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.
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 continuesescalated in February 2022, as well as rising inflation, contributed to significant volatility and decline in global financial markets during 2022 which continue 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 condensed2023, 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,January 31, 2023, we entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”)Convertible Promissory Note with a groupcustomer of banks.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 Third Credit Agreement amendsConvertible Promissory Note has a maturity date of January 31, 2026 and restates, in its entirety, our prior Amended and Restated Credit Agreement, datedis 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, we 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 18, 2017, as amended (the “Prior Credit Agreement”).2024 or upon satisfaction of certain financial metrics. Subsequent to June 30, 2023, the financial metrics were met, however, the Company did not exercise the call option.
Convertible Notes due 2023
The Third Credit Agreement amended certain provisions underConvertible Notes due 2023 matured on June 1, 2023. Upon maturity, we settled the Prior Credit Agreement to, among other things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce the interest rate payableremaining aggregate principal amount on the loansConvertible Notes due 2023 for $45.0 million. The Convertible Notes due 2023 were paid using a combination of cash on hand and (iii) increase capacity and flexibility under certainborrowings on the Company's Revolving Credit Facility. No shares of the negative covenants.Company's common stock were issued upon settlement of the Convertible Notes due 2023.
The Third Credit Agreement provides, subject to certain customary conditions, for a revolving credit facility (the “Credit Facility”),Reduction in an aggregate amount of $500.0 million, with a $20.0 million sub-facility for letters of credit.Force
The Credit Facility matures on February 4, 2027.
Outstanding loans underDuring 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 subsidiariesthree 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 million2023, as part of compensation and benefit expense related to this plan.
Procurement of Technology Solutions
On April 1, 2022,a reduction in force initiative, we entered into a purchase agreementseparation agreements with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase pricenumber 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.
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.employees. In connection with these closures,the reduction in force initiatives as well as a fourth quarter 2022 organizational realignment, we recognized $3.7incurred approximately $8.2 million and $14.4 million of losses on asset retirementstotal severance expense 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 income 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 decisions 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.
In connection with the 401kplans.com acquisition, we paid estimated consideration of $14.5 million, net of cash acquired, subject to certain post-closing adjustments. We funded the acquisition with cash on hand.
Dilution gain on equity method investee share issuance
We have an ownership interest in a privately held company that is accounted for under the equity method. During the six months ended June 30, 2022, we funded a $2.5 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 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.2023, respectively.
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 |
| | June 30, | | September 30, | | December 31, | | March 31, | | June 30, |
| | 2021 | | 2021 | | 2021 | | 2022(1) | | 2022 |
| | | | | | | | | | |
| | (in millions, except accounts and advisors data) |
Platform Assets | | | | | | | | | | |
Assets under Management (“AUM”) | | $ | 315,422 | | | $ | 327,279 | | | $ | 362,038 | | | $ | 361,251 | | | $ | 325,209 | |
Assets under Administration (“AUA”) | | 426,416 | | | 431,040 | | | 456,316 | | | 432,141 | | | 352,840 | |
Total AUM/A | | 741,838 | | | 758,319 | | | 818,354 | | | 793,392 | | | 678,049 | |
Subscription | | 4,447,733 | | | 4,670,827 | | | 4,901,662 | | | 4,736,537 | | | 4,312,114 | |
Total Platform Assets | | $ | 5,189,571 | | | $ | 5,429,146 | | | $ | 5,720,016 | | | $ | 5,529,929 | | | $ | 4,990,163 | |
Platform Accounts | | | | | | | | | | |
AUM | | 1,209,761 | | 1,276,066 | | 1,345,274 | | 1,459,093 | | 1,491,861 |
AUA | | 1,163,991 | | 1,193,069 | | 1,217,076 | | 1,186,180 | | 1,061,484 |
Total AUM/A | | 2,373,752 | | 2,469,135 | | 2,562,350 | | 2,645,273 | | 2,553,345 |
Subscription | | 11,712,573 | | 14,810,664 | | 14,986,531 | | 15,151,569 | | 15,312,144 |
Total Platform Accounts | | 14,086,325 | | 17,279,799 | | 17,548,881 | | 17,796,842 | | 17,865,489 |
Advisors | | | | | | | | | | |
AUM/A | | 41,259 | | 41,696 | | 39,735 | | 39,800 | | 38,394 |
Subscription | | 66,597 | | 66,489 | | 68,808 | | 67,168 | | 66,838 |
Total Advisors | | 107,856 | | 108,185 | | 108,543 | | 106,968 | | 105,232 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | June 30, | | September 30, | | December 31, | | March 31, | | June 30, |
| | 2022 | | 2022 | | 2022 | | 2023 | | 2023 |
| | | | | | | | | | |
| | (in millions, except accounts and advisors data) |
Platform Assets | | | | | | | | | | |
Assets under Management (“AUM”) | | $ | 325,209 | | | $ | 315,883 | | | $ | 341,144 | | | $ | 363,244 | | | $ | 384,773 | |
Assets under Administration (“AUA”) | | 352,840 | | | 350,576 | | | 367,412 | | | 379,843 | | | 394,078 | |
Total AUM/A | | 678,049 | | | 666,459 | | | 708,556 | | | 743,087 | | | 778,851 | |
Subscription | | 4,312,114 | | | 4,134,414 | | | 4,382,109 | | | 4,566,971 | | | 4,643,313 | |
Total Platform Assets | | $ | 4,990,163 | | | $ | 4,800,873 | | | $ | 5,090,665 | | | $ | 5,310,058 | | | $ | 5,422,164 | |
Platform Accounts | | | | | | | | | | |
AUM | | 1,491,861 | | 1,522,968 | | 1,547,009 | | 1,571,862 | | 1,609,677 |
AUA | | 1,061,484 | | 1,135,302 | | 1,135,026 | | 1,142,166 | | 1,144,375 |
Total AUM/A | | 2,553,345 | | 2,658,270 | | 2,682,035 | | 2,714,028 | | 2,754,052 |
Subscription | | 15,312,144 | | 15,596,403 | | 15,665,020 | | 15,779,980 | | 15,916,955 |
Total Platform Accounts | | 17,865,489 | | 18,254,673 | | 18,347,055 | | 18,494,008 | | 18,671,007 |
Advisors | | | | | | | | | | |
AUM/A | | 38,394 | | 38,417 | | 38,025 | | 38,611 | | 38,809 |
Subscription | | 66,838 | | 67,348 | | 67,520 | | 67,843 | | 68,439 |
Total Advisors | | 105,232 | | 105,765 | | 105,545 | | 106,454 | | 107,248 |
(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 June 30, 2023 |
| | | As of | | Gross | | Net | | Market | | Reclass to | | | As of | | | As of March 31, | | Gross | | Net | | Market | | Reclass to | | | As of June 30, |
| | | 3/31/2022 | | Sales | | Redemptions | | Flows | | Impact | | Subscription | | | 6/30/2022 | | | 2023 | | 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 | | $ | 363,244 | | | $ | 25,282 | | | $ | (16,630) | | | $ | 8,652 | | | $ | 12,877 | | | $ | — | | | | $ | 384,773 | |
AUA | AUA | | 432,141 | | | 27,323 | | | (27,662) | | | (339) | | | (50,499) | | | (28,463) | | | | 352,840 | | AUA | | 379,843 | | | 25,389 | | | (24,013) | | | 1,376 | | | 13,629 | | | (770) | | | | 394,078 | |
Total AUM/A | Total AUM/A | | $ | 793,392 | | | $ | 52,152 | | | $ | (46,624) | | | $ | 5,528 | | | $ | (92,408) | | | $ | (28,463) | | | | $ | 678,049 | | Total AUM/A | | $ | 743,087 | | | $ | 50,671 | | | $ | (40,643) | | | $ | 10,028 | | | $ | 26,506 | | | $ | (770) | | | | $ | 778,851 | |
Fee-Based Accounts | Fee-Based Accounts | | 2,645,273 | | | | | | | 19,494 | | | | | (111,422) | | | | 2,553,345 | | Fee-Based Accounts | | 2,714,028 | | | | | | | 44,244 | | | | | (4,220) | | | | 2,754,052 | |
The above AUM/A gross sales figures for the three months ended June 30, 2023 include $9.2$11.8 billion in new client conversions. We onboarded an additional $24.4$19.3 billion in subscription conversions during the three months ended June 30, 20222023 bringing total conversions for the three months ended June 30, 20222023 to $33.6$31.1 billion.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Rollforward - Six Months Ended June 30, 2023 |
| | As of December 31, | | Gross | | | | Net | | Market | | Reclass to | | | | As of June 30, |
| | 2022 | | Sales | | Redemptions | | Flows | | Impact | | Subscription | | | | 2023 |
| | | | | | | | | | | | | | | | |
| | (in millions, except account data) |
AUM | | $ | 341,144 | | | $ | 49,939 | | | $ | (32,307) | | | $ | 17,632 | | | $ | 27,136 | | | $ | (1,139) | | | | | $ | 384,773 | |
AUA | | 367,412 | | | 57,940 | | | (45,560) | | | 12,380 | | | 28,158 | | | (13,872) | | | | | 394,078 | |
Total AUM/A | | $ | 708,556 | | | $ | 107,879 | | | $ | (77,867) | | | $ | 30,012 | | | $ | 55,294 | | | $ | (15,011) | | | | | $ | 778,851 | |
Fee-Based Accounts | | 2,682,035 | | | | | | | 160,493 | | | | | (88,476) | | | | | 2,754,052 | |
The above AUM/A gross sales figures for the six months ended June 30, 2023 include $28.9 billion in new client conversions. We onboarded an additional $68.1 billion in subscription conversions during the six months ended June 30, 2023 bringing total conversions for the six months ended June 30, 2023 to $97.0 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 theand 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 conversions 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.
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”).in the periods indicated:
These groups serve the following customers: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of |
| | June 30, | | September 30, | | December 31, | | March 31, | | June 30, |
| | 2022 | | 2022 | | 2022 | | 2023 | | 2023 |
| | | | | | | | | | |
| | (in millions, except number of firms data) |
Number of paying users | | 37.2 | | | 38.1 | | | 38.8 | | | 37.5 | | | 38.0 | |
Number of firms | | 1,731 | | | 1,815 | | | 1,827 | | | 1,851 | | | 1,873 | |
•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
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | |
| | June 30, | | $ | | % |
| | 2023 | | 2022 | | Change | | Change |
| | | | | | | | |
| | (in thousands, except percentages) |
Revenue: | | | | | | | | |
Envestnet Wealth Solutions: | | | | | | | | |
Asset-based | | $ | 185,762 | | | $ | 191,972 | | | $ | (6,210) | | | (3) | % |
Subscription-based | | 75,509 | | | 73,568 | | | 1,941 | | | 3 | % |
Total recurring revenue | | 261,271 | | | 265,540 | | | (4,269) | | | (2) | % |
Professional services and other revenue | | 10,310 | | | 6,460 | | | 3,850 | | | 60 | % |
Total Envestnet Wealth Solutions revenue | | $ | 271,581 | | | $ | 272,000 | | | $ | (419) | | | — | % |
| | | | | | | | |
Envestnet Data & Analytics: | | | | | | | | |
Subscription-based | | $ | 39,450 | | | $ | 44,552 | | | $ | (5,102) | | | (11) | % |
Total recurring revenue | | 39,450 | | | 44,552 | | | (5,102) | | | (11) | % |
Professional services and other revenue | | 1,403 | | | 2,300 | | | (897) | | | (39) | % |
Total Envestnet Data & Analytics revenue | | $ | 40,853 | | | $ | 46,852 | | | $ | (5,999) | | | (13) | % |
| | | | | | | | |
Total consolidated revenue | | $ | 312,434 | | | $ | 318,852 | | | $ | (6,418) | | | (2) | % |
| | | | | | | | |
Deferred revenue fair value adjustment | | 17 | | | 54 | | | (37) | | | (69) | % |
Total consolidated adjusted revenue* | | $ | 312,451 | | | $ | 318,906 | | | $ | (6,455) | | | (2) | % |
| | | | | | | | |
Consolidated net loss attributable to Envestnet, Inc. | | $ | (21,416) | | | $ | (23,285) | | | $ | 1,869 | | | 8 | % |
Net loss attributable to Envestnet, Inc. per share - basic and diluted | | $ | (0.39) | | | $ | (0.42) | | | $ | 0.03 | | | 7 | % |
| | | | | | | | |
Adjusted EBITDA* | | $ | 57,785 | | | $ | 57,126 | | | $ | 659 | | | 1 | % |
Adjusted net income* | | $ | 30,391 | | | $ | 32,024 | | | $ | (1,633) | | | (5) | % |
Adjusted net income per diluted share* | | $ | 0.46 | | | $ | 0.49 | | | $ | (0.03) | | | (6) | % |
*Non-GAAP financial measure. See "Non-GAAP Financial Measures" below for definitions and reconciliations of non-GAAP measures.
Results of Operations
Three months ended June 30, 2023 compared to three months ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 185,762 | | | 59 | % | | $ | 191,972 | | | 60 | % | | $ | (6,210) | | | (3) | % |
Subscription-based | | | | | | | | 114,959 | | | 37 | % | | 118,120 | | | 37 | % | | (3,161) | | | (3) | % |
Total recurring revenue | | | | | | | | 300,721 | | | 96 | % | | 310,092 | | | 97 | % | | (9,371) | | | (3) | % |
Professional services and other revenue | | | | | | | | 11,713 | | | 4 | % | | 8,760 | | | 3 | % | | 2,953 | | | 34 | % |
Total revenue | | | | | | | | 312,434 | | | 100 | % | | 318,852 | | | 100 | % | | (6,418) | | | (2) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 123,497 | | | 40 | % | | 126,482 | | | 40 | % | | (2,985) | | | (2) | % |
Employee compensation | | | | | | | | 117,097 | | | 37 | % | | 125,767 | | | 39 | % | | (8,670) | | | (7) | % |
General and administrative | | | | | | | | 53,346 | | | 17 | % | | 66,144 | | | 21 | % | | (12,798) | | | (19) | % |
Depreciation and amortization | | | | | | | | 33,806 | | | 11 | % | | 32,182 | | | 10 | % | | 1,624 | | | 5 | % |
Total operating expenses | | | | | | | | 327,746 | | | 105 | % | | 350,575 | | | 110 | % | | (22,829) | | | (7) | % |
Loss from operations | | | | | | | | (15,312) | | | (5) | % | | (31,723) | | | (10) | % | | 16,411 | | | 52 | % |
Other (expense) income, net | | | | | | | | (7,402) | | | (2) | % | | 1,622 | | | 1 | % | | (9,024) | | | * |
Loss before income tax provision (benefit) | | | | | | | | (22,714) | | | (7) | % | | (30,101) | | | (9) | % | | 7,387 | | | 25 | % |
Income tax provision (benefit) | | | | | | | | 418 | | | — | % | | (5,833) | | | (2) | % | | 6,251 | | | 107 | % |
Net loss | | | | | | | | (23,132) | | | (7) | % | | (24,268) | | | (8) | % | | 1,136 | | | 5 | % |
Add: Net loss attributable to non-controlling interest | | | | | | | | 1,716 | | | 1 | % | | 983 | | | — | % | | 733 | | | 75 | % |
Net loss attributable to Envestnet, Inc. | | | | | | | | $ | (21,416) | | | (7) | % | | $ | (23,285) | | | (7) | % | | $ | 1,869 | | | 8 | % |
*Not meaningful
Asset-based recurring revenues increased 13% from $170.1revenue
Asset-based recurring revenue decreased $6.2 million, inor 3%, for the three months ended June 30, 20212023 compared 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.
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.
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 | | | * |
*Not meaningful.
Three months ended June 30, 2022 compared to three months ended June 30, 2021
Asset-based recurring revenues
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. The increase was primarily due to an increase 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 decreasedincreased from approximately 41,000 as of June 30, 2021 to approximately 38,000 as of June 30, 2022 to approximately 39,000 as of June 30, 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, 2022.2022 to approximately 2.8 million as of June 30, 2023.
Asset-basedSubscription-based recurring revenues increased from 59% of totalrevenue
Subscription-based recurring revenue indecreased $3.2 million, or 3%, for the three months ended June 30, 20212023 compared to 60% of total revenue in the three months ended June 30, 2022.
Subscription-based recurring revenues
Subscription-based recurring revenue 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. This increase was primarily due to an increase of$6.9 million in theEnvestnet Wealth Solutionssegment, which can be attributed to new and existing customer growth, partially offset by a decrease of $1.3 million in the Envestnet Data & Analytics segment.
Professional services and other revenues
Professional services and other revenues increased 42% from $6.2 million in the three months ended June 30, 2021 to $8.8 million in the three 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 of the completion of customer projects and deployments within both segments.
Cost of revenues
Cost of revenues increased 26% from $100.5 million in the three months ended June 30, 2021 to $126.5 million in the three months ended June 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $19.0 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 35% in the three months ended June 30, 2021 to 40% in three 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. Cost of revenues as a percentage of total revenues in the Envestnet Data & Analytics segment remained consistent.
Compensation and benefits
Compensation and benefits increased 19% from $105.5 million in the three months ended June 30, 2021 to $125.8 million in the three months ended June 30, 2022. The increase is comprised primarily of increases in salaries, benefits and related payroll taxes of $11.8 million, non-cash compensation expense of $6.2 million and severance expense of $1.8 million. As a percentage of total revenues, compensation and benefits increased from 37% in the three months ended June 30, 2021 to 39% in the three months ended June 30, 2022.
General and administration
General and administration expenses increased 58% from $41.8 million in the three months ended June 30, 2021 to $66.1 million in the three months ended June 30, 2022. The increase was primarily due to increases in lease restructuring and asset retirement costs of $15.4 million, software and maintenance charges of $3.7 million, litigation and regulatory related expenses of $2.4 million, marketing expense of $1.6 million and travel and entertainment expense of $1.5 million. These increases were partially offset by a decrease in professional and legal fees of $1.7 million and in occupancy costs of $1.5 million. As a percentage of total revenues, general and administration expenses increased from 14% in the three months ended June 30, 2021 to 21% in the three 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 7% from $30.0 million in the three months ended June 30, 2021 to $32.2 million in the three months ended June 30, 2022. The increase was primarily due to increases in amortization related to internally developed software of $1.8 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 $6.9decrease of $5.1 million dilution gain recorded in 2022 relatedthe Envestnet Data & Analytics segment, which is primarily attributable to an equity method investee's share issuance, which wascompetitive pricing pressures in the research business, 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 $11.41.9 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth.
Professional services and other revenuesrevenue
Professional services and other revenuesrevenue increased 5% from $12.1$3.0 million, inor 34%, for the sixthree months ended June 30, 20212023 compared to $12.7 million in the sixthree months ended June 30, 2022. The increase was2022 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 in the Envestnet Data & Analytics segment due to the timing of the completion of customer projects and deployments.
Cost of revenues
Direct expense
Cost of revenues increased 30% from $193.4Direct expense decreased $3.0 million, inor 2%, for the sixthree months ended June 30, 20212023 compared 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 sixthree months ended June 30, 2022 primarily due to shiftsa decrease in pricing and product mix for asset-based revenues and additional costs incurred in 2022 relateddirect expense, which directly correlates with the decrease to asset-based recurring revenue during 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.period.
Compensation and benefitsEmployee compensation
Compensation and benefits increased 22% from $206.3Employee compensation decreased $8.7 million, inor 7%, for the sixthree months ended June 30, 20212023 compared to $252.6 million in the sixthree months ended June 30, 2022. The increase is2022 primarily comprised of increasesdue to decreases in salaries, benefits and related payroll taxes of $28.0$8.6 million, which is primarily a result of the outsourcing arrangement with TCS in the Envestnet Data & Analytics segment, which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in the first and second quarter of 2023 and the organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $13.9 million, miscellaneous employee expenses of $1.9 million, contract labor expenses of $1.4$2.1 million and short term variable expensesother immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $1.2 million. As$2.1 million and an increase in severance expense of $1.1 million as a percentageresult of total revenues, compensationthe reduction in force and benefits increased from 37% in the six months ended June 30, 2021 to 39% in the six months ended June 30, 2022.organizational realignment.
General and administrationadministrative
General and administrationadministrative expenses increased 42% from $78.1decreased $12.8 million, inor 19%, for the sixthree months ended June 30, 20212023 compared to $110.5 million in the sixthree months ended June 30, 2022. The increase was2022 primarily due to increasesdecreases in lease restructuring and asset retirement costs of $15.3$15.5 million, litigation related expense of $2.2 million, marketing costs of $2.1 million and other immaterial decreases within general and administrative expense. These decreases were partially offset by increases in software and maintenance charges of $7.2$7.3 million litigation and regulatory related expensesprimarily a result 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 professional and legal fees of $2.1 million, occupancy costs of $2.1 million and bad debt expense of $1.7 million. the outsourcing arrangement with TCS.
As a percentage of total revenues,revenue, general and administration expenses increased from 14% inadministrative decreased 4% points for the sixthree months ended June 30, 20212023 compared to 17% in the sixthree months ended June 30, 2022 primarily due toa result of the lease restructuring and asset retirements charges incurred forretirement costs during the three office closures.months ended June 30, 2022 as well as a decrease in revenue in the three months ended June 30, 2023 compared to the prior year period.
Depreciation and amortization
Depreciation and amortization expense increased 9% from $58.4$1.6 million, inor 5%, for the sixthree months ended June 30, 20212023 compared to $63.8 million in the sixthree months ended June 30, 2022. The increase was2022 primarily due to increases in amortization related to internally developed software of $3.3 million, partially offset by decreases in amortization expenserelated to intangible assets 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.$1.9 million.
Other expense,(expense) income, net
Other expense, net decreased from $11.3increased $9.0 million infor the sixthree months ended June 30, 20212023 compared to $4.3 million in the sixthree months ended June 30, 2022. The decrease was2022 primarily due to a $6.9$6.4 million decrease in dilution gain recorded in 2022 related to anon equity method investee'sinvestee share issuance, a $1.5 million increase in loss allocations from equity method investments and a decrease$1.4 million increase in losses 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.interest expense, net.
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, 2022,2023, our effective tax rate of (1.8%) 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 June 30, 2022, our effective tax rate of 19.4% 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 anof uncertain tax position due to the expiration of a statutestatue of limitations.
Six months ended June 30, 2023 compared to six months ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Six Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 362,694 | | | 59 | % | | $ | 394,689 | | | 62 | % | | $ | (31,995) | | | (8) | % |
Subscription-based | | | | | | | | 232,038 | | | 38 | % | | 232,854 | | | 36 | % | | (816) | | | — | % |
Total recurring revenue | | | | | | | | 594,732 | | | 97 | % | | 627,543 | | | 98 | % | | (32,811) | | | (5) | % |
Professional services and other revenue | | | | | | | | 16,409 | | | 3 | % | | 12,672 | | | 2 | % | | 3,737 | | | 29 | % |
Total revenue | | | | | | | | 611,141 | | | 100 | % | | 640,215 | | | 100 | % | | (29,074) | | | (5) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 232,486 | | | 38 | % | | 251,764 | | | 39 | % | | (19,278) | | | (8) | % |
Employee compensation | | | | | | | | 231,312 | | | 38 | % | | 252,616 | | | 39 | % | | (21,304) | | | (8) | % |
General and administrative | | | | | | | | 106,965 | | | 18 | % | | 110,479 | | | 17 | % | | (3,514) | | | (3) | % |
Depreciation and amortization | | | | | | | | 66,747 | | | 11 | % | | 63,800 | | | 10 | % | | 2,947 | | | 5 | % |
Total operating expenses | | | | | | | | 637,510 | | | 104 | % | | 678,659 | | | 106 | % | | (41,149) | | | (6) | % |
Loss from operations | | | | | | | | (26,369) | | | (4) | % | | (38,444) | | | (6) | % | | 12,075 | | | 31 | % |
Other expense, net | | | | | | | | (15,337) | | | (3) | % | | (4,345) | | | (1) | % | | (10,992) | | | * |
Loss before income tax provision (benefit) | | | | | | | | (41,706) | | | (7) | % | | (42,789) | | | (7) | % | | 1,083 | | | 3 | % |
Income tax provision (benefit) | | | | | | | | 24,187 | | | 4 | % | | (3,813) | | | (1) | % | | 28,000 | | | * |
Net loss | | | | | | | | (65,893) | | | (11) | % | | (38,976) | | | (6) | % | | (26,917) | | | (69) | % |
Add: Net loss attributable to non-controlling interest | | | | | | | | 3,249 | | | 1 | % | | 1,832 | | | — | % | | 1,417 | | | 77 | % |
Net loss attributable to Envestnet, Inc. | | | | | | | | $ | (62,644) | | | (10) | % | | $ | (37,144) | | | (6) | % | | $ | (25,500) | | | (69) | % |
*Not meaningful
Asset-based recurring revenue
Asset-based recurring revenue decreased $32.0 million, or 8%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to a decrease 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 number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 38,000 as of June 30, 2022 to approximately 39,000 as of June 30, 2023, and the number of AUM/A client accounts increased from approximately 2.6 million as of June 30, 2022 to approximately 2.8 million as of June 30, 2023.
As a percentage of total revenue, asset-based recurring revenue decreased 3% points primarily due to the overall decrease in asset-based recurring revenue.
Subscription-based recurring revenue
Subscription-based recurring revenue decreased $0.8 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to a decrease of $10.7 million in the Envestnet Data & Analytics segment, which is primarily attributable to competitive pricing pressures in the research business, partially offset by an increase of$9.9 million in theEnvestnet Wealth Solutionssegment, primarily attributable to new and existing customer growth.
Professional services and other revenue
Professional services and other revenue increased $3.7 million, or 29%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to timing of the completion of customer projects and deployments.
Direct expense
Direct expense decreased $19.3 million, or 8%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to a decrease in asset-based direct expense, which directly correlates with the decrease to asset-based recurring revenue during the period.
Employee compensation
Employee compensation decreased $21.3 million, or 8%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $18.1 million, which is primarily a result of the outsourcing arrangement with TCS in the Envestnet Data & Analytics segment, which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in the first and second quarter of 2023 and the organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $4.5 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $4.2 million as a result of the reduction in force initiative and organizational realignment.
General and administrative
General and administrative expenses decreased $3.5 million, or 3%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to decreases in lease restructuring and asset retirement costs of $14.0 million, marketing costs of 3.0 million, occupancy costs of $2.8 million and litigation related expense of $2.2 million. These decreases were partially offset by increases in software and maintenance charges of $15.9 million primarily a result of the outsourcing arrangement with TCS, $1.4 million in professional fees and other immaterial increases within general and administrative expense.
Depreciation and amortization
Depreciation and amortization expense increased $2.9 million, or 5%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to increases in amortization related to internally developed software of $5.9 million, partially offset by decreases in amortization related to intangible assets of $2.5 million.
Other expense, net
Other expense, net increased $11.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to a $6.4 million decrease in dilution gain on equity method investee share issuance, a $2.9 million increase in loss allocations from equity method investments and a $1.8 million increase in interest expense, net.
Income tax provision (benefit)
For the six months ended June 30, 2021,2023, our effective tax rate of (58.0%) 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 includingwhich includes the valuation allowance impact of the Harvest acquisition,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 six months ended June 30, 2022, our effective tax rate of 8.9% 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 R&D credits and the partial reserve release of uncertain tax position due to the expiration of a statue of limitations.
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 | | Six Months Ended |
| | June 30, | | June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
| | (in thousands) |
Envestnet Wealth Solutions | | $ | 23,399 | | | $ | 3,968 | | | $ | 46,862 | | | $ | 29,237 | |
Envestnet Data & Analytics | | (10,993) | | | (3,705) | | | (18,773) | | | (9,292) | |
Nonsegment operating expenses | | (27,718) | | | (31,986) | | | (54,458) | | | (58,389) | |
Loss from operations | | (15,312) | | | (31,723) | | | (26,369) | | | (38,444) | |
Other (expense) income, net | | (7,402) | | | 1,622 | | | (15,337) | | | (4,345) | |
Consolidated loss before income tax provision (benefit) | | (22,714) | | | (30,101) | | | (41,706) | | | (42,789) | |
Income tax provision (benefit) | | 418 | | | (5,833) | | | 24,187 | | | (3,813) | |
Consolidated net loss | | (23,132) | | | (24,268) | | | (65,893) | | | (38,976) | |
Add: Net loss attributable to non-controlling interest | | 1,716 | | | 983 | | | 3,249 | | | 1,832 | |
Consolidated net loss attributable to Envestnet, Inc. | | $ | (21,416) | | | $ | (23,285) | | | $ | (62,644) | | | $ | (37,144) | |
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 June 30, 20222023 compared to three months ended June 30, 2021 for the Envestnet Wealth Solutions segment2022
Asset-based recurring revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 185,762 | | | 68 | % | | $ | 191,972 | | | 71 | % | | $ | (6,210) | | | (3) | % |
Subscription-based | | | | | | | | 75,509 | | | 28 | % | | 73,568 | | | 27 | % | | 1,941 | | | 3 | % |
Total recurring revenue | | | | | | | | 261,271 | | | 96 | % | | 265,540 | | | 98 | % | | (4,269) | | | (2) | % |
Professional services and other revenue | | | | | | | | 10,310 | | | 4 | % | | 6,460 | | | 2 | % | | 3,850 | | | 60 | % |
Total revenue | | | | | | | | 271,581 | | | 100 | % | | 272,000 | | | 100 | % | | (419) | | | — | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 118,019 | | | 43 | % | | 120,722 | | | 44 | % | | (2,703) | | | (2) | % |
Employee compensation | | | | | | | | 75,988 | | | 28 | % | | 78,759 | | | 29 | % | | (2,771) | | | (4) | % |
General and administrative | | | | | | | | 29,665 | | | 11 | % | | 45,001 | | | 17 | % | | (15,336) | | | (34) | % |
Depreciation and amortization | | | | | | | | 24,510 | | | 9 | % | | 23,550 | | | 9 | % | | 960 | | | 4 | % |
Total operating expenses | | | | | | | | 248,182 | | | 91 | % | | 268,032 | | | 99 | % | | (19,850) | | | (7) | % |
Income from operations | | | | | | | | $ | 23,399 | | | 9 | % | | $ | 3,968 | | | 1 | % | | $ | 19,431 | | | * |
*Not meaningful
Asset-based recurring revenues increased 13% from $170.1revenue
Asset-based recurring revenue decreased $6.2 million, inor 3%, for the three months ended June 30, 20212023 compared to $192.0 million in the three months ended June 30, 2022. The increase was2022 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 decreasedincreased from approximately 41,000 as of June 30, 2021 to approximately 38,000 as of June 30, 2022 to approximately 39,000 as of June 30, 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, 2022.2022 to approximately 2.8 million as of June 30, 2023.
As a percentage of segment revenues,revenue, asset-based recurring revenue remained consistent at 71% of segment revenue indecreased 3% points for the three months ended June 30, 2021 and 2022.
Subscription-based recurring revenues
Subscription-based recurring revenues increased 10% from $66.7 million in2023 compared to the three months ended June 30, 20212022 primarily due to $73.6a decrease in asset-based recurring revenue compared to an increase in subscription-based recurring revenue and professional services and other revenue.
Subscription-based recurring revenue
Subscription-based recurring revenue increased $1.9 million, inor 3%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to new and existing customer growth.
Professional services and other revenuesrevenue
Professional services and other revenuesrevenue increased 82% from $3.6$3.9 million, inor 60%, for the three months ended June 30, 20212023 compared to $6.5 million in the three 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 27% from $94.7 million in the three months ended June 30, 2021 to $120.7 million in the three months ended June 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $19.0 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 three months ended June 30, 2021 to 44% in the three months ended June 30, 2022 primarily due to shifts in pricingtiming of the completion of customer projects and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.deployments.
Direct expense
Compensation and benefits
Compensation and benefits increased from $65.1Direct expense decreased $2.7 million, inor 2%, for the three months ended June 30, 20212023 compared to $78.8 million in the three months ended June 30, 2022. The increase is2022 primarily due to increases in salaries, benefits and related payroll taxes of $8.7 million, non-cash compensation expense of $3.8 million, severance expense of $1.7 million and other immaterial increases within compensation and benefit accounts, partially offset by a decrease in incentiveasset-based direct expense, which directly correlates with the decrease in asset-based recurring revenue during the period.
Employee compensation of $1.0 million. As a percentage of segment revenues,
Employee compensation and benefits increased from 27% indecreased $2.8 million, or 4%, for the three months ended June 30, 20212023 compared 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. These increases were partially offset by decreases in occupancy costs of $1.5 million and professional and legal fees of $1.2 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 decreases in salaries, benefits and related payroll taxes of $2.0 million, which is primarily a result of a reduction in force in the first and second quarter of 2023 and an organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $1.3 million and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation expense of $2.4 million.
General and administrative
General and administrative expenses decreased $15.3 million, or 34%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to decreases in lease restructuring and asset retirements charges incurredretirement costs of $12.9 million, marketing costs of $1.7 million and other immaterial decreases within general and administrative expense.
As a percentage of segment revenue, general and administrative expenses decreased 6% points for the three office closuresmonths ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to the decrease in April 2022.lease restructuring and asset retirement costs.
Depreciation and amortization
Depreciation and amortization expense increased 2% from $23.1$1.0 million, inor 4%, for the three months ended June 30, 20212023 compared to $23.6 million in the three months ended June 30, 2022. The increase was2022 primarily due to an increaseincreases in amortization related to internally developed software amortization expense of $0.9$2.0 million, partially offset by other immaterial decreases within depreciation andin amortization accounts. As a percentagerelated to intangible assets 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.$1.6 million.
Six months ended June 30, 20222023 compared to six months ended June 30, 2021 for the Envestnet Wealth Solutions segment2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Six Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Asset-based | | | | | | | | $ | 362,694 | | | 69 | % | | $ | 394,689 | | | 72 | % | | $ | (31,995) | | | (8) | % |
Subscription-based | | | | | | | | 151,994 | | | 29 | % | | 142,105 | | | 26 | % | | 9,889 | | | 7 | % |
Total recurring revenue | | | | | | | | 514,688 | | | 97 | % | | 536,794 | | | 98 | % | | (22,106) | | | (4) | % |
Professional services and other revenue | | | | | | | | 13,553 | | | 3 | % | | 8,774 | | | 2 | % | | 4,779 | | | 54 | % |
Total revenue | | | | | | | | 528,241 | | | 100 | % | | 545,568 | | | 100 | % | | (17,327) | | | (3) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 222,068 | | | 42 | % | | 239,530 | | | 44 | % | | (17,462) | | | (7) | % |
Employee compensation | | | | | | | | 152,871 | | | 29 | % | | 157,403 | | | 29 | % | | (4,532) | | | (3) | % |
General and administrative | | | | | | | | 57,792 | | | 11 | % | | 72,361 | | | 13 | % | | (14,569) | | | (20) | % |
Depreciation and amortization | | | | | | | | 48,648 | | | 9 | % | | 47,037 | | | 9 | % | | 1,611 | | | 3 | % |
Total operating expenses | | | | | | | | 481,379 | | | 91 | % | | 516,331 | | | 95 | % | | (34,952) | | | (7) | % |
Income from operations | | | | | | | | $ | 46,862 | | | 9 | % | | $ | 29,237 | | | 5 | % | | $ | 17,625 | | | 60 | % |
Asset-based recurring revenuesrevenue
Asset-based recurring revenues increased 20% from $329.5revenue decreased $32.0 million, inor 8%, for the six months ended June 30, 20212023 compared to $394.7 million in the six months ended June 30, 2022. The increase was2022 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 first six months of 2022.quarter.
The number of financial advisors with asset-based recurring revenue on our technology platforms decreasedincreased from approximately 41,000 as of June 30, 2021 to approximately 38,000 as of June 30, 2022 to approximately 39,000 as of June 30, 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, 2022.2022 to approximately 2.8 million as of June 30, 2023.
As a percentage of segment revenues,revenue, asset-based recurring revenue increased from 71% of segment revenue indecreased 3% points for the six months ended June 30, 20212023 compared to 72% of segment revenue in the six months ended June 30, 2022.2022 primarily due to a decrease in asset-based recurring revenue compared to an increase in subscription-based recurring revenue and professional services and other revenue.
Subscription-based recurring revenuesrevenue
Subscription-based recurring revenuesrevenue increased 9% from $130.7$9.9 million, inor 7%, for the six months ended June 30, 20212023 compared to $142.1 million in the six months ended June 30, 2022 primarily due to new and existing customer growth.
Professional services and other revenuesAs a percentage of segment 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 revenue increased 33% from $6.6$4.8 million, inor 54%, for the six months ended June 30, 20212023 compared 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 pricingtiming of the completion of customer projects and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.deployments.
Direct expense
Compensation and benefits
Compensation and benefits increased from $128.0Direct expense decreased $17.5 million, inor 7%, for the three months ended June 30, 2023 compared to the six months ended June 30, 2021 to $157.42022 primarily due a decrease in asset-based direct expense, which directly correlates with the decrease in asset-based recurring revenue during the period.
Employee compensation
Employee compensation decreased $4.5 million, inor 3%, for the six months ended June 30, 2022. The increase is primarily due2023 compared to increases in salaries, benefits and 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 decreases in salaries, benefits and related payroll taxes of $3.5 million, which is primarily a result of a reduction in force in the first and second quarter of 2023 and an organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $1.4 million and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation expense of $1.3 million.
General and administrative
General and administrative expenses decreased $14.6 million, or 20%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to decreases in lease restructuring and asset retirementsretirement costs of $12.2 million, marketing costs of $2.6 million and occupancy costs of $1.8 million. These decreases were partially offset by increases in software and maintenance charges incurred for three office closures.of $1.5 million and other immaterial increases within general and administrative expense.
Depreciation and amortization
Depreciation and amortization expense increased 6% from $44.4$1.6 million, inor 3%, for the six months ended June 30, 20212023 compared to $47.0 million in the six months ended June 30, 2022. The increase was2022 primarily due to an increaseincreases in amortization related to internally developed software amortization expense of $2.2 million and an increase in finance lease amortization of $1.2$3.6 million, partially offset by other immaterial decreases within depreciation andin amortization accounts. As a percentagerelated to intangible assets 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.$2.1 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 | | | * |
*Not meaningful.
Three months ended June 30, 20222023 compared to three months ended June 30, 2021 for the Envestnet Data & Analytics segment2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Subscription-based | | | | | | | | $ | 39,450 | | | 97 | % | | $ | 44,552 | | | 95 | % | | $ | (5,102) | | | (11) | % |
Professional services and other revenue | | | | | | | | 1,403 | | | 3 | % | | 2,300 | | | 5 | % | | (897) | | | (39) | % |
Total revenue | | | | | | | | 40,853 | | | 100 | % | | 46,852 | | | 100 | % | | (5,999) | | | (13) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 5,478 | | | 13 | % | | 5,760 | | | 12 | % | | (282) | | | (5) | % |
Employee compensation | | | | | | | | 21,749 | | | 53 | % | | 23,994 | | | 51 | % | | (2,245) | | | (9) | % |
General and administrative | | | | | | | | 15,323 | | | 38 | % | | 12,171 | | | 26 | % | | 3,152 | | | 26 | % |
Depreciation and amortization | | | | | | | | 9,296 | | | 23 | % | | 8,632 | | | 18 | % | | 664 | | | 8 | % |
Total operating expenses | | | | | | | | 51,846 | | | 127 | % | | 50,557 | | | 108 | % | | 1,289 | | | 3 | % |
Loss from operations | | | | | | | | $ | (10,993) | | | (27) | % | | $ | (3,705) | | | (8) | % | | $ | (7,288) | | | * |
*Not meaningful
Subscription-based recurring revenuesrevenue
Subscription-based recurring revenuesrevenue decreased 3% from $45.8$5.1 million, inor 11%, for the three months ended June 30, 20212023 compared to $44.6the three months ended June 30, 2022 primarily attributable to competitive pricing pressures in the research business.
Professional services and other revenue
Professional services and other revenue decreased$0.9 million, inor 39%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to decreases in revenue from existing customers.
Professional services and other revenues
Professional services and other revenues decreased12% from $2.6 million in the three months ended June 30, 2021 to $2.3 million in the three months ended June 30, 2022 primarily due to the timing of the completion of customer projects and deployments.
Cost of revenuesDirect expense
Cost of revenues remained consistent at $5.8Direct expense decreased $0.3 million, inor 5%, for the three months ended June 30, 2021 and 2022. As a percentage of segment revenues, cost of revenues remained consistent at 12% in2023 compared to the three months ended June 30, 2021 and 2022.2022 primarily due to the decrease in subscription-based recurring revenue during the period.
Compensation and benefitsEmployee compensation
Compensation and benefitsEmployee compensation decreased 4% from $25.0$2.2 million, inor 9%, for the three months ended June 30, 20212023 compared to $24.0 million in the three months ended June 30, 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. As$5.7 million, which is primarily as a percentageresult of segment revenues,the outsourcing arrangement with TCS which shifted certain expenses from employee compensation to general and benefits decreased from 52%administrative expense, a reduction in force initiative in the first and second quarter of 2023 and an organizational realignment in the fourth quarter of 2022, partially offset by an increase in severance expense of $3.6 million as a result of the reduction in force initiative and organizational realignment.
General and administrative
General and administrative expenses increased $3.2 million, or 26%, for the three months ended June 30, 20212023 compared to 51% in the three months ended June 30, 2022.
General and administration
General and administration expenses increased 29% from $9.4 million in the three months ended June 30, 2021 to $12.2 million in the three months ended June 30, 2022 primarily due to an increaseincreases in litigationsoftware and regulatorymaintenance charges of $6.9 million, primarily a result of the outsourcing arrangement with TCS. These increases were partially offset by decrease in litigation related expense of $2.4 million. $2.1 million and other immaterial decreases within general and administrative expense.
As a percentage of segment revenues,revenue, general and administration expensesadministrative expense increased from 19% in the12% points for three months ended June 30, 20212023 compared to 26% in the three months ended June 30, 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 in the six months ended June 30, 2023 compared to the prior year period.
Depreciation and amortization
Depreciation and amortization expense increased 25% from $6.9$0.7 million, inor 8%, for the three months ended June 30, 20212023 compared to $8.6 million in the three months ended June 30, 2022. The increase is2022 primarily due to an increaseincreases in amortization related to internally developed software andof $1.3 million, partially offset by decreases in amortization related to intangible asset amortization expense. assets of $0.4 million.
As a percentage of segment revenues,revenue, depreciation and amortization expense increased from 14% in5% points for three months ended June 30, 2023 compared to the three months ended June 30, 20212022 primarily due to 18%a decrease in segment revenue for the three months ended June 30, 2022. The2023 compared to the prior year period as well as the overall increase in depreciation and amortization as a percentageexpense period over period.
Six months ended June 30, 20222023 compared to six months ended June 30, 2021 for the Envestnet Data & Analytics segment2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Six Months Ended June 30, | | | | |
| | | | | | 2023 | | 2022 | | | | |
| | | | | | | | Amount | | % of Revenue | | Amount | | % of Revenue | | $ Change | | % Change |
| | | | | | | | | | | | | | | | | | |
| | | | | | (in thousands) | | | | (in thousands) | | | | (in thousands) | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Subscription-based | | | | | | | | $ | 80,044 | | | 97 | % | | $ | 90,749 | | | 96 | % | | $ | (10,705) | | | (12) | % |
Professional services and other revenue | | | | | | | | 2,856 | | | 3 | % | | 3,898 | | | 4 | % | | (1,042) | | | (27) | % |
Total revenue | | | | | | | | 82,900 | | | 100 | % | | 94,647 | | | 100 | % | | (11,747) | | | (12) | % |
Operating expenses: | | | | | | | | | | | | | | | | | | |
Direct expense | | | | | | | | 10,418 | | | 13 | % | | 12,234 | | | 13 | % | | (1,816) | | | (15) | % |
Employee compensation | | | | | | | | 43,155 | | | 52 | % | | 54,160 | | | 57 | % | | (11,005) | | | (20) | % |
General and administrative | | | | | | | | 30,001 | | | 36 | % | | 20,782 | | | 22 | % | | 9,219 | | | 44 | % |
Depreciation and amortization | | | | | | | | 18,099 | | | 22 | % | | 16,763 | | | 18 | % | | 1,336 | | | 8 | % |
Total operating expenses | | | | | | | | 101,673 | | | 123 | % | | 103,939 | | | 110 | % | | (2,266) | | | (2) | % |
Loss from operations | | | | | | | | $ | (18,773) | | | (23) | % | | $ | (9,292) | | | (10) | % | | $ | (9,481) | | | * |
*Not meaningful
Subscription-based recurring revenue
Subscription-based recurring revenues
Subscription-based recurring revenuesrevenue decreased 1% from $91.7$10.7 million, inor 12%, for the six months ended June 30, 20212023 compared to $90.7the six months ended June 30, 2022 primarily attributable to competitive pricing pressures in the research business.
Professional services and other revenue
Professional services and other revenue decreased$1.0 million, or 27%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to timing of the completion of customer projects and deployments.
Direct expense
Direct expense decreased $1.8 million, or 15%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the decrease in subscription-based recurring revenue.
Employee compensation
Employee compensation decreased $11.0 million, or 20%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to decreases in revenuesalaries, benefits and related payroll taxes of $12.5 million, primarily as a result of the outsourcing arrangement with TCS which shifted certain expenses from existing customers.
��
Professional servicesemployee compensation to general and administrative expense, a reduction in force initiative in the first and second quarter of 2023 and an organizational realignment in the fourth quarter of 2022, incentive compensation of $1.5 million and other revenues
immaterial decreases within employee compensation. These decreases were partially offset by an increase in severance expense of $4.3 million as a result of the reduction in force and organizational realignment.
Professional services and other revenues
As a percentage of segment revenue, employee compensation expense decreased29% from $5.5 million in the 5% points for six months ended June 30, 20212023 compared 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 millionoutsourcing arrangement with TCS, partially offset by a decrease in segment revenue in the six months ended June 30, 20212023 compared to $12.2the prior year period.
General and administrative
General and administrative expenses increased $9.2 million, or 44%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to increases in software and maintenance charges of $13.7 million, primarily a result of the outsourcing arrangement with TCS, partially offset by decrease in litigation related expense of $3.8 million and other immaterial decreases within general and administrative expense.
As a percentage of segment revenue, general and administrative expense increased 14% points for six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to the outsourcing arrangement with TCS as well as a decrease in segment revenue in the six months ended June 30, 2022. As a percentage of segment revenues, cost of revenues2023 compared to the prior year period.
Depreciation and amortization
Depreciation and amortization expense increased from 12% in$1.3 million, or 8%, for the six months ended June 30, 20212023 compared to 13% in the six months ended June 30, 2022.
Compensation and benefits
2022 primarily due to increases in amortization related to internally developed software of $2.3 million, partially offset by decreases in amortization related to intangible assets of $0.4 million.
Compensation
As a percentage of segment revenue, depreciation and benefitsamortization expense increased 6% from $51.3 million in4% points for six months ended June 30, 2023 compared to the six months ended June 30, 20212022 primarily due to $54.2a decrease in segment revenue for the six months ended June 30, 2023 compared to the prior year period as well as the overall increase in depreciation and amortization expense period over period.
Nonsegment
Three months ended June 30, 2023 compared to three months ended June 30, 2022
The following table presents nonsegment operating expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended June 30, | $ | | % |
| | | | | | 2023 | | 2022 | | Change | | Change |
| | | | | | | | | | | | | | |
| | | | | | (in thousands, except percentages) |
Operating expenses: | | | | | | | | | | | | | | |
Employee compensation | | | | | | | | $ | 19,360 | | | $ | 23,014 | | | $ | (3,654) | | | (16) | % |
General and administrative | | | | | | | | 8,358 | | | 8,972 | | | (614) | | | (7) | % |
Nonsegment operating expenses | | | | | | | | $ | 27,718 | | | $ | 31,986 | | | $ | (4,268) | | | (13) | % |
Employee compensation
Employee compensation decreased $3.7 million, or 16%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to decreases in non-cash compensation of $1.7 million, a decrease in severance expense of $1.5 million, decreases in salaries, benefits and related payroll taxes of $1.0 million, partially offset by other immaterial changes within employee compensation.
General and administrative
General and administrative expenses decreased $0.6 million, or 7%, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 primarily due to an decrease in transaction costs of $2.3 million, partially offset by increases in professional fees of $1.0 million and other immaterial increases within general and administrative expense.
Six months ended June 30, 2023 compared to six months ended June 30, 2022
The following table presents nonsegment operating expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Six Months Ended June 30, | $ | | % |
| | | | | | 2023 | | 2022 | | Change | | Change |
| | | | | | | | | | | | | | |
| | | | | | (in thousands, except percentages) |
Operating expenses: | | | | | | | | | | | | | | |
Employee compensation | | | | | | | | $ | 35,286 | | | $ | 41,053 | | | $ | (5,767) | | | (14) | % |
General and administrative | | | | | | | | 19,172 | | | 17,336 | | | 1,836 | | | 11 | % |
Nonsegment operating expenses | | | | | | | | $ | 54,458 | | | $ | 58,389 | | | $ | (3,931) | | | (7) | % |
Employee compensation
Employee compensation decreased $5.8 million, or 14%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to decreases in non-cash compensation of $3.1 million, decreases in salaries, benefits and related payroll taxes of $2.1 million and a reduction in severance expense of $1.4 million, partially offset by other immaterial changes within employee compensation.
General and administrative
General and administrative expenses increased $1.8 million, or 11%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in salaries, benefits, andgovernance related payroll taxesexpense of $4.2$1.8 million miscellaneous employee expensesas a result of expense associated with activist shareholder activity during the three months ended March 31, 2023, professional fees of $1.1 million and other immaterial increases within compensationin general and benefit accounts, partially offset by decreases in severanceadministrative 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 expensetransaction costs of $0.7$1.8 million. As a percentage of segment revenues, general and administration expenses increased from 18% in the six months ended June 30, 2021 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.
Nonsegment
The following table presents nonsegment operating expenses:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | Six Months Ended | | |
| | June 30, | | Percent | | June 30, | | Percent |
| | 2022 | | 2021 | | Change | | 2022 | | 2021 | | Change |
| | | | | | | | | | | | |
| | (in thousands) | | | | (in thousands) | | |
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 | % |
Nonsegment operating expenses | | $ | 31,986 | | | $ | 22,870 | | | 40 | % | | $ | 58,389 | | | $ | 41,541 | | | 41 | % |
Three months ended June 30, 2022 compared to three months ended June 30, 2021 for Nonsegment
Compensation and benefits
Compensation and benefits increased 49% from $15.4 million in the three months ended June 30, 2021 to $23.0 million in the three months ended June 30, 2022, primarily due to increased headcount that resulted in increases in non-cash compensation expense of $3.8 million, severance of $2.2 million, and salaries, benefits and related payroll taxes of $1.3 million.
General and administration
General and administration expenses increased 21% from $7.4 million in the three months ended June 30, 2021 to $9.0 million in the three months ended June 30, 2022. The increase was primarily due to an increase in transaction costs of $2.1 million driven by acquisition activity and system implementation costs, partially offset by other immaterial decreases.
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
other governance related expenses, foreign currency, non-income tax expense adjustment, on contingent consideration liability, fair market value adjustment to investment in private company, litigation and regulatory 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 income tax provision (benefit), deferred revenue fair value adjustment, non-cash interest expense, cash interest on our convertible notes,Convertible Notes, non-cash compensation expense, restructuring charges and transaction costs, severance, accretion on contingent considerationamortization of acquired intangibles, litigation, regulatory and purchase liability, fair market valueother governance related expenses, foreign currency, non-income tax expense adjustment, on contingent consideration liability, fair market value adjustment to investment in private company, amortization of acquired intangibles, litigation and regulatory 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$3.2 million and $3.1$5.5 million for the six months ended June 30, 20222023 and 2021,2022, 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 | | Six Months Ended |
| | June 30, | | June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
| | (in thousands) |
Total revenue | | $ | 312,434 | | | $ | 318,852 | | | $ | 611,141 | | | $ | 640,215 | |
Deferred revenue fair value adjustment | | 17 | | | 54 | | | 69 | | | 108 | |
Adjusted revenue | | $ | 312,451 | | | $ | 318,906 | | | $ | 611,210 | | | $ | 640,323 | |
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 |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (in thousands) |
Net income (loss) | | $ | (24,268) | | | $ | (8,369) | | | $ | (38,976) | | | $ | 6,566 | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 54 | | | 80 | | | 108 | | | 160 | |
Interest income | | (713) | | | (197) | | | (1,034) | | | (367) | |
Interest expense | | 4,212 | | | 4,225 | | | 9,065 | | | 8,440 | |
Income tax provision (benefit) | | (5,833) | | | 15,516 | | | (3,813) | | | 9,928 | |
Depreciation and amortization | | 32,182 | | | 30,010 | | | 63,800 | | | 58,402 | |
Non-cash compensation expense | | 23,504 | | | 17,285 | | | 45,318 | | | 31,422 | |
Restructuring charges and transaction costs | | 21,026 | | | 5,028 | | | 23,372 | | | 7,812 | |
Severance | | 7,148 | | | 5,377 | | | 10,254 | | | 10,291 | |
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 | |
Foreign currency | | 413 | | | (138) | | | 305 | | | 13 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Non-income tax expense adjustment | | 189 | | | 295 | | | 213 | | | (271) | |
Dilution gain on equity method investee share issuance | | (6,934) | | | — | | | (6,934) | | | — | |
Loss allocations from equity method investments | | 1,400 | | | 757 | | | 2,945 | | | 4,045 | |
(Income) loss attributable to non-controlling interest | | 440 | | | (175) | | | 817 | | | (440) | |
Adjusted EBITDA | | $ | 57,126 | | | $ | 71,061 | | | $ | 112,823 | | | $ | 139,325 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
| | (in thousands) |
Net loss | | $ | (23,132) | | | $ | (24,268) | | | $ | (65,893) | | | $ | (38,976) | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 17 | | | 54 | | | 69 | | | 108 | |
Interest income | | (1,656) | | | (713) | | | (3,014) | | | (1,034) | |
Interest expense | | 6,531 | | | 4,212 | | | 12,851 | | | 9,065 | |
Income tax provision (benefit) | | 418 | | | (5,833) | | | 24,187 | | | (3,813) | |
Depreciation and amortization | | 33,806 | | | 32,182 | | | 66,747 | | | 63,800 | |
Non-cash compensation expense | | 21,390 | | | 23,504 | | | 40,843 | | | 45,318 | |
Restructuring charges and transaction costs | | 6,508 | | | 21,026 | | | 10,671 | | | 23,372 | |
Severance | | 8,234 | | | 7,148 | | | 14,422 | | | 10,254 | |
Litigation, regulatory and other governance related expenses | | 2,145 | | | 4,306 | | | 5,219 | | | 7,383 | |
Foreign currency | | 74 | | | 413 | | | 107 | | | 305 | |
Non-income tax expense adjustment | | (30) | | | 189 | | | (198) | | | 213 | |
Fair market value adjustment to investment in private company | | 67 | | | — | | | 67 | | | — | |
Dilution gain on equity method investee share issuance | | (546) | | | (6,934) | | | (546) | | | (6,934) | |
Loss allocations from equity method investments | | 2,932 | | | 1,400 | | | 5,872 | | | 2,945 | |
Loss attributable to non-controlling interest | | 1,027 | | | 440 | | | 1,805 | | | 817 | |
Adjusted EBITDA | | $ | 57,785 | | | $ | 57,126 | | | $ | 113,209 | | | $ | 112,823 | |
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 |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
| | (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 | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 54 | | | 80 | | | 108 | | | 160 | |
Non-cash interest expense | | 1,415 | | | 1,429 | | | 3,474 | | | 2,852 | |
Cash interest - Convertible Notes | | 2,480 | | | 2,480 | | | 4,960 | | | 4,960 | |
Non-cash compensation expense | | 23,504 | | | 17,285 | | | 45,318 | | | 31,422 | |
Restructuring charges and transaction costs | | 21,026 | | | 5,028 | | | 23,372 | | | 7,812 | |
Severance | | 7,148 | | | 5,377 | | | 10,254 | | | 10,291 | |
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 | | 17,645 | | | 17,502 | | | 35,165 | | | 33,980 | |
Litigation and regulatory related expenses | | 4,306 | | | 1,938 | | | 7,383 | | | 3,647 | |
Foreign currency | | 413 | | | (138) | | | 305 | | | 13 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Non-income tax expense adjustment | | 189 | | | 295 | | | 213 | | | (271) | |
Dilution gain on equity method investee share issuance | | (6,934) | | | — | | | (6,934) | | | — | |
Loss allocations from equity method investments | | 1,400 | | | 757 | | | 2,945 | | | 4,045 | |
(Income) loss attributable to non-controlling interest | | 440 | | | (175) | | | 817 | | | (440) | |
Adjusted net income before income tax effect | | 42,985 | | | 58,434 | | | 84,591 | | | 114,642 | |
Income tax effect (2) | | (10,961) | | | (14,901) | | | (21,571) | | | (29,234) | |
Adjusted net income | | $ | 32,024 | | | $ | 43,533 | | | $ | 63,020 | | | $ | 85,408 | |
| | | | | | | | |
Basic number of weighted-average shares outstanding | | 55,203,120 | | | 54,440,388 | | | 55,054,272 | | | 54,325,353 | |
Effect of dilutive shares: | | | | | | | | |
Options to purchase common stock | | 129,217 | | | 198,277 | | | 142,510 | | | 210,381 | |
Unvested restricted stock units | | 199,853 | | | 435,023 | | | 381,397 | | | 536,186 | |
Convertible notes | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | | | 9,898,549 | |
Warrants | | 22,170 | | | 53,648 | | | 37,473 | | | 65,026 | |
Diluted number of weighted-average shares outstanding | | 65,452,909 | | | 65,025,885 | | | 65,514,201 | | | 65,035,495 | |
Adjusted net income per share - diluted | | $ | 0.49 | | | $ | 0.67 | | | $ | 0.96 | | | $ | 1.31 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | |
| | (in thousands, except share and per share information) |
Net loss | | $ | (23,132) | | | $ | (24,268) | | | $ | (65,893) | | | $ | (38,976) | |
Income tax provision (benefit) (1) | | 418 | | | (5,833) | | | 24,187 | | | (3,813) | |
Loss before income tax provision (benefit) | | (22,714) | | | (30,101) | | | (41,706) | | | (42,789) | |
Add (deduct): | | | | | | | | |
Deferred revenue fair value adjustment | | 17 | | | 54 | | | 69 | | | 108 | |
Non-cash interest expense | | 1,427 | | | 1,415 | | | 2,869 | | | 3,474 | |
Cash interest - Convertible Notes | | 4,543 | | | 2,480 | | | 9,108 | | | 4,960 | |
Non-cash compensation expense | | 21,390 | | | 23,504 | | | 40,843 | | | 45,318 | |
Restructuring charges and transaction costs | | 6,508 | | | 21,026 | | | 10,671 | | | 23,372 | |
Severance | | 8,234 | | | 7,148 | | | 14,422 | | | 10,254 | |
Amortization of acquired intangibles | | 15,720 | | | 17,645 | | | 32,660 | | | 35,165 | |
Litigation, regulatory and other governance related expenses | | 2,145 | | | 4,306 | | | 5,219 | | | 7,383 | |
Foreign currency | | 74 | | | 413 | | | 107 | | | 305 | |
Non-income tax expense adjustment | | (30) | | | 189 | | | (198) | | | 213 | |
Fair market value adjustment to investment in private company | | 67 | | | — | | | 67 | | | — | |
Dilution gain on equity method investee share issuance | | (546) | | | (6,934) | | | (546) | | | (6,934) | |
Loss allocations from equity method investments | | 2,932 | | | 1,400 | | | 5,872 | | | 2,945 | |
Loss attributable to non-controlling interest | | 1,027 | | | 440 | | | 1,805 | | | 817 | |
Adjusted net income before income tax effect | | 40,794 | | | 42,985 | | | 81,262 | | | 84,591 | |
Income tax effect (2) | | (10,403) | | | (10,961) | | | (20,722) | | | (21,571) | |
Adjusted net income | | $ | 30,391 | | | $ | 32,024 | | | $ | 60,540 | | | $ | 63,020 | |
| | | | | | | | |
Basic number of weighted-average shares outstanding | | 54,439,733 | | | 55,203,120 | | | 54,289,443 | | | 55,054,272 | |
Effect of dilutive shares: | | | | | | | | |
Convertible Notes | | 11,253,471 | | | 9,898,549 | | | 11,361,458 | | | 9,898,549 | |
Non-vested RSUs and PSUs | | 316,758 | | | 199,853 | | | 445,323 | | | 381,397 | |
Options to purchase common stock | | 57,902 | | | 129,217 | | | 73,271 | | | 142,510 | |
Warrants | | — | | | 22,170 | | | — | | | 37,473 | |
Diluted number of weighted-average shares outstanding | | 66,067,864 | | | 65,452,909 | | | 66,169,495 | | | 65,514,201 | |
Adjusted net income per diluted share | | $ | 0.46 | | | $ | 0.49 | | | $ | 0.91 | | | $ | 0.96 | |
| | | | | | | | |
(1)For the three months ended June 30, 20222023 and 2021,2022, the effective tax rate computed in accordance with GAAP equaled 19.4%(1.8)% and 217.1%19.4%, respectively. For the six months ended June 30, 20222023 and 2021,2022, the effective tax rate computed in accordance with GAAP equaled 8.9%(58.0)% and 60.2%8.9%, 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, 20222023 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, 20222023 and 2021:2022:
| | | | Three Months Ended June 30, 2022 | | | Three Months Ended June 30, 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 | | $ | 271,581 | | | $ | 40,853 | | | $ | — | | | $ | 312,434 | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | | Deferred revenue fair value adjustment | | 17 | | | — | | | — | | | 17 | |
Adjusted revenues | | $ | 272,054 | | | $ | 46,852 | | | $ | — | | | $ | 318,906 | | |
Adjusted revenue | | Adjusted revenue | | $ | 271,598 | | | $ | 40,853 | | | $ | — | | | $ | 312,451 | |
| Income (loss) from operations | Income (loss) from operations | | $ | 3,968 | | | $ | (3,705) | | | $ | (31,986) | | | $ | (31,723) | | Income (loss) from operations | | $ | 23,399 | | | $ | (10,993) | | | $ | (27,718) | | | $ | (15,312) | |
Add: | Add: | | Add: | |
Deferred revenue fair value adjustment | Deferred revenue fair value adjustment | | 54 | | | — | | | — | | | 54 | | Deferred revenue fair value adjustment | | 17 | | | — | | | — | | | 17 | |
Depreciation and amortization | Depreciation and amortization | | 23,550 | | | 8,632 | | | — | | | 32,182 | | Depreciation and amortization | | 24,510 | | | 9,296 | | | — | | | 33,806 | |
Non-cash compensation expense | Non-cash compensation expense | | 13,364 | | | 1,852 | | | 8,288 | | | 23,504 | | Non-cash compensation expense | | 12,043 | | | 2,727 | | | 6,620 | | | 21,390 | |
Restructuring charges and transaction costs | Restructuring charges and transaction costs | | 16,897 | | | 753 | | | 3,376 | | | 21,026 | | Restructuring charges and transaction costs | | 5,414 | | | 69 | | | 1,025 | | | 6,508 | |
Severance | Severance | | 2,813 | | | (431) | | | 4,766 | | | 7,148 | | Severance | | 1,854 | | | 3,119 | | | 3,261 | | | 8,234 | |
| Litigation and regulatory related expenses | | — | | | 4,306 | | | — | | | 4,306 | | |
Litigation, regulatory and other governance related expenses | | Litigation, regulatory and other governance related expenses | | — | | | 2,210 | | | (65) | | | 2,145 | |
Non-income tax expense adjustment | Non-income tax expense adjustment | | 184 | | | 5 | | | — | | | 189 | | Non-income tax expense adjustment | | (25) | | | (5) | | | — | | | (30) | |
Loss attributable to non-controlling interest | Loss attributable to non-controlling interest | | 440 | | | — | | | — | | | 440 | | Loss attributable to non-controlling interest | | 1,027 | | | — | | | — | | | 1,027 | |
| Adjusted EBITDA | Adjusted EBITDA | | $ | 61,270 | | | $ | 11,412 | | | $ | (15,556) | | | $ | 57,126 | | Adjusted EBITDA | | $ | 68,239 | | | $ | 6,423 | | | $ | (16,877) | | | $ | 57,785 | |