | | | |
Leasehold improvements funded by lease incentive | | — | | | 164 | |
Assets obtained in exchange for lease liabilities, net | | 9,604 | | | 999 | |
Conversion of equity method investee loan to shares | | 2,623 | | | — | |
| | | | |
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2023 | | 2022 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (42,761) | | | $ | (14,708) | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | |
Depreciation and amortization | | 32,941 | | | 31,618 | |
Provision for doubtful accounts | | 571 | | | (1,747) | |
Deferred income taxes | | 5,221 | | | (18,955) | |
Non-cash compensation expense | | 19,453 | | | 21,814 | |
Non-cash interest expense | | 4,498 | | | 2,599 | |
Loss allocations from equity method investments | | 2,940 | | | 1,545 | |
Other | | (103) | | | (59) | |
Changes in operating assets and liabilities: | | | | |
Fees receivable, net | | (21,579) | | | 8,661 | |
Prepaid expenses and other assets | | (9,858) | | | (9,491) | |
Accounts payable, accrued expenses and other liabilities | | (32,917) | | | (29,113) | |
Deferred revenue | | 8,073 | | | 11,097 | |
Net cash (used in) provided by operating activities | | (33,521) | | | 3,261 | |
Cash flows from investing activities: | | | | |
Purchases of property and equipment | | (4,402) | | | (3,896) | |
Capitalization of internally developed software | | (23,664) | | | (21,671) | |
Acquisition of proprietary technology | | (10,000) | | | (15,000) | |
Investments in private companies | | (950) | | | (3,000) | |
Issuance of loan receivable to private company | | (20,000) | | | — | |
| | | | |
Other | | 260 | | | (2,500) | |
Net cash used in investing activities | | (58,756) | | | (46,067) | |
Cash flows from financing activities: | | | | |
Proceeds from exercise of stock options | | 367 | | | 658 | |
Payments related to tax withholdings for stock-based compensation | | (10,732) | | | (12,570) | |
Payments on finance lease obligations | | (152) | | | (12,454) | |
Payments related to revolving credit facility | | — | | | (1,869) | |
Payments related to share repurchases | | (9,289) | | | — | |
Purchase of non-controlling units from third-party shareholders | | (1,008) | | | — | |
Other | | 2 | | | 3 | |
Net cash used in financing activities | | (20,812) | | | (26,232) | |
Effect of exchange rate on changes on cash, cash equivalents and restricted cash | | 3,580 | | | (627) | |
Net change in cash, cash equivalents and restricted cash | | (109,509) | | | (69,665) | |
Cash, cash equivalents and restricted cash, beginning of period | | 162,173 | | | 429,428 | |
Cash, cash equivalents and restricted cash, end of period | | $ | 52,664 | | | $ | 359,763 | |
Supplemental disclosures of cash flow information | | | | |
Net cash paid for income taxes | | $ | 1,110 | | | $ | 716 | |
Cash paid for interest | | $ | 1,822 | | | $ | 2,254 | |
Supplemental disclosure of non-cash activities | | | | |
Conversion of equity method investee loan to shares | | $ | 4,129 | | | $ | — | |
Right-of-use assets obtained in exchange for lease liabilities, net | | $ | 206 | | | $ | — | |
Property and equipment acquired through finance lease | | $ | 152 | | | $ | 12,454 | |
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities | | $ | 2,018 | | | $ | 1,883 | |
Internally developed software costs included in accrued expenses and other liabilities | | $ | — | | | $ | 178 | |
Membership interest liabilities included in other non-current liabilities | | $ | — | | | $ | 124 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1.Organization and Description of Business
Envestnet, Inc. (“Envestnet”) through its subsidiaries (collectively, the “Company”) is transforming the way financial advice and insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients.
Envestnet is organized around 2two primary, complementary business segments. Financial information about each business segment is contained in “Note 15—18—Segment Information” to the condensed consolidated financial statements.statements and is described in detail within the Company's Annual Report on Form 10-K.
For a summary of commonly used industry terms and abbreviations used in this quarterly report on Form 10-Q, see the
Glossary of Terms.
2.Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2022March 31, 2023 and for the three and six months ended June 30,March 31, 2023 and 2022 and 2021 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, 20212022 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of June 30, 2022March 31, 2023 and results of operations, equity, comprehensive income (loss) and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of 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 revenuesrevenue 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 income (expense),expense, net in the condensed consolidated statements of operations.
The results of operations for the three and six months ended June 30, 2022March 31, 2023 are not necessarily indicative of the results of operations 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”).SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)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.”FASB ASC and ASUs. 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, 2021,2022, filed with the SEC on February 25, 2022.28, 2023.
Use of Estimates
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 materially from these estimates.estimates under different assumptions or conditions.
Reclassifications
Certain items on the condensed consolidated balance sheets as of December 31, 2022 and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 have been reclassified to conform to the current year
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, or net change in cash and cash equivalents and did not affect the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss or condensed consolidated statements of stockholders' equity.
Cash, Cash Equivalents and Restricted Cash
The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported withinin the condensed consolidated statements of cash flows:
| | | | | | | | | | | | | | |
| | June 30, | | June 30, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
Cash and cash equivalents | | $ | 338,115 | | | $ | 369,524 | |
Restricted cash included in prepaid expenses and other current assets | | 149 | | | 149 | |
| | | | |
Total cash, cash equivalents and restricted cash | | $ | 338,264 | | | $ | 369,673 | |
Russia and Ukraine Conflict
In February 2022, military conflict escalated between Russia and Ukraine which continues as of the date of this quarterly report. The uncertainty over the extent and duration of the ongoing conflict continues to cause disruptions to businesses and markets worldwide. The extent of the effect on the Company’s financial performance will continue to depend on future developments, including the extent and duration of the conflict, economic sanctions imposed, further governmental and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the overall financial effect of the conflict at this time, as the conflict continues, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. As of June 30, 2022, these condensed consolidated financial statements do not reflect any adjustments as a result of the conflict. | | | | | | | | | | | | | | |
| | March 31, | | March 31, |
| | 2023 | | 2022 |
| | | | |
| | (in thousands) |
Cash and cash equivalents | | $ | 52,664 | | | $ | 359,614 | |
Restricted cash included in prepaid expenses and other current assets | | — | | | 149 | |
| | | | |
Total cash, cash equivalents and restricted cash | | $ | 52,664 | | | $ | 359,763 | |
Related Party Transactions
The Company has an approximate 4.4%3.7% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. RevenuesRevenue from the private services company totaled $4.3$3.6 million and $3.9$4.7 million in the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Revenues from the private services company totaled $9.0 million and $7.7 million in the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022March 31, 2023 and December 31, 2021,2022, the Company recorded a net receivable of $2.5 million and $3.0 million, respectively, from the private services company.
Dilution gain on equity method investee share issuance
The Company has an ownership interest in a privately held company that is accounted for under the equity method. During the six months ended June 30, 2022, the Company funded a $2.5of $3.9 million convertible loan to this privately held company. During the three months ended June 30, 2022, this privately held company raised additional preferred equity which reduced the Company's ownership to 41.0% and the Company's convertible loan was converted. As a result of this transaction, the Company recorded a $6.9$2.0 million, dilution gain during the three months ended June 30, 2022, which is included in other income (expense), net in the condensed consolidated statements of operations.respectively.
Recent Accounting Pronouncements Not Yet Adopted
Recently Adopted Accounting Pronouncements— In October 2021,March 2023, the FASB issued ASU 2021-08, “Business Combinations2023-01, “Leases (Topic 805).842): Common Control Arrangements.” This update amends Topic 805 to add contract assetsASC 842 and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordanceaccounting for leasehold improvements associated with ASC 606.common control leases. This standard is effective for financial statements issued by public companies for annual and interim periodsfiscal years beginning after December 15, 2022.2023, including interim periods within those fiscal years. Early adoption of the standard is permitted. The amendmentCompany is to be applied prospectively to business combinations occurring on or afteranalyzing the effective dateimpact of the amendment. The Company adopted this standard as of January 1, 2022. Adoption of this standard didadoption, but does not expect it to have a material impact on the Company's condensed consolidated financial statements.
3.Acquisitions
Acquisition of Redi2 Technologies
On July 1, 2022, Envestnet completed the acquisition of all of the issued and outstanding shares of Redi2 Technologies ("Redi2"). Redi2 provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. Redi2 has been integrated into the Envestnet Wealth Solutions segment.
In connection with the Redi2 acquisition, the Company paid estimated consideration as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Preliminary Estimate | | Measurement Period Adjustments | | Revised Estimate | | | | | | | | |
| | | | | | | | | | | | | | |
| | (in thousands) | | | | | | | | |
Cash consideration, net | | $ | 69,406 | | | $ | — | | | $ | 69,406 | | | | | | | | | |
Estimated working capital adjustment | | (1,465) | | | 932 | | | (533) | | | | | | | | | |
Total | | $ | 67,941 | | | $ | 932 | | | $ | 68,873 | | | | | | | | | |
| | | | | | | | | | | | | | |
The Company funded the Redi2 acquisition with available cash resources. In addition, certain executives may earn up to $20.0 million in performance bonuses based upon the achievement of certain target financial and non-financial metrics.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
3.AcquisitionsThese performance bonuses will be recognized as compensation and Other Investments
Investment in Privately Held Company
On May 20, 2022, the Company acquired a 25.0% interest in a privately held company for cash consideration of $5.0 million. Subject to the occurrence of certain conditions, the Company agreed to invest up to an additional $10.0 million for additional unitsbenefits expense in the future. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a 1 quarter lag from the actual resultscondensed consolidated statements of operations. The Company usesperformance bonuses recognized during the equity method of accounting because of its less than 50% ownership interest and lack of control and does not otherwise exercise control over the significant economic and operating decisions of the privately held company.
Acquisition of 401kplans.com
On Maythree months ended March 31, 2022, Envestnet Retirement Solutions, LLC, a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding membership interests of 401kplans.com LLC (“401kplans.com”). 401kplans.com has been integrated into the Envestnet Wealth Solutions segment.
401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. The acquisition demonstrates Envestnet's commitment to the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping them shop, compare and select the best-fitting 401(k) plan for their client.
In connection with the 401kplans.com acquisition, the Company paid estimated consideration of $14.5 million, net of cash acquired, subject to certain post-closing adjustments. The Company funded the acquisition with cash on hand.2023 were immaterial.
The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:
| | | | | | | | | | | | |
| | Preliminary Estimate | | | | |
| | (in thousands) |
Tangible assets acquired, net of acquired cash | | $ | 94 | | | | | |
Identifiable intangible assets | | 3,000 | | | | | |
Goodwill | | 11,378 | | | | | |
Total net assets acquired | | $ | 14,472 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Preliminary Estimate | | Measurement Period Adjustments | | Revised Estimate | | | | |
| | | | | | | | | | |
| | (in thousands) |
Total current assets | | $ | 1,985 | | | $ | — | | | $ | 1,985 | | | | | |
Other non-current assets | | 3,349 | | | (28) | | | 3,321 | | | | | |
Identifiable intangible assets | | 26,500 | | | — | | | 26,500 | | | | | |
Goodwill | | 44,236 | | | 2,231 | | | 46,467 | | | | | |
Total assets acquired | | 76,070 | | | 2,203 | | | 78,273 | | | | | |
| | | | | | | | | | |
Accounts payable and accrued expenses | | (1,157) | | | (1,271) | | | (2,428) | | | | | |
Operating lease liabilities | | (2,201) | | | — | | | (2,201) | | | | | |
Deferred revenue | | (4,771) | | | — | | | (4,771) | | | | | |
Total liabilities assumed | | (8,129) | | | (1,271) | | | (9,400) | | | | | |
Total net assets acquired, net of cash received | | $ | 67,941 | | | $ | 932 | | | $ | 68,873 | | | | | |
The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the enhancement of the Company's existing technologies and increase in future revenuesrevenue as a result of potential cross selling opportunities. The estimatedEstimated goodwill of $40.7 million is deductible for income tax purposes.
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Preliminary Estimate (in thousands) | | Estimated Useful Life in Years | | Amortization Method |
Proprietary technology | | $ | 3,000 | | | 5 | | Straight-line |
| | | | | | | | | | | | | | | | | | | | |
| | Preliminary Estimate | | Estimated Useful Life | | Amortization Method |
| | | | | | |
| | (in thousands) | | (in years) | | |
Customer lists | | $ | 14,000 | | | 14 - 16 | | Accelerated |
Proprietary technologies | | 9,500 | | | 6 | | Straight-line |
Trade names | | 3,000 | | | 6 - 7 | | Straight-line |
Total intangible assets acquired | | $ | 26,500 | | | | | |
The estimated fair values of certain of the assets acquired and liabilities assumed 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 procedures that 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 herein are subject to change and such changes could be significant. No measurement period adjustments were made during the three months ended March 31, 2023. The Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable, butthough no later than May 31,July 1, 2023.
The results of Redi2 are included in the condensed consolidated statements of operations beginning July 1, 2022 and are not considered material to the Company’s results of operations.
For the three months ended March 31, 2023, the Company’s acquisition related costs were not material, and are included in general and administrative expenses. The Company may incur additional acquisition related costs over the remainder of 2023.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The results of 401kplans.com's operations are included in the condensed consolidated statements of operations beginning May 31, 2022 and were not considered material to the Company’s results of operations.
For the three and six months ended June 30, 2022, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2022.
4.Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | June 30, | | December 31, | | March 31, | | December 31, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
| | | (in thousands) | | (in thousands) |
Prepaid technology | Prepaid technology | | $ | 20,928 | | | $ | 15,415 | | Prepaid technology | | $ | 20,657 | | | $ | 16,649 | |
Non-income tax receivables | | 5,703 | | | 7,013 | | |
Elevate Summit prepayments and deposits | | Elevate Summit prepayments and deposits | | 6,447 | | | 528 | |
Non-income tax receivable | | Non-income tax receivable | | 5,484 | | | 5,488 | |
Prepaid insurance | Prepaid insurance | | 5,004 | | | 2,234 | | Prepaid insurance | | 2,817 | | | 2,881 | |
Escrow for acquisition | | 2,951 | | | 2,951 | | |
Income tax prepayments and receivables | | Income tax prepayments and receivables | | — | | | 2,515 | |
| Other | Other | | 12,041 | | | 15,093 | | Other | | 11,986 | | | 13,302 | |
Total prepaid expenses and other current assets | Total prepaid expenses and other current assets | | $ | 46,627 | | | $ | 42,706 | | Total prepaid expenses and other current assets | | $ | 47,391 | | | $ | 41,363 | |
5.Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | | June 30, | | December 31, |
| | Estimated Useful Life | | 2022 | | 2021 |
| | | | | | |
| | | | (in thousands) |
Cost: | | | | | | |
Computer equipment and software | | 3 years | | $ | 72,638 | | | $ | 72,289 | |
Leasehold improvements | | Shorter of the lease term or useful life of the asset | | 36,707 | | | 43,544 | |
Leased data servers | | 3 years | | 15,108 | | | 590 | |
Office furniture and fixtures | | 3-7 years | | 10,789 | | | 12,214 | |
Office equipment and other | | 3-5 years | | 9,027 | | | 7,973 | |
Building and building improvements | | 7-39 years | | 2,729 | | | 2,729 | |
Land | | Not applicable | | 940 | | | 940 | |
| | | | 147,938 | | | 140,279 | |
Less: accumulated depreciation and amortization | | (86,546) | | | (90,064) | |
Total property and equipment, net | | $ | 61,392 | | | $ | 50,215 | |
During the six months ended June 30, 2022, the Company entered into an arrangement with a third party cloud service provider for the use of dedicated servers to migrate its infrastructure to the cloud. As the terms of the arrangement convey a finance lease under FASB Topic 842 - Leases (“ASC 842”), the Company accounts for those dedicated servers as leased assets when the lease term commences. The Company accounts for each lease and any non-lease components associated with that lease as a single lease component for all asset classes. The leased dedicated servers are presented as a component of property and equipment, net in the condensed consolidated balance sheets as of June 30, 2022. To take advantage of the favorable savings programs offered by the cloud service provider, the Company prepaid the lease payments and therefore does not have a lease liability recorded for the leased assets. Gross property and equipment under finance leases as of June 30, 2022 was $15.1 million with accumulated depreciation of $2.3 million. Finance lease activity as of and for the year ended December 31, 2021 was not material.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Office Closures
In April 2022, in response to changing needs and an increase in employees working remotely, the Company closed 3 offices in the United States. The Company is currently exploring alternative uses for these properties, including sublease options.
During the three and six months ended June 30, 2022, including the office closures, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $13.6 million and $16.5 million, respectively. Including the office closures, gains and losses on asset retirements were $3.7 million in the three and six months ended June 30, 2022 for the Envestnet Wealth Solutions segment. The Company also recognized $13.0 million of lease restructuring costs in the three and six months ended June 30, 2022 which are included in general and administration expense in the condensed consolidated statements of operations. Gains and losses on asset retirements during the three and six months ended June 30, 2022 were not material for the Envestnet Data & Analytics segment.
During the three and six months ended June 30, 2021, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $5.1 million and $7.8 million, respectively. During the three and six months ended June 30, 2021, the Company retired an immaterial amount of property and equipment that was no longer in service for the Envestnet Data & Analytics segment. Gains and losses on asset retirements during the three and six months ended June 30, 2021 were not material.
Depreciation and amortization expense was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Depreciation and amortization expense | | $ | 5,450 | | | $ | 5,246 | | | $ | 11,054 | | | $ | 10,889 | |
6.Internally Developed Software, net
Internally developed software, net consisted of the following:
| | | | | | June 30, | | December 31, | | | | | March 31, | | December 31, |
| | | Estimated Useful Life | | 2022 | | 2021 | | | Estimated Useful Life | | 2023 | | 2022 |
| | | (in thousands) | | (in thousands) |
Internally developed software | Internally developed software | | 5 years | | $ | 269,053 | | | $ | 225,380 | | Internally developed software | | 5 years | | $ | 336,607 | | | $ | 313,200 | |
Less: accumulated amortization | Less: accumulated amortization | | | | (109,302) | | | (91,721) | | Less: accumulated amortization | | | | (139,733) | | | (128,642) | |
Internally developed software, net | Internally developed software, net | | | | $ | 159,751 | | | $ | 133,659 | | Internally developed software, net | | | | $ | 196,874 | | | $ | 184,558 | |
Amortization expense was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Amortization expense | | $ | 9,087 | | | $ | 7,262 | | | $ | 17,581 | | | $ | 13,533 | |
6.Geographical Information
The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:
| | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| | 2023 | | 2022 |
| | | | |
| | (in thousands) |
United States | | $ | 258,263 | | | $ | 245,817 | |
India | | 2,705 | | | 1,093 | |
Other | | 50 | | | 91 | |
Total long-lived assets, net | | $ | 261,018 | | | $ | 247,001 | |
See “Note 14—Revenue and Direct Expense” for detail of revenue by geographic area.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
7.Goodwill and Intangible Assets, Net
Changes inIntangible assets, net consisted of the carrying amount of goodwill were as follows:following:
| | | | | | | | | | | | | | | | | | | | |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Total |
| | | | | | |
| | (in thousands) |
Balance at December 31, 2021 | | $ | 621,876 | | | $ | 303,278 | | | $ | 925,154 | |
401kplans.com acquisition | | 11,378 | | | — | | | 11,378 | |
Foreign currency translation | | — | | | (478) | | | (478) | |
Balance at June 30, 2022 | $ | 633,254 | | | $ | 302,800 | | | $ | 936,054 | |
Procurement of Technology Solutions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2023 | | December 31, 2022 |
| | | | Gross | | | | Net | | Gross | | | | Net |
| | | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying |
| | | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
| | | | | | | | | | | | | | |
| | | | (in thousands) |
Customer lists | | | | $ | 604,080 | | | $ | (295,976) | | | $ | 308,104 | | | $ | 604,080 | | | $ | (285,288) | | | $ | 318,792 | |
Proprietary technologies | | | | 109,057 | | | (46,894) | | | 62,163 | | | 113,224 | | | (59,401) | | | 53,823 | |
Trade names | | | | 15,700 | | | (8,912) | | | 6,788 | | | 15,700 | | | (8,320) | | | 7,380 | |
Total intangible assets | $ | 728,837 | | | $ | (351,782) | | | $ | 377,055 | | | $ | 733,004 | | | $ | (353,009) | | | $ | 379,995 | |
On June 21, 2021,April 1, 2022, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $18.0$9.0 million, including an advance of $3.0$4.0 million. The purchase agreement was amended in January 2023 to include additional functionality and features for additional consideration of $5.0 million. The Company closed the transaction and paid the remaining $15.0$10.0 million in February 2022.during the three months ended March 31, 2023. This proprietary technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an estimated useful life of five years. In addition, the agreement includes an earn-out payment of $10.0 million based upon the achievement of certain target metrics within five years after the date of the Company’s launch of the technology solutions. The parties have agreed to renegotiate the terms of the earn-out payment.
IntangibleDuring the three months ended March 31, 2023, the Company retired fully amortized proprietary technologies with a historical cost of $17.5 million. During the three months ended March 31, 2022, the Company had no material retirements of intangible assets.
Future amortization expense of the Company's intangible assets netas of March 31, 2023, is expected to be as follows (in thousands):
| | | | | | | | |
| | |
Remainder of 2023 | | $ | 45,947 | |
2024 | | 56,040 | |
2025 | | 52,700 | |
2026 | | 44,797 | |
2027 | | 36,232 | |
Thereafter | | 141,339 | |
Total | | $ | 377,055 | |
8.Depreciation and Amortization Expense
Depreciation and amortization expense consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | June 30, 2022 | | December 31, 2021 |
| | | | Gross | | | | Net | | Gross | | | | Net |
| | | | Carrying | | Accumulated | | Carrying | | Carrying | | Accumulated | | Carrying |
| | | | Amount | | Amortization | | Amount | | Amount | | Amortization | | Amount |
| | | | | | | | | | | | | | |
| | | | (in thousands) |
Customer lists | | | | $ | 590,080 | | | $ | (263,212) | | | $ | 326,868 | | | $ | 590,080 | | | $ | (241,189) | | | $ | 348,891 | |
Proprietary technologies | | | | 106,324 | | | (53,682) | | | 52,642 | | | 85,324 | | | (43,004) | | | 42,320 | |
Trade names | | | | 33,700 | | | (26,979) | | | 6,721 | | | 33,700 | | | (24,515) | | | 9,185 | |
Total intangible assets | $ | 730,104 | | | $ | (343,873) | | | $ | 386,231 | | | $ | 709,104 | | | $ | (308,708) | | | $ | 400,396 | |
There were no material retirements of intangible assets during the three and six months ended June 30, 2022 and 2021.
Amortization expense was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Amortization expense | | $ | 17,645 | | | $ | 17,502 | | | $ | 35,165 | | | $ | 33,980 | |
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31, |
| | 2023 | | 2022 |
| | | | |
| | (in thousands) |
Intangible asset amortization | | $ | 16,940 | | | $ | 17,520 | |
Internally developed software amortization | | 11,090 | | | 8,494 | |
Property and equipment depreciation | | 4,911 | | | 5,604 | |
Total depreciation and amortization | | $ | 32,941 | | | $ | 31,618 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
8.9.Goodwill
Changes in the carrying amount of goodwill by reportable segment were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Total |
| | | | | | |
| | (in thousands) |
Balance as of December 31, 2022 | | $ | 679,739 | | | $ | 318,675 | | | $ | 998,414 | |
| | | | | | |
| | | | | | |
| | | | | | |
Foreign currency translation | | — | | | 14 | | | 14 | |
Balance as of March 31, 2023 | $ | 679,739 | | | $ | 318,689 | | | $ | 998,428 | |
10.Other Assets
On January 31, 2023, the Company entered into a Convertible Promissory Note with a customer of the Company's business, a privately held company, whereby the Company was issued a convertible promissory note with a principal amount of $20.0 million and a stated interest rate of 8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified financing events or corporate transactions.
In connection with the Convertible Promissory Note, the Company concurrently entered into a call option agreement with the privately held company, which provides the Company an option to acquire the privately held company at a predetermined price as of the earlier of July 2024 or upon satisfaction of certain financial metrics.
The Company accounts for this loan receivable in accordance with ASC 310 - Receivables as it is not a security and includes it in other assets in the condensed consolidated balance sheets. Credit impairment is measured as the difference between this loan receivable’s amortized cost and its estimated recoverable value, which is the present value of its expected future cash flows discounted at the effective interest rate. There was no impairment for this investment for the three months ended March 31, 2023.
11.Accounts Payable, Accrued Expenses and Other Current Liabilities
AccruedAccounts payable, accrued expenses and other liabilities consisted of the following:
| | | June 30, | | December 31, | | March 31, | | December 31, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
| | | (in thousands) | | (in thousands) |
Accrued investment manager fees | Accrued investment manager fees | | $ | 97,052 | | | $ | 95,858 | | Accrued investment manager fees | | $ | 98,419 | | | $ | 99,851 | |
Accrued compensation and related taxes | Accrued compensation and related taxes | | 67,761 | | | 97,523 | | Accrued compensation and related taxes | | 42,120 | | | 77,939 | |
Accrued professional services | | Accrued professional services | | 14,188 | | | 10,762 | |
Accounts payable | | Accounts payable | | 9,605 | | | 11,271 | |
Income tax payable | | Income tax payable | | 9,459 | | | 260 | |
Accrued capital expenditures | | Accrued capital expenditures | | 6,359 | | | 4,783 | |
Accrued interest | | Accrued interest | | 6,147 | | | 3,091 | |
Accrued technology | | Accrued technology | | 5,179 | | | 6,393 | |
| Accrued professional services | | 8,894 | | | 7,746 | | |
Accrued technology | | 6,667 | | | 8,951 | | |
Non-income tax payables | | 4,053 | | | 4,907 | | |
Accrued treasury stock purchases | | Accrued treasury stock purchases | | — | | | 9,289 | |
| Other accrued expenses | Other accrued expenses | | 13,803 | | | 10,174 | | Other accrued expenses | | 4,507 | | | 10,227 | |
Total accrued expenses and other liabilities | | $ | 198,230 | | | $ | 225,159 | | |
Total accounts payable, accrued expenses and other current liabilities | | Total accounts payable, accrued expenses and other current liabilities | | $ | 195,983 | | | $ | 233,866 | |
9.Debt
The Company’s outstanding debt obligations as of June 30, 2022 and December 31, 2021 were as follows:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
Revolving credit facility balance | | $ | — | | | $ | — | |
| | | | |
Convertible Notes due 2023 | | $ | 345,000 | | | $ | 345,000 | |
Unamortized issuance costs on Convertible Notes due 2023 | | (1,943) | | | (2,979) | |
| | | | |
Convertible Notes due 2023 carrying value | | $ | 343,057 | | | $ | 342,021 | |
| | | | |
Convertible Notes due 2025 | | $ | 517,500 | | | $ | 517,500 | |
Unamortized issuance costs on Convertible Notes due 2025 | | (9,218) | | | (10,659) | |
| | | | |
Convertible Notes due 2025 carrying value | | $ | 508,282 | | | $ | 506,841 | |
Third Credit Agreement
On February 4, 2022, the Company entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”) with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The Third Credit Agreement amends and restates, in its entirety, the Company's prior credit agreement. In connection with entering into the Third Credit Agreement, the Company capitalized an additional $1.9 million of deferred financing charges to Other non-current assets on the condensed consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges to Other expense, net on the condensed consolidated statements of operations.
Pursuant to the Third Credit Agreement, the Banks have agreed to provide the Company with a revolving credit facility of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-facility for the issuances of letters of credit. As of June 30, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.
Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions. Proceeds under the Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions and for working capital and general corporate purposes.
In the event the Company has borrowings under the Third Credit Agreement, at the Company's option, it will pay interest on these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin ranging from 1.25% to
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
2.75% per annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Credit Agreement. Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.12.Debt
AsThe following tables set forth the carrying value and estimated fair value of June 30, 2022,the Company's debt issuance costs related to the Third obligations as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Issuance Amount | | Unamortized Issuance Costs | | Carrying Value | | Fair Value (Level II) |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Third Credit Agreement | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Convertible Notes due 2023 | 45,000 | | | (46) | | | 44,954 | | | 44,168 | |
Convertible Notes due 2025 | 317,500 | | | (4,318) | | | 313,182 | | | 284,220 | |
Convertible Notes due 2027 | 575,000 | | | (15,214) | | | 559,786 | | | 598,270 | |
Total debt | $ | 937,500 | | | $ | (19,578) | | | $ | 917,922 | | | $ | 926,658 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Issuance Amount | | Unamortized Issuance Costs | | Carrying Value | | Fair Value (Level II) |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Third Credit Agreement | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Convertible Notes due 2023 | 45,000 | | | (114) | | | 44,886 | | | 46,058 | |
Convertible Notes due 2025 | 317,500 | | | (4,765) | | | 312,735 | | | 293,688 | |
Convertible Notes due 2027 | 575,000 | | | (15,966) | | | 559,034 | | | 606,119 | |
Total debt | $ | 937,500 | | | $ | (20,845) | | | $ | 916,655 | | | $ | 945,865 | |
Credit Agreement are presented in prepaid expenses and other non-current assets in the condensed consolidated balance sheets which have outstanding amounts of $0.7 million and $2.5 million, respectively.
The Third Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio and a minimum interest coverage ratio and a minimum liquidity covenant.ratio. The Company was in compliance with these financial covenants as of June 30, 2022.March 31, 2023.
As of June 30,March 31, 2023 and December 31, 2022, the Company had all $500.0 million available to borrowthere were no amounts outstanding under the Revolving Credit Facility subjectand as of March 31, 2023 all $500.0 million was available to covenant compliance.
Convertible Notes dueborrow. As of March 31, 2023
In May 2018, the Company issued $345.0 million 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. The Convertible Notes due 2023 are general unsecured obligations, subordinated in right of payment31, 2022, debt issuance costs related to the Company's obligations under itsThird Credit Agreement.
The effective interest rate ofAgreement included in prepaid expense and other current assets in the Convertible Notes due 2023condensed consolidated balance sheets was approximately 2.4% for$0.7 million and $0.7 million, respectively and included in other assets in the threecondensed consolidated balance sheets was $2.0 million and six months ended June 30, 2022 and 2021. The effective interest rate of the Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance costs.
Convertible Notes due 2025
In August 2020, the Company issued $517.5$2.2 million, of Convertible Notes due 2025 that mature on August 15, 2025. The Convertible Notes due 2025 bear interest at a rate of 0.75% per annum payable semiannually in arrears on February 15 and August 15 of each year. The Convertible Notes due 2025 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.
The effective interest rate of the Convertible Notes due 2025 was approximately 1.3% for the three and six months ended June 30, 2022 and 2021. The effective interest rate of the Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance costs.respectively.
Interest Expense
Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Coupon interest | | $ | 2,480 | | | $ | 2,480 | | | $ | 4,960 | | | $ | 4,960 | |
Amortization of issuance costs | | 1,415 | | | 1,429 | | | 3,474 | | | 2,852 | |
Undrawn and other fees | | 317 | | | 316 | | | 631 | | | 628 | |
| | | | | | | | |
| | | | | | | | |
Total interest expense | | $ | 4,212 | | | $ | 4,225 | | | $ | 9,065 | | | $ | 8,440 | |
For each of the three months ended June 30, 2022 and 2021, total interest expense related to the Convertible Notes due 2023 and the Convertible Notes due 2025 (collectively, the "Convertible Notes") was $3.7 million with coupon interest expense of $2.5 million and amortization of debt discount and issuance costs of $1.2 million.
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Coupon interest | | | | | | $ | 4,565 | | | $ | 2,480 | |
Amortization of debt discount and issuance costs | | | | | | 1,442 | | | 2,060 | |
Undrawn and other fees | | | | | | 313 | | | 313 | |
| | | | | | | | |
| | | | | | | | |
Total interest expense | | | | | | $ | 6,320 | | | $ | 4,853 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
For eachThe effective interest rate of the six months ended June 30, 2022 and 2021, total interest expense relatedNotes was equal to the Convertible Notes was $7.4 million with couponstated interest expense of $5.0 million andrate plus the amortization of the debt discount and issuance costs of $2.4 million.and is set forth below:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
Convertible Notes due 2023 | | | | | | 2.4 | % | | 2.4 | % |
Convertible Notes due 2025 | | | | | | 1.3 | % | | 1.3 | % |
Convertible Notes due 2027 | | | | | | 3.2 | % | | N/A |
| | | | | | | | |
| | | | | | | | |
10.13.Fair Value Measurements
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, 2022March 31, 2023 and December 31, 2021,2022, based on the three-tier fair value hierarchy, as defineddescribed in ASC 820, “Fair Value Measurements and Disclosures”:detail within the Company's Annual Report on Form 10-K:
| | | | June 30, 2022 | | | March 31, 2023 |
| | | Fair Value | | Level I | | Level II | | Level III | | | Fair Value | | Level I | | Level II | | Level III |
| | | (in thousands) | | (in thousands) |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Money market funds | Money market funds | | $ | 1,819 | | | $ | 1,819 | | | $ | — | | | $ | — | | Money market funds | | $ | 2,118 | | | $ | 2,118 | | | $ | — | | | $ | — | |
| Assets to fund deferred compensation liability | Assets to fund deferred compensation liability | | 10,107 | | | — | | | — | | | 10,107 | | Assets to fund deferred compensation liability | | 10,380 | | | — | | | — | | | 10,380 | |
Total assets | Total assets | | $ | 11,926 | | | $ | 1,819 | | | $ | — | | | $ | 10,107 | | Total assets | | $ | 12,498 | | | $ | 2,118 | | | $ | — | | | $ | 10,380 | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
| Deferred compensation liability | Deferred compensation liability | | 7,947 | | | 7,947 | | | — | | | — | | Deferred compensation liability | | 8,667 | | | 8,667 | | | — | | | — | |
Total liabilities | Total liabilities | | $ | 7,947 | | | $ | 7,947 | | | $ | — | | | $ | — | | Total liabilities | | $ | 8,667 | | | $ | 8,667 | | | $ | — | | | $ | — | |
| | | | December 31, 2021 | | | December 31, 2022 |
| | | Fair Value | | Level I | | Level II | | Level III | | | Fair Value | | Level I | | Level II | | Level III |
| | | (in thousands) | | (in thousands) |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Money market funds | Money market funds | | $ | 2,684 | | | $ | 2,684 | | | $ | — | | | $ | — | | Money market funds | | $ | 2,628 | | | $ | 2,628 | | | $ | — | | | $ | — | |
Assets to fund deferred compensation liability | Assets to fund deferred compensation liability | | 11,140 | | | — | | | — | | | 11,140 | | Assets to fund deferred compensation liability | | 10,074 | | | — | | | — | | | 10,074 | |
Total assets | Total assets | | $ | 13,824 | | | $ | 2,684 | | | $ | — | | | $ | 11,140 | | Total assets | | $ | 12,702 | | | $ | 2,628 | | | $ | — | | | $ | 10,074 | |
Liabilities: | Liabilities: | | | | | | | | | Liabilities: | | | | | | | | |
Contingent consideration | | $ | 743 | | | $ | — | | | $ | — | | | $ | 743 | | |
| Deferred compensation liability | Deferred compensation liability | | 10,418 | | | 10,418 | | | — | | | — | | Deferred compensation liability | | 8,088 | | | 8,088 | | | — | | | — | |
Total liabilities | Total liabilities | | $ | 11,161 | | | $ | 10,418 | | | $ | — | | | $ | 743 | | Total liabilities | | $ | 8,088 | | | $ | 8,088 | | | $ | — | | | $ | — | |
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 when changes in circumstances 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 three and six months ended June 30, 2022March 31, 2023 and 2021.
Fair Value of Contingent Consideration Liabilities
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. The significant inputs in the Company's Level III fair value measurement not supported by market activity included its assessments of expected future cash flows related to these acquisitions and their ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in accordance with the terms of their respective agreements.
The Company will continue to reassess the fair values of the contingent consideration liabilities at each reporting date until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations. The Company had contingent consideration liabilities of $0.7 million as of December 31, 2021 which were recorded as a component of Accrued expenses and other liabilities on the condensed consolidated balance sheets. The Company had no contingent consideration liabilities as of June 30, 2022.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Fair Value of Assets Used to Fund the Deferred Compensation Liability
The table below presents a reconciliation of the assets used to fund 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, 20212022 to June 30, 2022:March 31, 2023:
| | | | | | | | |
| | Fair Value of Assets Used to Fund Deferred Compensation Liability |
| | |
| | (in thousands) |
Balance atas of December 31, 20212022 | | $ | 11,14010,074 | |
Contributions | | 649 | |
Fair value adjustments and fees | | (1,682)306 | |
Balance at June 30, 2022as of March 31, 2023 | | $ | 10,10710,380 | |
The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which are included in other non-current assets in the condensed consolidated balance sheets, decreasedincreased due to net lossesgains on the underlying investment vehicles, partially offset by additional funding.vehicles. These lossesgains are recognized in the Company's earnings and included in general and administrationadministrative expenses in the condensed consolidated statements of operations.
Fair Value of Debt Agreements
The Company considered its Convertible Notes to be Level II liabilities at June 30,as of March 31, 2023 and December 31, 2022, and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on June 30, 2022 (See “Note 9—Debt”).
As of June 30, 2022March 31, 2023 and December 31, 2021, the carrying value of the Convertible Notes due 2023 equaled $343.1 million and $342.0 million,2022, respectively and represented the aggregate principal amount outstanding less the debt issuance costs. As of June 30, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2023 was $349.8 million and $439.9 million, respectively.
As of June 30, 2022 and December 31, 2021, the carrying value of the Convertible Notes due 2025 equaled $508.3 million and $506.8 million, respectively, and represented the aggregate principal amount outstanding less the debt issuance costs. As of June 30, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2025 was $451.5 million and $526.1 million, respectively.(See “Note 12—Debt”).
Fair Value of Other Financial Assets and Liabilities
The Company considered the recorded value of its 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, 2022as of March 31, 2023 and December 31, 20212022, based upon the short-term nature of these assets and liabilities.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
11.14.RevenuesRevenue and Cost of RevenuesDirect Expense
Disaggregation of Revenue
The following table presents the Company’s revenuesrevenue by segment disaggregated by major source:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2022 |
| | 2022 | | 2021 |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated |
| | | | | | | | | | | | |
| | (in thousands) |
Revenues: | | | | | | | | | | | | |
Asset-based | | $ | 191,972 | | | $ | — | | | $ | 191,972 | | | $ | 170,075 | | | $ | — | | | $ | 170,075 | |
Subscription-based | | 73,568 | | | 44,552 | | | 118,120 | | | 66,663 | | | 45,841 | | | 112,504 | |
Total recurring revenues | | 265,540 | | | 44,552 | | | 310,092 | | | 236,738 | | | 45,841 | | | 282,579 | |
Professional services and other revenues | | 6,460 | | | 2,300 | | | 8,760 | | | 3,559 | | | 2,600 | | | 6,159 | |
Total revenues | | $ | 272,000 | | | $ | 46,852 | | | $ | 318,852 | | | $ | 240,297 | | | $ | 48,441 | | | $ | 288,738 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2022 | | 2021 |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated |
| | | | | | | | | | | | |
| | (in thousands) |
Revenues: | | | | | | | | | | | | |
Asset-based | | $ | 394,689 | | | $ | — | | | $ | 394,689 | | | $ | 329,450 | | | $ | — | | | $ | 329,450 | |
Subscription-based | | 142,105 | | | 90,749 | | | 232,854 | | | 130,675 | | | 91,658 | | | 222,333 | |
Total recurring revenues | | 536,794 | | | 90,749 | | | 627,543 | | | 460,125 | | | 91,658 | | | 551,783 | |
Professional services and other revenues | | 8,774 | | | 3,898 | | | 12,672 | | | 6,582 | | | 5,478 | | | 12,060 | |
Total revenues | | $ | 545,568 | | | $ | 94,647 | | | $ | 640,215 | | | $ | 466,707 | | | $ | 97,136 | | | $ | 563,843 | |
The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
United States | | $ | 314,271 | | | $ | 283,589 | | | $ | 631,000 | | | $ | 553,661 | |
International | | 4,581 | | | 5,149 | | | 9,215 | | | 10,182 | |
Total revenues | | $ | 318,852 | | | $ | 288,738 | | | $ | 640,215 | | | $ | 563,843 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2023 | | 2022 |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Consolidated |
| | | | | | | | | | | | |
| | (in thousands) |
Revenue: | | | | | | | | | | | | |
Asset-based | | $ | 176,932 | | | $ | — | | | $ | 176,932 | | | $ | 202,717 | | | $ | — | | | $ | 202,717 | |
Subscription-based | | 76,485 | | | 40,594 | | | 117,079 | | | 68,537 | | | 46,197 | | | 114,734 | |
Total recurring revenue | | 253,417 | | | 40,594 | | | 294,011 | | | 271,254 | | | 46,197 | | | 317,451 | |
Professional services and other revenue | | 3,243 | | | 1,453 | | | 4,696 | | | 2,314 | | | 1,598 | | | 3,912 | |
Total revenue | | $ | 256,660 | | | $ | 42,047 | | | $ | 298,707 | | | $ | 273,568 | | | $ | 47,795 | | | $ | 321,363 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table presents the Company’s revenue disaggregated by geography, based on the billing address of the customer:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
United States | | | | | | $ | 293,214 | | | $ | 316,729 | |
International | | | | | | 5,493 | | | 4,634 | |
Total revenue | | | | | | $ | 298,707 | | | $ | 321,363 | |
Remaining Performance Obligations
The following table includesAs of March 31, 2023, the Company's estimated revenue expected to be recognized in the future asrelated to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $527.0 million. We expect to recognize approximately 35% of June 30, 2022:
| | | | | | | | |
Years ending December 31, | | (in thousands) |
Remainder of 2022 | | $ | 137,741 | |
2023 | | 196,180 | |
2024 | | 114,774 | |
2025 | | 67,070 | |
2026 | | 35,991 | |
Thereafter | | 8,228 | |
Total | | $ | 559,984 | |
Thethis revenue during the remainder of 2023, with the balance recognized thereafter. These remaining performance obligations disclosed above are not indicative of revenue for future periods.
Remaining performance obligations represent the transaction price allocated to unsatisfied or partially satisfied performance obligations. The disclosure includes estimates of variable consideration. The Company applies the practical expedients and exemption not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligations or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
Contract Balances
Total deferred revenue as of June 30, 2022March 31, 2023 increased by $4.3$8.1 million from December 31, 2021,2022, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of the 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 $10.2$16.8 million and $9.5$15.9 million for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. The amount of revenue recognized that was included in the opening deferred revenue balance was $26.1 million and $26.3 million for the six months ended June 30, 2022 and 2021, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.
Deferred Sales Incentive Compensation
Deferred sales incentive compensation was $11.4$11.3 million and $11.8$11.0 million as of June 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Amortization expense for the deferred sales incentive compensation was $1.1 million for each of the three months ended June 30, 2022March 31, 2023 and 2021. Amortization expense for the deferred sales incentive compensation was $2.2 million and $2.1 million for the six months ended June 30, 2022 and 2021. Deferred sales incentive compensation is included in other non-current assets on the condensed consolidated balance sheets and amortization expense is included in compensation and benefits expenses on the condensed consolidated statements of operations.2022. No significant impairment loss for capitalized costs was recorded during the periods.three months ended March 31, 2023 and 2022.
Direct Expense
The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as anfollowing table summarizes direct expense when incurred if the amortization period would have been one year or less. These costs are included in compensation and benefits expenses in the condensed consolidated statements of operations.by revenue category:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Asset-based | | | | | | $ | 102,623 | | | $ | 117,428 | |
Subscription-based | | | | | | 6,362 | | | 7,811 | |
Professional services and other | | | | | | 4 | | | 43 | |
Total direct expense | | | | | | $ | 108,989 | | | $ | 125,282 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Cost of Revenues
The following table summarizes cost of revenues by revenue category:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Asset-based | | $ | 112,301 | | | $ | 93,341 | | | $ | 229,729 | | | $ | 179,531 | |
Subscription-based | | 7,241 | | | 7,027 | | | 15,052 | | | 13,631 | |
Professional services and other | | 6,940 | | | 126 | | | 6,983 | | | 201 | |
Total cost of revenues | | $ | 126,482 | | | $ | 100,494 | | | $ | 251,764 | | | $ | 193,363 | |
12.15.Stock-Based Compensation
The Company has stock options, restricted stock units (“RSUs”)RSUs and performance stock units (“PSUs”)PSUs outstanding under the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (the “2019 Equity Plan”).
Plan. As of June 30, 2022,March 31, 2023, the maximum number of common shares available for future issuance under the Company’sCompany's plans is 2,537,157.1,564,414.
Stock-based compensation expense under the Company’s plans was as follows:
| | | | Three Months Ended | | Six Months Ended | | | | Three Months Ended |
| | | June 30, | | June 30, | | | | March 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 |
| | | (in thousands) | | | (in thousands) |
Stock-based compensation expense | Stock-based compensation expense | | $ | 22,876 | | | $ | 17,409 | | | $ | 44,566 | | | $ | 31,422 | | Stock-based compensation expense | | | $ | 19,453 | | | $ | 21,690 | |
Tax effect on stock-based compensation expense | Tax effect on stock-based compensation expense | | (5,833) | | | (4,439) | | | (11,364) | | | (8,013) | | Tax effect on stock-based compensation expense | | | (4,961) | | | (5,531) | |
Net effect on income | Net effect on income | | $ | 17,043 | | | $ | 12,970 | | | $ | 33,202 | | | $ | 23,409 | | Net effect on income | | | $ | 14,492 | | | $ | 16,159 | |
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the three and six months ended June 30, 2022March 31, 2023 and 2021.2022.
Stock Options
The Company did not grant any stock options in the three and six months ended June 30, 2021 or 2022. 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 |
| | | | | | | | (in thousands) |
Outstanding as of December 31, 2021 | | 365,241 | | | $ | 38.61 | | | 3.3 | | $ | 14,878 | |
| | | | | | | | |
Exercised | | (41,184) | | | 18.04 | | | | | |
Forfeited | | (4,472) | | | 74.83 | | | | | |
Outstanding as of June 30, 2022 | | 319,585 | | | 40.75 | | | 2.4 | | 3,888 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Options exercisable | | 319,276 | | | $ | 40.72 | | | 2.4 | | $ | 3,888 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-Average | | |
| | | | Weighted- | | Remaining | | |
| | | | Average | | Contractual Life | | Aggregate |
| | Options | | Exercise Price | | (Years) | | Intrinsic Value |
| | | | | | | | |
| | | | | | | | (in thousands) |
Outstanding as of December 31, 2022 | | 277,535 | | $ | 40.07 | | | 2.2 | | $ | 6,005 | |
| | | | | | | | |
Exercised | | (37,454) | | $ | 15.34 | | | | | |
| | | | | | | | |
Outstanding as of March 31, 2023 | | 240,081 | | $ | 43.93 | | | 2.2 | | $ | 3,542 | |
Options exercisable as of March 31, 2023 | | 239,849 | | $ | 43.90 | | | 2.2 | | $ | 3,542 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Exercise pricesAs of stock options outstanding as of June 30, 2022 range from $15.34 to $74.83. At June 30, 2022,March 31, 2023, there was an immaterial amount of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 1.10.3 years.
Restricted Stock Units and Performance Stock Units
The following table summarizes RSU and PSU activity under the Company’s plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RSUs | | PSUs |
| | Number of Shares | | Weighted- Average Grant Date Fair Value per Share | | Number of Shares | | Weighted- Average Grant Date Fair Value per Share |
| | | | | | | | |
Non-vested as of December 31, 2022 | | 1,681,976 | | | $ | 72.69 | | | 259,049 | | | $ | 74.83 | |
Granted | | 1,089,706 | | | $ | 62.51 | | | 40,010 | | | $ | 69.47 | |
Vested | | (502,322) | | | $ | 74.09 | | | (21,994) | | | $ | 81.25 | |
Forfeited | | (65,397) | | | $ | 71.96 | | | (49,712) | | | $ | 75.18 | |
Non-vested as of March 31, 2023 | | 2,203,963 | | | $ | 67.35 | | | 227,353 | | | $ | 73.19 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
As of March 31, 2023, there was $134.8 million of unrecognized stock-based compensation expense related to RSUs, which the Company expects to recognize over a weighted-average period of 2.1 years. As of March 31, 2023, there was $7.8 million of unrecognized stock-based compensation expense related to PSUs, which the Company expects to recognize over a weighted-average period of 1.4 years.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Restricted Stock Units
The Company has granted restricted stock units and performance-based stock units to employees that are unvested. Performance-based stock units 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 stock units provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 0% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.
The following is a summary of the activity for unvested restricted stock units and performance stock units granted under the Company’s plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RSUs | | PSUs |
| | 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, 2021 | | 1,507,424 | | | $ | 71.50 | | | 359,184 | | | $ | 73.64 | |
Granted | | 1,301,073 | | | 74.49 | | | 113,269 | | | 69.67 | |
Vested | | (618,310) | | | 70.52 | | | (128,337) | | | 65.81 | |
Forfeited | | (176,727) | | | 73.01 | | | (57,987) | | | 77.53 | |
Outstanding as of June 30, 2022 | | 2,013,460 | | | 73.60 | | | 286,129 | | | 74.79 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
At June 30, 2022, there was $129.2 million of unrecognized stock-based compensation expense related to unvested restricted stock units, which the Company expects to recognize over a weighted-average period of 2.1 years. At June 30, 2022, there was $11.0 million of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units, which the Company expects to recognize over a weighted-average period of 1.9 years.
13.16. Income Taxes
The following table includes the Company’s income (loss)loss before income tax provision, income tax provision and effective tax rate:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands, except for effective tax rate) |
Income (loss) before income tax provision (benefit) | | $ | (30,101) | | | $ | 7,147 | | | $ | (42,789) | | | $ | 16,494 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | |
Effective tax rate | | 19.4 | % | | 217.1 | % | | 8.9 | % | | 60.2 | % |
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | |
| | March 31, | | |
| | 2023 | | 2022 | | | | |
| | | | | | | | |
| | (in thousands, except for effective tax rate) |
Loss before income tax provision | | $ | (18,992) | | | $ | (12,688) | | | | | |
Income tax provision | | $ | 23,769 | | | $ | 2,020 | | | | | |
Effective tax rate | | (125.2) | % | | (15.9) | % | | | | |
Under ASC 740-270-25, the Company is required to report income tax expense by applying a projected annual effective tax rate ("AETR")AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate ("ETR")ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the three months and six months ended June 30, 2022 and 2021, the Company's ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.
For the three and six months ended June 30,March 31, 2023, 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 U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.
For the three months ended March 31, 2022, the Company’sCompany'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 U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D")&D credits and the partial reserve release of an uncertain tax position due to the expiration of a statute of limitations.windfall from stock-based compensation.
ForInflation Reduction Act of 2022
On August 16, 2022, the threeU.S. enacted the IRA, which, among other things, implements a 15% minimum tax on book income of certain large corporations and six months ended June 30, 2021,a 1% excise tax on net stock repurchases. The provisions of the Company'sIRA became effective tax rate differedbeginning in 2023. The Company does not anticipate a material impact on the consolidated financial statements.
17.Net Loss Per Share
Securities that were anti-dilutive and therefore excluded from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portioncomputation of its U.S. deferred tax assets,diluted net lossper share were as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Options to purchase common stock | | | | | | 240,081 | | | 326,300 | |
Non-vested RSUs and PSUs | | | | | | 2,431,316 | | | 2,641,362 | |
Convertible Notes | | | | | | 11,470,645 | | | 9,898,549 | |
Warrants | | | | | | — | | | 470,000 | |
Total anti-dilutive securities | | | | | | 14,142,042 | | | 13,336,211 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
including the valuation allowance impact of the acquisition of Harvest Savings & Wealth Technologies in April 2021, permanent book-tax differences and the impact of state and local taxes offset by federal and state R&D credits.
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 and restricted stock units and convertible notes, if dilutive, using either the treasury method or if-converted method as appropriate.
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, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands, except share and per share data) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Net income (loss) attributable to Envestnet, Inc. (a) | | $ | (23,285) | | | $ | (8,281) | | | $ | (37,144) | | | $ | 6,665 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted-average common shares outstanding: | | | | | | | | |
Basic (b) | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 54,325,353 | |
Effect of dilutive shares: | | | | | | | | |
Options to purchase common stock | | — | | | — | | | — | | | 210,381 | |
Unvested restricted stock units | | — | | | — | | | — | | | 536,186 | |
| | | | | | | | |
Warrants | | — | | | — | | | — | | | 65,026 | |
Diluted (c) | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 55,136,946 | |
| | | | | | | | |
Net income (loss) per share attributable to Envestnet, Inc common stock: | | | | | | | | |
Basic (a/b) | | $ | (0.42) | | | $ | (0.15) | | | $ | (0.67) | | | $ | 0.12 | |
Diluted (a/c) | | $ | (0.42) | | | $ | (0.15) | | | $ | (0.67) | | | $ | 0.12 | |
Securities that were anti-dilutive and therefore excluded from the computation of diluted net income (loss)per share were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | (in thousands) |
Options to purchase common stock | | 319,585 | | | 405,638 | | | 319,585 | | | — | |
Unvested RSUs and PSUs | | 2,299,589 | | | 2,161,056 | | | 2,299,589 | | | 39,652 | |
Warrants | | 470,000 | | | 470,000 | | | 470,000 | | | — | |
Convertible Notes | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | |
Total anti-dilutive securities | | 12,987,723 | | | 12,935,243 | | | 12,987,723 | | | 9,938,201 | |
15.18.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 to enable them to deliver an intelligent financial life to their clients.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
•Envestnet Data & Analytics – a leading data aggregation, intelligence, and experiences platform that powers data connectivity and business intelligence across digital financial services to enable them to deliver an Intelligent Financial Lifeintelligent financial life to their clients.
The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment operating expenses may include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses. Intersegment revenues wererevenue was not material for the three and six months ended June 30, 2022March 31, 2023 and 2021.2022.
See “Note 11—Revenues14—Revenue and Cost of Revenues”Direct Expense” for detail of revenuesrevenue by segment.
The following table presents a reconciliation from net income (loss) from operations by segment to consolidated net income (loss)loss attributable to Envestnet, Inc.:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Envestnet Wealth Solutions | | $ | 3,968 | | | $ | 32,459 | | | $ | 29,237 | | | $ | 66,656 | |
Envestnet Data & Analytics | | (3,705) | | | 1,342 | | | (9,292) | | | 2,631 | |
Nonsegment operating expenses | | (31,986) | | | (22,870) | | | (58,389) | | | (41,541) | |
Income (loss) from operations | | (31,723) | | | 10,931 | | | (38,444) | | | 27,746 | |
Other income (expense), net | | 1,622 | | | (3,784) | | | (4,345) | | | (11,252) | |
Consolidated income (loss) before income tax benefit | | (30,101) | | | 7,147 | | | (42,789) | | | 16,494 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | |
Consolidated net income (loss) | | (24,268) | | | (8,369) | | | (38,976) | | | 6,566 | |
Add: Net loss attributable to non-controlling interest | | 983 | | | 88 | | | 1,832 | | | 99 | |
Consolidated net income (loss) attributable to Envestnet, Inc. | | $ | (23,285) | | | $ | (8,281) | | | $ | (37,144) | | | $ | 6,665 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Envestnet Wealth Solutions | | | | | | $ | 23,463 | | | $ | 25,269 | |
Envestnet Data & Analytics | | | | | | (7,780) | | | (5,587) | |
Nonsegment operating expenses | | | | | | (26,740) | | | (26,403) | |
Loss from operations | | | | | | (11,057) | | | (6,721) | |
Other expense, net | | | | | | (7,935) | | | (5,967) | |
Consolidated loss before income tax provision | | | | | | (18,992) | | | (12,688) | |
Income tax provision | | | | | | 23,769 | | | 2,020 | |
Consolidated net loss | | | | | | (42,761) | | | (14,708) | |
Add: Net loss attributable to non-controlling interest | | | | | | 1,533 | | | 849 | |
Consolidated net loss attributable to Envestnet, Inc. | | | | | | $ | (41,228) | | | $ | (13,859) | |
AThe following table presents a summary of consolidated total assets follows:
| | | | | | | | | | | | | | |
| | June 30, | | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
Envestnet Wealth Solutions | | $ | 1,615,651 | | | $ | 1,720,779 | |
Envestnet Data & Analytics | | 571,749 | | | 520,403 | |
Consolidated total assets | | $ | 2,187,400 | | | $ | 2,241,182 | |
by segment:
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, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands) |
United States | | $ | 218,397 | | | $ | 180,680 | |
India | | 2,571 | | | 2,923 | |
Other | | 175 | | | 271 | |
Total long-lived assets, net | | $ | 221,143 | | | $ | 183,874 | |
See “Note 11—Revenues and Cost of Revenues” for detail of revenues by geographic area. | | | | | | | | | | | | | | |
| | March 31, | | December 31, |
| | 2023 | | 2022 |
| | | | |
| | (in thousands) |
Envestnet Wealth Solutions | | $ | 1,477,230 | | | $ | 1,503,646 | |
Envestnet Data & Analytics | | 579,227 | | | 608,519 | |
Consolidated total assets | | $ | 2,056,457 | | | $ | 2,112,165 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
17.19.Commitments and Contingencies
Purchase Obligations and Indemnifications
The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability 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.
Procurement of Technology Solutions
On April 1, 2022, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $9.0 million, including an advance of $4.0 million. This advance is included in other non-current assets in the condensed consolidated balance sheets.
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.
On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.
On October 30, 2019, the Company and Yodlee filed counterclaims 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. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps’s claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps’s claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery is underway.concluded on September 30, 2022. The parties’ respective summary judgment and motions to exclude the presentation of expert testimony (a “Daubert Motion”) are fully briefed and awaiting ruling.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company believes FinancialApps’s allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.
The Company and Yodlee were also named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an amended class action complaint was filed by Plaintiff Wesch and 9nine additional named plaintiffs. The case caption is Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK. Plaintiffs allege that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s API, and
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleges violations of certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present. The Company believes that it is not properly named as a defendant in the lawsuit and it further believes, along with Yodlee, that plaintiffs’ claims are without merit. On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The Court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the Court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and 2two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. Discovery continues on the remaining state law claims against Yodlee. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, which has been fully briefed. Oral argument is schedulednarrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court granted Yodlee’s motion for August 22, 2022.reconsideration and dismissed one additional claim. Yodlee will continue to vigorously defend the remaining claims against it.
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, 2022.March 31, 2023. 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'sCompany’s results of operations or cash flow in a particular quarter or year.
18.Subsequent Events
Acquisition of Truelytics
On July 1, 2022, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of May 10, 2022, between, among others, Truelytics, Inc., (“Truelytics”), Yodlee, Inc. and Quadrant Merger Sub Inc., a wholly owned subsidiary of Envestnet (“Merger Sub”), the Company completed the merger of Truelytics with and into Merger Sub, with Truelytics continuing as the surviving corporation (the “Truelytics Merger”) and a wholly owned subsidiary of Envestnet.
The acquisition of Truelytics aligns with the Company's strategy to further connect its ecosystem by creating transformative progress for its advisors and clients. Truelytics is an Advisor Transition Management platform and the first end-to-end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The Truelytics platform combines Envestnet data, analytics, and wealth technology to further support advisors across the ecosystem.
Envestnet expects to integrate Truelytics into the Company’s Envestnet Data and Analytics segment.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Subject to the terms and conditions of the Merger Agreement, the Company paid estimated cash consideration of approximately $21 million, net of cash acquired, subject to certain post-closing adjustments. The Company funded the Truelytics acquisition with available cash resources.
Due to the lack of available information, the disclosures in relation to ASC 805 are currently not able to be included in this Form 10-Q.
Acquisition of Redi2 Technologies
On July 1, 2022 pursuant to a stock purchase agreement, dated as of June 24, 2022, between Envestnet, Inc. (“Envestnet”) and Redi2 Technologies Inc., (“Redi2 Technologies”), Envestnet completed the acquisition of Redi2 Technologies (the “Redi2 Technologies Acquisition”). Redi2 Technologies provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance.
The Company expects to integrate the technology and operations of the Redi2 Technologies business into the Company’s Envestnet Wealth segment.
In connection with the Redi2 Technologies Acquisition, the Company paid estimated consideration of approximately $70 million in cash. The Company funded the Redi2 Technologies Acquisition with available cash resources. In addition, certain executives may earn up to $20 million based upon the achievement of certain target financial and non-financial metrics.
Due to the lack of available information, the disclosures in relation to ASC 805 are currently not able to be included in this Form 10-Q.
Exercise of Membership Interests
The Company granted membership interests in certain of the Company's equity investments to 2 legacy PIEtech executives as part of its 2019 acquisition of PIEtech. These interests, which were fully vested as of May 1, 2020, became exercisable on May 1, 2022. In July 2022, these executives exercised their respective put options and sold these membership interests to the Company for approximately $10 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Unless otherwise indicated,The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.
Thisrelated notes included elsewhere in this quarterly report on Form 10-Q for the quarter ended June 30, 2022 ("March 31, 2023 and the consolidated financial statements and related notes included on Form 10-K for the year ended December 31, 2022.
This Quarterly Report")Report contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are based on our current expectations and projections about future events and are identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this Quarterly Report include, but are not limited to,
•a pandemic or health crisis, including the COVID-19 pandemic;
•the conflict between Russia and Ukraine including related sanctions, and their impact on the global economy and capital markets;
•the concentration of our revenues from the delivery of our solutions and services to clients in the financial services industry;
•our reliance on a limited number of clients for a material portion of our revenue;
•the renegotiation of fees by our clients;
•changes in the estimates of fair value of reporting units or of long-lived assets;
•the amount of our debt and our ability to service our debt;
•limitations on our ability to access information from third parties or charges for accessing such information;
•the targeting of some of our sales efforts at large financial institutions and large financial technology ("FinTech") companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales;
•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 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;
•our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients;
•risks associated with our international operations;
•the competitiveness of our solutions and services as compared to those of others;
•liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest;
•harm to our reputation;
•our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
•our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner;
•the failure to protect our intellectual property rights;
•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;
•the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations on how we operate our business and the negative effects of failure to comply with these requirements;
•regulatory compliance failures;
•failure by our customers to obtain proper permissions or waivers for our use of disclosure of information;
•adverse judicial or regulatory proceedings against us;
•failure of our solutions, services or systems, or those of third parties on which we rely, to work properly;
•potential liability for use of inaccurate information by third parties provided by us;
•the occurrence of a deemed “change of control”;
•the uncertainty of the application and interpretation of certain tax laws;
•issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our existing stockholders;
•general economic, political and regulatory conditions;
•global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and
•management’s response to these factors.
In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this Quarterly Report and documents incorporated herein by reference are qualified -in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.
These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report are set forth in Part I, Item 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”);2022; 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 and the 20212022 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 2021 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.
30Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.
Overview
Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards our goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients ("Intelligent Financial Life").clients.
More than 6,500Approximately 106,000 advisors and approximately 6,900 companies, including 16 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIAs”),RIAs, and hundreds of FinTech companies, leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients. We also operate six RIAs registered with the SEC. We believe that our business model results in a high degree of recurring and predictable financial results.
Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive better outcomes.
Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters based in Berwyn, Pennsylvania as well as other locations throughout the United States, India and other international locations.
We also operate 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 Developments
Russia and Ukraine ConflictMacroeconomic Environment
In February 2022,Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets. Recent geopolitical uncertainty resulting, in part, from military conflict escalated between Russia and Ukraine which escalated in
February 2022 as well as rising inflation have contributed to significant volatility and decline in global financial markets during 2022 which continues as of the date of this quarterly report.Quarterly Report. The uncertainty over the extent and duration of the ongoing conflict and this period of inflation continues to cause disruptions to businesses and markets worldwide. The extent of the effect on our financial performance will continue to depend on future developments, including the extent and duration of the conflict and this period of inflation, the Federal Reserve's monetary policy in response to rising inflation, the extent of economic sanctions imposed, changes in market interest rates, further governmental and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although we are unable to estimate the overall financial effect of the conflict and this period of inflation at this time, as the conflict continues, itthese conditions continue, they could have a material adverse effect on our business, results of operations, financial condition and cash flows. As of June 30, 2022, these condensedMarch 31, 2023, the consolidated financial statements do not reflect any adjustments as a result of the conflict.these macroeconomic conditions.
Credit Agreement AmendmentConvertible Promissory Note
On February 4, 2022, weJanuary 31, 2023, the Company entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”)Convertible Promissory Note with a group of banks. The Third Credit Agreement amends and restates, in its entirety, our prior Amended and Restated Credit Agreement, dated as of July 18, 2017, as amended (the “Prior Credit Agreement”).
The Third Credit Agreement amended certain provisions under the Prior Credit Agreement to, among other things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce the interest rate payable on the loans and (iii) increase capacity and flexibility under certaincustomer of the negative covenants.
The Third Credit Agreement provides, subject to certain customary conditions, for a revolving credit facility (the “Credit Facility”), in an aggregate amount of $500.0 million, with a $20.0 million sub-facility for letters of credit.
The Credit Facility matures on February 4, 2027.
Outstanding loans under the Credit Facility accrue interest, at Envestnet’s option, at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.25% to 2.75% per annum, based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement. The undrawn portion of the commitments under the Credit Facility is subject to a commitment fee at a rate ranging from 0.25% to 0.30% per annum, based upon the total net leverage ratio as calculated pursuant to the Credit Agreement.
The obligations of Envestnet under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s domestic subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions.
In connection with entering the Third Credit Agreement, we capitalized $1.9 million of new issuance costs and wrote off $0.6 million of existing deferred financing charges.
Accelerated Investment Plan
In February 2021, we announced that we would be accelerating our investment in our ecosystem, to fulfill our strategy of:
•Capturing more of the addressable market;
•Modernizing the digital engagement marketplace; and
•Opening the platform.
We expect to incur an additional $35 to $40 million over the remainder of 2022 as we continue to invest in our ecosystem. The majority of these charges will be recorded to compensation and benefits expense in our condensed consolidated statement of operations. For the six months ended June 30, 2022, we recorded approximately $22 million of compensation and benefit expense related to this plan.
Procurement of Technology Solutions
On April 1, 2022, we entered into a purchase agreement withCompany's business, a privately held company, to acquirewhereby the technology solutions being developed by this privately held company forCompany was issued a purchase priceconvertible promissory note with a principal amount of $9.0$20.0 million including an advanceand a stated interest rate of $4.0 million. This advance8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is included in other non-current assets in the condensed consolidated balance sheets.
Office Closures
In April 2022, in response to changing needs and an increase in employees working remotely, we closed three offices in the United States. We are currently exploring alternative uses for these properties, including sublease options. In connection with these closures, we recognized $3.7 million of losses on asset retirements in the three and six months ended June 30, 2022 which are included in general and administration expense in the condensed consolidated statement of operations. Additionally, we recognized $13.0 million of lease restructuring costs in the three and six months ended June 30, 2022 which are included in general and administration expense in the condensed consolidated statement of operations.
Investment in Privately Held Company
On May 20, 2022, we acquired a 25.0% interest in a privately held company for cash consideration of $5.0 million. Subject to the occurrence of certain conditions, we agreed to invest up to an additional $10.0 million for additional units in the future. We use the equity method of accounting to record our portion of this privately held company's net incomeconvertible into common stock or loss on a one quarter lag from the actual results of operations. We use the equity method of accounting because of our less than 50% ownership interest and lack of control and we do not otherwise exercise control over the significant economic and operating decisionspreferred stock of the privately held company.
Acquisition of 401kplans.com
On May 31, 2022, we acquired 401kplans.com LLC (“401kplans.com”). 401kplans.com has been integrated into the Envestnet Wealth Solutions segment.
401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. The acquisition demonstrates our commitment to the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping them shop, compare and select the best-fitting 401(k) plan for their client.company upon qualified financing events or corporate transactions.
In connection with the 401kplans.com acquisition, we paid estimated considerationConvertible Promissory Note, the Company concurrently entered into a call option agreement with the privately held company, which provides the Company an option to acquire the privately held company at a predetermined price as of $14.5 million, netthe earlier of cash acquired, subject toJuly 2024 or upon satisfaction of certain post-closing adjustments. We funded the acquisition with cash on hand.financial metrics.
Dilution gain on equity method investee share issuanceReduction in Force
We have an ownership interestIn the first quarter of 2023, as part of a reduction in force initiative, we entered into separation agreements with a privately held company that is accounted for undernumber of employees. In connection with the equity method. During the six months ended June 30, 2022,reduction in force initiative as well as a fourth quarter organizational realignment, we funded a $2.5incurred approximately $6.2 million convertible loan to this privately held company. Duringof total severance expense in the three months ended June 30, 2022, this privately held company raised additional preferred equity which reduced our ownership to 41.0% and our convertible loan was converted. As a result of this transaction, we recorded a $6.9 million dilution gain during the three months ended June 30, 2022, which is included in other income (expense), net in the condensed consolidated statements of operations.
Acquisition of Truelytics
On July 1, 2022, we acquired Truelytics, Inc. (“Truelytics”). The acquisition of Truelytics aligns with our strategy to further connect our ecosystem by creating transformative progress for our advisors and clients. Truelytics is an Advisor Transition Management platform and the first end-to-end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The Truelytics platform combines our data, analytics, and wealth technology to further support advisors across the ecosystem. We expect to integrate Truelytics into the Envestnet Data & Analytics segment.
In connection with the acquisition of Truelytics, we paid estimated cash consideration of approximately $21 million, net of cash acquired, subject to certain post-closing adjustments. We funded the Truelytics acquisition with cash on hand.
Acquisition of Redi2 Technologies
On July 1, 2022, we acquired Redi2 Technologies Inc. (“Redi2 Technologies”). Redi2 Technologies provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. We expect to integrate Redi2 Technologies into the Envestnet Wealth segment.
In connection with the Redi2 Technologies Acquisition, we paid estimated consideration of approximately $70 million in cash. We funded the Redi2 Technologies Acquisition with cash on hand. In addition, certain executives may earn up to $20 million based upon the achievement of certain target financial and non-financial metrics.
Exercise of Membership Interests
We granted membership interests in certain of our equity investments to two legacy PIEtech executives as part of the 2019 acquisition of PIEtech. These interests, which were fully vested as of May 1, 2020, became exercisable on May 1, 2022. In July 2022, these executives exercised their respective put options and sold these membership interests to us for approximately $10 million.March 31, 2023.
Segments
Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in Part I, Item 1, “Note 15—18—Segment Information” to the condensed consolidated financial statements included in Item 1 of this Quarterly Report. 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 to enable them to deliver an Intelligent Financial Lifeintelligent financial life to their clients.
•Envestnet Data & Analytics – a leading data aggregation, intelligence, and experiences platform that powers data connectivity and business intelligence across digital financial services to enable them to deliver an Intelligent Financial Lifeintelligent financial life to their clients.
Envestnet Wealth Solutions Segment
Envestnet Wealth Solutions empowers financial advisors at broker-dealers, banks, and RIAs with all the tools they require to deliver holistic wealth management to their end clients, enabling them to deliver an Intelligent Financial Life to their 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, 2022, Envestnet’s platform assets were approximately $5.0 trillion in nearly 18 million accounts overseen by more than 105,000 advisors.
Services provided to advisors include: financial planning, risk assessment tools, investment strategies and solutions, asset allocation models, research, portfolio construction, proposal generation and paperwork preparation, model management and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi-custodian performance reporting and communication tools, plus data analytics. We have access to a wide range of leading third-party asset custodians.
We offer these solutions principally through the following product 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 more than 22,000 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 more than 4,900 vetted third party managed account products, multi-manager portfolios, and fund strategist portfolios, as well as approximately 900 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.
Key Metrics
Envestnet Wealth Solutions Segment
The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and investor accounts in the periods indicated:
| | | As of | | As of |
| | June 30, | | September 30, | | December 31, | | March 31, | | June 30, | | March 31, | | June 30, | | September 30, | | December 31, | | March 31, |
| | 2021 | | 2021 | | 2021 | | 2022(1) | | 2022 | | 2022(1) | | 2022 | | 2022 | | 2022 | | 2023 |
| | | (in millions, except accounts and advisors data) | | (in millions, except accounts and advisors data) |
Platform Assets | Platform Assets | | Platform Assets | |
Assets under Management (“AUM”) | Assets under Management (“AUM”) | | $ | 315,422 | | | $ | 327,279 | | | $ | 362,038 | | | $ | 361,251 | | | $ | 325,209 | | Assets under Management (“AUM”) | | $ | 361,251 | | | $ | 325,209 | | | $ | 315,883 | | | $ | 341,144 | | | $ | 363,244 | |
Assets under Administration (“AUA”) | Assets under Administration (“AUA”) | | 426,416 | | | 431,040 | | | 456,316 | | | 432,141 | | | 352,840 | | Assets under Administration (“AUA”) | | 432,141 | | | 352,840 | | | 350,576 | | | 367,412 | | | 379,843 | |
Total AUM/A | Total AUM/A | | 741,838 | | | 758,319 | | | 818,354 | | | 793,392 | | | 678,049 | | Total AUM/A | | 793,392 | | | 678,049 | | | 666,459 | | | 708,556 | | | 743,087 | |
Subscription | Subscription | | 4,447,733 | | | 4,670,827 | | | 4,901,662 | | | 4,736,537 | | | 4,312,114 | | Subscription | | 4,736,537 | | | 4,312,114 | | | 4,134,414 | | | 4,382,109 | | | 4,566,971 | |
Total Platform Assets | Total Platform Assets | | $ | 5,189,571 | | | $ | 5,429,146 | | | $ | 5,720,016 | | | $ | 5,529,929 | | | $ | 4,990,163 | | Total Platform Assets | | $ | 5,529,929 | | | $ | 4,990,163 | | | $ | 4,800,873 | | | $ | 5,090,665 | | | $ | 5,310,058 | |
Platform Accounts | Platform Accounts | | | | | | | | | | | Platform Accounts | | | | | | | | | | |
AUM | AUM | | 1,209,761 | | 1,276,066 | | 1,345,274 | | 1,459,093 | | 1,491,861 | AUM | | 1,459,093 | | 1,491,861 | | 1,522,968 | | 1,547,009 | | 1,571,862 |
AUA | AUA | | 1,163,991 | | 1,193,069 | | 1,217,076 | | 1,186,180 | | 1,061,484 | AUA | | 1,186,180 | | 1,061,484 | | 1,135,302 | | 1,135,026 | | 1,142,166 |
Total AUM/A | Total AUM/A | | 2,373,752 | | 2,469,135 | | 2,562,350 | | 2,645,273 | | 2,553,345 | Total AUM/A | | 2,645,273 | | 2,553,345 | | 2,658,270 | | 2,682,035 | | 2,714,028 |
Subscription | Subscription | | 11,712,573 | | 14,810,664 | | 14,986,531 | | 15,151,569 | | 15,312,144 | Subscription | | 15,151,569 | | 15,312,144 | | 15,596,403 | | 15,665,020 | | 15,779,980 |
Total Platform Accounts | Total Platform Accounts | | 14,086,325 | | 17,279,799 | | 17,548,881 | | 17,796,842 | | 17,865,489 | Total Platform Accounts | | 17,796,842 | | 17,865,489 | | 18,254,673 | | 18,347,055 | | 18,494,008 |
Advisors | Advisors | | | | | | | | | | | Advisors | | | | | | | | | | |
AUM/A | AUM/A | | 41,259 | | 41,696 | | 39,735 | | 39,800 | | 38,394 | AUM/A | | 39,800 | | 38,394 | | 38,417 | | 38,025 | | 38,611 |
Subscription | Subscription | | 66,597 | | 66,489 | | 68,808 | | 67,168 | | 66,838 | Subscription | | 67,168 | | 66,838 | | 67,348 | | 67,520 | | 67,843 |
Total Advisors | Total Advisors | | 107,856 | | 108,185 | | 108,543 | | 106,968 | | 105,232 | Total Advisors | | 106,968 | | 105,232 | | 105,765 | | 105,545 | | 106,454 |
(1) Certain assets and accounts have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.
The following table provides information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated:
| | | | Asset Rollforward - Three Months Ended June 30, 2022 | | | Asset Rollforward - Three Months Ended March 31, 2023 |
| | | As of | | Gross | | Net | | Market | | Reclass to | | | As of | | | As of December 31, | | Gross | | Net | | Market | | Reclass to | | | As of March 31, |
| | | 3/31/2022 | | Sales | | Redemptions | | Flows | | Impact | | Subscription | | | 6/30/2022 | | | 2022 | | Sales | | Redemptions | | Flows | | Impact | | Subscription | | | 2023 |
| | | | (in millions, except account data) | | | (in millions, except account data) |
AUM | AUM | | $ | 361,251 | | | $ | 24,829 | | | $ | (18,962) | | | $ | 5,867 | | | $ | (41,909) | | | $ | — | | | | $ | 325,209 | | AUM | | $ | 341,144 | | | $ | 24,657 | | | $ | (15,677) | | | $ | 8,980 | | | $ | 14,259 | | | $ | (1,139) | | | | $ | 363,244 | |
AUA | AUA | | 432,141 | | | 27,323 | | | (27,662) | | | (339) | | | (50,499) | | | (28,463) | | | | 352,840 | | AUA | | 367,412 | | | 32,551 | | | (21,547) | | | 11,004 | | | 14,529 | | | (13,102) | | | | 379,843 | |
Total AUM/A | Total AUM/A | | $ | 793,392 | | | $ | 52,152 | | | $ | (46,624) | | | $ | 5,528 | | | $ | (92,408) | | | $ | (28,463) | | | | $ | 678,049 | | Total AUM/A | | $ | 708,556 | | | $ | 57,208 | | | $ | (37,224) | | | $ | 19,984 | | | $ | 28,788 | | | $ | (14,241) | | | | $ | 743,087 | |
Fee-Based Accounts | Fee-Based Accounts | | 2,645,273 | | | | | | | 19,494 | | | | | (111,422) | | | | 2,553,345 | | Fee-Based Accounts | | 2,682,035 | | | | | | | 116,249 | | | | | (84,256) | | | | 2,714,028 | |
The above AUM/A gross sales figures include $9.2$17.1 billion in new client conversions. We onboarded an additional $24.4$48.8 billion in subscription conversions during the three months ended June 30, 2022March 31, 2023 bringing total conversions for the three months ended June 30, 2022March 31, 2023 to $33.6$65.9 billion.
Asset and account figures in the “Reclass to Subscription” columns for the three months ended June 30, 2022 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Rollforward - Six Months Ended June 30, 2022 |
| | As of | | Gross | | | | Net | | Market | | Reclass to | | | | As of |
| | 12/31/2021 | | Sales | | Redemptions | | Flows | | Impact | | Subscription | | Reclassification(1) | | 6/30/2022 |
| | | | | | | | | | | | | | | | |
| | (in millions, except account data) |
AUM | | $ | 362,038 | | | $ | 53,528 | | | $ | (34,929) | | | $ | 18,599 | | | $ | (64,149) | | | $ | — | | | $ | 8,721 | | | $ | 325,209 | |
AUA | | 456,316 | | | 55,664 | | | (47,574) | | | 8,090 | | | (74,382) | | | (28,463) | | | (8,721) | | | 352,840 | |
Total AUM/A | | $ | 818,354 | | | $ | 109,192 | | | $ | (82,503) | | | $ | 26,689 | | | $ | (138,531) | | | $ | (28,463) | | | $ | — | | | $ | 678,049 | |
Fee-Based Accounts | | 2,562,350 | | | | | | | 102,417 | | | | | (111,422) | | | — | | | 2,553,345 | |
(1) Certain assets have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.
The above AUM/A gross sales figures include $18.3 billion in new client conversions. We onboarded an additional $58.7 billion in subscription conversions during the six months ended June 30, 2022 bringing total conversions for the six months ended June 30, 2022 to $77.0 billion. (Note: We have revised our subscription conversionscolumn for the three months ended March 31, 2022 to $34.3 billion from the previously reported $32.8 billion.)
Asset and account figures in the “Reclass to Subscription” columns for the six months ended June 30, 20222023 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.
Envestnet Data & Analytics Segment
Envestnet Data & Analytics is a leading data aggregation, data intelligence,The following table provides information regarding the amount of paid-end users and experiences platform. Envestnet Data & Analytics enables consumers to aggregate financial accounts within client applications and provides to clients the functionality to gather, refine, and aggregate massive sets of consumer permissioned data for use in financial applications, reports, market research analysis, and application programming interfaces (“APIs”).
Approximately 1,700 clients, including financial institutions, financial technology innovators and financial advisory firms including 13 of the 20 largest U.S. banks, subscribe tousing the Envestnet Data & Analytics platform to underpin personalized financial apps and services for approximately 36 million end-users.in the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | March 31, | | June 30, | | September 30, | | December 31, | | March 31, |
| | 2022 | | 2022 | | 2022 | | 2022 | | 2023 |
| | | | | | | | | | |
| | (in millions, except number of firms data) |
Number of paying users | | 31.4 | | | 37.2 | | | 38.1 | | | 38.8 | | | 37.5 | |
Number of firms | | 1,649 | | | 1,731 | | | 1,815 | | | 1,827 | | | 1,851 | |
Envestnet Data & Analytics serves four main client groups: financial institutions (“Banking”), financial advisors and institutions (“Wealth”), market intelligence and analytics providers (“Research”) and financial technology innovators (“Tech”).
These groups serve the following customers:
•Banking – Retail Banks, Credit Unions and credit card providers
•Wealth – Wealth management financial advisors and institutions
•Research – Research and analyst firms
•Tech – Personal financial management, small business accounting, e-commerce, payment solutions providers, small business lending and authentication
With the exception of the Tech Group, we provide clients with secure access to open APIs, user facing applications powered by our platform, APIs and reports. We aggregate and cleanse client permission consumer data elements. Envestnet Data & Analytics also enables clients to develop their own applications through its open APIs, which deliver secure data, payments solutions, and other functionality.
The Tech group enables clients to develop new applications and enhance existing solutions through our APIs. These clients operate in a number of sub-vertical markets, including FinTech, wealth management, personal financial management, small business accounting, small business lending and authentication.
We believe that our brand recognition, innovative technology and intellectual property, large client base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to grow.
Operational Highlights
Asset-based recurring revenues increased 13% from $170.1 million in the three months ended June 30, 2021 to $192.0 million in the three months ended June 30, 2022. Subscription-based recurring revenues increased 5% from $112.5 million in the three months ended June 30, 2021 to $118.1 million in the three months ended June 30, 2022. Total revenues, which also includes professional services and other revenues, increased 10% from $288.7 million in the three months ended June 30, 2021 to $318.9 million in the three months ended June 30, 2022.
The Envestnet Wealth Solutions segment's total revenues increased 13% from $240.3 million in the three months ended June 30, 2021 to $272.0 million in the three months ended June 30, 2022 due to an increase in asset-based revenues of $21.9 million, an increase in subscription-based revenues of $6.9 million and an increase in professional services and other revenues of $2.9 million. The Envestnet Data & Analytics segment's total revenues decreased 3% from $48.4 million in the three months ended June 30, 2021 to $46.9 million in the three months ended June 30, 2022 primarily due to a decrease in subscription-based revenues of $1.3 million and a decrease in professional services and other revenues of $0.3 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended | | | | |
| | | | | | March 31, | | $ | | % |
| | | | | | | | 2023 | | 2022 | | Change | | Change |
| | | | | | | | | | | | | | |
| | | | | | (in thousands, except percentages) |
Revenue: | | | | | | | | | | | | | | |
Envestnet Wealth Solutions: | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 176,932 | | | $ | 202,717 | | | $ | (25,785) | | | (13) | % |
Subscription-based | | | | | | | | 76,485 | | | 68,537 | | | 7,948 | | | 12 | % |
Total recurring revenue | | | | | | | | 253,417 | | | 271,254 | | | (17,837) | | | (7) | % |
Professional services and other revenue | | | | | | | | 3,243 | | | 2,314 | | | 929 | | | 40 | % |
Total Envestnet Wealth Solutions revenue | | | | | | | | $ | 256,660 | | | $ | 273,568 | | | $ | (16,908) | | | (6) | % |
| | | | | | | | | | | | | | |
Envestnet Data & Analytics: | | | | | | | | | | | | | | |
Subscription-based | | | | | | | | $ | 40,594 | | | $ | 46,197 | | | $ | (5,603) | | | (12) | % |
Total recurring revenue | | | | | | | | 40,594 | | | 46,197 | | | (5,603) | | | (12) | % |
Professional services and other revenue | | | | | | | | 1,453 | | | 1,598 | | | (145) | | | (9) | % |
Total Envestnet Data & Analytics revenue | | | | | | | | $ | 42,047 | | | $ | 47,795 | | | $ | (5,748) | | | (12) | % |
| | | | | | | | | | | | | | |
Total consolidated revenue | | | | | | | | $ | 298,707 | | | $ | 321,363 | | | $ | (22,656) | | | (7) | % |
| | | | | | | | | | | | | | |
Deferred revenue fair value adjustment | | | | | | | | 52 | | | 54 | | | (2) | | | (4) | % |
Total consolidated adjusted revenue | | | | | | | | $ | 298,759 | | | $ | 321,417 | | | $ | (22,658) | | | (7) | % |
| | | | | | | | | | | | | | |
Consolidated net loss attributable to Envestnet, Inc. | | | | | | | | $ | (41,228) | | | $ | (13,859) | | | $ | (27,369) | | | * |
Net loss attributable to Envestnet, Inc. per share - basic and diluted | | | | | | | | $ | (0.76) | | | $ | (0.25) | | | $ | (0.51) | | | * |
| | | | | | | | | | | | | | |
Adjusted EBITDA | | | | | | | | $ | 55,424 | | | $ | 55,697 | | | $ | (273) | | | — | % |
Adjusted net income | | | | | | | | $ | 30,149 | | | $ | 30,996 | | | $ | (847) | | | (3) | % |
Adjusted net income per share - diluted | | | | | | | | $ | 0.46 | | | $ | 0.47 | | | $ | (0.01) | | | (2) | % |
Asset-based recurring revenues increased 20% from $329.5 million in the six months ended June 30, 2021 to $394.7 million in the six months ended June 30, 2022. Subscription-based recurring revenues increased 5% from $222.3 million in the six months ended June 30, 2021 to $232.9 million in the six months ended June 30, 2022. Total revenues, which also includes professional services and other revenues, increased 14% from $563.8 million in the six months ended June 30, 2021 to $640.2 million in the six months ended June 30, 2022.
The Envestnet Wealth Solutions segment's total revenues increased 17% from $466.7 million in the six months ended June 30, 2021 to $545.6 million in the six months ended June 30, 2022 due to an increase in asset-based revenues of $65.2 million, an increase in subscription-based revenues of $11.4 million and an increase in professional services and other revenues of $2.2 million. The Envestnet Data & Analytics segment's total revenues decreased 3% from $97.1 million in the six months ended June 30, 2021 to $94.6 million in the six months ended June 30, 2022 primarily due to a decrease in professional services and other revenues of $1.6 million and a decrease in subscription-based revenues of $0.9 million.
Net loss attributable to Envestnet, Inc. for the three months ended June 30, 2022 was $23.3 million, or $0.42 per diluted share, compared to a net loss attributable to Envestnet, Inc. of $8.3 million, or $0.15 per diluted share, for the three months ended June 30, 2021.
Net loss attributable to Envestnet, Inc. for the six months ended June 30, 2022 was $37.1 million, or $0.67 per diluted share, compared to net income attributable to Envestnet, Inc. of $6.7 million, or $0.12 per diluted share, for the six months ended June 30, 2021.
Adjusted revenues for the three months ended June 30, 2022 were $318.9 million, compared to adjusted revenues of $288.8 million in the prior year period. Adjusted EBITDA for the three months ended June 30, 2022 was $57.1 million, compared to adjusted EBITDA of $71.1 million in the prior year period. Adjusted net income for the three months ended June 30, 2022 was $32.0 million, or $0.49 per diluted share, compared to adjusted net income of $43.5 million, or $0.67 per diluted share in the prior year period.
Adjusted revenues for the six months ended June 30, 2022 were $640.3 million, compared to adjusted revenues of $564.0 million in the prior year period. Adjusted EBITDA for the six months ended June 30, 2022 was $112.8 million, compared to adjusted EBITDA of $139.3 million in the prior year period. Adjusted net income for the six months ended June 30, 2022 was $63.0 million, or $0.96 per diluted share, compared to adjusted net income of $85.4 million, or $1.31 per diluted share in the prior year period.
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a discussion of our non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures.
*Not meaningful
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | Percent | | June 30, | | Percent |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | | | | | | | | | | | |
| | (in thousands) | | | | (in thousands) | | |
Revenues: | | | | | | | | | | | | |
Asset-based | | $ | 191,972 | | | $ | 170,075 | | | 13 | % | | $ | 394,689 | | | $ | 329,450 | | | 20 | % |
Subscription-based | | 118,120 | | | 112,504 | | | 5 | % | | 232,854 | | | 222,333 | | | 5 | % |
Total recurring revenues | | 310,092 | | | 282,579 | | | 10 | % | | 627,543 | | | 551,783 | | | 14 | % |
Professional services and other revenues | | 8,760 | | | 6,159 | | | 42 | % | | 12,672 | | | 12,060 | | | 5 | % |
Total revenues | | 318,852 | | | 288,738 | | | 10 | % | | 640,215 | | | 563,843 | | | 14 | % |
Operating expenses: | | | | | | | | | | | | |
Cost of revenues | | 126,482 | | | 100,494 | | | 26 | % | | 251,764 | | | 193,363 | | | 30 | % |
Compensation and benefits | | 125,767 | | | 105,548 | | | 19 | % | | 252,616 | | | 206,262 | | | 22 | % |
General and administration | | 66,144 | | | 41,755 | | | 58 | % | | 110,479 | | | 78,070 | | | 42 | % |
Depreciation and amortization | | 32,182 | | | 30,010 | | | 7 | % | | 63,800 | | | 58,402 | | | 9 | % |
Total operating expenses | | 350,575 | | | 277,807 | | | 26 | % | | 678,659 | | | 536,097 | | | 27 | % |
Income (loss) from operations | | (31,723) | | | 10,931 | | | * | | (38,444) | | | 27,746 | | | * |
Other income (expense), net | | 1,622 | | | (3,784) | | | (143) | % | | (4,345) | | | (11,252) | | | (61) | % |
Income (loss) before income tax provision (benefit) | | (30,101) | | | 7,147 | | | * | | (42,789) | | | 16,494 | | | * |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (138) | % | | (3,813) | | | 9,928 | | | (138) | % |
Net income (loss) | | (24,268) | | | (8,369) | | | * | | (38,976) | | | 6,566 | | | * |
Add: Net loss attributable to non-controlling interest | | 983 | | | 88 | | | * | | 1,832 | | | 99 | | | * |
Net income (loss) attributable to Envestnet, Inc. | | $ | (23,285) | | | $ | (8,281) | | | * | | $ | (37,144) | | | $ | 6,665 | | | * |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 176,932 | | | 59 | % | | $ | 202,717 | | | 63 | % | | $ | (25,785) | | | (13) | % |
Subscription-based | | | | | | | | 117,079 | | | 39 | % | | 114,734 | | | 36 | % | | 2,345 | | | 2 | % |
Total recurring revenue | | | | | | | | 294,011 | | | 98 | % | | 317,451 | | | 99 | % | | (23,440) | | | (7) | % |
Professional services and other revenue | | | | | | | | 4,696 | | | 2 | % | | 3,912 | | | 1 | % | | 784 | | | 20 | % |
Total revenue | | | | | | | | 298,707 | | | 100 | % | | 321,363 | | | 100 | % | | (22,656) | | | (7) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 108,989 | | | 36 | % | | 125,282 | | | 39 | % | | (16,293) | | | (13) | % |
Employee compensation | | | | | | | | 114,215 | | | 38 | % | | 126,849 | | | 39 | % | | (12,634) | | | (10) | % |
General and administrative | | | | | | | | 53,619 | | | 18 | % | | 44,335 | | | 14 | % | | 9,284 | | | 21 | % |
Depreciation and amortization | | | | | | | | 32,941 | | | 11 | % | | 31,618 | | | 10 | % | | 1,323 | | | 4 | % |
Total operating expenses | | | | | | | | 309,764 | | | 104 | % | | 328,084 | | | 102 | % | | (18,320) | | | (6) | % |
Loss from operations | | | | | | | | (11,057) | | | (4) | % | | (6,721) | | | (2) | % | | (4,336) | | | (65) | % |
Other expense, net | | | | | | | | (7,935) | | | (3) | % | | (5,967) | | | (2) | % | | (1,968) | | | (33) | % |
Loss before income tax provision | | | | | | | | (18,992) | | | (6) | % | | (12,688) | | | (4) | % | | (6,304) | | | (50) | % |
Income tax provision | | | | | | | | 23,769 | | | 8 | % | | 2,020 | | | 1 | % | | 21,749 | | | * |
Net loss | | | | | | | | (42,761) | | | (14) | % | | (14,708) | | | (5) | % | | (28,053) | | | * |
Add: Net loss attributable to non-controlling interest | | | | | | | | 1,533 | | | 1 | % | | 849 | | | — | % | | 684 | | | 81 | % |
Net loss attributable to Envestnet, Inc. | | | | | | | | $ | (41,228) | | | (14) | % | | $ | (13,859) | | | (4) | % | | $ | (27,369) | | | * |
*Not meaningful.meaningful
Three months ended June 30, 2022March 31, 2023 compared to three months ended June 30, 2021March 31, 2022
Asset-based recurring revenuesrevenue
Asset-based recurring revenues increasedrevenue decreased $25.8 million, or 13% from $170.1 million in, for the three months ended June 30, 2021March 31, 2023 compared to $192.0 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increasea decrease in asset values applicable to our quarterly billing cycles, (whichwhich are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), the impact of new account growth and positive net flows of AUM/A in the second quarter of 2022.quarter.
The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 41,00040,000 as of June 30, 2021March 31, 2022 to approximately 38,00039,000 as of June 30, 2022,March 31, 2023, and the number of AUM/A client accounts increased from approximately 2.4 million as of June 30, 2021 to approximately 2.6 million as of June 30, 2022.March 31, 2022 to approximately 2.7 million as of March 31, 2023.
Asset-based recurring revenues increased from 59%As a percentage of total revenue, asset-based recurring revenue decreased 4% points primarily due to a decrease in the three months ended June 30, 2021asset-based recurring revenue compared to 60% of total revenuean increase in the three months ended June 30, 2022.subscription-based recurring revenue.
Subscription-based recurring revenuesrevenue
Subscription-based recurring revenue increased 5% from $112.5$2.3 million, inor 2%, for the three months ended June 30, 2021March 31, 2023 compared to $118.1 million in the three months ended June 30, 2022. This increase wasMarch 31, 2022 primarily due to an increase of $6.97.9 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of $1.3$5.6 million in the Envestnet Data & Analytics segment.segment, which is primarily attributable to a decrease in revenue from existing customers.
As a percentage of total revenue, subscription-based recurring revenue increased 3% points primarily due to an increase in subscription-based recurring revenue compared to a decrease in asset-based recurring revenue.
Professional services and other revenuesrevenue
Professional services and other revenuesrevenue increased 42% from $6.2$0.8 million, inor 20%, for the three months ended June 30, 2021March 31, 2023 compared to $8.8 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing of the completion of customer projects and deployments within both segments.deployments.
Cost of revenuesDirect expense
Cost of revenues increased 26% from $100.5Direct expense decreased $16.3 million, inor 13%, for the three months ended June 30, 2021March 31, 2023 compared to $126.5 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increasea decrease in asset-based cost of revenues of $19.0 million,direct expense, which directly correlates with the increasedecrease to asset-based recurring revenuesrevenue during the period, and an increase in professional services and other cost of revenues of $6.8 million, primarily as a result of our 2022 Advisor Summit, which was held in-person. period.
As a percentage of total revenues, cost of revenues increased from 35% inrevenue, direct expense decreased 3% points for the three months ended June 30, 2021March 31, 2023 compared to 40% inthe three months ended June 30,March 31, 2022 primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit eventrevenue in the Envestnet Wealth Solutions segment. Cost of revenues as a percentage of total revenues in the Envestnet Data & Analytics segment remained consistent.
Compensation and benefitsEmployee compensation
Compensation and benefits increased 19% from $105.5Employee compensation decreased $12.6 million, inor 10%, for the three months ended June 30, 2021March 31, 2023 compared to $125.8 million in the three months ended June 30, 2022. The increase is comprisedMarch 31, 2022 primarily of increasesdue to decreases in salaries, benefits and related payroll taxes of $11.8$9.5 million, which is primarily a result of the outsourcing arrangement with TCS in the Envestnet Data & Analytics segment, a reduction in force initiative in the first quarter of 2023 and the organizational realignment in the fourth quarter of 2022, non-cash compensation expense of $6.2$2.4 million, incentive compensation of $2.3 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $1.8 million. As$3.1 million as a percentageresult of total revenues, compensationthe reduction in force and benefits increased from 37% in the three months ended June 30, 2021 to 39% in the three months ended June 30, 2022.organizational realignment.
General and administrationadministrative
General and administrationadministrative expenses increased 58% from $41.8$9.3 million, inor 21%, for the three months ended June 30, 2021March 31, 2023 compared to $66.1 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to increases in lease restructuring and asset retirement costs of $15.4 million, software and maintenance charges of $3.7$8.6 million litigationprimarily a result of the outsourcing arrangement with TCS which shifted certain expenses from employee compensation to general and regulatoryadministrative expense, governance related expenses of $2.4 million, marketing expense of $1.6$1.8 million as a result of expense associated with activist shareholder activity, restructuring charges and transaction costs of $1.5 million, travel and entertainment expense of $1.5 million.$1.0 million and other immaterial increases within general and administrative expense. These increases were partially offset by a decrease in professional and legal fees of $1.7 million anddecreases in occupancy costs of $1.5$1.8 million, litigation related expense of $1.8 million and marketing costs of $0.9 million.
As a percentage of total revenues,revenue, general and administration expensesadministrative increased from 14%4% points for three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily a result of the outsourcing arrangement with TCS as well as a decrease in revenue in the three months ended June 30, 2021March 31, 2023 compared to 21% in the three months ended June 30, 2022, primarily due to lease restructuring and asset retirements charges incurred for three office closures.prior year period.
Depreciation and amortization
Depreciation and amortization expense increased 7% from $30.0$1.3 million, inor 4%, for the three months ended June 30, 2021March 31, 2023 compared to $32.2 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to increases in amortization related to internally developed software of $1.8$2.6 million, and additional depreciation on fixed assets. As a percentage of total revenues, depreciation and amortization expense remained consistent at 10% in the three months ended June 30, 2021 and 2022.
Other income (expense), net
Other income (expense), net increased from other expense of $3.8 million in the three months ended June 30, 2021 to other income of $1.6 million in the three months ended June 30, 2022, primarily due to a $6.9 million dilution gain recorded in 2022 related to an equity method investee's share issuance, which was partially offset by a decrease of $0.8 million related to the fair market value adjustment to investment in private company and an increase in losses of $0.6 million related to equity investments.
Income tax provision (benefit)
| | | | | | | | | | | | | | |
| | Three Months Ended |
| | June 30, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands, except effective tax rate) |
Income (loss) before income tax provision (benefit) | | $ | (30,101) | | | $ | 7,147 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | |
Effective tax rate | | 19.4 | % | | 217.1 | % |
Under Accounting Standards Codification (“ASC”) 740-270-25, we are required to report income tax expense by applying a projected annual effective tax rate (“AETR”) to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate (“ETR”) for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the three months ended June 30, 2022 and 2021, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.
For the three months ended June 30, 2022, 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 U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D") credits, and the partial reserve release for an uncertain tax position due to the expiration of a statute of limitations.
For the three months ended June 30, 2021, 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 U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by the federal and state R&D credits.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
Asset-based recurring revenues
Asset-based recurring revenues increased 20% from $329.5 million in the six months ended June 30, 2021 to $394.7 million in the six months ended June 30, 2022. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), the impact of new account growth and positive net flows of AUM/A in the first six months of 2022.
The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 41,000 as of June 30, 2021 to approximately 38,000 as of June 30, 2022, and the number of AUM/A client accounts increased from approximately 2.4 million as of June 30, 2021 to approximately 2.6 million as of June 30, 2022.
Asset-based recurring revenues increased from 58% of total revenue in the six months ended June 30, 2021 to 62% of total revenue in the six months ended June 30, 2022, primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.
Subscription-based recurring revenues
Subscription-based recurring revenue increased 5% from $222.3 million in the six months ended June 30, 2021 to $232.9 million in the six months ended June 30, 2022. This increase was primarily due to an increase of$11.4 million in theEnvestnet Wealth Solutionssegment, which can be attributed to new and existing customer growth.
Professional services and other revenues
Professional services and other revenues increased 5% from $12.1 million in the six months ended June 30, 2021 to $12.7 million in the six months ended June 30, 2022. The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue in the Envestnet Data & Analytics segment due to the timing of the completion of customer projects and deployments.
Cost of revenues
Cost of revenues increased 30% from $193.4 million in the six months ended June 30, 2021 to $251.8 million in the six months ended June 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $50.2 million, which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of $6.8 million, primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of total revenues, cost of revenues increased from 34% in the six months ended June 30, 2021 to 39% in six months ended June 30, 2022, primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event in the Envestnet Wealth Solutions segment as well as costs incurred to migrate our hosting platforms to a third-party cloud server solution in the Envestnet Data & Analytics segment.
Compensation and benefits
Compensation and benefits increased 22% from $206.3 million in the six months ended June 30, 2021 to $252.6 million in the six months ended June 30, 2022. The increase is primarily comprised of increases in salaries, benefits and related payroll taxes of $28.0 million, non-cash compensation expense of $13.9 million, miscellaneous employee expenses of $1.9 million, contract labor expenses of $1.4 million and short term variable expenses of $1.2 million. As a percentage of total revenues, compensation and benefits increased from 37% in the six months ended June 30, 2021 to 39% in the six months ended June 30, 2022.
General and administration
General and administration expenses increased 42% from $78.1 million in the six months ended June 30, 2021 to $110.5 million in the six months ended June 30, 2022. The increase was primarily due to increases in lease restructuring and asset retirement costs of $15.3 million, software and maintenance charges of $7.2 million, litigation and regulatory related expenses of $3.7 million, marketing expense of $3.2 million, travel and entertainment expense of $2.5 million, and miscellaneous general and administration expense of $2.1 million. These increases were partially offset by decreases in professionalproperty and legal fees of $2.1 million, occupancy costs of $2.1 million and bad debtequipment depreciation expense of $1.7$1.4 million. As a percentage of total revenues, general and administration expenses increased from 14% in the six months ended June 30, 2021 to 17% in the six months ended June 30, 2022, primarily due to lease restructuring and asset retirements charges incurred for three office closures.
Depreciation and amortization
Depreciation and amortization expense increased 9% from $58.4 million in the six months ended June 30, 2021 to $63.8 million in the six months ended June 30, 2022. The increase was primarily due to increases in internally developed software amortization expense of $4.0 million and additional depreciation on fixed assets. As a percentage of total revenues, depreciation and amortization expense remained consistent at 10% in the six months ended June 30, 2021 and 2022.
Other expense, net
Other expense, net decreased from $11.3increased $2.0 million, inor 33%, for the sixthree months ended June 30, 2021March 31, 2023 compared to $4.3 million in the sixthree months ended June 30, 2022. The decrease wasMarch 31, 2022 primarily due to a $6.9 million dilution gain recordedan increase in 2022 related to anloss allocations from equity method investee's share issuance and a decrease in lossesinvestments of $1.1 million related to equity investments. These were partially offset by a decrease of $0.8 million related to the fair market value adjustment to investment in private company.$1.4 million.
Income tax provision (benefit)
| | | | | | | | | | | | | | |
| | Six Months Ended |
| | June 30, |
| | 2022 | | 2021 |
| | | | |
| | (in thousands, except effective tax rate) |
Income (loss) before income tax provision (benefit) | | $ | (42,789) | | | $ | 16,494 | |
Income tax provision (benefit) | | (3,813) | | | 9,928 | |
Effective tax rate | | 8.9 | % | | 60.2 | % |
Under ASC 740-270-25, we are required to report income tax expense by applying a projected AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the six months ended June 30, 2022 and 2021, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.
For the sixthree months ended June 30, 2022,March 31, 2023, our effective tax rate of (125.2)% differed from the statutory rate primarily due to the increase in the valuation allowance we hadhave placed on a portion of U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.
For the three months ended March 31, 2022, our effective tax rate of (15.9%) differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D")&D credits and the partial reserve release for an uncertain tax position due to the expiration of a statute of limitations.
For the six months ended June 30, 2021, our effective tax rate differedwindfall from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.stock-based compensation.
Segment Results
Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in “Note 15—18—Segment Information” to the condensed consolidated financial statements.
The following table reconciles income (loss) from operations by segment to consolidated net income (loss)loss attributable to Envestnet, Inc.:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Envestnet Wealth Solutions | | $ | 3,968 | | | $ | 32,459 | | | $ | 29,237 | | | $ | 66,656 | |
Envestnet Data & Analytics | | (3,705) | | | 1,342 | | | (9,292) | | | 2,631 | |
Nonsegment operating expenses | | (31,986) | | | (22,870) | | | (58,389) | | | (41,541) | |
Income (loss) from operations | | (31,723) | | | 10,931 | | | (38,444) | | | 27,746 | |
Other income (expense), net | | 1,622 | | | (3,784) | | | (4,345) | | | (11,252) | |
Consolidated income (loss) before income tax benefit | | (30,101) | | | 7,147 | | | (42,789) | | | 16,494 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | |
Consolidated net income (loss) | | (24,268) | | | (8,369) | | | (38,976) | | | 6,566 | |
Add: Net loss attributable to non-controlling interest | | 983 | | | 88 | | | 1,832 | | | 99 | |
Consolidated net income (loss) attributable to Envestnet, Inc. | | $ | (23,285) | | | $ | (8,281) | | | $ | (37,144) | | | $ | 6,665 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Envestnet Wealth Solutions | | | | | | $ | 23,463 | | | $ | 25,269 | |
Envestnet Data & Analytics | | | | | | (7,780) | | | (5,587) | |
Nonsegment operating expenses | | | | | | (26,740) | | | (26,403) | |
Loss from operations | | | | | | (11,057) | | | (6,721) | |
Other expense, net | | | | | | (7,935) | | | (5,967) | |
Consolidated loss before income tax provision | | | | | | (18,992) | | | (12,688) | |
Income tax provision | | | | | | 23,769 | | | 2,020 | |
Consolidated net loss | | | | | | (42,761) | | | (14,708) | |
Add: Net loss attributable to non-controlling interest | | | | | | 1,533 | | | 849 | |
Consolidated net loss attributable to Envestnet, Inc. | | | | | | $ | (41,228) | | | $ | (13,859) | |
Envestnet Wealth Solutions
The following table presents income from operations for the Envestnet Wealth Solutions segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | Percent | | June 30, | | Percent |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | | | | | | | | | | | |
| | (in thousands) | | | | (in thousands) | | |
Revenues: | | | | | | | | | | | | |
Asset-based | | $ | 191,972 | | | $ | 170,075 | | | 13 | % | | $ | 394,689 | | | $ | 329,450 | | | 20 | % |
Subscription-based | | 73,568 | | | 66,663 | | | 10 | % | | 142,105 | | | 130,675 | | | 9 | % |
Total recurring revenues | | 265,540 | | | 236,738 | | | 12 | % | | 536,794 | | | 460,125 | | | 17 | % |
Professional services and other revenues | | 6,460 | | | 3,559 | | | 82 | % | | 8,774 | | | 6,582 | | | 33 | % |
Total revenues | | 272,000 | | | 240,297 | | | 13 | % | | 545,568 | | | 466,707 | | | 17 | % |
Operating expenses: | | | | | | | | | | | | |
Cost of revenues | | 120,722 | | | 94,713 | | | 27 | % | | 239,530 | | | 182,145 | | | 32 | % |
Compensation and benefits | | 78,759 | | | 65,114 | | | 21 | % | | 157,403 | | | 127,968 | | | 23 | % |
General and administration | | 45,001 | | | 24,884 | | | 81 | % | | 72,361 | | | 45,583 | | | 59 | % |
Depreciation and amortization | | 23,550 | | | 23,127 | | | 2 | % | | 47,037 | | | 44,355 | | | 6 | % |
Total operating expenses | | 268,032 | | | 207,838 | | | 29 | % | | 516,331 | | | 400,051 | | | 29 | % |
Income from operations | | $ | 3,968 | | | $ | 32,459 | | | (88) | % | | $ | 29,237 | | | $ | 66,656 | | | (56) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 176,932 | | | 69 | % | | $ | 202,717 | | | 74 | % | | $ | (25,785) | | | (13) | % |
Subscription-based | | | | | | | | 76,485 | | | 30 | % | | 68,537 | | | 25 | % | | 7,948 | | | 12 | % |
Total recurring revenue | | | | | | | | 253,417 | | | 99 | % | | 271,254 | | | 99 | % | | (17,837) | | | (7) | % |
Professional services and other revenue | | | | | | | | 3,243 | | | 1 | % | | 2,314 | | | 1 | % | | 929 | | | 40 | % |
Total revenue | | | | | | | | 256,660 | | | 100 | % | | 273,568 | | | 100 | % | | (16,908) | | | (6) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 104,049 | | | 41 | % | | 118,808 | | | 43 | % | | (14,759) | | | (12) | % |
Employee compensation | | | | | | | | 76,883 | | | 30 | % | | 78,644 | | | 29 | % | | (1,761) | | | (2) | % |
General and administrative | | | | | | | | 28,127 | | | 11 | % | | 27,360 | | | 10 | % | | 767 | | | 3 | % |
Depreciation and amortization | | | | | | | | 24,138 | | | 9 | % | | 23,487 | | | 9 | % | | 651 | | | 3 | % |
Total operating expenses | | | | | | | | 233,197 | | | 91 | % | | 248,299 | | | 91 | % | | (15,102) | | | (6) | % |
Income from operations | | | | | | | | $ | 23,463 | | | 9 | % | | $ | 25,269 | | | 9 | % | | $ | (1,806) | | | (7) | % |
Three months ended June 30, 2022March 31, 2023 compared to three months ended June 30, 2021 for the Envestnet Wealth Solutions segment
Asset-based recurring revenuesMarch 31, 2022
Asset-based recurring revenues increasedrevenue
Asset-based recurring revenue decreased $25.8 million, or 13% from $170.1 million in, for the three months ended June 30, 2021March 31, 2023 compared to $192.0 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increasea decrease in asset values applicable to our quarterly billing cycles, (whichwhich are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), due to the impact of new account growth and positive net flows of AUM/A in the second quarter of 2022.quarter.
The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 41,00040,000 as of June 30, 2021March 31, 2022 to approximately 38,00039,000 as of June 30, 2022,March 31, 2023, and the number of AUM/A client accounts increased from approximately 2.4 million as of June 30, 2021 to approximately 2.6 million as of June 30, 2022.March 31, 2022 to approximately 2.7 million as of March 31, 2023.
As a percentage of segment revenues,revenue, asset-based recurring revenue remained consistent at 71% of segment revenue indecreased 5% points for the three months ended June 30, 2021 and 2022.March 31, 2023 compared to the three months ended March 31, 2022 primarily due to a decrease in asset-based recurring revenue compared to an increase in subscription-based recurring revenue.
Subscription-based recurring revenuesrevenue
Subscription-based recurring revenuesrevenue increased 10% from $66.7$7.9 million, inor 12%, for the three months ended June 30, 2021March 31, 2023 compared to $73.6 million in the three months ended June 30,March 31, 2022 primarily due to new and existing customer growth.
Professional services and other revenues As a percentage of segment revenue, subscription-based recurring revenue increased 5% points primarily due to an increase in subscription-based recurring revenue compared to a decrease in asset-based recurring revenue.
Professional services and other revenuesrevenue
Professional services and other revenue increased 82% from $3.6$0.9 million, inor 40%, for the three months ended June 30, 2021March 31, 2023 compared to $6.5 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increase in revenues resulting fromtiming of the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing and completion of customer projects and deployments.
Cost of revenuesDirect expense
Cost of revenues increased 27% from $94.7Direct expense decreased $14.8 million, inor 12%, for the three months ended June 30, 2021March 31, 2023 compared to $120.7 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increasea decrease in asset-based cost of revenues of $19.0 million,direct expense, which directly correlates with the increase todecrease in asset-based recurring revenuesrevenue during the period, and an increase in professional services and other cost of revenues of $6.8period.
Employee compensation
Employee compensation decreased $1.8 million, primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of segment revenues, cost of revenues increased from 39% inor 2%, for the three months ended June 30, 2021March 31, 2023 compared to 44% in the three months ended June 30,March 31, 2022 primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.
Compensation and benefits
Compensation and benefits increased from $65.1 million in the three months ended June 30, 2021 to $78.8 million in the three months ended June 30, 2022. The increase is primarily due to increasesdecreases in salaries, benefits and related payroll taxes of $8.7$1.5 million, non-cashwhich is primarily a result of a reduction in force in the first quarter of 2023 and an organizational realignment in the fourth quarter of 2022, incentive compensation expense of $3.8$1.1 million and other immaterial decreases within employee compensation. These decreases were partially offset by an increase in severance expense of $1.7$2.2 million as a result of the reduction in force and organizational realignment.
General and administrative
General and administrative expenses increased $0.8 million, or 3%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to increases in software and maintenance charges of $1.6 million, restructuring charges and transaction costs of $0.8 million, travel and entertainment expense of $0.7 million and other immaterial increases within compensation and benefit accounts, partially offset by a decrease in incentive compensation of $1.0 million. As a percentage of segment revenues, compensation and benefits increased from 27% in the three months ended June 30, 2021 to 29% in the three months ended June 30, 2022.
General and administration
General and administration expenses increased 81% from $24.9 million in the three months ended June 30, 2021 to $45.0 million in the three months ended June 30, 2022. The increase was primarily due to an increase of $15.4 million related to lease restructuring costs incurred in 2022 driven by the closure of three offices in the United States, in software and maintenance charges of $3.3 million, marketing expense of $2.3 million, and miscellaneous general and administrative expenses of $1.0 million.expense. These increases were partially offset by decreases in occupancy costs of $1.5 million and professional and legal feesmarketing costs of $1.2$0.8 million. As a percentage of segment revenues, general and administration expenses increased from 10% in the three months ended June 30, 2021 to 17% in the three months ended June 30, 2022, primarily due to lease restructuring and asset retirements charges incurred for three office closures in April 2022.
Depreciation and amortization
Depreciation and amortization expense increased 2% from $23.1$0.7 million, inor 3%, for the three months ended June 30, 2021March 31, 2023 compared to $23.6 million in the three months ended June 30, 2022. The increase was primarily due to an increase in internally developed software amortization expense of $0.9 million, partially offset by other immaterial decreases within depreciation and amortization accounts. As a percentage of segment revenues, depreciation and amortization expense decreased from 10% in the three months ended June 30, 2021 to 9% in the three months ended June 30, 2022.
Six months ended June 30,March 31, 2022 compared to six months ended June 30, 2021 for the Envestnet Wealth Solutions segment
Asset-based recurring revenues
Asset-based recurring revenues increased 20% from $329.5 million in the six months ended June 30, 2021 to $394.7 million in the six months ended June 30, 2022. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), due to the impact of new account growth and positive net flows of AUM/A in the first six months of 2022.
The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 41,000 as of June 30, 2021 to approximately 38,000 as of June 30, 2022, and the number of AUM/A client accounts increased from approximately 2.4 million as of June 30, 2021 to approximately 2.6 million as of June 30, 2022.
As a percentage of segment revenues, asset-based recurring revenue increased from 71% of segment revenue in the six months ended June 30, 2021 to 72% of segment revenue in the six months ended June 30, 2022.
Subscription-based recurring revenues
Subscription-based recurring revenues increased 9% from $130.7 million in the six months ended June 30, 2021 to $142.1 million in the six months ended June 30, 2022, primarily due to new and existing customer growth.
Professional services and other revenues
Professional services and other revenues increased 33% from $6.6 million in the six months ended June 30, 2021 to $8.8 million in the six months ended June 30, 2022. The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing and completion of customer projects and deployments.
Cost of revenues
Cost of revenues increased 32% from $182.1 million in the six months ended June 30, 2021 to $239.5 million in the six months ended June 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $50.2 million, which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of $6.8 million, primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of segment revenues, cost of revenues increased from 39% in the six months ended June 30, 2021 to 44% in the six months ended June 30, 2022, primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.
Compensation and benefits
Compensation and benefits increased from $128.0 million in the six months ended June 30, 2021 to $157.4 million in the six months ended June 30, 2022. The increase is primarily due to increases in salaries, benefits andamortization related payroll taxes of $20.2 million, non-cash compensation expense of $7.2 million and other immaterial increases within compensation and benefit accounts. As a percentage of segment revenues, compensation and benefits increased from 27% in the six months ended June 30, 2021 to 29% in the six months ended June 30, 2022.
General and administration
General and administration expenses increased 59% from $45.6 million in the six months ended June 30, 2021 to $72.4 million in the six months ended June 30, 2022. The increase was primarily due to an increase of $15.3 million related to lease restructuring costs incurred in 2022 driven by the closure of three offices in the United States, software and maintenance charges of $6.7 million, marketing expense of $3.9 million and miscellaneous general and administration expenses of $2.6 million. These increases were partially offset by decreased occupancy costs of $1.8 million. As a percentage of segment revenues, general and administration expenses increased from 10% in the six months ended June 30, 2021 to 13% in the six months ended June 30, 2022, primarily due to lease restructuring and asset retirements charges incurred for three office closures.
Depreciation and amortization
Depreciation and amortization expense increased 6% from $44.4 million in the six months ended June 30, 2021 to $47.0 million in the six months ended June 30, 2022. The increase was primarily due to an increase in internally developed software amortization expense of $2.2 million and an increase in finance lease amortization of $1.2$1.6 million, partially offset by other immaterial decreases withinin property and equipment depreciation and amortization accounts. As a percentageexpense of segment revenues, depreciation and amortization expense decreased from 10% in the six months ended June 30, 2021 to 9% in the six months ended June 30, 2022.$0.8 million.
Envestnet Data & Analytics
The following table presents income (loss)loss from operations for the Envestnet Data & Analytics segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | Percent | | June 30, | | Percent |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | | | | | | | | | | | |
| | (in thousands) | | | | (in thousands) | | |
Revenues: | | | | | | | | | | | | |
Subscription-based | | $ | 44,552 | | | $ | 45,841 | | | (3) | % | | $ | 90,749 | | | $ | 91,658 | | | (1) | % |
Professional services and other revenues | | 2,300 | | | 2,600 | | | (12) | % | | 3,898 | | | 5,478 | | | (29) | % |
Total revenues | | 46,852 | | | 48,441 | | | (3) | % | | 94,647 | | | 97,136 | | | (3) | % |
Operating expenses: | | | | | | | | | | | | |
Cost of revenues | | 5,760 | | | 5,781 | | | — | % | | 12,234 | | | 11,218 | | | 9 | % |
Compensation and benefits | | 23,994 | | | 25,008 | | | (4) | % | | 54,160 | | | 51,297 | | | 6 | % |
General and administration | | 12,171 | | | 9,427 | | | 29 | % | | 20,782 | | | 17,943 | | | 16 | % |
Depreciation and amortization | | 8,632 | | | 6,883 | | | 25 | % | | 16,763 | | | 14,047 | | | 19 | % |
Total operating expenses | | 50,557 | | | 47,099 | | | 7 | % | | 103,939 | | | 94,505 | | | 10 | % |
Income (loss) from operations | | $ | (3,705) | | | $ | 1,342 | | | * | | $ | (9,292) | | | $ | 2,631 | | | * |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Subscription-based | | | | | | | | $ | 40,594 | | | 97 | % | | $ | 46,197 | | | 97 | % | | $ | (5,603) | | | (12) | % |
Professional services and other revenue | | | | | | | | 1,453 | | | 3 | % | | 1,598 | | | 3 | % | | (145) | | | (9) | % |
Total revenue | | | | | | | | 42,047 | | | 100 | % | | 47,795 | | | 100 | % | | (5,748) | | | (12) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 4,940 | | | 12 | % | | 6,474 | | | 14 | % | | (1,534) | | | (24) | % |
Employee compensation | | | | | | | | 21,406 | | | 51 | % | | 30,166 | | | 63 | % | | (8,760) | | | (29) | % |
General and administrative | | | | | | | | 14,678 | | | 35 | % | | 8,611 | | | 18 | % | | 6,067 | | | 70 | % |
Depreciation and amortization | | | | | | | | 8,803 | | | 21 | % | | 8,131 | | | 17 | % | | 672 | | | 8 | % |
Total operating expenses | | | | | | | | 49,827 | | | 119 | % | | 53,382 | | | 112 | % | | (3,555) | | | (7) | % |
Income loss from operations | | | | | | | | $ | (7,780) | | | (19) | % | | $ | (5,587) | | | (12) | % | | $ | (2,193) | | | (39) | % |
*Not meaningful.
Three months ended June 30, 2022March 31, 2023 compared to three months ended June 30, 2021 for the Envestnet Data & Analytics segmentMarch 31, 2022
Subscription-based recurring revenuesrevenue
Subscription-based recurring revenuesrevenue decreased 3% from $45.8$5.6 million, inor 12%, for the three months ended June 30, 2021March 31, 2023 compared to $44.6 million in the three months ended June 30,March 31, 2022 primarily due to decreases in revenue from existing customers.
Professional services and other revenuesrevenue
Professional services and other revenuesrevenue decreased 12% from $2.6 $0.1million, inor 9%, for the three months ended June 30, 2021March 31, 2023 compared to $2.3 million in the three months ended June 30,March 31, 2022.
Direct expense
Direct expense decreased $1.5 million, or 24%, for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to a decrease in subscription-based direct expense as a result of a decrease in subscription-based recurring revenue during the timing of the completion of customer projects and deployments.period.
Employee compensation
Cost of revenues
Cost of revenues remained consistent at $5.8Employee compensation decreased $8.8 million, inor 29%, for the three months ended June 30, 2021 and 2022. As a percentage of segment revenues, cost of revenues remained consistent at 12% inMarch 31, 2023 compared to the three months ended June 30, 2021 and 2022.
Compensation and benefits
Compensation and benefits decreased 4% from $25.0 million in the three months ended June 30, 2021 to $24.0 million in the three months ended June 30,March 31, 2022 primarily due to decreases in severance expense of $2.1 million and non-cash compensation expense of $1.3 million, partially offset by an increase in salaries, benefits and related payroll taxes of $1.8 million. $6.8 million, which is primarily as a result of the outsourcing arrangement with TCS which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in the first quarter of 2023 and an organizational realignment in the fourth quarter of 2022, incentive compensation of $1.1 million, non-cash compensation expense of $0.9 million and other immaterial decreases within employee compensation. These decreases were partially offset by an increase in severance expense of $0.8 million as a result of the reduction in force and organizational realignment.
As a percentage of segment revenues,revenue, employee compensation and benefitsexpense decreased from 52%12% points for three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the outsourcing arrangement with TCS, partially offset by a decrease in segment revenue in the three months ended June 30, 2021March 31, 2023 compared to 51% in the three months ended June 30, 2022.prior year period.
General and administrative
General and administration
General and administrationadministrative expenses increased 29% from $9.4$6.1 million, inor 70%, for the three months ended June 30, 2021March 31, 2023 compared to $12.2 million in the three months ended June 30,March 31, 2022 primarily due to an increaseincreases in litigationsoftware and regulatorymaintenance charges of $6.8 million, which is primarily a result of the outsourcing arrangement with TCS, and other immaterial increases within general and administrative expense. These increases were partially offset by decrease in litigation related expense of $2.4$1.8 million.
As a percentage of segment revenues,revenue, general and administration expensesadministrative expense increased from 19% in17% points for three months ended March 31, 2023 compared to the three months ended June 30, 2021 to 26% in the three months ended June 30,March 31, 2022 primarily due to an increasethe outsourcing arrangement with TCS as well as a decrease in litigation and regulatory related expenses incurred during 2022.segment revenue.
Depreciation and amortization
Depreciation and amortization expense increased 25% from $6.9$0.7 million, inor 8%, for the three months ended June 30, 2021March 31, 2023 compared to $8.6 million in the three months ended June 30, 2022. The increase isMarch 31, 2022 primarily due to an increaseincreases in amortization related to internally developed software and intangible asset amortization expense. of $1.0 million.
As a percentage of segment revenues,revenue, depreciation and amortization expense increased from 14% in4% points for three months ended March 31, 2023 compared to the three months ended June 30, 2021 to 18% in three months ended June 30, 2022. The increase in depreciation and amortization as a percentage of total revenues is primarily due to higher amortization expense incurred in 2022 driven by increased capitalization related to internally developed software costs.
Six months ended June 30, 2022 compared to six months ended June 30, 2021 for the Envestnet Data & Analytics segment
Subscription-based recurring revenues
Subscription-based recurring revenues decreased 1% from $91.7 million in the six months ended June 30, 2021 to $90.7 million in the six months ended June 30,March 31, 2022 primarily due to decreases in revenue from existing customers.
��
Professional services and other revenues
Professional services and other revenues decreased29% from $5.5 million in the six months ended June 30, 2021 to $3.9 million in the six months ended June 30, 2022 primarily due to the timing of the completion of customer projects and deployments.
Cost of revenues
Cost of revenues increased 9% from $11.2 million in the six months ended June 30, 2021 to $12.2 million in the six months ended June 30, 2022. As a percentage of segment revenues, cost of revenues increased from 12% in the six months ended June 30, 2021 to 13% in the six months ended June 30, 2022.
Compensation and benefits
Compensation and benefits increased 6% from $51.3 million in the six months ended June 30, 2021 to $54.2 million in the six months ended June 30, 2022, primarily due to an increase in salaries, benefits, and related payroll taxes of $4.2 million, miscellaneous employee expenses of $1.1 million and other immaterial increases within compensation and benefit accounts, partially offset by decreases in severance expense of $2.2 million and in incentive compensation of $1.0 million. As a percentage of segment revenues, compensation and benefits increased from 53% in the six months ended June 30, 2021 to 57% in the six months ended June 30, 2022. The increase in compensation and benefits as a percentage of segment revenues is primarily driven by increased headcount related to domestic employees.
General and administration
General and administration expenses increased 16% from $17.9 million in the six months ended June 30, 2021 to $20.8 million in the six months ended June 30, 2022 as an increase in litigation and regulatory related expense of $3.7 million was partially offset by a decrease in bad debt expense of $0.7 million. As a percentage of segment revenues, general and administration expenses increased from 18% inrevenue for the sixthree months ended June 30, 2021March 31, 2023 compared to 22% in the six months ended June 30, 2022, primarily due to an increase in litigation and regulatory related expenses incurred during 2022.
Depreciation and amortization
Depreciation and amortization expense increased 19% from $14.0 million in the six months ended June 30, 2021 to $16.8 million in the six months ended June 30, 2022. The increase is primarily due to an increase in internally developed software and intangible asset amortization expense. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in the six months ended June 30, 2021 to 18% in six months ended June 30, 2022. The increase in depreciation and amortization as a percentage of total revenues is primarily due to higher amortization expense incurred in 2022 driven by increased capitalization related to internally developed software costs.prior year period.
Nonsegment
The following table presents nonsegment operating expenses:
| | | | Three Months Ended | | | | Six Months Ended | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, | | Percent | | June 30, | | Percent | | | | Three Months Ended March 31, | $ | | % |
| | | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change | | | | 2023 | | 2022 | | Change | | Change |
| | | | (in thousands) | | | | (in thousands) | | | | | | (in thousands, except percentages) |
Operating expenses: | Operating expenses: | | | | | | | | | | | | | Operating expenses: | | | | | | | |
Compensation and benefits | | $ | 23,014 | | | $ | 15,426 | | | 49 | % | | $ | 41,053 | | | $ | 26,997 | | | 52 | % | |
General and administration | | 8,972 | | | 7,444 | | | 21 | % | | 17,336 | | | 14,544 | | | 19 | % | |
Employee compensation | | Employee compensation | | | $ | 15,926 | | | $ | 18,039 | | | $ | (2,113) | | | (12) | % |
General and administrative | | General and administrative | | | 10,814 | | | 8,364 | | | 2,450 | | | 29 | % |
Nonsegment operating expenses | Nonsegment operating expenses | | $ | 31,986 | | | $ | 22,870 | | | 40 | % | | $ | 58,389 | | | $ | 41,541 | | | 41 | % | Nonsegment operating expenses | | | $ | 26,740 | | | $ | 26,403 | | | $ | 337 | | | 1 | % |
Three months ended June 30, 2022March 31, 2023 compared to three months ended June 30, 2021 for NonsegmentMarch 31, 2022
Compensation and benefitsEmployee compensation
Compensation and benefits increased 49% from $15.4Employee compensation decreased $2.1 million, inor 12%, for the three months ended June 30, 2021March 31, 2023 compared to $23.0 million in the three months ended June 30,March 31, 2022 primarily due to increased headcount that resulted in increasesdecreases in non-cash compensation expense of $3.8 million, severance of $2.2$1.4 million and salaries, benefits and related payroll taxes of $1.3 million.$1.1 million, partially offset by other immaterial changes within employee compensation.
General and administrationadministrative
General and administrationadministrative expenses increased 21% from $7.4$2.5 million, inor 29%, for the three months ended June 30, 2021March 31, 2023 compared to $9.0 million in the three months ended June 30, 2022. The increase wasMarch 31, 2022 primarily due to an increase in transaction costsgovernance related expense of $2.1$1.8 million driven by acquisition activity and system implementation costs, partially offset by other immaterial decreases.as a result of expense associated with activist shareholder activity.
Six months ended June 30, 2022 compared to six months ended June 30, 2021 for Nonsegment
Compensation and benefits
Compensation and benefits increased 52% from $27.0 million in the six months ended June 30, 2021 to $41.1 million in the six months ended June 30, 2022, primarily due to increased headcount that resulted in increases in non-cash compensation expense of $7.3 million, salaries, benefits and related payroll taxes of $3.5 million, and severance of $2.1 million.
General and administration
General and administration expenses increased 19% from $14.5 million in the six months ended June 30, 2021 to $17.3 million in the six months ended June 30, 2022. The increase was primarily due to an increase in transaction costs of $3.1 million driven by acquisition activity and system implementation costs, partially offset by other immaterial decreases.
Non-GAAP Financial Measures
In addition to reporting results according to U.S. generally accepted accounting principles (“GAAP”),GAAP, we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include “adjusted revenues,revenue,” “adjusted EBITDA,” “adjusted net income” and “adjusted net income per diluted share.”
“Adjusted revenues”revenue” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. On January 1, 2022, the Company adopted ASU 2021-08 whereby it now accounts for contract assets and contract liabilities obtained upon a business combination in accordance with ASC 606. Prior to the adoption of ASU 2021-08, we recorded 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 did not reflect the full amount of revenue that would have been recorded by these entities had they remained stand-alone entities. Adjusted revenuesrevenue has limitations as a financial measure, should be considered as supplemental in nature and is 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, income tax provision (benefit), depreciation and amortization, non-cash compensation expense, restructuring charges and transaction costs, severance, accretion on contingent considerationlitigation, regulatory and purchase liability, fair market value
adjustment on contingent consideration liability, fair market value adjustment to investment in private company, litigation and regulatoryother governance related expenses, foreign currency, non-income tax expense adjustment, dilution gain on equity method investee share issuance, income or loss allocations from equity method investments and (income) loss attributable to non-controlling interest.
“Adjusted net income” represents net income (loss) before deferred revenue fair value adjustment, non-cash interest expense, cash interest on our convertible notes, non-cash compensation expense, restructuring charges and transaction costs, severance, accretion on contingent consideration and purchase liability, fair market value adjustment on contingent consideration liability, fair market value adjustment to investment in private company, amortization of acquired intangibles, litigation, regulatory and regulatoryother governance related expenses, foreign currency, non-income tax expense adjustment, dilution gain on equity method investee share issuance, income or loss allocations from equity method investments and (income) loss attributable to non-controlling interest. Reconciling items are presented gross of tax, and a normalized tax rate is applied to the total of all reconciling items to arrive at adjusted net income. The normalized tax rate is based solely on the estimated blended statutory income tax rates in the jurisdictions in which we operate. We monitor the normalized tax rate based on events or trends that could materially impact the rate, including tax legislation changes and changes in the geographic mix of our operations.
“Adjusted net income per diluted share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted average shares outstanding. For purposes of the adjusted net income per share calculation, we assume all potential shares to be issued in connection with our Convertible Notes are dilutive.
Our Board 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 concerning our financial performance.
Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, among other factors, when determining management’s incentive compensation.
We also present adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share as supplemental performance measures because we believe that they provide our Board, management and investors with additional information to assess our performance. Adjusted revenuesrevenue provide comparisons from period to period by excluding the effect of purchase accounting on the fair value of acquired deferred revenue. Adjusted EBITDA provides comparisons from period to period by excluding potential differences caused by variations in the age and book depreciation of fixed assets affecting relative depreciation expense and amortization of internally developed software, amortization of acquired intangible assets, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, severance, accretion on contingent considerationlitigation, regulatory and purchase liability, fair market value adjustment on contingent consideration liability, litigation and regulatoryother governance related expenses, foreign currency, non-income tax expense, dilution gain on equity method investee share issuance, income or loss allocations from equity method investments, pre-tax (income) loss attributable to non-controllingnon‑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-basednon‑cash compensation expense from adjusted EBITDA and adjusted net income because non-cashnon‑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,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are useful to investors in evaluating our operating performance because securities analysts use adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investors and analyst presentations will include adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share.
Adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenues,revenue, 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,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted 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,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•Adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect non-cashnon‑cash components of employee compensation;
•Although depreciation and amortization are non-cashnon‑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;
•WeDue to either net losses before income tax expense or the use of federal and state net operating loss carryforwards, we paid net cash for income taxes of $5.5$1.1 million and $3.1$0.7 million for the sixthree months ended June 30,March 31, 2023 and 2022, and 2021, respectively. In the event that we 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,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share differently than we do, limiting their usefulness as a comparative measure.
Management compensates for the inherent limitations associated with using adjusted revenues,revenue, adjusted EBITDA, adjusted net income and adjusted net income per diluted share through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted revenuesrevenue to revenues,revenue, the most directly comparable GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income and net income per share, the most directly comparable GAAP measures. Further, our management also reviews GAAP measures and evaluates individual measures that are not included in some or all of our non-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 revenuesrevenue to adjusted revenues based on our historical results:revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Total revenues | | $ | 318,852 | | | $ | 288,738 | | | $ | 640,215 | | | $ | 563,843 | |
Deferred revenue fair value adjustment | | 54 | | | 80 | | | 108 | | | 160 | |
Adjusted revenues | | $ | 318,906 | | | $ | 288,818 | | | $ | 640,323 | | | $ | 564,003 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| | | | | | | | |
| | | | | | (in thousands) |
Total revenue | | | | | | $ | 298,707 | | | $ | 321,363 | |
Deferred revenue fair value adjustment | | | | | | 52 | | | 54 | |
Adjusted revenue | | | | | | $ | 298,759 | | | $ | 321,417 | |
The following table sets forth a reconciliation of net income (loss)loss to adjusted EBITDA based on our historical results:EBITDA:
| | | Three Months Ended | | Six Months Ended | | | Three Months Ended |
| | June 30, | | June 30, | | | March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 | | | 2023 | | 2022 |
| | | (in thousands) | | | (in thousands) |
Net income (loss) | | $ | (24,268) | | | $ | (8,369) | | | $ | (38,976) | | | $ | 6,566 | | |
Net loss | | Net loss | | | $ | (42,761) | | | $ | (14,708) | |
Add (deduct): | Add (deduct): | | | | | | | | | Add (deduct): | | | | | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | 80 | | | 108 | | | 160 | | Deferred revenue fair value adjustment | | | 52 | | | 54 | |
Interest income | Interest income | | (713) | | | (197) | | | (1,034) | | | (367) | | Interest income | | | (1,358) | | | (321) | |
Interest expense | Interest expense | | 4,212 | | | 4,225 | | | 9,065 | | | 8,440 | | Interest expense | | | 6,320 | | | 4,853 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | | |
Income tax provision | | Income tax provision | | | 23,769 | | | 2,020 | |
Depreciation and amortization | Depreciation and amortization | | 32,182 | | | 30,010 | | | 63,800 | | | 58,402 | | Depreciation and amortization | | | 32,941 | | | 31,618 | |
Non-cash compensation expense | Non-cash compensation expense | | 23,504 | | | 17,285 | | | 45,318 | | | 31,422 | | Non-cash compensation expense | | | 19,453 | | | 21,814 | |
Restructuring charges and transaction costs | Restructuring charges and transaction costs | | 21,026 | | | 5,028 | | | 23,372 | | | 7,812 | | Restructuring charges and transaction costs | | | 4,163 | | | 2,346 | |
Severance | Severance | | 7,148 | | | 5,377 | | | 10,254 | | | 10,291 | | Severance | | | 6,188 | | | 3,106 | |
Accretion on contingent consideration and purchase liability | | — | | | 187 | | | — | | | 575 | | |
Fair market value adjustment on contingent consideration liability | | — | | | — | | | — | | | (140) | | |
Fair market value adjustment to investment in private company | | — | | | (758) | | | — | | | (758) | | |
Litigation and regulatory related expenses | | 4,306 | | | 1,938 | | | 7,383 | | | 3,647 | | |
Litigation, regulatory and other governance related expenses | | Litigation, regulatory and other governance related expenses | | | 3,074 | | | 3,077 | |
Foreign currency | Foreign currency | | 413 | | | (138) | | | 305 | | | 13 | | Foreign currency | | | 33 | | | (108) | |
| Non-income tax expense adjustment | Non-income tax expense adjustment | | 189 | | | 295 | | | 213 | | | (271) | | Non-income tax expense adjustment | | | (168) | | | 24 | |
Dilution gain on equity method investee share issuance | | (6,934) | | | — | | | (6,934) | | | — | | |
Loss allocations from equity method investments | Loss allocations from equity method investments | | 1,400 | | | 757 | | | 2,945 | | | 4,045 | | Loss allocations from equity method investments | | | 2,940 | | | 1,545 | |
(Income) loss attributable to non-controlling interest | | 440 | | | (175) | | | 817 | | | (440) | | |
Loss attributable to non-controlling interest | | Loss attributable to non-controlling interest | | | 778 | | | 377 | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 57,126 | | | $ | 71,061 | | | $ | 112,823 | | | $ | 139,325 | | Adjusted EBITDA | | | $ | 55,424 | | | $ | 55,697 | |
The following table sets forth the reconciliation of net income (loss)loss to adjusted net income and adjusted net income per diluted share based on our historical results:
| | | | Three Months Ended | | Six Months Ended | | | | Three Months Ended |
| | | June 30, | | June 30, | | | | March 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | | | 2023 | | 2022 |
| | | | (in thousands, except share and per share information) | | | | (in thousands, except share and per share information) |
Net income (loss) | | $ | (24,268) | | | $ | (8,369) | | | $ | (38,976) | | | $ | 6,566 | | |
Income tax provision (benefit) (1) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | | |
Income (loss) before income tax provision (benefit) | | (30,101) | | | 7,147 | | | (42,789) | | | 16,494 | | |
Net loss | | Net loss | | | $ | (42,761) | | | $ | (14,708) | |
Income tax provision (1) | | Income tax provision (1) | | | 23,769 | | | 2,020 | |
Loss before income tax provision | | Loss before income tax provision | | | (18,992) | | | (12,688) | |
Add (deduct): | Add (deduct): | | Add (deduct): | | | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | 80 | | | 108 | | | 160 | | Deferred revenue fair value adjustment | | | 52 | | | 54 | |
Non-cash interest expense | Non-cash interest expense | | 1,415 | | | 1,429 | | | 3,474 | | | 2,852 | | Non-cash interest expense | | | 1,442 | | | 2,059 | |
Cash interest - Convertible Notes | Cash interest - Convertible Notes | | 2,480 | | | 2,480 | | | 4,960 | | | 4,960 | | Cash interest - Convertible Notes | | | 4,565 | | | 2,480 | |
Non-cash compensation expense | Non-cash compensation expense | | 23,504 | | | 17,285 | | | 45,318 | | | 31,422 | | Non-cash compensation expense | | | 19,453 | | | 21,814 | |
Restructuring charges and transaction costs | Restructuring charges and transaction costs | | 21,026 | | | 5,028 | | | 23,372 | | | 7,812 | | Restructuring charges and transaction costs | | | 4,163 | | | 2,346 | |
Severance | Severance | | 7,148 | | | 5,377 | | | 10,254 | | | 10,291 | | Severance | | | 6,188 | | | 3,106 | |
Accretion on contingent consideration and purchase liability | | — | | | 187 | | | — | | | 575 | | |
Fair market value adjustment on contingent consideration liability | | — | | | — | | | — | | | (140) | | |
Fair market value adjustment to investment in private company | | — | | | (758) | | | — | | | (758) | | |
Amortization of acquired intangibles | Amortization of acquired intangibles | | 17,645 | | | 17,502 | | | 35,165 | | | 33,980 | | Amortization of acquired intangibles | | | 16,940 | | | 17,520 | |
Litigation and regulatory related expenses | | 4,306 | | | 1,938 | | | 7,383 | | | 3,647 | | |
Litigation, regulatory and other governance related expenses | | Litigation, regulatory and other governance related expenses | | | 3,074 | | | 3,077 | |
Foreign currency | Foreign currency | | 413 | | | (138) | | | 305 | | | 13 | | Foreign currency | | | 33 | | | (108) | |
| Non-income tax expense adjustment | Non-income tax expense adjustment | | 189 | | | 295 | | | 213 | | | (271) | | Non-income tax expense adjustment | | | (168) | | | 24 | |
Dilution gain on equity method investee share issuance | | (6,934) | | | — | | | (6,934) | | | — | | |
Loss allocations from equity method investments | Loss allocations from equity method investments | | 1,400 | | | 757 | | | 2,945 | | | 4,045 | | Loss allocations from equity method investments | | | 2,940 | | | 1,545 | |
(Income) loss attributable to non-controlling interest | | 440 | | | (175) | | | 817 | | | (440) | | |
Loss attributable to non-controlling interest | | Loss attributable to non-controlling interest | | | 778 | | | 377 | |
Adjusted net income before income tax effect | Adjusted net income before income tax effect | | 42,985 | | | 58,434 | | | 84,591 | | | 114,642 | | Adjusted net income before income tax effect | | | 40,468 | | | 41,606 | |
Income tax effect (2) | Income tax effect (2) | | (10,961) | | | (14,901) | | | (21,571) | | | (29,234) | | Income tax effect (2) | | | (10,319) | | | (10,610) | |
Adjusted net income | Adjusted net income | | $ | 32,024 | | | $ | 43,533 | | | $ | 63,020 | | | $ | 85,408 | | Adjusted net income | | | $ | 30,149 | | | $ | 30,996 | |
| Basic number of weighted-average shares outstanding | Basic number of weighted-average shares outstanding | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 54,325,353 | | Basic number of weighted-average shares outstanding | | | 54,143,259 | | | 54,903,677 | |
Effect of dilutive shares: | Effect of dilutive shares: | | Effect of dilutive shares: | | | |
Options to purchase common stock | Options to purchase common stock | | 129,217 | | | 198,277 | | | 142,510 | | | 210,381 | | Options to purchase common stock | | | 88,323 | | | 156,349 | |
Unvested restricted stock units | Unvested restricted stock units | | 199,853 | | | 435,023 | | | 381,397 | | | 536,186 | | Unvested restricted stock units | | | 463,719 | | | 568,914 | |
Convertible notes | Convertible notes | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | | Convertible notes | | | 11,470,645 | | | 9,898,549 | |
Warrants | Warrants | | 22,170 | | | 53,648 | | | 37,473 | | | 65,026 | | Warrants | | | — | | | 51,764 | |
Diluted number of weighted-average shares outstanding | Diluted number of weighted-average shares outstanding | | 65,452,909 | | | 65,025,885 | | | 65,514,201 | | | 65,035,495 | | Diluted number of weighted-average shares outstanding | | | 66,165,946 | | | 65,579,253 | |
Adjusted net income per share - diluted | Adjusted net income per share - diluted | | $ | 0.49 | | | $ | 0.67 | | | $ | 0.96 | | | $ | 1.31 | | Adjusted net income per share - diluted | | | $ | 0.46 | | | $ | 0.47 | |
|
(1)For the three months ended June 30,March 31, 2023 and 2022, and 2021, the effective tax rate computed in accordance with GAAP equaled 19.4%(125.2)% and 217.1%, respectively. For the six months ended June 30, 2022 and 2021, the effective tax rate computed in accordance with GAAP equaled 8.9% and 60.2%(15.9)%, respectively.
(2)An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for both the three and six months ended June 30, 2022March 31, 2023 and 2021.2022.
Note on Income Taxes:income taxes: As of December 31, 2021,2022, we had NOLnet operating loss carryforwards of approximately $195$69.0 million and $233$221.0 million for federal and state income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with GAAP, and from the normalized rate shown above.
The following tables set forth the reconciliation of revenuesrevenue to adjusted revenuesrevenue 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, 2022March 31, 2023 and 2021:2022:
| | | | Three Months Ended June 30, 2022 | | | Three Months Ended March 31, 2023 |
| | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total | | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total |
| | | | (in thousands) | | | (in thousands) |
Revenues | | $ | 272,000 | | | $ | 46,852 | | | $ | — | | | $ | 318,852 | | |
Revenue | | Revenue | | $ | 256,660 | | | $ | 42,047 | | | $ | — | | | $ | 298,707 | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | | Deferred revenue fair value adjustment | | 52 | | | — | | | — | | | 52 | |
Adjusted revenues | | $ | 272,054 | | | $ | 46,852 | | | $ | — | | | $ | 318,906 | | |
Adjusted revenue | | Adjusted revenue | | $ | 256,712 | | | $ | 42,047 | | | $ | — | | | $ | 298,759 | |
| Income (loss) from operations | Income (loss) from operations | | $ | 3,968 | | | $ | (3,705) | | | $ | (31,986) | | | $ | (31,723) | | Income (loss) from operations | | $ | 23,463 | | | $ | (7,780) | | | $ | (26,740) | | | $ | (11,057) | |
Add: | Add: | | Add: | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | | Deferred revenue fair value adjustment | | 52 | | | — | | | — | | | 52 | |
| Depreciation and amortization | Depreciation and amortization | | 23,550 | | | 8,632 | | | — | | | 32,182 | | Depreciation and amortization | | 24,138 | | | 8,803 | | | — | | | 32,941 | |
Non-cash compensation expense | Non-cash compensation expense | | 13,364 | | | 1,852 | | | 8,288 | | | 23,504 | | Non-cash compensation expense | | 11,242 | | | 2,662 | | | 5,549 | | | 19,453 | |
Restructuring charges and transaction costs | Restructuring charges and transaction costs | | 16,897 | | | 753 | | | 3,376 | | | 21,026 | | Restructuring charges and transaction costs | | 1,138 | | | 244 | | | 2,781 | | | 4,163 | |
Severance | Severance | | 2,813 | | | (431) | | | 4,766 | | | 7,148 | | Severance | | 3,576 | | | 2,428 | | | 184 | | | 6,188 | |
Litigation, regulatory and other governance related expenses | | Litigation, regulatory and other governance related expenses | | — | | | 1,324 | | | 1,750 | | | 3,074 | |
Non-income tax expense adjustment | | Non-income tax expense adjustment | | (102) | | | (66) | | | — | | | (168) | |
| Litigation and regulatory related expenses | | — | | | 4,306 | | | — | | | 4,306 | | |
Non-income tax expense adjustment | | 184 | | | 5 | | | — | | | 189 | | |
Loss attributable to non-controlling interest | Loss attributable to non-controlling interest | | 440 | | | — | | | — | | | 440 | | Loss attributable to non-controlling interest | | 778 | | | — | | | — | | | 778 | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 61,270 | | | $ | 11,412 | | | $ | (15,556) | | | $ | 57,126 | | Adjusted EBITDA | | $ | 64,285 | | | $ | 7,615 | | | $ | (16,476) | | | $ | 55,424 | |
| | | | Three Months Ended June 30, 2021 | | | Three Months Ended March 31, 2022 |
| | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total | | | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total |
| | | | (in thousands) | | | (in thousands) |
Revenues | | $ | 240,297 | | | $ | 48,441 | | | $ | — | | | $ | 288,738 | | |
Revenue | | Revenue | | $ | 273,568 | | | $ | 47,795 | | | $ | — | | | $ | 321,363 | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 80 | | | — | | | — | | | 80 | | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | |
Adjusted revenues | | $ | 240,377 | | | $ | 48,441 | | | $ | — | | | $ | 288,818 | | |
Adjusted revenue | | Adjusted revenue | | $ | 273,622 | | | $ | 47,795 | | | $ | — | | | $ | 321,417 | |
| Income (loss) from operations | Income (loss) from operations | | $ | 32,459 | | | $ | 1,342 | | | $ | (22,870) | | | $ | 10,931 | | Income (loss) from operations | | $ | 25,269 | | | $ | (5,587) | | | $ | (26,403) | | | $ | (6,721) | |
Add (deduct): | Add (deduct): | | Add (deduct): | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 80 | | | — | | | — | | | 80 | | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | |
Depreciation and amortization | Depreciation and amortization | | 23,127 | | | 6,883 | | | — | | | 30,010 | | Depreciation and amortization | | 23,487 | | | 8,131 | | | — | | | 31,618 | |
Non-cash compensation expense | Non-cash compensation expense | | 9,590 | | | 3,183 | | | 4,512 | | | 17,285 | | Non-cash compensation expense | | 11,290 | | | 3,535 | | | 6,989 | | | 21,814 | |
Restructuring charges and transaction costs | Restructuring charges and transaction costs | | 3,821 | | | 27 | | | 1,180 | | | 5,028 | | Restructuring charges and transaction costs | | 284 | | | (3) | | | 2,065 | | | 2,346 | |
Severance | Severance | | 1,096 | | | 1,687 | | | 2,594 | | | 5,377 | | Severance | | 1,410 | | | 1,642 | | | 54 | | | 3,106 | |
Accretion on contingent consideration and purchase liability | | 168 | | | 19 | | | — | | | 187 | | |
| Litigation and regulatory related expenses | | — | | | 1,938 | | | — | | | 1,938 | | |
Litigation, regulatory and other governance related expenses | | Litigation, regulatory and other governance related expenses | | — | | | 3,077 | | | — | | | 3,077 | |
Non-income tax expense adjustment | Non-income tax expense adjustment | | 105 | | | 190 | | | — | | | 295 | | Non-income tax expense adjustment | | 107 | | | (83) | | | — | | | 24 | |
Income attributable to non-controlling interest | | (175) | | | — | | | — | | | (175) | | |
Loss attributable to non-controlling interest | | Loss attributable to non-controlling interest | | 377 | | | — | | | — | | | 377 | |
Other | Other | | 88 | | | 9 | | | 8 | | | 105 | | Other | | — | | | 2 | | | — | | | 2 | |
Adjusted EBITDA | Adjusted EBITDA | | $ | 70,359 | | | $ | 15,278 | | | $ | (14,576) | | | $ | 71,061 | | Adjusted EBITDA | | $ | 62,278 | | | $ | 10,714 | | | $ | (17,295) | | | $ | 55,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total |
| | | | | | | | |
| | (in thousands) |
Revenues | | $ | 545,568 | | | $ | 94,647 | | | $ | — | | | $ | 640,215 | |
Deferred revenue fair value adjustment | | 108 | | | — | | | — | | | 108 | |
Adjusted revenues | | $ | 545,676 | | | $ | 94,647 | | | $ | — | | | $ | 640,323 | |
| | | | | | | | |
Income (loss) from operations | | $ | 29,237 | | | $ | (9,292) | | | $ | (58,389) | | | $ | (38,444) | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 108 | | | — | | | — | | | 108 | |
Depreciation and amortization | | 47,037 | | | 16,763 | | | — | | | 63,800 | |
Non-cash compensation expense | | 24,654 | | | 5,387 | | | 15,277 | | | 45,318 | |
Restructuring charges and transaction costs | | 17,181 | | | 750 | | | 5,441 | | | 23,372 | |
Severance | | 4,223 | | | 1,211 | | | 4,820 | | | 10,254 | |
| | | | | | | | |
| | | | | | | | |
Litigation and regulatory related expenses | | — | | | 7,383 | | | — | | | 7,383 | |
Non-income tax expense adjustment | | 291 | | | (78) | | | — | | | 213 | |
Loss attributable to non-controlling interest | | 817 | | | — | | | — | | | 817 | |
Other | | — | | | 2 | | | — | | | 2 | |
Adjusted EBITDA | | $ | 123,548 | | | $ | 22,126 | | | $ | (32,851) | | | $ | 112,823 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Envestnet Wealth Solutions | | Envestnet Data & Analytics | | Nonsegment | | Total |
| | | | | | | | |
| | (in thousands) |
Revenues | | $ | 466,707 | | | $ | 97,136 | | | $ | — | | | $ | 563,843 | |
Deferred revenue fair value adjustment | | 160 | | | — | | | — | | | 160 | |
Adjusted revenues | | $ | 466,867 | | | $ | 97,136 | | | $ | — | | | $ | 564,003 | |
| | | | | | | | |
Income (loss) from operations | | $ | 66,656 | | | $ | 2,631 | | | $ | (41,541) | | | $ | 27,746 | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 160 | | | — | | | — | | | 160 | |
Depreciation and amortization | | 44,355 | | | 14,047 | | | — | | | 58,402 | |
Non-cash compensation expense | | 17,419 | | | 6,024 | | | 7,979 | | | 31,422 | |
Restructuring charges and transaction costs | | 5,186 | | | 174 | | | 2,452 | | | 7,812 | |
Severance | | 4,183 | | | 3,407 | | | 2,701 | | | 10,291 | |
Accretion on contingent consideration and purchase liability | | 510 | | | 65 | | | — | | | 575 | |
Fair market value adjustment on contingent consideration liability | | — | | | (140) | | | — | | | (140) | |
Litigation and regulatory related expenses | | — | | | 3,647 | | | — | | | 3,647 | |
Non-income tax expense adjustment | | (430) | | | 159 | | | — | | | (271) | |
Income attributable to non-controlling interest | | (440) | | | — | | | — | | | (440) | |
Other | | 104 | | | 9 | | | 8 | | | 121 | |
Adjusted EBITDA | | $ | 137,703 | | | $ | 30,023 | | | $ | (28,401) | | | $ | 139,325 | |
Liquidity and Capital Resources
As of June 30, 2022,March 31, 2023, we had total cash and cash equivalents of $338.1$52.7 million compared to $429.3$162.2 million as of December 31, 2021.2022. We plan to use existing cash as of June 30, 2022,March 31, 2023, cash generated in the ongoing operations of our business and amounts under our revolving credit facilityRevolving 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 facilityRevolving Credit Facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. As of June 30, 2022,March 31, 2023, we had $500.0 million available to borrow under our revolving credit facility, subject to covenant compliance.facility.
Cash Flows
The following table presents information regardinga summary of our cash flows and cash, cash equivalents and restricted cash for the periods indicated:flows:
| | | | Six Months Ended | | | Three Months Ended |
| | | June 30, | | | March 31, |
| | | 2022 | | 2021 | | | 2023 | | 2022 |
| | | | (in thousands) | | | (in thousands) |
Net cash provided by operating activities | | $ | 52,642 | | | $ | 119,159 | | |
Net cash (used in) provided by operating activities | | Net cash (used in) provided by operating activities | | $ | (33,521) | | | $ | 3,261 | |
Net cash used in investing activities | Net cash used in investing activities | | (98,008) | | | (109,368) | | Net cash used in investing activities | | (58,756) | | | (46,067) | |
Net cash used in financing activities | Net cash used in financing activities | | (43,741) | | | (24,308) | | Net cash used in financing activities | | (20,812) | | | (26,232) | |
Effect of exchange rate on changes on cash | Effect of exchange rate on changes on cash | | (2,057) | | | (524) | | Effect of exchange rate on changes on cash | | 3,580 | | | (627) | |
Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | | (91,164) | | | (15,041) | | Net decrease in cash, cash equivalents and restricted cash | | $ | (109,509) | | | $ | (69,665) | |
Cash, cash equivalents and restricted cash, end of period | | 338,264 | | | 369,673 | | |
Operating Activities
Net cash provided byused in operating activities for the six months ended June 30, 2022 was $52.6 million compared to net cash provided by operating activities of $119.2increased $36.8 million for the same period in 2021. The decrease wasthree months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to a decrease in pre-tax income period over period of $59.3 million and timing of payments within working capital items.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 was $98.0 million compared to net cash used in investing activities of $109.4increased $12.7 million for the same period in 2021. The decrease wasthree months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to the cash disbursement related to the issuance of a decrease in cash disbursements for various acquisitions and investments in privately held companiesloan receivable to a private company of $15.2$20.0 million and a decrease in cash disbursements for proprietary technology assets of $10.5 million, partially offset byduring the three months ended March 31, 2023. Also contributing to this increase was an additional $11.2$2.0 million of internally developed software costs capitalized in 2022during the three months ended March 31, 2023 as compared to the same period in 20212022. These increases were partially offset by decreases in cash disbursements of $5.0 million for proprietary technology assets and $4.4$2.1 million relatedin investments in private companies for the three months ended March 31, 2023 compare to the issuance of notes receivable to equity method investeessame period in 2022.the prior year.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2022 was $43.7 million compared to net cash used in financing activities of $24.3decreased $5.4 million for the same period in 2021,three months ended March 31, 2023 compared to the three months ended March 31, 2022 primarily due to decreases in finance lease payments of $14.5$12.3 million, decreases in 2022, increased share repurchasespayments related to our Revolving Credit Facility of $7.1$1.9 million in the current year period and an additional $5.1 milliona decrease of taxes paid on the vesting of restricted shares in 2022 asof $1.8 million for the three months ended March 31, 2023 compared to the same period in 2021.the prior year. These increasesdecreases were partially offset by decreased contingent consideration paymentsincreases in cash paid for share repurchases of $8.5 million.$9.3 million and increases in cash paid to purchase non-controlling units from third-party shareholders of $1.0 million for the three months ended March 31, 2023 compared to the same period in the prior year.
Commitments and Off-Balance Sheet Arrangements
Purchase Obligations and Indemnifications
See “Part I, Item 1, Note 17—19—Commitments and Contingencies, Purchase Obligations and Indemnifications” for purchase obligations and indemnifications details. Indemnifications.”
ProcurementAcquisition of Technology Solutions
See “Part I, Item 1, Note 7—Goodwill and Intangible Assets, net, Procurement of Technology Solutions” and Note 17—Commitments for details related to these transactions.
Investment in Privately Held CompanyRedi2 Technologies
See “Part I, Item 1, Note 3— Acquisitions and Other Investments”Acquisitions” for details related to this transaction.
Legal Proceedings
See “Part I, Item 1, Note 17—19—Commitments and Contingencies, Legal Proceedings” for legal proceedings details.
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. “NoteSee "Note 2—Summary of Significant Accounting Policies”Policies" to the consolidated financial statements in our 20212022 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial 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 20212022 Form 10-K 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,revenue, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our market, foreign currency or interest rate risks as discussed in Part II, Item 7A of our 20212022 Form 10-K.
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, 2022.March 31, 2023. 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, 2022,March 31, 2023, 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, 2022,March 31, 2023, 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 information in Part I, Note 17—19—Commitments and Contingencies, Legal Proceedings is incorporated herein by reference.
Item 1A. Risk Factors
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our 20212022 Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our 20212022 Form 10-K have not materially changed since the date our 20212022 Form 10-K was filed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c)Issuer Purchases of Equity Securities
On February 25, 2016, we announced that our Board had authorized a share repurchase program under which we may repurchase up to 2.0 million shares of our common stock. The followingThere were no purchases of equity securities were made under the share repurchase program in the three months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total number of shares purchased | | Average price paid per share(1) | | Total number of shares purchased as part of publicly announced plans or programs | | Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs |
April 1, 2022 through April 30, 2022 | | — | | | $ | — | | | — | | | 1,900,902 | |
May 1, 2022 through May 31, 2022 | | 72,388 | | | 64.26 | | | 72,388 | | | 1,828,514 | |
June 1, 2022 through June 30, 2022 | | 79,632 | | | 57.51 | | | 79,632 | | | 1,748,882 | |
(1) Excludes fees, commissions and other costsMarch 31, 2023. As of March 31, 2023, there were 0.3 million shares that may yet be repurchased under the program.
The timing and volume of share repurchases will be determined by our management based on ongoing assessments of the capital needs of the business, the market price of our 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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
(a)Exhibits
See the exhibit index, which is incorporated herein by reference.
INDEX TO EXHIBITS
| | | | | | | | |
Exhibit No. | | Description |
10.1 | | ConsultantCooperation Agreement, dated June 6, 2022, betweenMarch 27, 2023, by and among Impactive Capital LP, Impactive Capital Master Fund LP and Envestnet, Financial Technologies, Inc. and Stuart DePina (filed as Exhibit 10.1 to the Company'sCompany’s Form 8-K filed with the SEC on June 7, 2022March 28, 2023 and incorporated by reference herein). * |
10.2 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document ** |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document ** |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document ** |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document ** |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document ** |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Management contractExhibits omitted pursuant to Item 601(a)(5) of Regulation S-K. Envestnet, Inc. agrees to furnish supplementally a copy of any omitted exhibit to the SEC upon request; provided, however, that Envestnet, Inc. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedules or compensation plan.exhibits so furnished.
** The 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, 2022March 31, 2023 and December 31, 2021;2022; (iii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022March 31, 2023 and 2021;2022; (iv) the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and six months ended June 30, 2022March 31, 2023 and 2021;2022; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2022March 31, 2023 and 2021;2022; (vi) the Condensed Consolidated Statements of Cash Flows for the sixthree months ended June 30, 2022March 31, 2023 and 2021;2022; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.
GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
| | | | | | | | |
Abbreviations or Acronyms | | Definition |
2010 Plan | | 2010 Long-Term Incentive Plan |
2019 Equity Plan | | 2019 Acquisition Equity Incentive Plan |
2022 Form 10-K | | Form 10-K for the year ended December 31, 2022 |
AETR | | Annual effective tax rate. |
ASC | | Accounting Standards Codification™ |
ASC 310 - Receivables | | Accounting Standards Codification Topic 310, Receivables |
ASC 606 | | Accounting Standards Codification Topic 606, Revenue from Contracts with Customers |
ASC 740-270 | | Accounting Standards Codification Topic 740, Income Taxes—Interim Reporting |
ASU | | Accounting Standards Update |
| | |
ASU 2021-08 | | ASU Business Combinations (Topic 805): Accounting for Contract Assets and Contract |
Board | | Board of Directors |
Convertible Notes due 2023 | | $345.0 million of aggregate principal amount of convertible notes issued in May 2018 with an interest rate of 1.75% per year that mature on June 1, 2023 |
Convertible Notes due 2025 | | $517.5 million of aggregate principal amount of convertible notes issued in August 2020 with an interest rate of 0.75% per year that mature on August 15, 2025 |
Convertible Notes due 2027 | | $575.0 million aggregate principal amount of convertible notes issued in November 2022 with an interest rate of 2.625% per year that mature on December 1, 2027 |
Convertible Promissory Note | | $20.0 million convertible promissory note issued in January 2023 with a customer of the Company's business, a privately held company |
ETR | | Effective tax rate |
Exchange Act | | Securities Exchange Act of 1934, as amended |
FASB | | Financial Accounting Standards Board |
FinancialApps | | FinancialApps, LLC |
FinTech | | Financial Technology |
GAAP | | United States Generally Accepted Accounting Principles |
| | |
IRC Section 174 | | Internal Revenue Code of 1986, Section 174: Amortization of Research and Experimental Expenditures |
Notes | | Collectively the Convertible Notes due 2023, Convertible Notes due 2025 and Convertible Notes due 2027 |
PSU | | Performance-based restricted stock unit |
Quarterly Report | | Form 10-Q for the quarter ended March 31, 2023 |
R&D | | Research and Development. |
Redi2 | | Redi2 Technologies Inc. |
Redi2 acquisition | | Stock purchase agreement between Envestnet and Redi2 Technologies, dated as of June 24, 2022 |
Revolving Credit Facility | | Revolving credit facility of $500.0 million pursuant to the Third Credit Agreement |
RIAs | | Registered investment advisors |
RSU | | Restricted stock unit |
SEC | | Securities and Exchange Commission |
SOFR | | Secured Overnight Financing Rate |
TCS | | Tata Consultancy Services |
Third Credit Agreement | | Third Amended and Restated Credit Agreement |
U.S. | | United States |
Yodlee | | Yodlee, Inc. |
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 AugustMay 5, 2022.2023.
| | | | | | | | |
| ENVESTNET, INC. |
| | |
| By: | /s/ William C. Crager |
| | William C. Crager |
| | 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 |