UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20222023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
 
Commission file number 001-34835
env-logo.jpg
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-1409613
(State or other jurisdiction of
incorporation or organization)		(I.R.S Employer
Identification No.)
1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania19312
(Address of principal executive offices)(Zip Code)
 Registrant’s telephone number, including area code:
(312) 827-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of exchange on which registered
Common Stock, par value $0.005 per shareENVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý Accelerated filer☐
Non-accelerated filer☐ Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐  No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒
As of November 2, 2022,3, 2023, Envestnet, Inc. had 55,326,13654,656,335 shares of common stock outstanding.


TABLE OF CONTENTS
Page
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended SeptemberIncome 30, 2022 and 2021(Loss)
5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021
6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021
108
Notes to Unaudited Condensed Consolidated Financial Statements
129
Forward-Looking Statements
3426
Overview
3626
Results of Operations
4332
Liquidity and Capital Resources
6052
6153
6153
6254
6254
6254
6254
6254
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6354
6455
56
6557
2



Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
September 30,December 31,September 30,December 31,
2022202120232022
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$241,330 $429,279 Cash and cash equivalents$43,211 $162,173 
Fees receivable, netFees receivable, net96,098 95,291 Fees receivable, net110,643 101,696 
Prepaid expenses and other current assetsPrepaid expenses and other current assets55,078 42,706 Prepaid expenses and other current assets49,299 41,363 
Total current assetsTotal current assets392,506 567,276 Total current assets203,153 305,232 
Property and equipment, netProperty and equipment, net60,061 50,215 Property and equipment, net65,785 62,443 
Internally developed software, netInternally developed software, net173,285 133,659 Internally developed software, net217,411 184,558 
Intangible assets, netIntangible assets, net398,082 400,396 Intangible assets, net346,211 379,995 
GoodwillGoodwill996,267 925,154 Goodwill998,381 998,414 
Operating lease right-of-use assets, netOperating lease right-of-use assets, net83,472 90,714 Operating lease right-of-use assets, net72,929 81,596 
Other non-current assets99,548 73,768 
Other assetsOther assets127,019 99,927 
Total assetsTotal assets$2,203,221 $2,241,182 Total assets$2,030,889 $2,112,165 
Liabilities and Equity
Liabilities and equityLiabilities and equity
Current liabilities:Current liabilities:Current liabilities:
Accrued expenses and other liabilities$207,025 $225,159 
Accounts payable19,447 19,092 
Accounts payable, accrued expenses and other current liabilitiesAccounts payable, accrued expenses and other current liabilities$224,385 $233,866 
Operating lease liabilitiesOperating lease liabilities12,133 10,999 Operating lease liabilities13,297 11,949 
Deferred revenueDeferred revenue34,082 33,473 Deferred revenue32,563 36,363 
Current portion of long-term debt343,581 — 
Current portion of debtCurrent portion of debt— 44,886 
Total current liabilitiesTotal current liabilities616,268 288,723 Total current liabilities270,245 327,064 
Long-term debt, net of current portion509,006 848,862 
Non-current operating lease liabilities109,749 105,920 
DebtDebt875,390 871,769 
Operating lease liabilities, net of current portionOperating lease liabilities, net of current portion102,717 110,652 
Deferred tax liabilities, netDeferred tax liabilities, net14,976 21,021 Deferred tax liabilities, net14,598 16,196 
Other non-current liabilities12,938 17,114 
Other liabilitiesOther liabilities16,138 18,880 
Total liabilitiesTotal liabilities1,262,937 1,281,640 Total liabilities1,279,088 1,344,561 
Commitments and contingencies
Equity:
Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021— — 
Common stock, par value $0.005, 500,000,000 shares authorized; 69,866,788 and 68,879,152 shares issued as of September 30, 2022 and December 31, 2021, respectively; 55,323,222 and 54,793,088 shares outstanding as of September 30, 2022 and December 31, 2021, respectively349 344 
Commitments and contingencies (note 19)Commitments and contingencies (note 19)
Stockholders' equityStockholders' equity
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022— — 
Common stock, par value $0.005, 500,000,000 shares authorized; 70,950,023 and 70,025,733 shares issued as of September 30, 2023 and December 31, 2022, respectively; 54,648,721 and 54,013,826 shares outstanding as of September 30, 2023 and December 31, 2022, respectivelyCommon stock, par value $0.005, 500,000,000 shares authorized; 70,950,023 and 70,025,733 shares issued as of September 30, 2023 and December 31, 2022, respectively; 54,648,721 and 54,013,826 shares outstanding as of September 30, 2023 and December 31, 2022, respectively354 350 
Treasury stock at cost, 16,301,302 and 16,011,907 shares as of September 30, 2023 and December 31, 2022, respectivelyTreasury stock at cost, 16,301,302 and 16,011,907 shares as of September 30, 2023 and December 31, 2022, respectively(270,555)(253,551)
Additional paid-in capitalAdditional paid-in capital1,195,624 1,131,628 Additional paid-in capital1,193,036 1,135,284 
Accumulated deficitAccumulated deficit(82,422)(37,988)Accumulated deficit(174,480)(118,927)
Treasury stock at cost, 14,543,566 and 14,086,064 shares as of September 30, 2022 and December 31, 2021, respectively(164,844)(134,996)
Accumulated other comprehensive lossAccumulated other comprehensive loss(7,949)(1,899)Accumulated other comprehensive loss(4,559)(8,589)
Total stockholders’ equity940,758 957,089 
Total stockholders’ equity, attributable to Envestnet, Inc.Total stockholders’ equity, attributable to Envestnet, Inc.743,796 754,567 
Non-controlling interestNon-controlling interest(474)2,453 Non-controlling interest8,005 13,037 
Total equityTotal equity940,284 959,542 Total equity751,801 767,604 
Total liabilities and equityTotal liabilities and equity$2,203,221 $2,241,182 Total liabilities and equity$2,030,889 $2,112,165 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
3

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

Three Months EndedNine Months EndedThree Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20222021202220212023202220232022
Revenues:
Revenue:Revenue:
Asset-basedAsset-based$177,131 $184,008 $571,820 $513,458 Asset-based$193,901 $177,131 $556,595 $571,820 
Subscription-basedSubscription-based123,747 113,572 356,601 335,905 Subscription-based114,939 123,747 346,977 356,601 
Total recurring revenues300,878 297,580 928,421 849,363 
Professional services and other revenues5,817 5,473 18,489 17,533 
Total revenues306,695 303,053 946,910 866,896 
Total recurring revenueTotal recurring revenue308,840 300,878 903,572 928,421 
Professional services and other revenueProfessional services and other revenue8,007 5,817 24,416 18,489 
Total revenueTotal revenue316,847 306,695 927,988 946,910 
Operating expenses:Operating expenses:Operating expenses:
Cost of revenues110,108 109,836 361,872 303,199 
Compensation and benefits116,837 109,839 369,453 316,101 
General and administration47,388 39,393 157,867 117,463 
Direct expenseDirect expense119,538 110,108 352,024 361,872 
Employee compensationEmployee compensation113,334 116,837 344,646 369,453 
General and administrativeGeneral and administrative49,063 47,388 156,028 157,867 
Depreciation and amortizationDepreciation and amortization33,408 29,850 97,208 88,252 Depreciation and amortization34,311 33,408 101,058 97,208 
Total operating expensesTotal operating expenses307,741 288,918 986,400 825,015 Total operating expenses316,246 307,741 953,756 986,400 
Income (loss) from operationsIncome (loss) from operations(1,046)14,135 (39,490)41,881 Income (loss) from operations601 (1,046)(25,768)(39,490)
Other expense, netOther expense, net(5,346)(3,551)(9,691)(14,803)Other expense, net(4,369)(5,346)(19,706)(9,691)
Income (loss) before income tax provision (benefit)(6,392)10,584 (49,181)27,078 
Loss before income tax provision (benefit)Loss before income tax provision (benefit)(3,768)(6,392)(45,474)(49,181)
Income tax provision (benefit)Income tax provision (benefit)2,271 (854)(1,542)9,074 Income tax provision (benefit)(8,824)2,271 15,363 (1,542)
Net income (loss)Net income (loss)(8,663)11,438 (47,639)18,004 Net income (loss)5,056 (8,663)(60,837)(47,639)
Add: Net loss attributable to non-controlling interestAdd: Net loss attributable to non-controlling interest1,373 302 3,205 401 Add: Net loss attributable to non-controlling interest2,035 1,373 5,284 3,205 
Net income (loss) attributable to Envestnet, Inc.Net income (loss) attributable to Envestnet, Inc.$(7,290)$11,740 $(44,434)$18,405 Net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$(55,553)$(44,434)
Net income (loss) per share attributable to Envestnet, Inc.:
Net income (loss) attributable to Envestnet, Inc. per share:Net income (loss) attributable to Envestnet, Inc. per share:
BasicBasic$(0.13)$0.22 $(0.81)$0.34 Basic$0.13 $(0.13)$(1.02)$(0.81)
DilutedDiluted$(0.13)$0.21 $(0.81)$0.33 Diluted$0.13 $(0.13)$(1.02)$(0.81)
Weighted average common shares outstanding:Weighted average common shares outstanding:Weighted average common shares outstanding:
BasicBasic55,226,777 54,547,858 55,109,387 54,400,247 Basic54,562,270 55,226,777 54,380,231 55,109,387 
DilutedDiluted55,226,777 55,388,627 55,109,387 55,287,972 Diluted54,970,616 55,226,777 54,380,231 55,109,387 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
4

Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
Three Months EndedNine Months EndedThree Months EndedNine Months Ended
September 30,September 30,September 30,September 30,
20222021202220212023202220232022
Net income (loss) attributable to Envestnet, Inc.Net income (loss) attributable to Envestnet, Inc.$(7,290)$11,740 $(44,434)$18,405 Net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$(55,553)$(44,434)
Foreign currency translation gains (losses), net of taxes(1,479)270 (6,050)(1,618)
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Foreign currency translation adjustmentsForeign currency translation adjustments(151)(1,479)4,030 (6,050)
Total other comprehensive income (loss), net of taxTotal other comprehensive income (loss), net of tax(151)(1,479)4,030 (6,050)
Comprehensive income (loss) attributable to Envestnet, Inc.Comprehensive income (loss) attributable to Envestnet, Inc.$(8,769)$12,010 $(50,484)$16,787 Comprehensive income (loss) attributable to Envestnet, Inc.$6,940 $(8,769)$(51,523)$(50,484)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

5

Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share information)
(unaudited)

Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202168,879,152 $344 (14,086,064)$(134,996)$1,131,628 $(1,899)$(37,988)$2,453 $959,542 
Exercise of stock options38,681 — — — 658 — — — 658 
Issuance of common stock - vesting of restricted stock units514,319 3 — — — — — — 3 
Stock-based compensation expense— — — — 21,690 — — — 21,690 
Shares withheld to satisfy tax withholdings— — (170,992)(12,570)— — — — (12,570)
Foreign currency translation loss, net of taxes— — — — — (1,478)— — (1,478)
Other— — — — (84)— — 102 18 
Net loss— — — — — — (13,859)(849)(14,708)
Balance, March 31, 202269,432,152 $347 (14,257,056)$(147,566)$1,153,892 $(3,377)$(51,847)$1,706 $953,155 
Exercise of stock options2,503 — — — 84 — — — 84 
Issuance of common stock - vesting of restricted stock units232,328 1 — — — — — — 1 
Stock-based compensation expense— — — — 22,876 — — — 22,876 
Shares withheld to satisfy tax withholdings— — (78,506)(5,543)— — — — (5,543)
Share repurchases— — (152,020)(9,235)— — — — (9,235)
Foreign currency translation loss, net of taxes— — — — — (3,093)— — (3,093)
Other— — — — (89)— — 104 15 
Net loss— — — — — — (23,285)(983)(24,268)
Balance, June 30, 202269,666,983 $348 (14,487,582)$(162,344)$1,176,763 $(6,470)$(75,132)$827 $933,992 
Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202270,025,733 $350 (16,011,907)$(253,551)$1,135,284 $(8,589)$(118,927)$13,037 $767,604 
Net loss— — — — — — (41,228)(1,533)(42,761)
Other comprehensive income, net of tax— — — — — 4,277 — — 4,277 
Stock-based compensation expense— — — — 19,345 — — 108 19,453 
Issuance of common stock, vesting of RSUs and PSUs524,316 2 — — — — — — 2 
Net cash paid related to tax withholding for stock-based compensation— — (173,612)(10,732)— — — — (10,732)
Proceeds from the exercise of stock options37,454 — — — 367 — — — 367 
Purchase of non-controlling units from third-party shareholders— — — — (984)— — (24)(1,008)
Other— — — — — — — (22)(22)
Balance, March 31, 202370,587,503 352 (16,185,519)(264,283)$1,154,012 (4,312)(160,155)11,566 737,180 
Net loss— — — — — — (21,416)(1,716)(23,132)
Other comprehensive loss, net of tax— — — — — (96)— — (96)
Stock-based compensation expense— — — — 21,347 — — 43 21,390 
Issuance of common stock, vesting of RSUs and PSUs162,770 1 — — — — — — 1 
Net cash paid related to tax withholding for stock-based compensation— — (55,971)(3,042)— — — — (3,042)
Proceeds from the exercise of stock options2,500 — — — 105 — — — 105 
Other— — — — — — 52 52 
Balance, June 30, 202370,752,773 353 (16,241,490)(267,325)$1,175,464 (4,408)(181,571)9,945 732,458 
Net income (loss)— — — — — — 7,091 (2,035)5,056 
Other comprehensive loss, net of tax— — — — — (151)— — (151)
Stock-based compensation expense— — — — 17,205 — — 93 17,298 
Issuance of common stock, vesting of RSUs and PSUs184,828 1 — — — — — — 1 
Net cash paid related to tax withholding for stock-based compensation— — (59,812)(3,230)— — — — (3,230)
Proceeds from the exercise of stock options12,422 — — — 367 — — — 367 
Other— — — — — — — 2 2 
Balance, September 30, 202370,950,023 $354 (16,301,302)$(270,555)$1,193,036 $(4,559)$(174,480)$8,005 $751,801 


-continued-
6


Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)

Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, June 30, 202269,666,983 $348 (14,487,582)$(162,344)$1,176,763 $(6,470)$(75,132)$827 $933,992 
Exercise of stock options37,618 — — — 1,817 — — — 1,817 
Issuance of common stock - vesting of restricted stock units162,187 1 — — — — — — 1 
Stock-based compensation expense— — — — 17,265 — — — 17,265 
Shares withheld to satisfy tax withholdings— — (55,984)(2,500)— — — — (2,500)
Foreign currency translation loss, net of taxes— — — — — (1,479)— — (1,479)
Other— — — — (221)— — 72 (149)
Net loss— — — — — — (7,290)(1,373)(8,663)
Balance, September 30, 202269,866,788 $349 (14,543,566)$(164,844)$1,195,624 $(7,949)$(82,422)$(474)$940,284 

Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202168,879,152 $344 (14,086,064)$(134,996)$1,131,628 $(1,899)$(37,988)$2,453 $959,542 
Net loss— — — — — — (13,859)(849)(14,708)
Other comprehensive loss, net of tax— — — — — (1,478)— — (1,478)
Stock-based compensation expense— — — — 21,690 — — — 21,690 
Issuance of common stock, vesting of RSUs and PSUs514,319 3 — — — — — — 3 
Net cash paid related to tax withholding for stock-based compensation— — (170,992)(12,570)— — — — (12,570)
Proceeds from the exercise of stock options38,681 — — — 658 — — — 658 
Other— — — — (84)— — 102 18 
Balance, March 31, 202269,432,152 347 (14,257,056)(147,566)1,153,892 (3,377)(51,847)1,706 953,155 
Net loss— — — — — — (23,285)(983)(24,268)
Other comprehensive loss, net of tax— — — — — (3,093)— — (3,093)
Stock-based compensation expense— — — — 22,876 — — — 22,876 
Issuance of common stock, vesting of RSUs and PSUs232,328 1 — — — — — — 1 
Net cash paid related to tax withholding for stock-based compensation— — (78,506)(5,543)— — — — (5,543)
Proceeds from the exercise of stock options2,503 — — — 84 — — — 84 
Share repurchases— — (152,020)(9,235)— — — — (9,235)
Other— — — — (89)— — 104 15 
Balance, June 30, 202269,666,983 348 (14,487,582)(162,344)1,176,763 (6,470)(75,132)827 933,992 
Net loss— — — — — — (7,290)(1,373)(8,663)
Other comprehensive loss, net of tax— — — — — (1,479)— — (1,479)
Stock-based compensation expense— — — — 17,265 — — — 17,265 
Issuance of common stock, vesting of RSUs and PSUs162,187 1 — — — — — — 1 
Net cash paid related to tax withholding for stock-based compensation— — (55,984)(2,500)— — — — (2,500)
Proceeds from the exercise of stock options37,618 — — — 1,817 — — — 1,817 
Other— — — — (221)— — 72 (149)
Balance, September 30, 202269,866,788 $349 (14,543,566)$(164,844)$1,195,624 $(7,949)$(82,422)$(474)$940,284 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
7

Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)

Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202067,832,706 $339 (13,739,171)$(110,466)$1,166,774 $(398)$(79,912)$(519)$975,818 
Adoption of ASU 2020-06, net of taxes of $7,641— — — — (108,470)— 28,628 — (79,842)
Exercise of stock options27,043 — — — 522 — — — 522 
Issuance of common stock - vesting of restricted stock units455,349 2 — — — — — — 2 
Stock-based compensation expense— — — — 14,013 — — — 14,013 
Shares withheld to satisfy tax withholdings— — (147,041)(9,541)— — — — (9,541)
Share repurchase— — (24,227)(1,672)— — — — (1,672)
Foreign currency translation loss, net of taxes— — — — — (624)— — (624)
Other— — — — — — — 118 118 
Net income (loss)— — — — — — 14,946 (11)14,935 
Balance, March 31, 202168,315,098 $341 (13,910,439)$(121,679)$1,072,839 $(1,022)$(36,338)$(412)$913,729 
Exercise of stock options4,082 — — — 51 — — — 51 
Issuance of common stock - vesting of restricted stock units140,082 1 — — — — — — 1 
Stock-based compensation expense— — — — 17,161 — — — 17,161 
Shares withheld to satisfy tax withholdings— — (46,699)(3,479)— — — — (3,479)
Share repurchase— — (6,261)(425)— — — — (425)
Capital contribution - non-controlling interest— — — — (788)— — 811 23 
Foreign currency translation loss, net of taxes— — — — — (1,264)— — (1,264)
Other— — — — — — — 38 38 
Net loss— — — — — — (8,281)(88)(8,369)
Balance, June 30, 202168,459,262 $342 (13,963,399)$(125,583)$1,089,263 $(2,286)$(44,619)$349 $917,466 


-continued-

8

Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)

Accumulated
Common StockTreasury StockAdditionalOtherNon-
CommonPaid-inComprehensiveAccumulatedcontrollingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, June 30, 202168,459,262 $342 (13,963,399)$(125,583)$1,089,263 $(2,286)$(44,619)$349 $917,466 
Exercise of stock options12,954 — — — 347 — — — 347 
Issuance of common stock - vesting of restricted stock units163,999 1 — — — — — — 1 
Stock-based compensation expense— — — — 18,760 — — — 18,760 
Shares withheld to satisfy tax withholdings— — (54,912)(4,294)— — — — (4,294)
Capital contribution - non-controlling interest— — — — 661 — — 2,517 3,178 
Foreign currency translation gain, net of taxes— — — — — 270 — — 270 
Other— — — — (167)— — 76 (91)
Net income (loss)— — — — — — 11,740 (302)11,438 
Balance, September 30, 202168,636,215 $343 (14,018,311)$(129,877)$1,108,864 $(2,016)$(32,879)$2,640 $947,075 


See accompanying notes to unaudited Condensed Consolidated Financial Statements.
9

Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20222021
OPERATING ACTIVITIES:
Net income (loss)$(47,639)$18,004 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization97,208 88,252 
Provision for doubtful accounts(468)2,051 
Deferred income taxes(4,380)7,078 
Release of uncertain tax positions(3,095)— 
Non-cash compensation expense62,583 50,307 
Non-cash interest expense5,436 4,889 
Accretion on contingent consideration and purchase liability— 656 
Payments of contingent consideration— (2,360)
Fair market value adjustment to contingent consideration liability— (1,067)
Fair market value adjustment to investment in private company— (758)
Gain on settlement of liability— (1,206)
Loss allocations from equity method investments5,332 5,553 
Dilution gain on equity method investee share issuance(6,934)— 
Lease related impairments, including right of use assets14,050 1,537 
Loss on property and equipment disposals - office closures3,710 — 
Other319 249 
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net1,546 (38,030)
Prepaid expenses and other current assets(8,610)569 
Other non-current assets(3,914)4,854 
Accrued expenses and other liabilities(23,168)26,637 
Accounts payable(867)4,122 
Deferred revenue(2,329)(1,065)
Other non-current liabilities(2,545)(298)
Net cash provided by operating activities86,235 169,974 
INVESTING ACTIVITIES:
Purchases of property and equipment(13,114)(15,779)
Capitalization of internally developed software(67,755)(49,024)
Acquisition of proprietary technology(15,000)(25,517)
Acquisitions of businesses, net of cash acquired(104,185)(32,794)
Investments in private companies(16,351)(8,926)
Advance for technology solutions(4,000)(3,000)
Issuance of notes receivable to equity method investees(6,350)— 
Net cash used in investing activities(226,755)(135,040)

-continued-









10

Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20222021
FINANCING ACTIVITIES:
Proceeds from exercise of stock options2,559 920 
Capital contributions - non-controlling shareholders— 3,201 
Taxes paid in lieu of shares issued for stock-based compensation(20,613)(17,314)
Finance lease payments(14,544)— 
Share repurchases(9,235)(2,097)
Revolving credit facility issuance costs(1,872)— 
Payments of contingent consideration(750)(9,200)
Other5 (666)
Net cash used in financing activities(44,450)(25,156)
EFFECT OF EXCHANGE RATE CHANGES ON CASH(3,128)(544)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH(188,098)9,234 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD429,428 384,714 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD
(See Note 2)		$241,330 $393,948 
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes$7,916 $5,895 
Supplemental disclosure of cash flow information - cash paid during the period for interest7,851 7,794 
Supplemental disclosure of non-cash operating, investing and financing activities:
Purchase liabilities included in other non-current liabilities— 2,951 
Fixed assets acquired through finance lease15,382 — 
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities1,370 449 
Internally developed software costs included in accrued expenses and other liabilities— 1,060 
Membership interest liabilities included in other non-current liabilities752 373 
Leasehold improvements funded by lease incentive— 164 
Assets obtained in exchange for lease liabilities, net11,805 4,387 
Conversion of equity method investee loan to shares2,623 — 

Nine Months Ended
September 30,
20232022
Cash flows from operating activities:
Net loss$(60,837)$(47,639)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization101,058 97,208 
Deferred income taxes(1,458)(4,380)
Release of uncertain tax positions— (3,095)
Non-cash compensation expense58,141 62,583 
Non-cash interest expense6,822 5,436 
Loss allocations from equity method investments8,240 5,332 
Fair market value adjustment to investment in private company(2,804)— 
Dilution gain on equity method investee share issuance(546)(6,934)
Lease related impairments2,483 14,050 
Loss on property and equipment disposals - office closures— 3,710 
Other1,155 (149)
Changes in operating assets and liabilities:
Fees receivable, net(9,621)1,546 
Prepaid expenses and other assets(17,534)(12,524)
Accounts payable, accrued expenses and other liabilities(1,848)(26,580)
Deferred revenue(3,974)(2,329)
Net cash provided by operating activities79,277 86,235 
Cash flows from investing activities:
Purchases of property and equipment(18,275)(13,114)
Capitalization of internally developed software(71,117)(67,755)
Acquisitions of businesses, net of cash acquired— (104,185)
Investments in private companies(4,175)(16,351)
Acquisition of proprietary technology(12,000)(19,000)
Issuance of loan receivable to private company(20,000)— 
Issuance of note receivable to equity method investees— (6,350)
Other400 — 
Net cash used in investing activities(125,167)(226,755)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility55,000 — 
Payments related to Revolving Credit Facility(55,000)(1,872)
Payments related to Convertible Notes(45,000)— 
Payments on finance lease obligations(5,511)(14,544)
Proceeds from exercise of stock options839 2,559 
Payments related to tax withholdings for stock-based compensation(17,004)(20,613)
Payments related to share repurchases(9,289)(9,235)
Purchase of non-controlling units from third-party shareholders(1,008)— 
Payments of contingent consideration— (750)
Other4 5 
Net cash used in financing activities(76,969)(44,450)
Effect of exchange rate on changes on cash, cash equivalents and restricted cash3,897 (3,128)
Net change in cash, cash equivalents and restricted cash(118,962)(188,098)
Cash, cash equivalents and restricted cash, beginning of period162,173 429,428 
Cash, cash equivalents and restricted cash, end of period$43,211 $241,330 
Supplemental disclosures of cash flow information
Net cash paid for income taxes$13,552 $7,916 
Cash paid for interest$12,231 $7,851 
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares$4,129 $2,623 
Right-of-use assets obtained in exchange for lease liabilities, net$359 $11,805 
Property and equipment acquired through finance lease$5,511 $15,382 
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities$930 $1,370 
Membership interest liabilities included in other liabilities$— $752 
See accompanying notes to unaudited Condensed Consolidated Financial Statements.


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

Envestnet, Inc. (“Envestnet”) through its subsidiaries (collectively, the “Company”) is transforming the way financial advice and insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients.

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in “Note 15—18—Segment Information” to the condensed consolidated financial statements.statements and is described in detail within the Company's Annual Report on Form 10-K.

For a summary of commonly used industry terms and abbreviations used in this quarterly report on Form 10-Q, see the
Glossary of Terms.

2.Summary of Significant Accounting Policies

Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 20222023 and for the three and nine months ended September 30, 20222023 and 20212022 have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 20212022 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 20222023 and results of operations, equity, comprehensive income (loss) and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a functional currency other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenuesrevenue and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the unaudited condensed consolidated balance sheets as accumulated other comprehensive income (loss) within stockholders' equity. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three and nine months ended September 30, 20222023 are not necessarily indicative of the results of operations to be expected for other interim periods or for the full fiscal year.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)GAAP have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification™, sometimes referred to as the codification or “ASC.”FASB ASC and ASUs. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022, filed with the SEC on February 25, 2022.28, 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.estimates under different assumptions or conditions.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table reconciles Reclassifications

Certain amounts fromin the condensed consolidated balance sheets to cash, cash equivalentsas of December 31, 2022 and restricted cash reported within the condensed consolidated statements of cash flows:
September 30,September 30,
20222021
(in thousands)
Cash and cash equivalents$241,330 $393,799 
Restricted cash included in prepaid expenses and other current assets— 149 
Total cash, cash equivalents and restricted cash$241,330 $393,948 
Macroeconomic Environment

The Company's business is directly and indirectly affected by macroeconomic conditions andflows for the state of global financial markets. Recent geopolitical uncertainty resulting, in part, from military conflict between Russia and Ukraine which escalated in February 2022 as well as rising inflation have contributed to significant volatility and decline in global financial markets during 2022 which continues as of the date of this quarterly report. 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 the Company's 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 the Company is unable to estimate the overall financial effect of the conflict and this period of inflation at this time, as these conditions continue, they could have a material adverse effect on the Company's business, results of operations, financial condition and cash flows. As ofnine months ended September 30, 2022 thesehave been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, or net change in cash and cash equivalents and did not affect the condensed consolidated financial statements do not reflect any adjustments as a result of these macroeconomic conditions.operations, condensed consolidated statements of comprehensive loss or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 4.4%3.8% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. RevenuesRevenue from the private services company totaled $3.7$2.8 million and $4.2$3.7 million in the three months ended September 30, 2023 and 2022, and 2021, respectively. RevenuesRevenue from the private services company totaled $12.7$9.7 million and $11.9$12.7 million in the nine months ended September 30, 20222023 and 2021,2022, respectively. As of September 30, 20222023 and December 31, 2021,2022, the Company recorded a net receivable of $5.0 million and $3.0 million, respectively, from the private services company.

Dilution gain on equity method investee share issuance

The Company has an ownership interest in a privately held company that is accounted for under the equity method. During the first quarter of 2022, the Company funded a $2.5$1.8 million convertible loan to this privately held company. During the second quarter of 2022, this privately held company raised additional preferred equity which reduced the Company's ownership to 41.0% and the Company's convertible loan was converted. As a result of this transaction, the Company recorded a $6.9$2.0 million, dilution gain during the second quarter of 2022, which is included in other expense, net in the condensed consolidated statements of operations.

Exercise of Membership Interests

The Company granted membership interests in certain of its 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 the Company for approximately $10 million.respectively.

Recent Accounting Pronouncements Not Yet Adopted

Recently Adopted Accounting Pronouncements— In October 2021,March 2023, the FASB issued ASU 2021-08, “Business Combinations2023-01, “Leases (Topic 805).842): Common Control Arrangements.” This update amends Topic 805 to add contract assetsASC 842 and contract liabilities to the list of
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordanceaccounting for leasehold improvements associated with ASC 606.common control leases. This standard is effective for financial statements issued by public companies for annual and interim periodsfiscal years beginning after December 15, 2022.2023, including interim periods within those fiscal years. Early adoption of the standard is permitted. The amendmentCompany is to be applied prospectively to business combinations occurring on or afteranalyzing the effective dateimpact of the amendment. The Company adopted this standard as of January 1, 2022. Adoption of this standard didadoption, but does not expect it to have a material impact on the Company's condensed consolidated financial statements.

3.Acquisitions and Other Investments

Investments in Privately Held Companies

On May 20, 2022, the Company acquired a 25.0% interest in a privately held company for cash consideration of $5.0 million. Subject to the occurrence of certain conditions, the Company agreed to invest up to an additional $10.0 million for additional units in the future. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. The Company uses the equity method of accounting because of its less than 50% ownership interest and lack of control and does not otherwise exercise control over the significant economic and operating decisions of the privately held company.

On September 2, 2022, the Company acquired additional membership units in a privately held company in which the Company already had an approximate 43% ownership interest for $8.4 million which increased its ownership interest to 48%. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. After this unit purchase, the Company's investment in this privately held company exceeded its proportionate share of its net assets by approximately $7.8 million, which represents amortizable intangible assets. The Company will recognize amortization of this basis difference prospectively over a period of 5 years. This amortization will be included within Envestnet's proportional share of income (loss) in other expense, net in the condensed consolidated statements of operations.

Acquisition of 401kplans.com

On May 31, 2022, Envestnet Retirement Solutions, LLC, a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding membership interests of 401kplans.com LLC (“401kplans.com”). 401kplans.com has been integrated into the Envestnet Wealth Solutions segment.

401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. The acquisition demonstrates Envestnet's commitment to the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping them shop, compare and select the best-fitting 401(k) plan for their client.

In connection with the 401kplans.com acquisition, the Company paid estimated consideration of $14.5 million, net of cash acquired, subject to certain post-closing adjustments. The Company funded the acquisition with available cash resources.

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

Preliminary EstimateMeasurement Period AdjustmentsRevised Estimate
(in thousands)
Tangible assets acquired, net of acquired cash$94 $10 $104 
Identifiable intangible assets3,000 — 3,000 
Goodwill11,378 18 11,396 
Total net assets acquired$14,472 $28 $14,500 


The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling opportunities. The estimated goodwill is deductible for income tax purposes.
14
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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

Preliminary Estimate
(in thousands)		Estimated Useful Life in YearsAmortization Method
Proprietary technology$3,000 5Straight-line

The estimated fair values of certain of the assets acquired are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation procedures that are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than May 31, 2023.

The results of 401kplans.com's operations are included in the condensed consolidated statements of operations beginning May 31, 2022 and are not considered material to the Company’s results of operations.

For the three and nine months ended September 30, 2022, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2022.

Acquisition of Truelytics

On July 1, 2022, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of May 10, 2022, between, among others, Truelytics, Inc., (“Truelytics”), Yodlee, Inc. and Quadrant Merger Sub Inc., a wholly owned subsidiary of Envestnet (“Merger Sub”), the Company completed the merger of Truelytics with and into Merger Sub, with Truelytics continuing as the surviving corporation (the “Truelytics Merger”) and a wholly owned subsidiary of Envestnet. Truelytics has been integrated into the Envestnet Data & Analytics segment.

The acquisition of Truelytics aligns with the Company's strategy to further connect its ecosystem by creating transformative progress for its advisors and clients. Truelytics is an Advisor Transition Management platform and the first end-to-end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The Truelytics platform combines Envestnet data, analytics, and wealth technology to further support advisors across the ecosystem.

The Company paid estimated cash consideration of $20.7 million, net of cash acquired, subject to certain post-closing adjustments. The Company funded the Truelytics acquisition with available cash resources.

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

Preliminary Estimate
(in thousands)
Tangible net assets acquired, net of acquired cash$532 
Identifiable intangible assets4,000 
Goodwill16,195 
Total net assets acquired$20,727 

The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling opportunities. The estimated goodwill is not deductible for income tax purposes.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:

Preliminary Estimate
(in thousands)		Estimated Useful Life in YearsAmortization Method
Proprietary technology$4,000 5Straight-line

The estimated fair values of certain of the assets and liabilities acquired are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation procedures that are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than July 1, 2023.

The results of Truelytics' operations are included in the condensed consolidated statements of operations beginning July 1, 2022 and are not considered material to the Company’s results of operations.

For the three and nine months ended September 30, 2022, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2022.

Acquisition of Redi2 Technologies

On July 1, 2022, pursuant to a stock purchase agreement, dated as of June 24, 2022, between Envestnet, Inc. (“Envestnet”) and Redi2 Technologies Inc., (“Redi2 Technologies”), Envestnetthe Company completed the acquisition of all of the issued and outstanding shares of Redi2 Technologies (the “Redi2 Technologies Acquisition”("Redi2"). Redi2 Technologies provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. Redi2 Technologies has been integrated into the Envestnet Wealth Solutions segment.

In connection with the Redi2 Technologies Acquisition,acquisition, the Company paid estimated consideration as follows:follows (in thousands):

(in thousands)
Cash consideration, net$69,406 
Estimated workingWorking capital adjustment(1,465)(533)
Total$67,94168,873 

The Company funded the Redi2 Technologies Acquisitionacquisition with available cash resources. In addition, certain executives may earn up to $20.0 million in performance bonuses based upon the achievement of certain target financial and non-financial metrics. These performance bonuses will be recognized as compensation and benefits expense in the statementcondensed consolidated statements of operations. No amounts were recordedThe Company recognized $0.4 million and $1.9 million related to these performance bonuses during the three and nine months ended September 30, 2022.








2023, respectively.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table summarizes the estimatedfinal fair values of the assets acquired atand liabilities assumed as of the acquisition date of acquisition:(in thousands):

Preliminary Estimate
(in thousands)
Total current assets$1,985 
Other non-current assets3,3493,321 
Identifiable intangible assets26,500 
Goodwill44,23646,467 
Total assets acquired76,07078,273 
Accounts payable, and accrued expenses and other current liabilities(1,157)(2,428)
Operating lease liabilities(2,201)
Deferred revenue(4,771)
Total liabilities assumed(8,129)(9,400)
Total net assets acquired, net of cash received$67,94168,873 

The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the enhancement of the Company's existing technologies and increase in future revenuesrevenue as a result of potential cross selling opportunities. Estimated goodwillGoodwill of $39.5$40.7 million is expected to be deductible for income tax purposes.

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

Gross Carrying AmountEstimated Useful LifeAmortization Method
Preliminary Estimate
(in thousands)		Estimated Useful Life in YearsAmortization Method(in thousands)(in years)
Customer listsCustomer lists$14,000 14 - 16AcceleratedCustomer lists$14,000 14 - 16Accelerated
Proprietary technologiesProprietary technologies9,500 6Straight-lineProprietary technologies9,500 6Straight-line
Trade namesTrade names3,000 6 - 7Straight-lineTrade names3,000 6 - 7Straight-line
Total intangible assets acquiredTotal intangible assets acquired$26,500 Total intangible assets acquired$26,500 

The estimated fair values of certain of the assets acquired and liabilities assumed are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation procedures that are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and completecompleted the acquisition accounting as soon as reasonably practicable but no later than July 1,related to the Redi2 acquisition during the six months ended June 30, 2023.

The results of Redi2 Technologies' operations arewere included in the condensed consolidated statements of operations beginning July 1, 2022 and are not considered material to the Company’s results of operations.

ForDuring the three and nine months ended September 30, 2022,2023, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs overadministrative expense in the remaindercondensed consolidated statements of 2022.operations were not material.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
4.Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets consisted of the following:
September 30,December 31,
 20222021
(in thousands)
Prepaid technology$20,240 $15,415 
Non-income tax receivables5,768 7,013 
Acquisition related receivables4,429 2,951 
Prepaid insurance4,248 2,234 
Income tax prepayments and receivables2,978 1,310 
Loan to equity method investee2,018 — 
Other15,397 13,783 
Total prepaid expenses and other current assets$55,078 $42,706 
5.Property and Equipment, Net
Property and equipment, net consisted of the following:
 September 30,December 31,
 Estimated Useful Life20222021
(in thousands)
Cost:   
Computer equipment and software3 years$74,596 $72,289 
Leasehold improvementsShorter of the lease term or useful life of the asset35,772 43,544 
Leased data servers3 years15,946 590 
Office furniture and fixtures3-7 years11,106 12,214 
Office equipment and other3-5 years9,393 7,973 
Building and building improvements7-39 years2,729 2,729 
LandNot applicable940 940 
  150,482 140,279 
Less: accumulated depreciation and amortization(90,421)(90,064)
Total property and equipment, net$60,061 $50,215 
During the nine months ended September 30, 2022, the Company entered into an arrangement with a third party cloud service provider for the use of dedicated servers to migrate its infrastructure to the cloud. As the terms of the arrangement convey a finance lease under FASB Topic 842 - Leases (“ASC 842”), the Company accounts for those dedicated servers as leased assets when the lease term commences. The Company accounts for each lease and any non-lease components associated with that lease as a single lease component for all asset classes. The leased dedicated servers are presented as a component of property and equipment, net in the condensed consolidated balance sheets as of September 30, 2022. To take advantage of the favorable savings programs offered by the cloud service provider, the Company prepaid the lease payments and therefore does not have a lease liability recorded for the leased assets. Gross property and equipment under finance leases as of September 30, 2022 was $15.9 million with accumulated depreciation of $3.6 million. Finance lease activity as of and for the year ended December 31, 2021 was not material.

Office Closures
September 30,December 31,
 20232022
(in thousands)
Prepaid technology$16,500 $16,649 
Income tax prepayments and receivables6,785 2,515 
Prepaid insurance4,487 2,881 
Non-income tax receivable4,231 5,488 
Other17,296 13,830 
Total prepaid expenses and other current assets$49,299 $41,363 

In April 2022, in response to changing needs and an increase in employees working remotely, the Company closed three offices in the United States. The Company is currently exploring alternative uses for these properties, including sublease options.

During the three and nine months ended September 30, 2022, including the office closures, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $0.1
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
million and $16.6 million, respectively. Including the office closures, in the three and nine months ended September 30, 2022, gains and losses on asset retirements were zero and $3.7 million, respectively, for the Envestnet Wealth Solutions segment. In the three and nine months ended September 30, 2022, the Company also recognized $1.1 million and $14.1 million, respectively, of lease restructuring costs which are included in general and administration expense in the condensed consolidated statements of operations.

During the three and nine months ended September 30, 2022, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $1.7 million and $2.9 million, respectively. Gains and losses on asset retirements during the three and nine months ended September 30, 2022 were not material for the Envestnet Data & Analytics segment.

During the three and nine months ended September 30, 2021, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $1.8 million and $9.6 million, respectively. During the three and nine months ended September 30, 2021, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $0.4 million and $1.0 million, respectively. Gains and losses on asset retirements during the three and nine months ended September 30, 2021 were not material.
Depreciation and amortization expense was as follows:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Depreciation and amortization expense$5,318 $4,998 $16,372 $15,887 
6.Internally Developed Software

Internally developed software, net consisted of the following:
  September 30,December 31,
 Estimated Useful Life20222021
(in thousands)
Internally developed software5 years$292,028 $225,380 
Less: accumulated amortization (118,743)(91,721)
Internally developed software, net $173,285 $133,659 
Amortization expense was as follows:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Amortization expense$9,441 $7,462 $27,022 $20,995 
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
5.Internally Developed Software, Net

Internally developed software, net consisted of the following:

  September 30,December 31,
 Estimated Useful Life20232022
(in thousands)
Internally developed software5 years$383,041 $313,200 
Less: accumulated amortization (165,630)(128,642)
Internally developed software, net $217,411 $184,558 

6.Geographical Information

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

 September 30,December 31,
 20232022
(in thousands)
United States$280,589 $245,817 
India2,607 1,093 
Other— 91 
Total long-lived assets, net$283,196 $247,001 

See “Note 14—Revenue and Direct Expense” for detail of revenue by geographic area.

7.Goodwill and Intangible Assets, Net 

Changes inIntangible assets, net consisted of the carrying amount of goodwill were as follows:following:

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Balance at December 31, 2021$621,876 $303,278 $925,154 
401kplans.com acquisition11,396 — 11,396 
Truelytics acquisition— 16,195 16,195 
Redi2 Technologies acquisition44,236 — 44,236 
Foreign currency translation— (714)(714)
Balance at September 30, 2022$677,508 $318,759 $996,267 

Procurement of Technology Solutions
 September 30, 2023December 31, 2022
 Gross NetGross Net
 CarryingAccumulatedCarryingCarryingAccumulatedCarrying
 AmountAmortizationAmountAmountAmortizationAmount
(in thousands)
Customer lists$604,080 $(316,805)$287,275 $604,080 $(285,288)$318,792 
Proprietary technologies86,057 (32,735)53,322 113,224 (59,401)53,823 
Trade names15,700 (10,086)5,614 15,700 (8,320)7,380 
Total intangible assets$705,837 $(359,626)$346,211 $733,004 $(353,009)$379,995 

On June 21, 2021,April 1, 2022, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $18.0$9.0 million, including an advance of $3.0$4.0 million. The purchase agreement was amended in January 2023 to include additional functionality and features for additional consideration of $5.0 million. The Company closed the transaction and paid the remaining $15.0$10.0 million in February 2022.during the three months ended March 31, 2023. This proprietary technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an estimated useful life of five years.

On May 19, 2023, the Company entered into a purchase agreement with this same privately held company to acquire technology solutions being developed by this privately held company for a purchase price of $7.0 million, including an advance of $2.0 million. In addition, the agreement includes anprior purchase agreements that were entered into with this privately held company in June 2021 and April 2022 were amended in May 2023 to remove the earn-out payment of $10.0 million based upon the achievement of certain target metrics within five years after the date of the Company’s launch of the technology solutions. The parties have agreed to renegotiate the terms of the earn-out payment.provisions.

Intangible assets, net consisted ofDuring the following:
 September 30, 2022December 31, 2021
 Gross NetGross Net
 CarryingAccumulatedCarryingCarryingAccumulatedCarrying
 AmountAmortizationAmountAmountAmortizationAmount
(in thousands)
Customer lists$604,080 $(274,310)$329,770 $590,080 $(241,189)$348,891 
Proprietary technologies119,824 (59,892)59,932 85,324 (43,004)42,320 
Trade names36,700 (28,320)8,380 33,700 (24,515)9,185 
Total intangible assets$760,604 $(362,522)$398,082 $709,104 $(308,708)$400,396 

There were no material retirements of intangible assets during the three and nine months ended September 30, 2022 and 2021.2023, the Company retired fully amortized proprietary technologies with a historical cost of $40.5 million.

Amortization expense was as follows:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Amortization expense$18,649 $17,390 $53,814 $51,370 

20
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Future amortization expense of the Company's intangible assets as of September 30, 2022,2023, is expected to be as follows:follows (in thousands):

Years ending December 31,(in thousands)
Remainder of 2022$18,087 
202360,087 
202453,240 
202549,900 
202641,997 
Thereafter174,771 
Total$398,082 

Remainder of 2023$15,012 
202455,968 
202552,573 
202645,048 
202736,283 
Thereafter141,327 
Total$346,211 

8.Accrued ExpensesDepreciation and Other LiabilitiesAmortization Expense

Accrued expensesDepreciation and other liabilitiesamortization expense consisted of the following:
September 30,December 31,
 20222021
(in thousands)
Accrued investment manager fees$104,165 $95,858 
Accrued compensation and related taxes70,252 97,523 
Accrued professional services9,112 7,746 
Accrued technology5,563 8,951 
Non-income tax payables2,789 4,907 
Other accrued expenses15,144 10,174 
Total accrued expenses and other liabilities$207,025 $225,159 

Three Months EndedNine Months Ended
 September 30,September 30,
2023202220232022
(in thousands)
Intangible asset amortization$15,124 $18,649 $47,784 $53,814 
Internally developed software amortization13,500 9,441 36,988 27,022 
Property and equipment depreciation5,687 5,318 16,286 16,372 
Total depreciation and amortization$34,311 $33,408 $101,058 $97,208 

9.DebtGoodwill
The Company’s outstanding debt obligations as of September 30, 2022 and December 31, 2021 were as follows: 
 September 30,December 31,
 20222021
(in thousands)
Revolving credit facility balance$— $— 
Convertible Notes due 2023$345,000 $345,000 
Unamortized issuance costs on Convertible Notes due 2023(1,419)(2,979)
Convertible Notes due 2023 carrying value$343,581 $342,021 
Convertible Notes due 2025$517,500 $517,500 
Unamortized issuance costs on Convertible Notes due 2025(8,494)(10,659)
Convertible Notes due 2025 carrying value$509,006 $506,841 

Third Credit AgreementChanges in the carrying amount of goodwill by reportable segment were as follows:

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Balance as of December 31, 2022$679,739 $318,675 $998,414 
Foreign currency translation— (33)(33)
Balance as of September 30, 2023$679,739 $318,642 $998,381 

As part of the annual goodwill impairment analysis, the Company will perform a quantitative goodwill impairment evaluation for each reporting unit as of October 31, 2023. As a result of the segment change described in Note 18—Segment Information and a corresponding adjustment to the composition of reporting units, as well as lower revenue and profits in 2023 compared to prior years in the Envestnet Data & Analytics segment, the Envestnet Data & Analytics reporting unit's goodwill balance may be considered at risk for future impairment. Based on the results of this assessment, if the carrying value of the reporting unit exceeds its fair value, it could result in the recognition of an impairment of goodwill in the fourth quarter of 2023, and such impairment could be material.

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
10.Other Assets

On February 4, 2022,January 31, 2023, the Company entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”)Convertible Promissory Note with a groupcustomer of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The Third Credit Agreement amends and restates, in its entirety, the Company's prior credit agreement. In connection with entering into the Third Credit Agreement,business, a privately held company, whereby the Company capitalized an additional $1.9was issued a convertible promissory note with a principal amount of $20.0 million and a stated interest rate of deferred8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified financing chargesevents or corporate transactions. During the three and nine months ended September 30, 2023, interest income related to Other non-current assets on the condensed consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges toConvertible Promissory Note included in other expense, net onin the condensed consolidated statements of operations.operations was $0.4 million and $1.1 million, respectively.

In connection with the Convertible Promissory Note, the Company concurrently entered into a call option agreement with the privately held company, which provides the Company an option to acquire the privately held company at a predetermined price as of the earlier of July 2024 or upon satisfaction of certain financial metrics. The financial metrics were met during the three months ended September 30, 2023, however, the Company did not exercise the call option.

The Company accounts for this Convertible Promissory Note as a loan receivable in accordance with ASC 310 - Receivables as it is not a security and includes it in other assets in the condensed consolidated balance sheets. Credit impairment is measured as the difference between this loan receivable’s amortized cost and its estimated recoverable value, which is the present value of its expected future cash flows discounted at the effective interest rate. There was no impairment for this investment during the nine months ended September 30, 2023.

11.Accounts Payable, Accrued Expensesand Other Current Liabilities
Accounts payable, accrued expenses and other current liabilities consisted of the following:

September 30,December 31,
 20232022
(in thousands)
Accrued investment manager fees$110,496 $99,851 
Accrued compensation and related taxes69,943 77,939 
Accounts payable16,594 11,271 
Accrued professional services9,779 10,762 
Accrued interest5,654 3,091 
Accrued technology5,285 6,393 
Accrued treasury stock purchases— 9,289 
Other accrued expenses6,634 15,270 
Total accounts payable, accrued expenses and other current liabilities$224,385 $233,866 

During the nine months ended September 30, 2023, as part of a reduction in force initiative, the Company entered into separation agreements with a number of employees. In connection with this reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, the Company incurred $11.5 million and $25.9 million in total severance expense in the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023 the Company had an ending liability balance of $13.4 million related to these efforts, of which the Company anticipates approximately $10.1 million to be paid during the remainder of 2023, $2.7 million to be paid throughout 2024, with the remaining balance paid through 2030.

21
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
PursuantThe following table presents a reconciliation of the beginning and ending liability balance related to these efforts, which is primarily included within "Accrued compensation and related taxes" in the Third Credit Agreement, the Banks have agreed to provide the Company with a revolving credit facility of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-facility for the issuances of letters of credit. As of September 30, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.table above.

Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions. Proceeds under the Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions and for working capital and general corporate purposes.
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
(in thousands)
Balance as of December 31, 2022$11,929 $3,439 $— $15,368 
Severance expense9,931 11,849 4,124 25,904 
Cash payments(14,170)(9,535)(4,124)(27,829)
Balance as of September 30, 2023$7,690 $5,753 $— $13,443 

InSubsequent to September 30, 2023, in connection with the eventreduction in force initiative, the Company has borrowings underentered into separation agreements with a number of employees and incurred an additional $5.6 million in severance expense, of which the Third Credit Agreement, atCompany anticipates approximately $1.8 million to be paid during the Company's option, it will pay interest on these borrowings at a rate equalremainder of 2023 and $3.8 million 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, in each case based uponbe paid during the total net leverage ratio, as calculated pursuant to the Credit Agreement. Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.first quarter of 2024.

As of September 30, 2022, debt issuance costs related to the Third Credit Agreement are presented in prepaid expenses and other non-current assets in the condensed consolidated balance sheets which have outstanding amounts of $0.7 million and $2.3 million, respectively.
12.Debt

The Thirdfollowing tables set forth the carrying value and estimated fair value of the Company's debt obligations as of September 30, 2023 and December 31, 2022:

 September 30, 2023
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$— $— $— $— 
Convertible Notes due 2025317,500 (3,419)314,081 293,875 
Convertible Notes due 2027575,000 (13,691)561,309 523,595 
Total debt$892,500 $(17,110)$875,390 $817,470 

 December 31, 2022
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$— $— $— $— 
Convertible Notes due 202345,000 (114)44,886 46,058 
Convertible Notes due 2025317,500 (4,765)312,735 293,688 
Convertible Notes due 2027575,000 (15,966)559,034 606,119 
Total debt$937,500 $(20,845)$916,655 $945,865 

Revolving Credit AgreementFacility

The Revolving Credit Facility contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio and a minimum interest coverage ratio and a minimum liquidity covenant.ratio. The Company was in compliance with these financial covenants as of September 30, 2022.2023.

As of September 30, 2023 and December 31, 2022 the Company had all $500.0 million available to borrowthere were no amounts outstanding under the Revolving Credit Facility, subjectand all $500.0 million was available to covenant compliance.

Convertible Notes due 2023

In May 2018, the Company issued $345.0 millionborrow as of Convertible Notes due 2023 that mature on June 1, 2023. The Convertible Notes due 2023 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 1 and December 1 of each year. The Convertible Notes due 2023 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2023 was approximately 2.4% for the three and nine months ended September 30, 2022 and 2021. The effective interest rate of the Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance costs.

Convertible Notes due 2025

In August 2020, the Company issued $517.5 million of Convertible Notes due 2025 that mature on August 15, 2025. The Convertible Notes due 2025 bear interest at a rate of 0.75% per annum payable semiannually in arrears on February 15 and August 15 of each year. The Convertible Notes due 2025 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2025 was approximately 1.3% for the three and nine months ended September 30, 2022 and 2021. The effective interest rate of the Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance costs.2023.

22
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, 2023 and December 31, 2022, debt issuance costs related to the Revolving Credit Facility included in prepaid expense and other current assets in the condensed consolidated balance sheets was $0.7 million and $0.7 million, respectively, and included in other assets in the condensed consolidated balance sheets was $1.6 million and $2.2 million, respectively.

Convertible Notes due 2023

The Convertible Notes due 2023 matured on June 1, 2023. Upon maturity, the Company settled the remaining aggregate principal amount on the Convertible Notes due 2023 for $45.0 million. The Convertible Notes due 2023 were paid using a combination of cash on hand and borrowings under the Company's Revolving Credit Facility. No shares of the Company's common stock were issued upon settlement of the Convertible Notes due 2023.

Interest Expense

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Coupon interest$2,479 $2,479 $7,439 $7,439 
Amortization of issuance costs1,443 1,443 4,917 4,295 
Undrawn and other fees320 320 951 948 
 Total interest expense$4,242 $4,242 $13,307 $12,682 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
Convertible Notes interest$4,368 $2,479 $13,476 $7,439 
Amortization of debt discount and issuance costs1,389 1,443 4,258 4,917 
Undrawn and other fees312 320 936 951 
Revolving Credit Facility interest133 — 383 — 
 Total interest expense$6,202 $4,242 $19,053 $13,307 

For eachThe effective interest rate of the three months ended September 30, 2022 and 2021, total interest expense related to the Convertible Notes due 2023 and the Convertible Notes due 2025 (collectively, the "Convertible Notes") was $3.7 million with coupon interest expense of $2.5 million and amortization of debt discount and issuance costs of $1.2 million.

For each of the nine months ended September 30, 2022 and 2021, total interest expense related to the Convertible Notes was $11.1 million with couponequal to the stated interest expense of $7.4 million andrate plus the amortization of the debt discount and issuance costs of $3.7 million.and is set forth below:

 September 30,September 30,
 20232022
Convertible Notes due 2023N/A2.4 %
Convertible Notes due 20251.3 %1.3 %
Convertible Notes due 20273.2 %N/A

10.13.Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 20222023 and December 31, 2021,2022, based on the three-tier fair value hierarchy, as defineddescribed in ASC 820, “Fair Value Measurements and Disclosures”:
 September 30, 2022
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$2,597 $2,597 $— $— 
Assets to fund deferred compensation liability9,690 — — 9,690 
Total assets$12,287 $2,597 $— $9,690 
Liabilities:    
Deferred compensation liability7,373 7,373 — — 
Total liabilities$7,373 $7,373 $— $— 
detail within the Company's Annual Report on Form 10-K:

December 31, 2021 September 30, 2023
Fair ValueLevel ILevel IILevel III Fair ValueLevel ILevel IILevel III
(in thousands)(in thousands)
Assets:Assets:    Assets:    
Money market fundsMoney market funds$2,684 $2,684 $— $— Money market funds$22,701 $22,701 $— $— 
Assets to fund deferred compensation liabilityAssets to fund deferred compensation liability11,140 — — 11,140 Assets to fund deferred compensation liability10,366 — — 10,366 
Total assetsTotal assets$13,824 $2,684 $— $11,140 Total assets$33,067 $22,701 $— $10,366 
Liabilities:Liabilities:    Liabilities:    
Contingent consideration$743 $— $— $743 
Deferred compensation liabilityDeferred compensation liability10,418��10,418 — — Deferred compensation liability7,849 7,849 — — 
Total liabilitiesTotal liabilities$11,161 $10,418 $— $743 Total liabilities$7,849 $7,849 $— $— 


Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
 December 31, 2022
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$2,628 $2,628 $— $— 
Assets to fund deferred compensation liability10,074 — — 10,074 
Total assets$12,702 $2,628 $— $10,074 
Liabilities:    
Deferred compensation liability8,088 8,088 — — 
Total liabilities$8,088 $8,088 $— $— 
The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or when changes in circumstances caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value
23
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
hierarchy. There were no transfers between Levels I, II and III during the three and nine months ended September 30, 20222023 and 2021.2022.

Fair Value of Contingent Consideration Liabilities

The fair value ofAssets Used to Fund the contingent consideration liabilities related to certain of the Company's acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level III fair value measurement. The significant inputs in the Company's Level III fair value measurement not supported by market activity included its assessments of expected future cash flows related to these acquisitions and their ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in accordance with the terms of their respective agreements.

The Company will continue to reassess the fair values of the contingent consideration liabilities at each reporting date until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations. The Company had contingent consideration liabilities of $0.7 million as of December 31, 2021 which were recorded as a component of Accrued expenses and other liabilities on the condensed consolidated balance sheets. These contingent consideration liabilities were paid in the nine months ended September 30, 2022. The Company had no contingent consideration liabilities as of September 30, 2022.

Fair Value of Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 20212022 to September 30, 2022:2023:

 Fair Value of Assets Used to Fund Deferred Compensation Liability
(in thousands)
Balance atas of December 31, 20212022$11,14010,074 
Contributions649 
Fair value adjustments and fees(2,099)292 
Balance atas of September 30, 20222023$9,69010,366 

The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which are included in other non-current assets in the condensed consolidated balance sheets, decreasedincreased due to net lossesgains on the underlying investment vehicles, partially offset by additional funding.vehicles. These lossesgains are recognized in the Company's earnings and included in general and administrationadministrative expenses in the condensed consolidated statements of operations.

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities atas of September 30, 2023 and December 31, 2022, and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on September 30, 2022 (See “Note 9—Debt”).

As of September 30, 20222023 and December 31, 2021, the carrying value of the Convertible Notes due 2023 equaled $343.6 million and $342.0 million,2022, respectively and represented the aggregate principal amount outstanding less the debt issuance costs. As of September 30, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2023 was $338.1 million and $439.9 million, respectively.

As of September 30, 2022 and December 31, 2021, the carrying value of the Convertible Notes due 2025 equaled $509.0 million and $506.8 million, respectively, and represented the aggregate principal amount outstanding less the
24
Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
debt issuance costs. As of September 30, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2025 was $438.6 million and $526.1 million, respectively.(See “Note 12—Debt”).

Fair Value of Other Financial Assets and Liabilities

The Company considered the recorded value of its other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities atas of September 30, 20222023 and December 31, 20212022, based upon the short-term nature of these assets and liabilities.


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
11.14.RevenuesRevenue and Cost of RevenuesDirect Expense

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

 Three Months Ended September 30,
 20222021
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidatedEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidated
(in thousands)
Revenues:      
Asset-based$177,131 $— $177,131 $184,008 $— $184,008 
Subscription-based75,975 47,772 123,747 66,988 46,584 113,572 
Total recurring revenues253,106 47,772 300,878 250,996 46,584 297,580 
Professional services and other revenues4,229 1,588 5,817 3,738 1,735 5,473 
Total revenues$257,335 $49,360 $306,695 $254,734 $48,319 $303,053 
 Three Months Ended September 30,
 20232022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotalEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Revenue:      
Asset-based$193,901 $— $193,901 $177,131 $— $177,131 
Subscription-based76,813 38,126 114,939 75,975 47,772 123,747 
Total recurring revenue270,714 38,126 308,840 253,106 47,772 300,878 
Professional services and other revenue4,313 3,694 8,007 4,229 1,588 5,817 
Total revenue$275,027 $41,820 $316,847 $257,335 $49,360 $306,695 

 Nine Months Ended September 30,
 20222021
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidatedEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsConsolidated
(in thousands)
Revenues:      
Asset-based$571,820 $— $571,820 $513,458 $— $513,458 
Subscription-based218,080 138,521 356,601 197,663 138,242 335,905 
Total recurring revenues789,900 138,521 928,421 711,121 138,242 849,363 
Professional services and other revenues13,003 5,486 18,489 10,320 7,213 17,533 
Total revenues$802,903 $144,007 $946,910 $721,441 $145,455 $866,896 
 Nine Months Ended September 30,
 20232022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotalEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Revenue:      
Asset-based$556,595 $— $556,595 $571,820 $— $571,820 
Subscription-based228,807 118,170 346,977 218,080 138,521 356,601 
Total recurring revenue785,402 118,170 903,572 789,900 138,521 928,421 
Professional services and other revenue17,866 6,550 24,416 13,003 5,486 18,489 
Total revenue$803,268 $124,720 $927,988 $802,903 $144,007 $946,910 

The following table presents the Company’s revenuesrevenue disaggregated by geography, based on the billing address of the customer:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
United States$300,465 $298,022 $931,465 $851,683 
International6,230 5,031 15,445 15,213 
Total revenues$306,695 $303,053 $946,910 $866,896 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
United States$311,045 $300,465 $911,205 $931,465 
International5,802 6,230 16,783 15,445 
Total revenue$316,847 $306,695 $927,988 $946,910 

Remaining Performance Obligations
As of September 30, 2023, the Company's estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $567.0 million. We expect to recognize approximately 12% of this revenue during the remainder of 2023, approximately 61% throughout 2024 and 2025, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future periods.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Remaining Performance Obligations
The following table includes estimated revenue expected to be recognized in the future as of September 30, 2022: 

Years ending December 31,(in thousands)
Remainder of 2022$73,189 
2023212,908 
2024126,098 
202573,464 
202640,655 
Thereafter16,890 
Total$543,204 

The remaining performance obligations disclosed above are not indicative of revenue for future periods.

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

Contract Balances

Total deferred revenue as of September 30, 2022 increased2023 decreased by $2.9$4.0 million from December 31, 2021,2022, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue will be recognized over the course of the next twelve months.

The amount of revenue recognized for the three months ended September 30, 2023 and 2022 that was included in the opening deferred revenue balance was $5.5$5.4 million and $5.3$5.5 million, for the three months ended September 30, 2022 and 2021, respectively. The amount of revenue recognized for the nine months ended September 30, 2023 and 2022, that was included in the opening deferred revenue balance was $31.7$33.6 million and $31.6$31.7 million, for the nine months ended September 30, 2022 and 2021, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was $11.0$11.7 million and $11.8$11.0 million as of September 30, 20222023 and December 31, 2021,2022, respectively. Amortization expense for the deferred sales incentive compensation was $1.0$1.1 million and $1.2$1.0 million for the three months ended September 30, 2023 and 2022, and 2021.respectively. Amortization expense for the deferred sales incentive compensation was $3.2$3.4 million and $3.3$3.2 million for the nine months ended September 30, 2023 and 2022, and 2021.respectively. Deferred sales incentive compensation is included in other non-current assets onin the condensed consolidated balance sheets and amortization expense is included in employee compensation and benefits expenses onexpense in the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the periods.nine months ended September 30, 2023 and 2022.

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

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Cost of RevenuesDirect Expense

The following table summarizes cost of revenuesdirect expense by revenue category:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Asset-based$102,409 $102,298 $332,138 $281,829 
Subscription-based7,768 7,355 22,820 20,986 
Professional services and other(69)183 6,914 384 
Total cost of revenues$110,108 $109,836 $361,872 $303,199 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
Asset-based$112,938 $102,409 $324,093 $332,138 
Subscription-based6,974 7,768 20,269 22,820 
Professional services and other(374)(69)7,662 6,914 
Total direct expense$119,538 $110,108 $352,024 $361,872 

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

Plan. As of September 30, 2022,2023, the maximum number of common shares available for future issuance under the Company’sCompany's plans is 2,538,508.1,701,899.

Stock-based compensation expense under the Company’s plans was as follows:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Stock-based compensation expense$17,265 $18,512 $61,831 $49,934 
Tax effect on stock-based compensation expense(4,403)(4,720)(15,767)(12,733)
Net effect on income$12,862 $13,792 $46,064 $37,201 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
Stock-based compensation expense$17,298 $17,265 $58,141 $61,831 
Tax effect on stock-based compensation expense(4,411)(4,403)(14,826)(15,767)
Net effect on income (loss)$12,887 $12,862 $43,315 $46,064 
 
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the three and nine months ended September 30, 20222023 and 2021.

Stock Options
The Company did not grant any stock options in the three and nine months ended September 30, 2021 or 2022. The following table summarizes option activity under the Company’s plans:
   Weighted-Average 
  Weighted-Remaining 
  AverageContractual LifeAggregate
 OptionsExercise Price(Years)Intrinsic Value
(in thousands)
Outstanding as of December 31, 2021365,241 $38.61 3.3$14,878 
Exercised(78,802)32.49  
Forfeited(4,904)72.96  
Outstanding as of September 30, 2022281,535 39.73 2.42,496 
Options exercisable281,303 $39.69 2.4$2,496 
Exercise prices of stock options outstanding as of September 30, 2022 range from $15.34 to $74.83. At September 30, 2022, there was an immaterial amount of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 0.8 years.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Stock Options
The following table summarizes option activity under the Company’s plans:

  Weighted-Weighted-Average 
  AverageRemainingAggregate
 OptionsExercise PriceContractual LifeIntrinsic Value
(in years)(in thousands)
Outstanding as of December 31, 2022277,535$40.07 2.2$6,005 
Exercised(52,376)$19.97 
Forfeited(2,938)$55.00 
Outstanding as of September 30, 2023222,221$44.61 1.7$1,067 
Options exercisable as of September 30, 2023222,221$44.61 1.7$1,067 
As of September 30, 2023, there was an immaterial amount of unrecognized stock-based compensation expense related to stock options.

Restricted Stock Units and Performance Stock Units
 
The Company has granted restricted stock unitsfollowing table summarizes RSU and performance-based stock units to employees that are unvested. Performance-based stock units vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based stock units provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 0% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.

The following is a summary of thePSU activity for unvested restricted stock units and performance-based stock units granted under the Company’s plans:
RSUsPSUs
 Number of
Shares		Weighted-
Average Grant
Date Fair Value
per Share		Number of
Shares		Weighted-
Average Grant
Date Fair Value
per Share
Outstanding as of December 31, 20211,507,424 $71.50 359,184 $73.64 
Granted1,385,937 73.31 113,269 68.51 
Vested(759,930)70.79 (148,904)66.33 
Forfeited(262,510)73.05 (57,987)77.53 
Outstanding as of September 30, 20221,870,921 72.91 265,562 74.70 

RSUsPSUs
 Number of
Shares		Weighted-
Average Grant
Date Fair Value
per Share		Number of
Shares		Weighted-
Average Grant
Date Fair Value
per Share
Non-vested as of December 31, 20221,681,976 $72.69 259,049 $74.83 
Granted1,101,448 $61.13 40,010 $69.47 
Vested(849,920)$72.99 (21,994)$104.96 
Forfeited(210,336)$62.64 (51,062)$65.13 
Non-vested as of September 30, 20231,723,168 $66.38 226,003 $73.14 

AtAs of September 30, 2022,2023, there was $109.2$89.8 million of unrecognized stock-based compensation expense related to unvested restricted stock units,RSUs, which the Company expects to recognize over a weighted-average period of 2.01.8 years. AtAs of September 30, 2022,2023, there was $6.4$3.8 million of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units,PSUs, which the Company expects to recognize over a weighted-average period of 1.7 years.1.0 year.

13.16. Income Taxes

The following table includes the Company’s income (loss)loss before income tax provision (benefit), income tax provision (benefit) and effective tax rate:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands, except for effective tax rate)
Income (loss) before income tax provision (benefit)$(6,392)$10,584 $(49,181)$27,078 
Income tax provision (benefit)2,271 (854)(1,542)9,074 
Effective tax rate(35.5)%(8.1)%3.1 %33.5 %

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands, except for effective tax rate)
Loss before income tax provision (benefit)$(3,768)$(6,392)$(45,474)$(49,181)
Income tax provision (benefit)$(8,824)$2,271 $15,363 $(1,542)
Effective tax rate234.2 %(35.5)%(33.8)%3.1 %


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Under ASC 740-270-25, the Company is required to report income tax expense by applying a projected annual effective tax rate ("AETR")AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate ("ETR")ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of 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 and nine months ended September 30, 2022 and 2021,2023, the Company's ETReffective tax rate was impacted by the change in forecasted and actual year-to-date pre-tax book income.

For the three and nine months ended September 30, 2022,2023, the Company’s effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets which includes the impact of the Redi2 and Truelytics acquisitions and IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state research and development ("R&D")&D credits.

For the three and nine months ended September 30, 2022, the Company's effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
which includes the impact of the Redi2 and Truelytics acquisitions and 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 an uncertain tax position due to the expiration of a statute of limitations.

For the three months ended September 30, 2021, the Company's effective tax rate differed from the statutory rate primarily due to the increase in forecasted book income for the year, the decrease in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the acquisition of Harvest Savings & Wealth Technologies ("Harvest") in April 2021, and the windfall from stock-based compensation.

For the nine months ended September 30, 2021, the Company's effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.

Inflation Reduction Act of 2022

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, ("IRA"), which, among other things, implements a 15% minimum tax on book income of certain large corporations and a 1% excise tax on net stock repurchases. The provisions of the IRA areInflation Reduction Act of 2022 became effective beginning in 2023. The Company is currently evaluating the impacts of this actdoes not anticipate a material impact on the consolidated financial statements.

14.17.Net Income (Loss) Per Share

BasicThe following table provides the numerators and denominators used in computing basic and diluted net income (loss) attributable to Envestnet, Inc., per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted net income (loss)per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants, restricted stock awards and restricted stock units and convertible notes, if dilutive, using either the treasury method or if-converted method as appropriate.share:

Three Months EndedNine Months Ended
 September 30,September 30,
2023202220232022
(in thousands, except per share and per share data)
Net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$(55,553)$(44,434)
Weighted average common shares outstanding:
Basic54,562,270 55,226,777 54,380,231 55,109,387 
Effect of dilutive shares:
Non-vested RSUs and PSUs361,982 — — — 
Options to purchase common stock46,364 — — — 
Diluted54,970,616 55,226,777 54,380,231 55,109,387 
Net income (loss) attributable to Envestnet, Inc., per share:
Basic$0.13 $(0.13)$(1.02)$(0.81)
Diluted$0.13 $(0.13)$(1.02)$(0.81)
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table provides the numerators and denominators used in computing basic and diluted net income (loss) per share attributable to Envestnet, Inc.:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands, except share and per share data)
Net income (loss) attributable to Envestnet, Inc. (a)
$(7,290)$11,740 $(44,434)$18,405 
Weighted-average common shares outstanding:
Basic (b)
55,226,777 54,547,858 55,109,387 54,400,247 
Effect of dilutive shares:
Options to purchase common stock— 201,103 — 207,281 
Unvested restricted stock units— 570,515 — 614,005 
Warrants— 69,151 — 66,439 
Diluted (c)
55,226,777 55,388,627 55,109,387 55,287,972 
Net income (loss) per share attributable to Envestnet, Inc common stock:
Basic (a/b)
$(0.13)$0.22 $(0.81)$0.34 
Diluted (a/c)
$(0.13)$0.21 $(0.81)$0.33 
Securities that were anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share were as follows:
Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Options to purchase common stock281,535 — 281,535 — 
Unvested RSUs and PSUs2,136,483 — 2,136,483 — 
Warrants470,000 — 470,000 — 
Convertible Notes9,898,549 9,898,549 9,898,549 9,898,549 
Total anti-dilutive securities12,786,567 9,898,549 12,786,567 9,898,549 

Three Months EndedNine Months Ended
 September 30,September 30,
2023202220232022
Convertible Notes10,811,884 9,898,549 11,176,254 9,898,549 
Non-vested RSUs and PSUs— 2,136,483 1,949,171 2,136,483 
Options to purchase common stock— 281,535 222,221 281,535 
Warrants— 470,000 — 470,000 
Total anti-dilutive securities10,811,884 12,786,567 13,347,646 12,786,567 
 
15.18.Segment Information
 
Business segments are generally organized around the Company's business services. The Company's business segments are:
 
•Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions to enable them to deliver an intelligent financial life to their clients.

•Envestnet 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.

Subsequent to September 30, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. As a result, the advisor-focused Wealth Analytics business has been reclassified from the Envestnet Data & Analytics segment to the Envestnet Wealth Solutions segment. The segment changes do not impact nonsegment results or the Company's consolidated balance sheets, consolidated statements of operations or consolidated statements of cash flows.

All segment information presented within this quarterly report on Form 10-Q for the quarter ended September 30, 2023 is presented in conjunction with the historical organizational structure as that is the organizational structure in place as of the balance sheet date of September 30, 2023.

The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment operating expenses may include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses. Intersegment revenues wererevenue was not material for the three and nine months ended September 30, 20222023 and 2021.2022.

See “Note 11—Revenues14—Revenue and Cost of Revenues”Direct Expense” for detail of revenuesrevenue by segment.

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table presents a reconciliation from income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Envestnet Wealth Solutions$20,607 $34,386 $49,844 $101,042 
Envestnet Data & Analytics74 1,265 (9,218)3,896 
Nonsegment operating expenses(21,727)(21,516)(80,116)(63,057)
Income (loss) from operations(1,046)14,135 (39,490)41,881 
Other expense, net(5,346)(3,551)(9,691)(14,803)
Consolidated income (loss) before income tax benefit(6,392)10,584 (49,181)27,078 
Income tax provision (benefit)2,271 (854)(1,542)9,074 
Consolidated net income (loss)(8,663)11,438 (47,639)18,004 
Add: Net loss attributable to non-controlling interest1,373 302 3,205 401 
Consolidated net income (loss) attributable to Envestnet, Inc.$(7,290)$11,740 $(44,434)$18,405 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
Envestnet Wealth Solutions$31,392 $20,607 $78,254 $49,844 
Envestnet Data & Analytics(9,115)74 (27,888)(9,218)
Nonsegment operating expenses(21,676)(21,727)(76,134)(80,116)
Income (loss) from operations601 (1,046)(25,768)(39,490)
Other expense, net(4,369)(5,346)(19,706)(9,691)
Consolidated loss before income tax provision (benefit)(3,768)(6,392)(45,474)(49,181)
Income tax provision (benefit)(8,824)2,271 15,363 (1,542)
Consolidated net income (loss)5,056 (8,663)(60,837)(47,639)
Add: Net loss attributable to non-controlling interest2,035 1,373 5,284 3,205 
Consolidated net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$(55,553)$(44,434)

AThe following table presents a summary of consolidated total assets follows:by segment:
 September 30,December 31,
 20222021
(in thousands)
Envestnet Wealth Solutions$1,558,756 $1,720,779 
Envestnet Data & Analytics644,465 520,403 
Consolidated total assets$2,203,221 $2,241,182 

 September 30,December 31,
 20232022
(in thousands)
Envestnet Wealth Solutions$1,456,849 $1,503,646 
Envestnet Data & Analytics574,040 608,519 
Consolidated total assets$2,030,889 $2,112,165 

16.Geographical Information
The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:
 September 30,December 31,
 20222021
(in thousands)
United States$230,990 $180,680 
India2,223 2,923 
Other133 271 
Total long-lived assets, net$233,346 $183,874 

See “Note 11—Revenues and Cost of Revenues” for detail of revenues by geographic area.

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

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
 The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.

Procurement of Technology Solutions

On April 1, 2022, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $9.0 million. The Company has paid a $4.0 million advance during the nine months ended September 30, 2022. This advance is included in other non-current assets in the condensed consolidated balance sheets.

Legal Proceedings
 
The Company and its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps LLC (“FinancialApps”) in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief.


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.

On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps’sFinancialApps' claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps’sFinancialApps' claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery concluded on September 30, 2022.

The parties’ respective summary judgment and motions to exclude the presentation of expert testimony (a “Daubert Motion”) are fully briefed and are awaiting final ruling. On July 25, 2023, the Magistrate Judge issued a report and recommendation that the Court grant FinancialApps’ summary judgment motion on Envestnet’s defamation counterclaim. The Magistrate Judge did not make a ruling as to Yodlee’s defamation counterclaim. On July 28, 2023, the Magistrate Judge denied Envestnet and Yodlee's Daubert motion to exclude FinancialApps' technical expert, Isaac Pflaum. On July 31, 2023, the Magistrate Judge issued a report and recommendation that the Court grant in part and deny in part Envestnet's summary judgment motion. The Magistrate Judge recommended that the motion be denied as to FinancialApps' vicarious liability theory and direct liability theory but recommended that the motion be granted with respect to the unjust enrichment count. The reports and recommendations are not final rulings, however, and the Company has filed objections against their adoption by the District Court. Those objections are fully briefed and pending before the District Court. On August 14, 2023, the Magistrate Judge granted-in-part and denied-in-part FinancialApps' Daubert motion to exclude Envestnet and Yodlee's technical expert. On September 13, 2023, the Magistrate Judge granted-in-part and denied-in-part Envestnet and Yodlee's Daubert motion to exclude FinancialApps' damages expert. The Company believes FinancialApps’sFinancialApps' allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.

The Company and Yodlee were also named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption is Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK. Plaintiffs allege that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleges violations of certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present. The Company believes that it is not properly named as a defendant in the
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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
lawsuit and it further believes, along with Yodlee, that plaintiffs’ claims are without merit. On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The Court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the Court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. On October 8, 2021, Yodlee filed aan early motion for summary judgment, which has been fully briefed. Oral argument on Yodlee’s motion was heard on September 19, 2022, and the motion has been submitted for decision.judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court

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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
granted Yodlee’s motion for reconsideration and dismissed one additional claim. On July 20, 2023, the Court granted Yodlee’s motion for judgment on the pleadings and dismissed equitable monetary claims, allowing Plaintiffs leave to seek to amend by August 7, 2023. Plaintiffs filed an amended complaint on September 19, 2023, which Yodlee answered on October 3, 2023. Yodlee will continue to vigorously defend the remaining claims against it.

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of September 30, 2022.2023. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company'sCompany’s results of operations or cash flow in a particular quarter or year.
 
18.Subsequent Events

Entry into Outsourcing Arrangement and Organizational Realignment
In October 2022, the Company entered into an outsourcing arrangement with Tata Consultancy Services (“TCS”) to increase operational scale and business agility. Under this agreement, the Company will outsource certain administrative and operational services of the Envestnet Data & Analytics business located in Bangalore, India. The agreement became effective in October 2022 and will continue for a period of ten years. In connection with this arrangement, the Company anticipates it will incur severance expense in the fourth quarter of 2022. In certain circumstances, the Company may terminate certain portions of the agreement, and in doing so, the agreement requires the Company to pay significant termination fees.

In the fourth quarter of 2022, as part of an organizational realignment, the Company entered into separation agreements with a number of employees. This realignment will allow Envestnet to operate more efficiently and prioritize activities and services that will benefit its clients and the future of its business.

In connection with the outsourcing arrangement with TCS and the organizational realignment, the Company estimates it will incur approximately $15 million of total severance expense during the fourth quarter of 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
 
Unless otherwise indicated,The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.

Thisrelated notes included elsewhere in this quarterly report on Form 10-Q for the quarter ended September 30, 2022 ("2023 and the consolidated financial statements and related notes included on Form 10-K for the year ended December 31, 2022.

This Quarterly Report")Report contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are based on our current expectations and projections about future events and are identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this Quarterly Report include, but are not limited to,
•Adverse economic or global market conditions, including periods of rising inflation and market interest rates, and governmental responses to such conditions;
•the conflict between Russia and Ukraine including related sanctions, and their impact on the global economy and capital markets;
•a pandemic or health crisis, including the COVID-19 pandemic;
•the concentration of our revenues from the delivery of our solutions and services to clients in the financial services industry;
•our reliance on a limited number of clients for a material portion of our revenue;
•the renegotiation of fees by our clients;
•changes in the estimates of fair value of reporting units or of long-lived assets;
•the amount of our debt and our ability to service our debt;
•limitations on our ability to access information from third parties or charges for accessing such information;
•the targeting of some of our sales efforts at large financial institutions and large financial technology ("FinTech") companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales;
•changes in investing patterns on the assets on which we derive revenue and the freedom of investors to redeem or withdraw investments generally at any time;
•the impact of fluctuations in market conditions and interest rates on the demand for our products and services and the value of assets under management or administration;
•our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients;
•risks associated with our international operations;
•the competitiveness of our solutions and services as compared to those of others;
•liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest;
•harm to our reputation;
•our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
•our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner;
•the failure to protect our intellectual property rights;
•our ability to introduce new solutions and services and enhancements;
•our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal information and potential liabilities for data security breaches;
•the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations on how we operate our business and the negative effects of failure to comply with these requirements;
•regulatory compliance failures;
•failure by our customers to obtain proper permissions or waivers for our use of disclosure of information;
•adverse judicial or regulatory proceedings against us;
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•failure of our solutions, services or systems, or those of third parties on which we rely, to work properly;
•potential liability for use of inaccurate information by third parties provided by us;
•the occurrence of a deemed “change of control”;
•the uncertainty of the application and interpretation of certain tax laws;
•issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our existing stockholders;
•general economic, political and regulatory conditions;
•global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and
•management’s response to these factors.
In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this Quarterly Report and documents incorporated herein by reference are qualified -in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.
These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report are set forth in Part I, Item 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”); as updated in Part II, Item 1A.“Risk Factors” of this Form 10-Q;2022; accordingly, investors should not place undue reliance upon our forward-looking statements. We undertake no obligation to update any of the forward-looking statements after the date of this report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

You should read this Quarterly Report and the 20212022 Form 10-K completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.
The following discussion and analysis should also be read along with our condensed consolidated financial statements, and the related notes included elsewhere in this Quarterly Report and the consolidated financial statements and related notes included in our 2021 Form 10-K. Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

35Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.


Overview
 
Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards our goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients ("Intelligent Financial Life").clients.
 
Approximately 107,000 advisors and approximately 6,900 companies, including 16 of the 20 largest U.S. banks, 4748 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIAs”),RIAs, and hundreds of FinTech companies, leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients. We also operate six RIAs registered with the SEC. We believe that our business model results in a high degree of recurring and predictable financial results.

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

Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters based in Berwyn, Pennsylvania as well as other locations throughout the United States, India and other international locations.

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

Recent Developments

Macroeconomic Environment

Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets. Recent geopolitical uncertainty, resulting, in part, from the conflict in the Middle East which intensified on October 7, 2023, military conflict between Russia and Ukraine which escalated in February 2022, as well as rising inflation, have contributed to significant volatility and decline in global financial markets during 2022 which continuescontinue 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 conflictthese conflicts and this period of inflation at this time, as these conditions continue, they could have a material adverse effect on our business, results of operations, financial condition and cash flows. As of September 30, 2022, these condensed2023, the consolidated financial statements do not reflect any adjustments as a result of 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 Third Credit Agreement amendsthe Company's business, a privately held company, whereby we were issued a convertible promissory note with a principal amount of $20.0 million and restates, in its entirety, our prior Amended and Restated Credit Agreement, dated as of July 18, 2017, as amended (the “Prior Credit Agreement”).

The Third Credit Agreement amended certain provisions under the Prior Credit Agreement to, among other things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce thea stated interest rate payable on the loansof 8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and (iii) increase capacity and flexibility under certainis convertible into common stock or preferred stock of the negative covenants.

The Third Credit Agreement provides, subject to certain customary conditions, for a revolving credit facility (the “Credit Facility”), in an aggregate amount of $500.0 million, with a $20.0 million sub-facility for letters of credit.

The Credit Facility matures on February 4, 2027.

Outstanding loans under the Credit Facility accrue interest, at Envestnet’s option, at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annumprivately held company upon qualified financing events 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.
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The obligations of Envestnet under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s domestic subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions.

In connection with entering the Third Credit Agreement, we capitalized $1.9 million of new issuance costs and wrote off $0.6 million of existing deferred financing charges.

Accelerated Investment Plan

In February 2021, we announced that we would be accelerating our investment in our ecosystem, to fulfill our strategy of:

•Capturing more of the addressable market;
•Modernizing the digital engagement marketplace; and
•Opening the platform.

We expect to incur an additional $20 to $25 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. Forcorporate transactions. During the three and nine months ended September 30, 2022, we recorded approximately $13 million and $36 million, respectively of compensation and benefit expense2023, interest income related to this plan.

Procurement of Technology Solutions

On April 1, 2022, we entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $9.0 million. We have paid a $4.0 million advance during the nine months ended September 30, 2022. 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. In connection with these closures, in the three and nine months ended September 30, 2022, we recognized zero and $3.7 million of losses on asset retirements, respectively, which are included in general and administration expense in the condensed consolidated statement of operations. Additionally, in the three and nine months ended September 30, 2022, we recognized $1.1 million and $14.1 million of lease restructuring costs, respectively, which are included in general and administration expense in the condensed consolidated statement of operations.

Investment in Privately Held Companies

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.

On September 2, 2022, we acquired additional membership units in a privately held company in which we already had an approximate 43% ownership interest for $8.4 million which increased our ownership interest to 48%. 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. After this unit purchase, our investment in this privately held company exceeded our proportionate share of our net assets by approximately $7.8 million, which represents amortizable intangible assets. We will recognize amortization of this basis difference prospectively over a period of 5 years. This amortization will be included within our proportional share of income (loss) in other expense, net in the condensed consolidated statements of operations.

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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 available cash resources.

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 first quarter of 2022, we funded a $2.5 million convertible loan to this privately held company. During the second quarter of 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 second quarter of 2022, which isConvertible Promissory Note included in other 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 advisorsoperations was $0.4 million 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. Truelytics has been integrated into the Envestnet Data & Analytics segment.$1.1 million, respectively.

In connection with the acquisition of Truelytics,Convertible Promissory Note, 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 available cash resources.

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. Redi2 Technologies has been integratedconcurrently entered into the Envestnet Wealth Solutions segment.

In connectiona call option agreement with the Redi2 Technologies Acquisition, we paid estimated considerationprivately held company, which provides us an option to acquire the privately held company at a predetermined price as of approximately $68 million in cash. We funded the Redi2 Technologies Acquisition with available cash resources. In addition, certain executives may earn up to $20.0 million in performance bonuses basedearlier of July 2024 or upon the achievementsatisfaction of certain target financial and non-financial metrics. These performance bonuses will be recognized as compensation and benefits expense in the statement of operations. No amountsThe financial metrics were recordedmet during the three months ended September 30, 2022.2023, however, we did not exercise the call option.

Exercise of Membership InterestsConvertible Notes due 2023

We granted membership interestsThe Convertible Notes due 2023 matured on June 1, 2023. Upon maturity, we settled the remaining aggregate principal amount on the Convertible Notes due 2023 for $45.0 million. The Convertible Notes due 2023 were paid using a combination of cash on hand and borrowings on the Company's Revolving Credit Facility. No shares of the Company's common stock were issued upon settlement of the Convertible Notes due 2023.

Reduction in certain of our equity investments to two legacy PIEtech executivesForce Initiative

During the nine months ended September 30, 2023, 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.

Inflation Reduction Act of 2022

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”), which, among other things, implements a 15% minimum tax on book income of certain large corporations and a 1% excise tax on net stock repurchases. The provisions of the IRA are effective beginningreduction in 2023. We are currently evaluating the impacts of this act on our consolidated financial statements.
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Entry into Outsourcing Arrangement and Organizational Realignment
In October 2022, we entered into an outsourcing arrangement with Tata Consultancy Services ("TCS") to increase operational scale and business agility. Under this agreement, we will outsource certain administrative and operational services of the Envestnet Data & Analytics business located in Bangalore, India. The agreement became effective in October 2022 and will continue for a period of ten years. In connection with this arrangement, we anticipate we will incur severance expense in the fourth quarter of 2022. In certain circumstances, we may terminate certain portions of the agreement, and in doing so, the agreement requires us to pay significant termination fees.

In the fourth quarter of 2022, as part of an organizational realignment,force initiative, we entered into separation agreements with a number of employees. This realignment will allow us to operate more efficiently and prioritize activities and services that will benefit our clients and the future of our business.

In connection with this reduction in force initiative that began in the outsourcing arrangement with TCS and thefirst quarter of 2023, as well as a fourth quarter 2022 organizational realignment, we estimate we will incurincurred approximately $15$11.5 million and $25.9 million of total severance expense in the three and nine months ended September 30, 2023, respectively.

As of September 30, 2023 we had an ending liability balance of $13.4 million related to these efforts, of which we anticipate approximately $10.1 million to be paid during the remainder of 2023, $2.7 million to be paid throughout 2024, with the remaining balance paid through 2030.

Subsequent to September 30, 2023, in connection with the reduction in force initiative, we entered into separation agreements with a number of employees and incurred an additional $5.6 million in severance expense, of which the Company anticipates approximately $1.8 million to be paid during the remainder of 2023 and $3.8 million to be paid during the first quarter of 2024.


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Operating Results

Beginning in the three months ended December 31, 2021 through June 30, 2023, the Company reported a loss from operations and loss before income tax provision in every quarter.We have incurred these quarterly losses as a result of several factors as described below.

Revenue Factors: In early 2022 continuing through the fourth quarter of 2022, the financial markets experienced a broad downturn, our redemption rates were higher than our historical average, and as a result, in our Wealth Solutions segment, our asset-based recurring revenues were materially adversely affected. Beginning in the three months ended March 31, 2023 asset-based recurring revenues have been increasing sequentially since the three months ended December 31, 2022.In addition, as a result of competitive pricing pressures in our Data & Analytics segment research business, beginning in the three months ended December 31, 2022 subscription-based recurring revenues have been materially adversely affected.

Expense Factors: We have incurred certain expenses that are not recurring in nature and that are a direct result of significant, distinct enterprise-wide strategic initiatives that we have taken in order to reshape and streamline the organization, which we believe will increase our operational efficiencies and to reduce future operating expenses, while negatively impacting our operating results in the short-term.These actions include both internal and external related expenses associated with an accelerated investment plan announced in the first quarter of 2021, expenses associated with office closures announced in the second quarter of 2022, severance and office closure related expenses associated with an organizational realignment and entry into an outsourcing arrangement announced in the fourth quarter of 2022, as well as severance expense for a reduction in force initiative announced in the first quarter of 2023 which has continued into the fourth quarter of 2023.

As discussed above, our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets.The return to positive income before income taxes, largely depends on a combination of improved industry dynamics, including overall technology and data spending by financial institutions and an improvement in capital market valuations, including asset flows and redemption rates, both of which are outside of the Company’s control, as well as a reduction in future operating expenses, as a result of the actions taken by management as discussed above.

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.

Subsequent to September 30, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. As a result, the advisor-focused Wealth Analytics business has been reclassified from the Envestnet Data & Analytics segment to the Envestnet Wealth Solutions Segment
Envestnet Wealth Solutions empowers financial advisors at broker-dealers, banks, and RIAs with allsegment. The segment changes do not impact nonsegment results or 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 September 30, 2022, Envestnet’s platform assets were approximately $4.8 trillion in over 18 million accounts overseen by nearly 106,000 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 rangeCompany's consolidated balance sheets, consolidated statements 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 creationoperations or consolidated statements 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.cash flows.

•Envestnet | Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high-end RIAs.All segment information presented within this quarterly report on Form 10-Q for the quarter ended September 30, 2023 is presented in conjunction with the historical organizational structure as that is the organizational structure in place as of the balance sheet date of September 30, 2023.

•Envestnet | MoneyGuide provides leading goals-based financial planning solutionsAs part of the annual goodwill impairment analysis, the Company will perform a quantitative goodwill impairment evaluation for each reporting unit as of October 31, 2023. As a result of the segment change and a corresponding adjustment to the financial services industry. The highly adaptable software helps financial advisors add significantcomposition of reporting units, as well as lower revenue and profits in 2023 compared to prior years in the Envestnet Data & Analytics segment, the Envestnet Data & Analytics reporting unit goodwill balance may be considered at risk for future impairment. Based on the results of this assessment, if the carrying value for their clients using best-in-class technology with enhanced integrations to generate financial plans.of the reporting unit exceeds its fair value, it could result in the recognition of an impairment of goodwill in the fourth quarter of 2023, and such impairment could be material.

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•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.Key Metrics

•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 5,000 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 MetricsWealth 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
September 30,December 31,March 31,June 30,September 30,
20212021
2022(1)
20222022
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)$327,279 $362,038 $361,251 $325,209 $315,883 
Assets under Administration (“AUA”)431,040 456,316 432,141 352,840 350,576 
Total AUM/A758,319 818,354 793,392 678,049 666,459 
Subscription4,670,827 4,901,662 4,736,537 4,312,114 4,134,414 
Total Platform Assets$5,429,146 $5,720,016 $5,529,929 $4,990,163 $4,800,873 
Platform Accounts
AUM1,276,0661,345,2741,459,0931,491,8611,522,968
AUA1,193,0691,217,0761,186,1801,061,4841,135,302
Total AUM/A2,469,1352,562,3502,645,2732,553,3452,658,270
Subscription14,810,66414,986,53115,151,56915,312,14415,596,403
Total Platform Accounts17,279,79917,548,88117,796,84217,865,48918,254,673
Advisors
AUM/A41,69639,73539,80038,39438,417
Subscription66,48968,80867,16866,83867,348
Total Advisors108,185108,543106,968105,232105,765
(1) Certain assets and accounts have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.
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As of
September 30,December 31,March 31,June 30,September 30,
20222022202320232023
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)$315,883 $341,144 $363,244 $384,773 $375,408 
Assets under Administration (“AUA”)350,576 367,412 379,843 394,078 398,082 
Total AUM/A666,459 708,556 743,087 778,851 773,490 
Subscription4,134,414 4,382,109 4,566,971 4,643,313 4,579,248 
Total Platform Assets$4,800,873 $5,090,665 $5,310,058 $5,422,164 $5,352,738 
Platform Accounts
AUM1,522,9681,547,0091,571,8621,609,6771,614,873
AUA1,135,3021,135,0261,142,1661,144,3751,257,094
Total AUM/A2,658,2702,682,0352,714,0282,754,0522,871,967
Subscription15,596,40315,665,02015,779,98015,916,95516,072,848
Total Platform Accounts18,254,67318,347,05518,494,00818,671,00718,944,815
Advisors
AUM/A38,41738,02538,61138,80938,078
Subscription67,34867,52067,84368,43969,318
Total Advisors105,765105,545106,454107,248107,396
The following table providestables provide information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated:

Asset Rollforward - Three Months Ended September 30, 2022 Asset Rollforward - Three Months Ended September 30, 2023
As ofGrossNetMarketReclass toAs of As of June 30,GrossNetMarketReclass toAs of September 30,
6/30/2022SalesRedemptionsFlowsImpactSubscription9/30/2022 2023SalesRedemptionsFlowsImpactSubscription2023
(in millions, except account data) (in millions, except account data)
AUMAUM$325,209 $24,912 $(15,971)$8,941 $(17,762)$(505)$315,883 AUM$384,773 $24,754 $(19,846)$4,908 $(12,821)$(1,452)$375,408 
AUAAUA352,840 37,880 (19,986)17,894 (17,544)(2,614)350,576 AUA394,078 39,624 (23,889)15,735 (11,731)— 398,082 
Total AUM/ATotal AUM/A$678,049 $62,792 $(35,957)$26,835 $(35,306)$(3,119)$666,459 Total AUM/A$778,851 $64,378 $(43,735)$20,643 $(24,552)$(1,452)$773,490 
Fee-Based AccountsFee-Based Accounts2,553,345 114,147 (9,222)2,658,270 Fee-Based Accounts2,754,052 128,548 (10,633)2,871,967 

The above AUM/A gross sales figures for the three months ended September 30, 2023 include $23.6$25.8 billion in new client conversions. We onboarded an additional $35.8$28.5 billion in subscription conversions during the three months ended September 30, 20222023 bringing total conversions for the three months ended September 30, 20222023 to $59.4$54.3 billion.


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 Asset Rollforward - Nine Months Ended September 30, 2023
 As of December 31,GrossNetMarketReclass toAs of September 30,
 2022SalesRedemptionsFlowsImpactSubscription2023
 (in millions, except account data)
AUM$341,144 $74,693 $(52,153)$22,540 $14,315 $(2,591)$375,408 
AUA367,412 97,564 (69,449)28,115 16,427 (13,872)398,082 
Total AUM/A$708,556 $172,257 $(121,602)$50,655 $30,742 $(16,463)$773,490 
Fee-Based Accounts2,682,035 289,041 (99,109)2,871,967 

The above AUM/A gross sales figures for the nine months ended September 30, 2023 include $54.6 billion in new client conversions. We onboarded an additional $96.6 billion in subscription conversions during the nine months ended September 30, 2023 bringing total conversions for the nine months ended September 30, 2023 to $151.2 billion.

Asset and account figures in the “Reclass to Subscription” columns for the three months ended September 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 - Nine Months Ended September 30, 2022
 As ofGrossNetMarketReclass toAs of
 12/31/2021SalesRedemptionsFlowsImpactSubscription
Reclassification(1)
9/30/2022
 (in millions, except account data)
AUM$362,038 $78,440 $(50,900)$27,540 $(81,911)$(505)$8,721 $315,883 
AUA456,316 93,544 (67,560)25,984 (91,926)(31,077)(8,721)350,576 
Total AUM/A$818,354 $171,984 $(118,460)$53,524 $(173,837)$(31,582)$— $666,459 
Fee-Based Accounts2,562,350 216,564 (120,644)— 2,658,270 
(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 $41.9 billion in new client conversions. We onboarded an additional $94.5 billion in subscription conversions during theand nine months ended September 30, 2022 bringing total conversions for the nine months ended September 30, 2022 to $136.4 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 nine months ended September 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”).
Over 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 over 37 million end-users.in the periods indicated:

As of
September 30,December 31,March 31,June 30,September 30
20222022202320232023
(in millions, except number of firms data)
Number of paying users38.1 38.8 37.5 38.0 42.3 
Number of firms1,815 1,827 1,851 1,873 1,855 

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Envestnet Data & Analytics serves four main client groups: financial institutions (“Banking”), financial advisors and institutions (“Wealth”), market intelligence and analytics providers (“Research”) and financial technology innovators (“Tech”).

These groups serve the following customers:

•Banking – Retail Banks, Credit Unions and credit card providers
•Wealth – Wealth management financial advisors and institutions
•Research – Research and analyst firms
•Tech – Personal financial management, small business accounting, e-commerce, payment solutions providers, small business lending and authentication

With the exception of the Tech Group, we provide clients with secure access to open APIs, user facing applications powered by our platform, APIs and reports. We aggregate and cleanse client permission consumer data elements. Envestnet Data & Analytics also enables clients to develop their own applications through its open APIs, which deliver secure data, payments solutions, and other functionality.
The Tech group enables clients to develop new applications and enhance existing solutions through our APIs. These clients operate in a number of sub-vertical markets, including FinTech, wealth management, personal financial management, small business accounting, small business lending and authentication.
We believe that our brand recognition, innovative technology and intellectual property, large client base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to grow.
Operational Highlights
 
 Three Months Ended 
 September 30,$%
 20232022ChangeChange
 (in thousands, except percentages)
Revenue:   
Envestnet Wealth Solutions:
Asset-based$193,901 $177,131 $16,770 9 %
Subscription-based76,813 75,975 838 1 %
Total recurring revenue270,714 253,106 17,608 7 %
Professional services and other revenue4,313 4,229 84 2 %
Total Envestnet Wealth Solutions revenue$275,027 $257,335 $17,692 7 %
Envestnet Data & Analytics:
Subscription-based$38,126 $47,772 $(9,646)(20)%
Total recurring revenue38,126 47,772 (9,646)(20)%
Professional services and other revenue3,694 1,588 2,106 133 %
Total Envestnet Data & Analytics revenue$41,820 $49,360 $(7,540)(15)%
Total consolidated revenue$316,847 $306,695 $10,152 3 %
Deferred revenue fair value adjustment— 54 (54)(100)%
Total consolidated adjusted revenue*$316,847 $306,749 $10,098 3 %
Consolidated net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$14,381 **
Net income (loss) attributable to Envestnet, Inc. per share - basic and diluted$0.13 $(0.13)$0.26 **
Adjusted EBITDA*$67,242 $53,498 $13,744 26 %
Adjusted net income*$36,627 $29,546 $7,081 24 %
Adjusted net income per diluted share*$0.56 $0.45 $0.11 24 %

*Non-GAAP financial measure. See "Non-GAAP Financial Measures" below for definitions and reconciliations of non-GAAP measures.
**Not meaningful

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Results of Operations

Three months ended September 30, 2023 compared to three months ended September 30, 2022

 Three Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Asset-based$193,901 61 %$177,131 58 %$16,770 9 %
Subscription-based114,939 36 %123,747 40 %(8,808)(7)%
Total recurring revenue308,840 97 %300,878 98 %7,962 3 %
Professional services and other revenue8,007 3 %5,817 2 %2,190 38 %
Total revenue316,847 100 %306,695 100 %10,152 3 %
Operating expenses:   
Direct expense119,538 38 %110,108 36 %9,430 9 %
Employee compensation113,334 36 %116,837 38 %(3,503)(3)%
General and administrative49,063 15 %47,388 15 %1,675 4 %
Depreciation and amortization34,311 11 %33,408 11 %903 3 %
Total operating expenses316,246 100 %307,741 100 %8,505 3 %
Income (loss) from operations601 — %(1,046)— %1,647 *
Other expense, net(4,369)(1)%(5,346)(2)%977 18 %
Loss before income tax provision (benefit)(3,768)(1)%(6,392)(2)%2,624 41 %
Income tax provision (benefit)(8,824)(3)%2,271 1 %(11,095)*
Net income (loss)5,056 2 %(8,663)(3)%13,719 *
Add: Net loss attributable to non-controlling interest2,035 1 %1,373 — %662 48 %
Net income (loss) attributable to Envestnet, Inc.$7,091 2 %$(7,290)(2)%$14,381 *

*Not meaningful
Asset-based recurring revenues decreased 4% from $184.0revenue
Asset-based recurring revenue increased $16.8 million, inor 9%, for the three months ended September 30, 20212023 compared to $177.1 million in the three months ended September 30, 2022. Subscription-based recurring revenues increased 9% from $113.6 million in the three months ended September 30, 2021 to $123.7 million in the three months ended September 30, 2022. Total revenues, which also includes professional services and other revenues, increased 1% from $303.1 million in the three months ended September 30, 2021 to $306.7 million in the three months ended September 30, 2022.

The Envestnet Wealth Solutions segment's total revenues increased 1% from $254.7 million in the three months ended September 30, 2021 to $257.3 million in the three months ended September 30, 2022 due to an increase in subscription-based revenues of $9.0 million and an increase in professional services and other revenues of $0.5 million. These increases were partially offset by a decrease in asset-based revenues of $6.9 million. The Envestnet Data & Analytics segment's total revenues increased 2% from $48.3 million in the three months ended September 30, 2021 to $49.4 million in the three months ended September 30, 2022 primarily due to an increase in subscription-based revenues of $1.2 million, partially offset by a decrease in professional services and other revenues of $0.1 million.

Asset-based recurring revenues increased 11% from $513.5 million in the nine months ended September 30, 2021 to $571.8 million in the nine months ended September 30, 2022. Subscription-based recurring revenues increased 6% from $335.9 million in the nine months ended September 30, 2021 to $356.6 million in the nine months ended September 30, 2022. Total revenues, which also includes professional services and other revenues, increased 9% from $866.9 million in the nine months ended September 30, 2021 to $946.9 million in the nine months ended September 30, 2022.

The Envestnet Wealth Solutions segment's total revenues increased 11% from $721.4 million in the nine months ended September 30, 2021 to $802.9 million in the nine months ended September 30, 2022 due to an increase in asset-based revenues of $58.4 million, an increase in subscription-based revenues of $20.4 million and an increase in professional services and other revenues of $2.7 million. The Envestnet Data & Analytics segment's total revenues decreased 1% from $145.5 million in the nine months ended September 30, 2021 to $144.0 million in the nine months ended September 30, 2022 primarily due to a decrease in professional services and other revenues of $1.7 million, partially offset by an increase in subscription-based revenues of $0.3 million.

Net loss attributable to Envestnet, Inc. for the three months ended September 30, 2022 was $7.3 million, or $(0.13) per diluted share, compared to net income attributable to Envestnet, Inc. of $11.7 million, or $0.21 per diluted share, for the three months ended September 30, 2021.

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Net loss attributable to Envestnet, Inc. for the nine months ended September 30, 2022 was $44.4 million, or $(0.81) per diluted share, compared to net income attributable to Envestnet, Inc. of $18.4 million, or $0.33 per diluted share, for the nine months ended September 30, 2021.

Adjusted revenues for the three months ended September 30, 2022 were $306.7 million, compared to adjusted revenues of $303.1 million in the prior year period. Adjusted EBITDA for the three months ended September 30, 2022 was $53.5 million, compared to adjusted EBITDA of $66.2 million in the prior year period. Adjusted net income for the three months ended September 30, 2022 was $29.5 million, or $0.45 per diluted share, compared to adjusted net income of $39.9 million, or $0.61 per diluted share in the prior year period.

Adjusted revenues for the nine months ended September 30, 2022 were $947.1 million, compared to adjusted revenues of $867.1 million in the prior year period. Adjusted EBITDA for the nine months ended September 30, 2022 was $166.3 million, compared to adjusted EBITDA of $205.5 million in the prior year period. Adjusted net income for the nine months ended September 30, 2022 was $92.6 million, or $1.41 per diluted share, compared to adjusted net income of $125.3 million, or $1.92 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 Nine Months Ended 
 September 30,
 Percent
September 30,
 Percent
 20222021Change20222021Change
 (in thousands) (in thousands) 
Revenues:      
Asset-based$177,131 $184,008 (4)%$571,820 $513,458 11 %
Subscription-based123,747 113,572 9 %356,601 335,905 6 %
Total recurring revenues300,878 297,580 1 %928,421 849,363 9 %
Professional services and other revenues5,817 5,473 6 %18,489 17,533 5 %
Total revenues306,695 303,053 1 %946,910 866,896 9 %
Operating expenses:      
Cost of revenues110,108 109,836 — %361,872 303,199 19 %
Compensation and benefits116,837 109,839 6 %369,453 316,101 17 %
General and administration47,388 39,393 20 %157,867 117,463 34 %
Depreciation and amortization33,408 29,850 12 %97,208 88,252 10 %
Total operating expenses307,741 288,918 7 %986,400 825,015 20 %
Income (loss) from operations(1,046)14,135 (107)%(39,490)41,881 *
Other expense, net(5,346)(3,551)51 %(9,691)(14,803)(35)%
Income (loss) before income tax provision (benefit)(6,392)10,584 *(49,181)27,078 *
Income tax provision (benefit)2,271 (854)*(1,542)9,074 (117)%
Net income (loss)(8,663)11,438 *(47,639)18,004 *
Add: Net loss attributable to non-controlling interest1,373 302 *3,205 401 *
Net income (loss) attributable to Envestnet, Inc.$(7,290)$11,740 *$(44,434)$18,405 *
*Not meaningful.

Three months ended September 30, 2022 compared to three months ended September 30, 2021
Asset-based recurring revenues
Asset-based recurring revenues decreased 4% from $184.0 million in the three months ended September 30, 2021 to $177.1 million in the three months ended September 30, 2022. The decrease was primarily due to a 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).
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quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 42,000 as of September 30, 2021 toremained consistent with approximately 38,000 as of September 30, 2023 and 2022, respectively, and the number of AUM/A client accounts increased from approximately 2.5 million as of September 30, 2021 to approximately 2.7 million as of September 30, 2022.2022 to approximately 2.9 million as of September 30, 2023.

Asset-based recurring revenues decreased from 61%As a percentage of total revenue, inasset-based recurring revenue increased 3% points for the three months ended September 30, 20212023 compared to 58% of totalthe three months ended September 30, 2022 primarily due to the overall increase in asset-based recurring revenue coupled with the decrease in subscription-based revenue period over period.

Subscription-based recurring revenue
Subscription-based recurring revenue decreased $8.8 million, or 7%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a higher subscription-based recurring revenues increase and a decrease in asset-based recurring revenues.

Subscription-based recurring revenues
Subscription-based recurring revenue increased 9% from $113.6of $9.6 million in the three months ended September 30, 2021Envestnet Data & Analytics segment, which is primarily attributable to $123.7 milliona loss in access to data in the three months ended September 30, 2022. This increase was primarily dueresearch business and continued impact from the regional banking crisis which led to our customer’s cost cutting initiatives, pricing pressure and project delays, partially offset by an increase of$9.0 $0.8 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth,growth.

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As a percentage of total revenue, subscription-based recurring revenue decreased 4% points for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to the overall decrease in subscription-based recurring revenue coupled with the increase in asset-based revenue period over period.

Professional services and other revenue
Professional services and other revenue increased $2.2 million, or 38%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in revenue recognized in the Data & Analytics segment as a result of $1.2point in time revenue recognized on a customer deployment.

Direct expense
Direct expense increased $9.4 million, or 9%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in asset-based direct expense, which directly correlates with the increase to asset-based recurring revenue during the period.
Employee compensation

Employee compensation decreased $3.5 million, or 3%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $10.4 million, which is primarily a result of the outsourcing arrangement with TCS in the Envestnet Data & Analytics segment, which can be primarily attributableshifted certain expenses from employee compensation to increasesgeneral and administrative expense, a reduction in revenue from existing customers.force initiative in 2023 and an organizational realignment in the fourth quarter of 2022, a decrease in incentive compensation of $1.8 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $10.4 million as a result of the reduction in force initiative and organizational realignment.

Professional servicesGeneral and other revenuesadministrative
 
Professional servicesGeneral and other revenuesadministrative expenses increased 6% from $5.5$1.7 million, inor 4%, for the three months ended September 30, 20212023 compared to $5.8 million in the three months ended September 30, 2022. The increase was due to timing of the completion of customer projects and deployments.

Cost of revenues
Cost of revenues increased from $109.8 million in the three months ended September 30, 2021 to $110.1 million in the three months ended September 30, 2022. As a percentage of total revenues, cost of revenues remained consistent at 36% in the three months ended September 30, 2021 and 2022.
Compensation and benefits

Compensation and benefits increased 6% from $109.8 million in the three months ended September 30, 2021 to $116.8 million in the three months ended September 30, 2022. The increase was comprised primarily of increases in salaries, benefits and related payroll taxes of $10.3 million due to increased headcount as a result of growth and acquisitions in the Envestnet Wealth Solutions segment. Also contributing to this increase was miscellaneous employee expenses of $1.1 million which was partially offset by decreases in incentive compensation of $3.8 million and non-cash compensation expense of $1.6 million. As a percentage of total revenues, compensation and benefits increased from 36% in the three months ended September 30, 2021 to 38% in the three months ended September 30, 2022.

General and administration
General and administration expenses increased 20% from $39.4 million in the three months ended September 30, 2021 to $47.4 million in the three months ended September 30, 2022. The increase was2022 primarily due to increases in software and maintenance charges of $4.8$6.1 million restructuring chargeswhich is primarily a result of the outsourcing arrangement with TCS and transaction costs of $2.5 million driven by acquisition activity and system implementation costs, travel and entertainmentlitigation related expense of $1.9 million, professional and legal fees of $1.3 million and other immaterial increases within general and administration expense.$2.7 million. These increases were partially offset by decreases in litigationrestructuring charges and regulatory relatedtransaction costs of $2.9 million, professional fees of $1.3 million, marketing costs of $1.0 million, travel and entertainment expense of $3.6$1.0 million and occupancy costs of $1.2 million. As a percentage of total revenues,other immaterial decreases within general and administration expenses increased from 13% in the three months ended September 30, 2021 to 15% in the three months ended September 30, 2022.administrative expense.

44


Depreciation and amortization
 
Depreciation and amortization expense increased 12% from $29.9$0.9 million, inor 3%, for the three months ended September 30, 20212023 compared to $33.4 million in the three months ended September 30, 2022. The increase was2022 primarily due to increases in amortization related to internally developed software of $2.0 million, intangible asset amortization expense of $1.3 million and finance lease amortization expense of $1.2$4.1 million, partially offset by an immaterial decreasedecreases in depreciation expense. As a percentageamortization related to intangible assets of total revenues, depreciation and amortization expense increased from 10% in the three months ended September 30, 2021 to 11% three months ended September 30, 2022.$3.5 million.

Other expense, net

Other expense, net increased from $3.6decreased $1.0 million, inor 18%, for the three months ended September 30, 20212023 compared to $5.3 million in the three months ended September 30, 2022 primarily due to a one-time gain of $1.2$2.9 million recordedfair market value adjustment to investment in 2021 related to the settlement ofprivate company, partially offset by a liability and a one-time gain of $1.0$1.6 million recordedincrease in 2021 related to an insurance reimbursement.interest expense, net.

Income tax provision (benefit)
 Three Months Ended
 September 30,
 20222021
(in thousands, except effective tax rate)
Income (loss) before income tax provision (benefit)$(6,392)$10,584 
Income tax provision (benefit)2,271 (854)
Effective tax rate(35.5)%(8.1)%

Under ASC 740-270-25, we are required to report income tax expense by applying a projected annual effective tax rate ("AETR")AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate ("ETR")ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of 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.


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For the three months ended September 30, 2022 and 2021,2023, our ETR was impacted byeffective tax rate of 234.2% differed from the statutory rate primarily due to the change in forecasted and actual year-to-date pre-tax book income.income as well as an increase in the valuation allowance we have 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 September 30, 2022, our effective tax rate of (35.5)% differed from the statutory rate primarily due to the increase in the valuation allowance we hadthe Company has placed on a portion of its U.S. deferred tax assets which includes the impact of the Redi2 and Truelytics acquisitions and IRC Section 174, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.

For the three months ended September 30, 2021, our effective tax rate differed from the statutory rate primarily due to the increase in forecasted book income for the year, the decrease in the valuation allowance we had placed on a portion of U.S. deferred tax assets, including the valuation allowance impact of the the acquisition of Harvest Savings & Wealth Technologies ("Harvest") in April 2021, and the windfall from stock-based compensation.

Nine months ended September 30, 20222023 compared to nine months ended September 30, 20212022

 Nine Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Asset-based$556,595 60 %$571,820 60 %$(15,225)(3)%
Subscription-based346,977 37 %356,601 38 %(9,624)(3)%
Total recurring revenue903,572 97 %928,421 98 %(24,849)(3)%
Professional services and other revenue24,416 3 %18,489 2 %5,927 32 %
Total revenue927,988 100 %946,910 100 %(18,922)(2)%
Operating expenses:  
Direct expense352,024 38 %361,872 38 %(9,848)(3)%
Employee compensation344,646 37 %369,453 39 %(24,807)(7)%
General and administrative156,028 17 %157,867 17 %(1,839)(1)%
Depreciation and amortization101,058 11 %97,208 10 %3,850 4 %
Total operating expenses953,756 103 %986,400 104 %(32,644)(3)%
Loss from operations(25,768)(3)%(39,490)(4)%13,722 35 %
Other expense, net(19,706)(2)%(9,691)(1)%(10,015)(103)%
Loss before income tax provision (benefit)(45,474)(5)%(49,181)(5)%3,707 8 %
Income tax provision (benefit)15,363 2 %(1,542)— %16,905 *
Net loss(60,837)(7)%(47,639)(5)%(13,198)(28)%
Add: Net loss attributable to non-controlling interest5,284 1 %3,205 — %2,079 65 %
Net loss attributable to Envestnet, Inc.$(55,553)(6)%$(44,434)(5)%$(11,119)(25)%

*Not meaningful

Asset-based recurring revenue
 
Asset-based recurring revenues
Asset-based recurring revenues increased 11% from $513.5revenue decreased $15.2 million, inor 3%, for the nine months ended September 30, 20212023 compared to $571.8 million in the nine months ended September 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), as well as the impact of new account growth and positive net flows of AUM/A in the first nine months of 2022.quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 42,000 as of September 30, 2021 toremained consistent with approximately 38,000 as of September 30, 2023 and 2022, respectively, and the number of AUM/A client accounts increased from approximately 2.5 million as of September 30, 2021 to approximately 2.7 million as of September 30, 2022.2022 to approximately 2.9 million as of September 30, 2023.

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Table of Contents

Asset-basedSubscription-based recurring revenues increased from 59% of totalrevenue
Subscription-based recurring revenue indecreased $9.6 million, or 3%, for the nine months ended September 30, 20212023 compared to 60% of total revenue in the nine months ended September 30, 2022.
Subscription-based recurring revenues
Subscription-based recurring revenue increased 6% from $335.92022 primarily due to a decrease of $20.4 million in the nine months ended September 30, 2021Envestnet Data & Analytics segment, which is primarily attributable to $356.6 milliona loss in access to data in the nine months ended September 30, 2022. This increase was primarily dueresearch business and continued impact from the regional banking crisis which led to our customer’s cost cutting initiatives, partially offset by an increase of $20.410.7 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 $17.5$5.9 million, inor 32%, for the nine months ended September 30, 20212023 compared to $18.5 million in the nine months ended September 30, 2022. The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue in the Envestnet Data & Analytics segment due to the timing of the completion of customer projects and deployments.

Cost of revenues
Cost of revenues increased 19% from $303.2 million in the nine months ended September 30, 2021 to $361.9 million in the nine months ended September 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $50.3 million, which directly correlates with the increase to asset-based recurring revenues during the period. An increase in professional services and other cost of revenues of $6.5 million, primarily as a result of our 2022 Advisor Summit, which was held in-person, and an increase in subscription-based cost of revenues of $1.8 million also contributed to this increase. As a percentage of total revenues, cost of revenues increased from 35% in the nine months ended September 30, 2021 to 38% in nine months ended September 30, 2022 primarily due to shiftstiming of the completion of customer projects and deployments and an increase in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit eventrevenue recognized in the Envestnet Wealth Solutions segment.
Compensation and benefitsData & Analytics segment as a result of point in time revenue recognized on a customer deployment.

Compensation and benefits increased 17% from $316.1Direct expense
Direct expense decreased $9.8 million, inor 3%, for the nine months ended September 30, 20212023 compared to $369.5 million in the nine months ended September 30, 2022. The increase is primarily comprised of increases in salaries, benefits and related payroll taxes of $38.2 million due to increased headcount as a result of growth and acquisitions in the Envestnet Wealth Solutions segment. Also contributing to this increase were non-cash compensation expense of $12.3 million, miscellaneous employee expenses of $2.8 million, contract labor expenses of $2.2 million and short term variable expenses of $1.1 million. These increases were partially offset by a decrease in incentive compensation of $4.7 million. As a percentage of total revenues, compensation and benefits increased from 36% in the nine months ended September 30, 2021 to 39% in the nine months ended September 30, 2022 primarily due to a higher increasedecrease in compensation and benefitsasset-based direct expense, and a lower increase in revenues.which directly correlates with the decrease to asset-based recurring revenue during the period.
Employee compensation

General and administration
General and administration expenses increased 34% from $117.5Employee compensation decreased $24.8 million, inor 7%, for the nine months ended September 30, 20212023 compared to $157.9 million in the nine months ended September 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 $12.0 million, restructuring charges and transaction costs of $4.9 million driven by acquisition activity and software implementation costs, travel and entertainment expenses of $4.4 million, marketing expense of $2.9 million, miscellaneous general and administration expense of $2.8 million and other immaterial increases within general and administration accounts. These increases were partially offset by decreases in occupancy costs of $3.3 million and bad debt expense of $2.5 million. As a percentage of total revenues, general and administration expenses increased from 14% in the nine months ended September 30, 2021 to 17% in the nine months ended September 30, 2022 primarily due to lease restructuringdecreases in salaries, benefits and asset retirements charges incurred for three office closuresrelated payroll taxes of $28.5 million, which is primarily a result of the outsourcing arrangement with TCS in 2022.the Envestnet Data & Analytics segment, which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in 2023 and an organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $4.4 million, incentive compensation of $1.9 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $14.5 million as a result of the reduction in force initiative and organizational realignment.

General and administrative
46

General and administrative expenses decreased $1.8 million, or 1%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreases in restructuring charges and transaction costs of $17.3 million, marketing costs of $4.0 million and occupancy costs of $3.6 million. These decreases were partially offset by increases in software and maintenance charges of $22.0 million which is primarily a result of the outsourcing arrangement with TCS and other immaterial increases within general and administrative expense.

Depreciation and amortization
 
Depreciation and amortization expense increased 10% from $88.3$3.9 million, inor 4%, for the nine months ended September 30, 20212023 compared to $97.2 million in the nine months ended September 30, 2022. The increase was2022 primarily due to increases in amortization related to internally developed software amortization expense of $6.0$10.0 million, finance lease amortization expense of $3.3 million and intangible amortization of $2.4 million. These increases were partially offset by a decreasedecreases in depreciation of fixedamortization related to intangible assets of $2.8$6.0 million. As a percentage of total revenues, depreciation and amortization expense remained consistent at 10% in the nine months ended September 30, 2021 and 2022.

Other expense, net

Other expense, net decreased from $14.8increased $10.0 million, inor 103%, for the nine months ended September 30, 20212023 compared to $9.7 million in the nine months ended September 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, and ana $3.5 million increase in interest income of $1.5 million. These decreases wereexpense, net and a $2.9 million increase in loss allocations from equity method investments, partially offset by a one-time gain$2.8 million fair market value adjustment to investment in private company.








Table of $1.2 million recorded in 2021 related to the settlement of a liability and a one-time gain of $1.0 million recorded in 2021 related to an insurance reimbursement.Contents

Income tax provision (benefit)
 Nine Months Ended
 September 30,
 20222021
(in thousands, except effective tax rate)
Income (loss) before income tax provision (benefit)$(49,181)$27,078 
Income tax provision (benefit)(1,542)9,074 
Effective tax rate3.1 %33.5 %

Under 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 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 nine months ended September 30, 20222023, our effective tax rate of (33.8%) differed from the statutory rate primarily due to the increase in the valuation allowance we have 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 2021, our ETR was impactedthe impact of state and local taxes offset by the change in forecastedfederal and actual year-to-date pre-tax book income.state R&D credits.

For the nine months ended September 30, 2022, our effective tax rate of 3.1% differed from the statutory rate primarily due to the increase in the valuation allowance we hadthe Company has placed on a portion of its U.S. deferred tax assets which includes the impact of the Redi2 and Truelytics acquisitions and 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 forof an uncertain tax position due to the expiration of a statute of limitations.

For the nine months ended September 30, 2021, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.Segment Results

47


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) attributable to Envestnet, Inc.:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
(in thousands)
Envestnet Wealth Solutions$20,607 $34,386 $49,844 $101,042 
Envestnet Data & Analytics74 1,265 (9,218)3,896 
Nonsegment operating expenses(21,727)(21,516)(80,116)(63,057)
Income (loss) from operations(1,046)14,135 (39,490)41,881 
Other expense, net(5,346)(3,551)(9,691)(14,803)
Consolidated income (loss) before income tax benefit(6,392)10,584 (49,181)27,078 
Income tax provision (benefit)2,271 (854)(1,542)9,074 
Consolidated net income (loss)(8,663)11,438 (47,639)18,004 
Add: Net loss attributable to non-controlling interest1,373 302 3,205 401 
Consolidated net income (loss) attributable to Envestnet, Inc.$(7,290)$11,740 $(44,434)$18,405 

 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
(in thousands)
Envestnet Wealth Solutions$31,392 $20,607 $78,254 $49,844 
Envestnet Data & Analytics(9,115)74 (27,888)(9,218)
Nonsegment operating expenses(21,676)(21,727)(76,134)(80,116)
Income (loss) from operations601 (1,046)(25,768)(39,490)
Other expense, net(4,369)(5,346)(19,706)(9,691)
Consolidated loss before income tax provision (benefit)(3,768)(6,392)(45,474)(49,181)
Income tax provision (benefit)(8,824)2,271 15,363 (1,542)
Consolidated net income (loss)5,056 (8,663)(60,837)(47,639)
Add: Net loss attributable to non-controlling interest2,035 1,373 5,284 3,205 
Consolidated net income (loss) attributable to Envestnet, Inc.$7,091 $(7,290)$(55,553)$(44,434)


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 Envestnet Wealth Solutions
 
The following table presentstables present income from operations for the Envestnet Wealth Solutions segment:
 Three Months Ended Nine Months Ended 
 September 30,PercentSeptember 30,Percent
 20222021Change20222021Change
 (in thousands) (in thousands) 
Revenues:      
Asset-based$177,131 $184,008 (4)%$571,820 $513,458 11 %
Subscription-based75,975 66,988 13 %218,080 197,663 10 %
Total recurring revenues253,106 250,996 1 %789,900 711,121 11 %
Professional services and other revenues4,229 3,738 13 %13,003 10,320 26 %
Total revenues257,335 254,734 1 %802,903 721,441 11 %
Operating expenses:
Cost of revenues103,618 103,742 — %343,148 285,887 20 %
Compensation and benefits77,010 67,592 14 %234,413 195,560 20 %
General and administration31,463 26,086 21 %103,824 71,669 45 %
Depreciation and amortization24,637 22,928 7 %71,674 67,283 7 %
Total operating expenses236,728 220,348 7 %753,059 620,399 21 %
Income from operations
$20,607 $34,386 (40)%$49,844 $101,042 (51)%

48


Three months ended September 30, 20222023 compared to three months ended September 30, 2021 for the Envestnet Wealth Solutions segment2022

Asset-based recurring revenues
 Three Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Asset-based$193,901 71 %$177,131 69 %$16,770 9 %
Subscription-based76,813 28 %75,975 30 %838 1 %
Total recurring revenue270,714 98 %253,106 98 %17,608 7 %
Professional services and other revenue4,313 2 %4,229 2 %84 2 %
Total revenue275,027 100 %257,335 100 %17,692 7 %
Operating expenses:
Direct expense114,005 41 %103,618 40 %10,387 10 %
Employee compensation76,449 28 %77,010 30 %(561)(1)%
General and administrative28,646 10 %31,463 12 %(2,817)(9)%
Depreciation and amortization24,535 9 %24,637 10 %(102)— %
Total operating expenses243,635 89 %236,728 92 %6,907 3 %
Income from operations
$31,392 11 %$20,607 8 %$10,785 52 %

Asset-based recurring revenues decreased 4% from $184.0revenue

Asset-based recurring revenue increased $16.8 million, inor 9%, for the three months ended September 30, 20212023 compared to $177.1 million in the three months ended September 30, 2022. The decrease was2022 primarily due to a decreasean 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).quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 42,000 as of September 30, 2021 toremained consistent with approximately 38,000 as of September 30, 2023 and 2022, respectively, and the number of AUM/A client accounts increased from approximately 2.5 million as of September 30, 2021 to approximately 2.7 million as of September 30, 2022.2022 to approximately 2.9 million as of September 30, 2023.
Subscription-based recurring revenue

As a percentage of segment revenues, asset-basedSubscription-based recurring revenue decreased from 72% of segment revenue inincreased $0.8 million, or 1%, for the three months ended September 30, 20212023 compared to 69% of segment revenue in the three months ended September 30, 2022, primarily due to a higher subscription-based recurring revenues increase and a decrease in asset-based recurring revenues.
Subscription-based recurring revenues

Subscription-based recurring revenues increased 13% from $67.0 million in the three months ended September 30, 2021 to $76.0 million in the three months ended September 30, 2022 primarily due to new and existing customer growth.

Professional services and other revenuesrevenue

Professional services and other revenuesrevenue increased 13% from $3.7$0.1 million, inor 2%, for the three months ended September 30, 20212023 compared to $4.2 million in the three months ended September 30, 2022. The increase was2022 primarily due to timing of the completion of customer projects and deployments.

Cost of revenuesDirect expense
 
Cost of revenues decreased from $103.7Direct expense increased $10.4 million, inor 10%, for the three months ended September 30, 20212023 compared to $103.6 million in the three months ended September 30, 2022. As a percentage2022 primarily due an increase in asset-based direct expense, which directly correlates with the increase in asset-based recurring revenue during the period.


Table of segment revenues, cost of revenuesContents

Employee compensation
Employee compensation decreased from 41% in$0.6 million, or 1%, for the three months ended September 30, 20212023 compared to 40% in the three months ended September 30, 2022.
Compensation and benefits
Compensation and benefits increased 14% from $67.6 million in the three months ended September 30, 2021 to $77.0 million in the three months ended September 30, 2022. The increase is primarily due to increases in salaries, benefits and related payroll taxes of $8.8 million due to increased headcount as a result of growth and acquisitions. Also contributing to this increase were non-cash compensation expense of $1.6 million and other immaterial increases within compensation and benefit expense, partially offset by a decrease in incentive compensation of $1.7 million. As a percentage of segment revenues, compensation and benefits increased from 27% in the three months ended September 30, 2021 to 30% in the three months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $2.4 million, which is primarily a higherresult of a reduction in force initiative in 2023 and an organizational realignment in the fourth quarter of 2022, and other immaterial decreases within employee compensation, partially offset by an increase in compensationseverance expense of $3.8 million as a result of the reduction in force initiative and benefits expense and a lower increase in revenues.organizational realignment.

General and administrationadministrative

General and administrationadministrative expenses increased 21% from $26.1decreased $2.8 million, inor 9%, for the three months ended September 30, 20212023 compared to $31.5 million in the three months ended September 30, 2022. The increase was2022 primarily due to an increasedecreases in software and maintenance charges of $3.3 million, travel and entertainment expenseprofessional fees of $1.4 million and other immaterial increasesdecreases within general and administrationadministrative expense. These increases were partially offset by a decrease in occupancy costs of $1.2 million. As a percentage of segment revenues, general and administration expenses increased from 10% in the three months ended September 30, 2021 to 12% in the three months ended September 30, 2022.
 
Depreciation and amortization
 
Depreciation and amortization expense increased 7% from $22.9decreased $0.1 million infor the three months ended September 30, 20212023 compared to $24.6 million in the three months ended September 30, 2022. The increase was2022 primarily due to an increasedecreases in
49


amortization related to intangible assets of $3.0 million, partially offset by increases in amortization related to internally developed software amortization expense of $1.1$2.6 million. As a percentage of segment revenues, depreciation and amortization expense increased from 9% in the three months ended September 30, 2021 to 10% in the three months ended September 30, 2022.

Nine months ended September 30, 20222023 compared to nine months ended September 30, 2021 for the Envestnet Wealth Solutions segment2022

 Nine Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Asset-based$556,595 69 %$571,820 71 %$(15,225)(3)%
Subscription-based228,807 28 %218,080 27 %10,727 5 %
Total recurring revenue785,402 98 %789,900 98 %(4,498)(1)%
Professional services and other revenue17,866 2 %13,003 2 %4,863 37 %
Total revenue803,268 100 %802,903 100 %365 — %
Operating expenses:
Direct expense336,073 42 %343,148 43 %(7,075)(2)%
Employee compensation229,320 29 %234,413 29 %(5,093)(2)%
General and administrative86,438 11 %103,824 13 %(17,386)(17)%
Depreciation and amortization73,183 9 %71,674 9 %1,509 2 %
Total operating expenses725,014 90 %753,059 94 %(28,045)(4)%
Income from operations
$78,254 10 %$49,844 6 %$28,410 57 %

Asset-based recurring revenuesrevenue

Asset-based recurring revenues increased 11% from $513.5revenue decreased $15.2 million, inor 3%, for the nine months ended September 30, 20212023 compared to $571.8 million in the nine months ended September 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), as well as new account growth and positive net flows of AUM/A in the first nine months of 2022.quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 42,000 as of September 30, 2021 toremained consistent with approximately 38,000 as of September 30, 2023 and 2022, respectively, and the number of AUM/A client accounts increased from approximately 2.5 million as of September 30, 2021 to approximately 2.7 million as of September 30, 2022.2022 to approximately 2.9 million as of September 30, 2023.

As a percentage of segment revenues, asset-basedSubscription-based recurring revenue remained consistent at 71% of segment

Subscription-based recurring revenue inincreased $10.7 million, or 5%, for the nine months ended September 30, 2021 and 2022.
Subscription-based recurring revenues

Subscription-based recurring revenues increased 10% from $197.7 million in the nine months ended September 30, 20212023 compared to $218.1 million in the nine months ended September 30, 2022 primarily due to new and existing customer growth.

Professional services and other revenues
Table of Contents


Professional services and other revenuesrevenue

Professional services and other revenue increased 26% from $10.3$4.9 million, inor 37%, for the nine months ended September 30, 20212023 compared to $13.0 million in the nine months ended September 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 20% from $285.9 million in the nine months ended September 30, 2021 to $343.1 million in the nine months ended September 30, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $50.3 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 $6.6 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 40% in the nine months ended September 30, 2021 to 43% in the nine months ended September 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 20% from $195.6Direct expense decreased $7.1 million, inor 2%, for the nine months ended September 30, 20212023 compared to $234.4the nine months ended September 30, 2022 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 $5.1 million, or 2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $5.9 million, which is primarily a result of a reduction in force initiative in 2023 and an organizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $1.9 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $5.0 million as a result of the reduction in force initiative and organizational realignment.

General and administrative

General and administrative expenses decreased $17.4 million, or 17%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreases in restructuring charges and transaction costs of $12.4 million, marketing costs of $3.1 million, occupancy costs of $2.0 million and other immaterial decreases within general and administrative expense, partially offset by increases in software and maintenance charges of $1.3 million.
Depreciation and amortization
Depreciation and amortization expense increased $1.5 million, or 2%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to increases in salaries, benefits andamortization related payroll taxes of $29.0 million due to increased headcount to support organic growth and acquisitions. Also contributing to this increase were non-cash compensation expense of $8.8 million, contract labor expenses of $1.2 million, miscellaneous employee expense of $1.1 million and other immaterial increases within compensation and benefit expense. These increases were partially offset by a decrease in incentive compensation of $2.0 million. As a percentage of segment revenues, compensation and benefits increased from 27% in the nine months ended September 30, 2021 to 29% in the nine months ended September 30, 2022.

General and administration

General and administration expenses increased 45% from $71.7 million in the nine months ended September 30, 2021 to $103.8 million in the nine months ended September 30, 2022. The increase was primarily due to an increase of $15.4 million
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related to lease restructuring costs incurred in 2022 driven by the closure of three offices in the United States, software and maintenance charges of $10.0 million, marketing expense of $3.5 million, miscellaneous general and administration expenses of $3.2 million and travel and entertainment expense of $2.8 million. These increases were partially offset by decreased occupancy costs of $3.1 million. As a percentage of segment revenues, general and administration expenses increased from 10% in the nine months ended September 30, 2021 to 13% in the nine months ended September 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 $67.3 million in the nine months ended September 30, 2021 to $71.7 million in the nine months ended September 30, 2022. The increase was primarily due to an increase in internally developed software amortization expense of $3.2 million and an increase in finance lease amortization expense of $1.9$6.2 million, partially offset by other immaterial decreases within depreciation and amortization. As a percentagein amortization related to intangible assets of segment revenues, depreciation and amortization expense remained consistent at 9% in the nine months ended September 30, 2021 and 2022.$5.0 million.


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Envestnet Data & Analytics

The following table presentstables present income (loss) from operations for the Envestnet Data & Analytics segment:
 Three Months Ended Nine Months Ended 
 September 30,PercentSeptember 30,Percent
 20222021Change20222021Change
 (in thousands) (in thousands) 
Revenues:      
Subscription-based$47,772 $46,584 3 %$138,521 $138,242 — %
Professional services and other revenues1,588 1,735 (8)%5,486 7,213 (24)%
Total revenues49,360 48,319 2 %144,007 145,455 (1)%
Operating expenses:  
Cost of revenues6,490 6,094 6 %18,724 17,312 8 %
Compensation and benefits26,174 26,468 (1)%80,334 77,765 3 %
General and administration7,851 7,570 4 %28,633 25,513 12 %
Depreciation and amortization8,771 6,922 27 %25,534 20,969 22 %
Total operating expenses49,286 47,054 5 %153,225 141,559 8 %
Income (loss) from operations$74 $1,265 *$(9,218)$3,896 *
*Not meaningful.

Three months ended September 30, 20222023 compared to three months ended September 30, 2021 for the Envestnet Data & Analytics segment2022

 Three Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Subscription-based$38,126 91 %$47,772 97 %$(9,646)(20)%
Professional services and other revenue3,694 9 %1,588 3 %2,106 133 %
Total revenue41,820 100 %49,360 100 %(7,540)(15)%
Operating expenses:
Direct expense5,533 13 %6,490 13 %(957)(15)%
Employee compensation22,819 55 %26,174 53 %(3,355)(13)%
General and administrative12,807 31 %7,851 16 %4,956 63 %
Depreciation and amortization9,776 23 %8,771 18 %1,005 11 %
Total operating expenses50,935 122 %49,286 100 %1,649 3 %
Income (loss) from operations$(9,115)(22)%$74 — %$(9,189)*

*Not meaningful
 
Subscription-based recurring revenuesrevenue
 
Subscription-based recurring revenues increased 3% from $46.6revenue decreased $9.6 million, inor 20%, for the three months ended September 30, 20212023 compared to $47.8 million in the three months ended September 30, 2022 primarily due to increasesa loss in revenueaccess to data in the research business and continued impact from existing customers.
Professional services and other revenues
the regional banking crisis which led to our customer’s cost cutting initiatives.
Professional services and other revenues
As a percentage of segment revenue, subscription-based recurring revenue decreased8% from $1.7 million in 6% points for the three months ended September 30, 20212023 compared to $1.6 million in the three months ended September 30, 2022 primarily due to the timing of the completion of customer projects and deployments.

Cost of revenues
Cost of revenues increased 6% from $6.1 million in the three months ended September 30, 2021 to $6.5 million in the three months ended September 30, 2022. As a percentage of segment revenues, cost of revenues remained consistent at 13% in the three months ended September 30, 2022 and 2021.
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Compensation and benefits
Compensation and benefits decreased 1% from $26.5 million in the three months ended September 30, 2021 to $26.2 million in the three months ended September 30, 2022 primarily due to a decrease in incentive compensation of $1.7 million, which was partially offset by increasessubscription-based revenue compared to an increase in salaries, benefits and related payroll taxes of $1.1 millionprofessional services and other immaterial increases within compensationrevenue.

Professional services and benefit accounts. As a percentage of segment revenues, compensationother revenue
Professional services and benefits decreased from 55% inother revenue increased$2.1 million, or 133%, for the three months ended September 30, 20212023 compared to 53% in the three months ended September 30, 2022.

General and administration

General and administration expenses increased 4% from $7.6 million in the three months ended September 30, 2021 to $7.9 million in the three months ended September 30, 2022 primarily due to an increase in restructuring charges and transaction costs of $1.3 million, software and maintenance charges of $1.3 million and other immaterial increases within general and administration expense accounts. These increases were partially offset bypoint in time revenue recognized on a decrease in litigation and regulatory related expense of $3.6 million. customer deployment.

As a percentage of segment revenues, general and administration expenses remained consistent at 16% inrevenue, subscription-based recurring revenue increased 6% points for the three months ended September 30, 2021 and 2022.
Depreciation and amortization
Depreciation and amortization expense increased 27% from $6.9 million in2023 compared to the three months ended September 30, 2021 to $8.8 million in the three months ended September 30, 2022. The increase is primarily due to increases in internally developed software and intangible asset amortization expense. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in the three months ended September 30, 2021 to 18% in three months ended September 30, 2022. The increase in depreciation and amortization as a percentage of segment revenues is primarily due to higher amortization expense incurred in 2022 driven by increased capitalization related to internally developed software costs and the procurement of technology solutions from a privately held company.
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021 for the Envestnet Data & Analytics segment
Subscription-based recurring revenues
Subscription-based recurring revenues increased from $138.2 million in the nine months ended September 30, 2021 to $138.5 million in the nine months ended September 30, 2022.
Professional services and other revenues
Professional services and other revenues decreased24% from $7.2 million in the nine months ended September 30, 2021 to $5.5 million in the nine months ended September 30, 2022, primarily due to the timing of the completion of customer projects and deployments.

Cost of revenues
Cost of revenues increased 8% from $17.3 million in the nine months ended September 30, 2021 to $18.7 million in the nine months ended September 30, 2022. As a percentage of segment revenues, cost of revenues increased from 12% in the nine months ended September 30, 2021 to 13% in the nine months ended September 30, 2022.
Compensation and benefits
Compensation and benefits increased 3% from $77.8 million in the nine months ended September 30, 2021 to $80.3 million in the nine months ended September 30, 2022 primarily due to an increase in salaries, benefits, and related payroll taxes of $5.4 million, miscellaneous employee expenses of $1.7 millionprofessional services and other immaterial increases within compensation and benefit accounts. These amounts were partially offset by decreasesrevenue compared to a decrease in incentive compensation of $2.7subscription-based revenue.

Direct expense
Direct expense decreased $1.0 million, severance expense of $2.1 million and non-cash compensation expense of $1.3 million. As a percentage of segment revenues, compensation and benefits increased from 53% inor 15%, for the ninethree months ended September 30, 20212023 compared to 56% in the nine months ended September 30, 2022. The increase in compensation and benefits as a percentage of segment revenues is primarily driven by increased headcount related to domestic employees.

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General and administration

General and administration expenses increased 12% from $25.5 million in the nine months ended September 30, 2021 to $28.6 million in the ninethree months ended September 30, 2022 primarily due to the decrease in subscription-based recurring revenue during the period.

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Employee compensation

Employee compensation decreased $3.4 million, or 13%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $7.1 million, which is primarily a result of the outsourcing arrangement with TCS which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in 2023 and an organizational realignment in the fourth quarter of 2022 and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $6.0 million as a result of the reduction in force initiative and organizational realignment.

General and administrative

General and administrative expenses increased $5.0 million, or 63%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to increases in software and maintenance charges of $1.5$5.6 million, restructuring chargeswhich is primarily a result of the outsourcing arrangement with TCS and transaction costsan increase in litigation related expense of $1.5 million, contingent consideration adjustments of $1.5 million, and travel and entertainment expenses of $1.3$2.7 million. These increases were partially offset by a decrease in marketing expense as well asrestructuring charges and transaction costs of $1.4 million and other immaterial decreases within general and administrationadministrative expense.

As a percentage of segment revenues,revenue, general and administration expensesadministrative expense increased from 18% in the nine15% points for three months ended September 30, 20212023 compared to 20% in the ninethree months ended September 30, 2022.2022 primarily due to the outsourcing arrangement with TCS as well as the overall decrease in segment revenue period over period.

Depreciation and amortization
 
Depreciation and amortization expense increased 22% from $21.0$1.0 million, in the nine months ended September 30, 2021 to $25.5 million in the nine months ended September 30, 2022. The increase is primarily due to increases in internally developed software amortization expense of $2.8 million, intangible asset amortization expense of $2.1 million and finance lease amortization expense of $1.4 million. These increases were partially offset by other immaterial decreases within depreciation accounts. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in the nine months ended September 30, 2021 to 18% in nine months ended September 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 and the procurement of technology solutions from a privately held company.

Nonsegment
The following table presents nonsegment operating expenses:
 Three Months Ended Nine Months Ended 
 September 30,PercentSeptember 30,Percent
 20222021Change20222021Change
 (in thousands) (in thousands) 
Operating expenses:      
Compensation and benefits$13,653 $15,779 (13)%$54,706 $42,776 28 %
General and administration8,074 5,737 41 %25,410 20,281 25 %
Nonsegment operating expenses$21,727 $21,516 1 %$80,116 $63,057 27 %

Three months ended September 30, 2022 compared to three months ended September 30, 2021or 11%, for Nonsegment
Compensation and benefits
Compensation and benefits decreased 13% from $15.8 million in the three months ended September 30, 20212023 compared to $13.7the three months ended September 30, 2022 primarily due to increases in amortization related to internally developed software of $1.5 million, partially offset by decreases in amortization related to intangible assets of $0.6 million.

As a percentage of segment revenue, depreciation and amortization expense increased 5% points for three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a decrease in non-cash compensation expense of $2.5 millionsegment revenue period over period as a result of adjustments to performance-based stock units, partially offset by other immaterial increases.
General and administration
General and administration expenses increased 41% from $5.7 million inwell as the three months ended September 30, 2021 to $8.1 million in the three months ended September 30, 2022. The increase was primarily due to anoverall increase in restructuring chargesdepreciation and transaction costsamortization expense period over period.

Table of $1.1 million driven by system implementation costs and other immaterial increases.Contents


Nine months ended September 30, 20222023 compared to nine months ended September 30, 2021 for Nonsegment2022

 Nine Months Ended September 30,
 20232022
 Amount% of RevenueAmount% of Revenue$ Change% Change
 (in thousands)(in thousands)(in thousands)
Revenue:   
Subscription-based$118,170 95 %$138,521 96 %$(20,351)(15)%
Professional services and other revenue6,550 5 %5,486 4 %1,064 19 %
Total revenue124,720 100 %144,007 100 %(19,287)(13)%
Operating expenses: 
Direct expense15,951 13 %18,724 13 %(2,773)(15)%
Employee compensation65,974 53 %80,334 56 %(14,360)(18)%
General and administrative42,808 34 %28,633 20 %14,175 50 %
Depreciation and amortization27,875 22 %25,534 18 %2,341 9 %
Total operating expenses152,608 122 %153,225 106 %(617)— %
Loss from operations$(27,888)(22)%$(9,218)(6)%$(18,670)*

*Not meaningful

Subscription-based recurring revenue
 
Compensation and benefits
Compensation and benefits increased 28% from $42.8Subscription-based recurring revenue decreased $20.4 million, inor 15%, for the nine months ended September 30, 20212023 compared to $54.7 million in the nine months ended September 30, 2022 primarily due to increased headcount that resulteda loss in increasesaccess to data in non-cashthe research business and continued impact from the regional banking crisis which led to our customer’s cost cutting initiatives.
Professional services and other revenue
Professional services and other revenue increased$1.1 million, or 19%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in point in time revenue recognized on a customer deployment, partially offset by timing of the completion of customer projects and deployments.

Direct expense
Direct expense decreased $2.8 million, or 15%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to the decrease in subscription-based recurring revenue.

Employee compensation expense of $4.8

Employee compensation decreased $14.4 million, andor 18%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $3.8 million. An$19.6 million, which is primarily a result of the outsourcing arrangement with TCS which shifted certain expenses from employee compensation to general and administrative expense, a reduction in force initiative in 2023 and an organizational realignment in the fourth quarter of 2022, incentive compensation of $2.4 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $2.2$10.4 million also contributedas a result of the reduction in force initiative and organizational realignment.

As a percentage of segment revenue, employee compensation expense decreased 3% points for nine months ended September 30, 2023 compared to this increase.the nine months ended September 30, 2022 primarily due to the outsourcing arrangement with TCS, partially offset by a decrease in segment revenue period over period.

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General and administrationadministrative

General and administrationadministrative expenses increased 25% from $20.3$14.2 million, inor 50%, for the nine months ended September 30, 20212023 compared to $25.4 million in the nine months ended September 30, 2022. The increase was2022 primarily due to an increaseincreases in software and maintenance charges of $19.3 million, which is primarily a result of the outsourcing arrangement with TCS, partially offset by decreases in restructuring charges and transaction costs of $4.2$1.8 million, driven by acquisition activity and system implementation costs,litigation related expense of $1.2 million and other immaterial increases.decreases within general and administrative expense.

As a percentage of segment revenue, general and administrative expense increased 14% points for nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to the outsourcing arrangement with TCS as well as a decrease in segment revenue period over period.

Depreciation and amortization
 
Depreciation and amortization expense increased $2.3 million, or 9%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to increases in amortization related to internally developed software of $3.8 million, partially offset by decreases in amortization related to intangible assets of $1.0 million.

As a percentage of segment revenue, depreciation and amortization expense increased 4% points for nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to a decrease in segment revenue period over period as well as the overall increase in depreciation and amortization expense period over period.

Nonsegment

The following tables present nonsegment operating expenses: 

Three months ended September 30, 2023 compared to three months ended September 30, 2022



 
Three Months Ended
September 30,
$%
 20232022ChangeChange
 (in thousands, except percentages)
Operating expenses:   
Employee compensation$14,066 $13,653 $413 3 %
General and administrative7,610 8,074 (464)(6)%
Nonsegment operating expenses$21,676 $21,727 $(51)— %
Employee compensation
Employee compensation increased $0.4 million, or 3%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to an increase in non-cash compensation expense of $1.1 million and other immaterial increases within employee compensation, partially offset by a decrease in salaries, benefits and related payroll taxes of $0.9 million.
General and administrative
General and administrative expenses decreased $0.5 million, or 6%, for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 primarily due to a decrease in transaction costs of $1.4 million, partially offset by other immaterial increases within general and administrative expense.


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Nine months ended September 30, 2023 compared to nine months ended September 30, 2022


 
Nine Months Ended
September 30,
$%
 20232022ChangeChange
 (in thousands, except percentages)
Operating expenses:   
Employee compensation$49,352 $54,706 $(5,354)(10)%
General and administrative26,782 25,410 1,372 5 %
Nonsegment operating expenses$76,134 $80,116 $(3,982)(5)%
Employee compensation
Employee compensation decreased $5.4 million, or 10%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to decreases in salaries, benefits and related payroll taxes of $3.0 million, non-cash compensation expense of $2.0 million and other immaterial decreases within employee compensation.
General and administrative
General and administrative expenses increased $1.4 million, or 5%, for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily due to an increase in governance related expense of $1.8 million as a result of expense associated with activist shareholder activity during the three months ended March 31, 2023, professional fees of $1.6 million and software and maintenance charges of $1.4 million. These increases were partially offset by decreases in transaction costs of $3.1 million and other immaterial decreases in general and administrative expense.


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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. We believe these non-GAAP financial measures are useful supplemental metrics that provide greater transparency into our results of operations and can assist both management and investors in understanding and assessing the operational performance of our business on a consistent basis, as it removes the impact of non-cash or non-recurring items from operating results and provides an additional tool to compare our results with other companies in the industry, many of which present similar non-GAAP financial measures. 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 considerationexpense, 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, litigation and regulatory related expenses, foreign currency, gain on settlement of liability, gain on insurance reimbursement, 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 considerationexpense, amortization 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, gain on settlement of liability, gain on insurance reimbursement, 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
54


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, deferred revenue fair value adjustment, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, severance accretion on contingent considerationexpense,

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litigation, regulatory and purchase liability, fair market value adjustment on contingent consideration liability, fair market value adjustment to investment in private company, litigation and regulatoryother governance related expenses, foreign currency, gain on settlement of liability, gain on insurance reimbursement, 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 $7.9$13.6 million and $5.9$7.9 million for the nine months ended September 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 tables set forth reconciliations of GAAP financial measures to non-GAAP financial measures. See "Footnotes to GAAP to Non-GAAP Reconciliations" below for further detail on adjustments.

55

Table of Contents

The following table sets forth a reconciliation of total revenuesrevenue to adjusted revenues based on our historical results:revenue:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(in thousands)
Total revenues$306,695 $303,053 $946,910 $866,896 
Deferred revenue fair value adjustment54 67 162 227 
Adjusted revenues$306,749 $303,120 $947,072 $867,123 

Three Months EndedNine Months Ended
September 30,September 30,
2023202220232022
(in thousands)
Total revenue$316,847 $306,695 $927,988 $946,910 
Deferred revenue fair value adjustment (1)
— 54 69 162 
Adjusted revenue$316,847 $306,749 $928,057 $947,072 

The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:EBITDA:
Three Months EndedNine Months Ended
September 30,September 30,
2022202120222021
(in thousands)
Net income (loss)$(8,663)$11,438 $(47,639)$18,004 
Add (deduct):    
Deferred revenue fair value adjustment54 67 162 227 
Interest income(1,239)(202)(2,273)(569)
Interest expense4,242 4,242 13,307 12,682 
Income tax provision (benefit)2,271 (854)(1,542)9,074 
Depreciation and amortization33,408 29,850 97,208 88,252 
Non-cash compensation expense17,265 18,885 62,583 50,307 
Restructuring charges and transaction costs3,895 3,403 27,267 11,215 
Severance1,125 207 11,379 10,498 
Accretion on contingent consideration and purchase liability— 81 — 656 
Fair market value adjustment on contingent consideration liability— (927)— (1,067)
Fair market value adjustment to investment in private company— — — (758)
Litigation and regulatory related expenses(2,050)1,512 5,333 5,159 
Foreign currency308 97 613 110 
Gain on settlement of liability— (1,206)— (1,206)
Gain on insurance reimbursement— (968)— (968)
Non-income tax expense adjustment(325)(831)(112)(1,102)
Dilution gain on equity method investee share issuance— — (6,934)— 
Loss allocations from equity method investments2,387 1,508 5,332 5,553 
(Income) loss attributable to non-controlling interest820 (114)1,637 (554)
Adjusted EBITDA$53,498 $66,188 $166,321 $205,513 

Three Months EndedNine Months Ended
September 30,September 30,
2023202220232022
(in thousands)
Net income (loss)$5,056 $(8,663)$(60,837)$(47,639)
Add (deduct):    
Deferred revenue fair value adjustment (1)
— 54 69 162 
Interest income(1,553)(1,239)(4,567)(2,273)
Interest expense6,202 4,242 19,053 13,307 
Income tax provision (benefit) (2)(3)
(8,824)2,271 15,363 (1,542)
Depreciation and amortization34,311 33,408 101,058 97,208 
Non-cash compensation expense (4)
17,298 17,265 58,141 62,583 
Restructuring charges and transaction costs (5)
1,695 3,895 12,366 27,267 
Severance expense (6)
11,482 1,125 25,904 11,379 
Litigation, regulatory and other governance related expenses (7)
604 (2,050)5,823 5,333 
Foreign currency (8)
223 308 330 613 
Non-income tax expense adjustment (9)
(26)(325)(224)(112)
Fair market value adjustment to investment in private company (10)
(2,871)— (2,804)— 
Dilution gain on equity method investee share issuance (11)
— — (546)(6,934)
Loss allocations from equity method investments (12)
2,368 2,387 8,240 5,332 
Loss attributable to non-controlling interest (13)
1,277 820 3,082 1,637 
Adjusted EBITDA$67,242 $53,498 $180,451 $166,321 

56

Table of Contents

The following table sets forth thea reconciliation of net income (loss) to adjusted net income and adjusted net income per diluted share based on our historical results:share:
 Three Months EndedNine Months Ended
 September 30,September 30,
 2022202120222021
 (in thousands, except share and per share information)
Net income (loss)$(8,663)$11,438 $(47,639)$18,004 
Income tax provision (benefit) (1)
2,271 (854)(1,542)9,074 
Income (loss) before income tax provision (benefit)(6,392)10,584 (49,181)27,078 
Add (deduct):
Deferred revenue fair value adjustment54 67 162 227 
Non-cash interest expense1,443 1,443 4,917 4,295 
Cash interest - Convertible Notes2,479 2,479 7,439 7,439 
Non-cash compensation expense17,265 18,885 62,583 50,307 
Restructuring charges and transaction costs3,895 3,403 27,267 11,215 
Severance1,125 207 11,379 10,498 
Accretion on contingent consideration and purchase liability— 81 — 656 
Fair market value adjustment on contingent consideration liability— (927)— (1,067)
Fair market value adjustment to investment in private company— — — (758)
Amortization of acquired intangibles18,649 17,390 53,814 51,370 
Litigation and regulatory related expenses(2,050)1,512 5,333 5,159 
Foreign currency308 97 613 110 
Gain on settlement of liability— (1,206)— (1,206)
Gain on insurance reimbursement— (968)— (968)
Non-income tax expense adjustment(325)(831)(112)(1,102)
Dilution gain on equity method investee share issuance— — (6,934)— 
Loss allocations from equity method investments2,387 1,508 5,332 5,553 
(Income) loss attributable to non-controlling interest820 (114)1,637 (554)
Adjusted net income before income tax effect39,658 53,610 124,249 168,252 
Income tax effect (2)
(10,112)(13,670)(31,683)(42,904)
Adjusted net income$29,546 $39,940 $92,566 $125,348 
Basic number of weighted-average shares outstanding55,226,777 54,547,858 55,109,387 54,400,247 
Effect of dilutive shares:
Options to purchase common stock74,559 201,103 123,267 207,281 
Unvested restricted stock units208,367 570,515 378,061 614,005 
Convertible notes9,898,549 9,898,549 9,898,549 9,898,549 
Warrants— 69,151 — 66,439 
Diluted number of weighted-average shares outstanding65,408,252 65,287,176 65,509,264 65,186,521 
Adjusted net income per share - diluted$0.45 $0.61 $1.41 $1.92 
 Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
 (in thousands, except share and per share information)
Net income (loss)$5,056 $(8,663)$(60,837)$(47,639)
Income tax provision (benefit) (2)(3)
(8,824)2,271 15,363 (1,542)
Loss before income tax provision (benefit)(3,768)(6,392)(45,474)(49,181)
Add (deduct):
Deferred revenue fair value adjustment (1)
— 54 69 162 
Non-cash interest expense (14)
1,389 1,443 4,258 4,917 
Cash interest - Convertible Notes (15)
4,368 2,479 13,476 7,439 
Non-cash compensation expense (4)
17,298 17,265 58,141 62,583 
Restructuring charges and transaction costs (5)
1,695 3,895 12,366 27,267 
Severance expense (6)
11,482 1,125 25,904 11,379 
Amortization of acquired intangibles (16)
15,124 18,649 47,784 53,814 
Litigation, regulatory and other governance related expenses (7)
604 (2,050)5,823 5,333 
Foreign currency (8)
223 308 330 613 
Non-income tax expense adjustment (9)
(26)(325)(224)(112)
Fair market value adjustment to investment in private company (10)
(2,871)— (2,804)— 
Dilution gain on equity method investee share issuance (11)
— — (546)(6,934)
Loss allocations from equity method investments (12)
2,368 2,387 8,240 5,332 
Loss attributable to non-controlling interest (13)
1,277 820 3,082 1,637 
Adjusted net income before income tax effect49,163 39,658 130,425 124,249 
Income tax effect (17)
(12,536)(10,112)(33,258)(31,683)
Adjusted net income$36,627 $29,546 $97,167 $92,566 
Basic number of weighted average shares outstanding54,562,270 55,226,777 54,380,231 55,109,387 
Effect of dilutive shares:
Convertible Notes10,811,884 9,898,549 11,176,254 9,898,549 
Non-vested RSUs and PSUs361,982 208,367 438,520 378,061 
Options to purchase common stock46,364 74,559 64,507 123,267 
Diluted number of weighted average shares outstanding65,782,500 65,408,252 66,059,512 65,509,264 
Adjusted net income per diluted share$0.56 $0.45 $1.47 $1.41 

Table of Contents

The following tables set forth the reconciliation of revenue to adjusted revenue and income (loss) from operations to adjusted EBITDA for each segment for the three and nine months ended September 30, 2023 and 2022:

 Three Months Ended September 30, 2023
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenue$275,027 $41,820 $— $316,847 
Deferred revenue fair value adjustment (1)
— — — — 
Adjusted revenue$275,027 $41,820 $— $316,847 
Income (loss) from operations$31,392 $(9,115)$(21,676)$601 
Add:
Deferred revenue fair value adjustment (1)
— — — — 
Depreciation and amortization24,535 9,776 — 34,311 
Non-cash compensation expense (4)
10,682 2,448 4,168 17,298 
Restructuring charges and transaction costs (5)
1,432 (98)361 1,695 
Severance expense(6)
4,501 6,302 679 11,482 
Litigation, regulatory and other governance related expenses (7)
— 629 (25)604 
Non-income tax expense adjustment (9)
(26)— — (26)
Loss attributable to non-controlling interest (13)
1,277 — — 1,277 
Adjusted EBITDA$73,793 $9,942 $(16,493)$67,242 

 Three months ended September 30, 2022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenue$257,335 $49,360 $— $306,695 
Deferred revenue fair value adjustment (1)
54 — — 54 
Adjusted revenue$257,389 $49,360 $— $306,749 
Income (loss) from operations$20,607 $74 $(21,727)$(1,046)
Add:
Deferred revenue fair value adjustment (1)
54 — — 54 
Depreciation and amortization24,637 8,771 — 33,408 
Non-cash compensation expense (4)
11,235 2,991 3,039 17,265 
Restructuring charges and transaction costs (5)
928 1,264 1,703 3,895 
Severance expense (6)
686 281 158 1,125 
Litigation, regulatory and other governance related expenses (7)
— (2,050)— (2,050)
Non-income tax expense adjustment (9)
(343)18 — (325)
Loss attributable to non-controlling interest (13)
820 — — 820 
Other352 — — 352 
Adjusted EBITDA$58,976 $11,349 $(16,827)$53,498 

Table of Contents

 Nine Months Ended September 30, 2023
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenue$803,268 $124,720 $— $927,988 
Deferred revenue fair value adjustment (1)
69 — — 69 
Adjusted revenue$803,337 $124,720 $— $928,057 
Income (loss) from operations$78,254 $(27,888)$(76,134)$(25,768)
Add (deduct):
Deferred revenue fair value adjustment (1)
69 — — 69 
Depreciation and amortization73,183 27,875 — 101,058 
Non-cash compensation expense (4)
33,967 7,837 16,337 58,141 
Restructuring charges and transaction costs (5)
7,984 215 4,167 12,366 
Severance expense (6)
9,931 11,849 4,124 25,904 
Litigation, regulatory and other governance related expenses (7)
— 4,163 1,660 5,823 
Non-income tax expense adjustment (9)
(153)(71)— (224)
Loss attributable to non-controlling interest (13)
3,082 — — 3,082 
Adjusted EBITDA$206,317 $23,980 $(49,846)$180,451 

 Nine months ended September 30, 2022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenue$802,903 $144,007 $— $946,910 
Deferred revenue fair value adjustment (1)
162 — — 162 
Adjusted revenue$803,065 $144,007 $— $947,072 
Income (loss) from operations$49,844 $(9,218)$(80,116)$(39,490)
Add:
Deferred revenue fair value adjustment (1)
162 — — 162 
Depreciation and amortization71,674 25,534 — 97,208 
Non-cash compensation expense (4)
35,889 8,378 18,316 62,583 
Restructuring charges and transaction costs (5)
18,109 2,014 7,144 27,267 
Severance expense (6)
4,909 1,492 4,978 11,379 
Litigation, regulatory and other governance related expenses (7)
— 5,333 — 5,333 
Non-income tax expense adjustment (9)
(52)(60)— (112)
Loss attributable to non-controlling interest (13)
1,637 — — 1,637 
Other352 2 — 354 
Adjusted EBITDA$182,524 $33,475 $(49,678)$166,321 

Table of Contents

Footnotes to GAAP to Non-GAAP Reconciliations

(1)Deferred revenue fair value adjustment represents the effect of purchase accounting on the fair value of acquired deferred revenue in accordance with ASC 606.
(2)For the three months ended September 30, 20222023 and 2021,2022, the effective tax rate computed in accordance with GAAP equaled (35.5)%234.2% and (8.1)(35.5)%, respectively. For the nine months ended September 30, 20222023 and 2021,2022, the effective tax rate computed in accordance with GAAP equaled 3.1%(33.8)% and 33.5%3.1%, respectively.
(2)(3)An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for both the three and nine months ended September 30, 2022 and 2021.

Note on 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 both the amount calculated in accordance with GAAP using the effective income tax rate computedand from the income tax effect amount calculated using the normalized effective tax rate.
(4)Non-cash compensation expense represents expense related to stock-based awards made to employees and directors. We exclude stock-based compensation because the Company does not view it as reflective of our core operating performance as it is a non-cash expense.
(5)Restructuring charges and transaction costs represent third-party costs incurred related to significant, distinct enterprise-wide strategic initiatives such as the closure of certain offices in the United States, acquisition and transaction related expenditures and system integration costs related to implementation of a new Enterprise Resource Planning System. These third-party costs are infrequent and outside the ordinary course of our continuing operations. We exclude these costs to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.
(6)Severance expense represents severance and related costs associated with certain strategic initiatives that have reshaped our workforce such as an organizational realignment in the fourth quarter of 2022, post-acquisition integration activity and a reduction in force initiative in 2023. These are not reflective of future ongoing operations and affect comparability of the Company’s operational results across reporting periods.
(7)Litigation, regulatory and other governance related expenses represent certain third-party non-recurring litigation fees primarily related to litigation matters discussed in Note 19—Commitments and Contingencies as well as governance related expenses associated with activist shareholder activity. The litigation costs relate to two matters over a three-year time period and are not reoccurring expenditures.
(8)Foreign currency represents gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts. These adjustments can vary significantly from period to period and are not indicative of our core operating performance.
(9)Non-income tax expense adjustments relate to the remediation of historical sales and use tax issues and are not indicative of our core operating performance.
(10)Fair market value adjustment to investment in private company represents non-recurring unrealized gains and losses related to the Company’s investments. These adjustments are infrequent and outside the ordinary course of our continuing operations.
(11)Dilution gain on equity method investee share issuance represents gains and losses related to the Company’s equity method share issuances. These dilution gains are infrequent and can vary significantly from period to period and are outside the ordinary course of our continuing operations.
(12)Loss allocations from equity method investments represents gains and losses from our various equity method investments. These investments are not part of our core business and the ventures associated with these investments generally are start-up or early-stage businesses where we have limited influence over their operational and financial policies. The results of operations for each of these investments can vary significantly from period to period and do not represent the Company’s ongoing operations.
(13)Loss attributable to non-controlling interest represents the loss attributable to the Company’s minority economic interest in a private company excluding the impact of non-cash or non-recurring items included within other line items. Although the Company consolidates its minority interest in a private company as a result of its ability to control this private company interest through majority representation on the board, the Company has excluded loss attributable to non-controlling interest as it owns a minority economic interest in the private company. This private company is a start-up business and the results of its operations vary significantly from period to period and are not representative of the Company’s financial performance.
(14)Non-cash interest expense represents third-party costs incurred in securing debt and are amortized over the term of the debt. We exclude non-cash interest expense because the Company does not view this expense as reflective of our core operating performance as it is a non-cash expense.
(15)For purposes of computing adjusted net income and adjusted net income per share, the Company always assumes the convertible notes to be fully converted for all periods presented. Therefore, cash interest for convertible notes is added to adjusted net income in accordance with GAAP, and from the normalized rate shown above.

57

if-converted method.

(16)Amortization of acquired intangibles represents non-cash amortization expense from intangible assets acquired through acquisitions. The fair value of these acquired intangible assets are estimates and the Company does not view it as reflective of our core operating performance as it is a non-cash expense.
The following tables set forth(17)Income tax effect represents the reconciliationtax effect of revenues to adjusted revenuesNon-GAAP adjustments as described above and income (loss) from operations to adjusted EBITDA based on our historical resultsis calculated using an estimated normalized tax rate of 25.5% for each segment forboth the three and nine months ended September 30, 20222023 and 2021:

 Three Months Ended September 30, 2022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$257,335 $49,360 $— $306,695 
Deferred revenue fair value adjustment54 — — 54 
Adjusted revenues$257,389 $49,360 $— $306,749 
Income (loss) from operations$20,607 $74 $(21,727)$(1,046)
Add:
Deferred revenue fair value adjustment54 — — 54 
Depreciation and amortization24,637 8,771 — 33,408 
Non-cash compensation expense11,235 2,991 3,039 17,265 
Restructuring charges and transaction costs928 1,264 1,703 3,895 
Severance686 281 158 1,125 
Litigation and regulatory related expenses— (2,050)— (2,050)
Non-income tax expense adjustment(343)18 — (325)
Loss attributable to non-controlling interest820 — — 820 
Other352 — — 352 
Adjusted EBITDA$58,976 $11,349 $(16,827)$53,498 

 Three Months Ended September 30, 2021
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$254,734 $48,319 $— $303,053 
Deferred revenue fair value adjustment67 — — 67 
Adjusted revenues$254,801 $48,319 $— $303,120 
Income (loss) from operations$34,386 $1,265 $(21,516)$14,135 
Add (deduct):
Deferred revenue fair value adjustment67 — — 67 
Depreciation and amortization22,928 6,922 — 29,850 
Non-cash compensation expense9,661 3,667 5,557 18,885 
Restructuring charges and transaction costs2,863 (55)595 3,403 
Severance(49)227 29 207 
Accretion on contingent consideration and purchase liability62 19 — 81 
Fair market value adjustment on contingent consideration liability— (927)— (927)
Litigation and regulatory related expenses— 1,512 — 1,512 
Non-income tax expense adjustment(905)74 — (831)
Income attributable to non-controlling interest(114)— — (114)
Other(63)(9)(8)(80)
Adjusted EBITDA$68,836 $12,695 $(15,343)$66,188 


2022.
58


 Nine Months Ended September 30, 2022
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$802,903 $144,007 $— $946,910 
Deferred revenue fair value adjustment162 — — 162 
Adjusted revenues$803,065 $144,007 $— $947,072 
Income (loss) from operations$49,844 $(9,218)$(80,116)$(39,490)
Add (deduct):
Deferred revenue fair value adjustment162 — — 162 
Depreciation and amortization71,674 25,534 — 97,208 
Non-cash compensation expense35,889 8,378 18,316 62,583 
Restructuring charges and transaction costs18,109 2,014 7,144 27,267 
Severance4,909 1,492 4,978 11,379 
Litigation and regulatory related expenses— 5,333 — 5,333 
Non-income tax expense adjustment(52)(60)— (112)
Loss attributable to non-controlling interest1,637 — — 1,637 
Other352 2 — 354 
Adjusted EBITDA$182,524 $33,475 $(49,678)$166,321 

 Nine Months Ended September 30, 2021
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
 (in thousands)
Revenues$721,441 $145,455 $— $866,896 
Deferred revenue fair value adjustment227 — — 227 
Adjusted revenues$721,668 $145,455 $— $867,123 
Income (loss) from operations$101,042 $3,896 $(63,057)$41,881 
Add (deduct):
Deferred revenue fair value adjustment227 — — 227 
Depreciation and amortization67,283 20,969 — 88,252 
Non-cash compensation expense27,080 9,691 13,536 50,307 
Restructuring charges and transaction costs8,049 119 3,047 11,215 
Severance4,134 3,634 2,730 10,498 
Accretion on contingent consideration and purchase liability572 84 — 656 
Fair market value adjustment on contingent consideration liability— (1,067)— (1,067)
Litigation and regulatory related expenses— 5,159 — 5,159 
Non-income tax expense adjustment(1,335)233 — (1,102)
Income attributable to non-controlling interest(554)— — (554)
Other41 — — 41 
Adjusted EBITDA$206,539 $42,718 $(43,744)$205,513 
59


Liquidity and Capital Resources
 
As of September 30, 2022,2023, we had total cash and cash equivalents of $241.3$43.2 million compared to $429.3$162.2 million as of December 31, 2021. We plan to use existing cash as2022. As of September 30, 2022,2023, we had $500.0 million available to borrow under the Revolving Credit Facility.

We believe our existing cash and cash equivalents and cash generated in the ongoing operations of our business and amounts under our revolving credit facilitywill be sufficient to fund our current operations, including capital expendituresexpenditure needs and possible acquisitions or other strategic activity, and to meet our debt service obligations.obligations, over the next twelve months and beyond. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to further borrow under our revolving credit facilityRevolving Credit Facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. As of September 30, 2022,

We will continue to actively manage our cash balances by making decisions regarding the amounts, timing and manner in which cash is generated and used in order to ensure we had $500.0 million availableare able to borrow undermeet our revolving credit facility, subject to covenant compliance.cash, capital and liquidity requirements and maintain operations for both the short and long term.

Cash Flows
 
The following table presents information regardinga summary of our cash flows and cash, cash equivalents and restricted cash for the periods indicated:flows:
 Nine Months Ended
 September 30,
 20222021
 (in thousands)
Net cash provided by operating activities$86,235 $169,974 
Net cash used in investing activities(226,755)(135,040)
Net cash used in financing activities(44,450)(25,156)
Effect of exchange rate on changes on cash(3,128)(544)
Net increase (decrease) in cash, cash equivalents and restricted cash(188,098)9,234 
Cash, cash equivalents and restricted cash, end of period241,330 393,948 

 Nine Months Ended
 September 30,
 20232022
 (in thousands)
Net cash provided by operating activities$79,277 $86,235 
Net cash used in investing activities(125,167)(226,755)
Net cash used in financing activities(76,969)(44,450)
Effect of exchange rate on changes on cash3,897 (3,128)
Net change in cash, cash equivalents and restricted cash$(118,962)$(188,098)
 
Operating Activities
 
Net cash provided by operating activities decreased $7.0 million for the nine months ended September 30, 2022 was $86.2 million2023 compared to net cash provided by operating activities of $170.0 million for the same period in 2021. The decrease wasnine months ended September 30, 2022 primarily due to a decrease of $13.9 million in pre-tax income period over periodcash provided by our business operations, partially offset by an increase of $76.3$6.9 million andin cash provided due to timing of payments within our working capital items.accounts. Our working capital is affected by the timing of payments related to several items, including but not limited to, employee incentives, income tax payments and cash collections from our clients. For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, the increase of $6.9 million in cash provided within our working capital accounts is primarily related to a $19.6 million decrease in accrued compensation and related taxes, which includes accrued incentive compensation, from December 31, 2021 to December 31, 2022 as a result of lower operating performance in 2022 compared to 2021, partially offset by an $8.9 million increase in fees receivable, net from December 31, 2022 to September 30, 2023 as a result of timing of cash collections from our clients, a $4.8 million increase in prepaid technology from December 31, 2021 to September 30, 2022 primarily a result of timing of payments for technology and other miscellaneous cash payment timing differences.

Investing Activities
 
Net cash used in investing activities decreased $101.6 million for the nine months ended September 30, 2022 was $226.8 million2023 compared to net cash used in investing activities of $135.0 million for the same period in 2021. The increase wasnine months ended September 30, 2022 primarily due to an increasecash used related to acquisition of businesses of $104.2 million during the nine months ended September 30, 2022, a decrease in cash disbursements for various acquisitions and investmentsrelated to investing in privately heldprivate companies of $78.8 million. Also contributing to this increase was an additional $18.7$12.2 million, of internally developed software costs capitalizeda decrease in 2022 as compared to the same period in 2021 and $6.4 millioncash related to theacquiring technology of $7.0 million and an issuance of notesnote receivable to equity method investees inof $6.4 million during the nine months ended September 30, 2022. Partially offsetting these increases was a decreaseThese decreases were partially offset by an increase in cash disbursements for proprietary technology assetsused related to an issuance of $10.5loan receivable to a private company of $20.0 million during the nine months ended September 30, 2023, an increase in cash used to purchase property and equipment of $5.2 million and an increase in capitalization of internally developed software of $3.4 million.
 
Financing Activities
 
Net cash used in financing activities increased $32.5 million for the nine months ended September 30, 2022 was $44.5 million2023 compared to net cash used in financing activities of $25.2 million for the same period in 2021,nine months ended September 30, 2022 primarily due to settling the remaining aggregate principal amount of $45.0


million on the Convertible Notes due 2023 during the nine months ended September 30, 2023, partially offset by a decrease in payments on finance lease paymentsobligations of $15.4$9.0 million in 2022, increased share repurchases of $7.1 million in the current year period and an additional $3.3 million ofa decrease in taxes paid on the vesting of restricted shares in 2022 as compared to the same period in 2021. These increases were partially offset by decreased contingent consideration paymentsstock-based compensation of $8.5$3.6 million.

Commitments and Off-Balance Sheet Arrangements
 
Purchase Obligations and Indemnifications
 
See “Part I, Item 1, Note 17—19—Commitments and Contingencies, Purchase Obligations and Indemnifications” and “Note 18—Subsequent Events, Entry into Outsourcing Arrangement” for purchase obligations and indemnifications details.Indemnifications.”

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Procurement of Technology Solutions

See “Part I, Item 1, Note 7—Goodwill and Intangible Assets, net, Procurement of Technology Solutions” and “Note 17—Commitments” for details related to these transactions.

Investment in Privately Held Companies

See “Part I, Item 1, Note 3— Acquisitions and Other Investments” for details related to these transactions.

Acquisition of Redi2 Technologies

See “Part I, Item 1, Note 3— Acquisitions and Other Investments”Acquisitions” for details related to this transaction.

Legal Proceedings
 
See “Part I, Item 1, Note 17—19—Commitments and Contingencies, Legal Proceedings” for legal proceedings details. 

Critical Accounting Policies and Estimates
 
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. “NoteSee "Note 2—Summary of Significant Accounting Policies”Policies" to the consolidated financial statements in our 20212022 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 20212022 Form 10-K include, but are not limited to, the discussion of estimates used for recognition of revenues, the determination of the period of benefit for deferred sales incentive commissions,revenue, impairment of goodwill and acquired intangible assets and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements, and actual results could differ materially from the amounts reported.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
There have been no material changes to our market, foreign currency or interest rate risks as discussed in Part II, Item 7A of our 20212022 Form 10-K.

Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2022.2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Based on their evaluation of our disclosure controls and procedures as of September 30, 2022,2023, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes to our internal control over financial reporting during the threenine months ended September 30, 2022,2023, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II — OTHER INFORMATION

Item 1. Legal Proceedings
 
The information in Part I, Note 17—19—Commitments and Contingencies, Legal Proceedings is incorporated herein by reference.

Item 1A. Risk Factors
 
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our 20212022 Form 10-K when making investment decisions regarding our securities. Other than as provided below, theThe risk factors that were disclosed in our 20212022 Form 10-K have not materially changed since the date our 20212022 Form 10-K was filed.

Our reliance on outsourcing arrangements subjects us to risk and may disrupt or adversely affect our operations.

We have entered into an agreement with Tata Consulting Services (“TCS”) pursuant to which we have outsourced certain development, engineering and back office functions of the Envestnet Data & Analytics business located in Bangalore, India to increase operations scale and business agility. Although we have service-level arrangements with TCS and a variety of contractual obligations and options designed to (a) monitor TCS’s performance and (b) incentivize a high level of performance by TCS, because we do not ultimately control its performance, our reliance on a third-party vendor could subject us to additional risk, including the loss of valuable intellectual property, data security issues and non-compliance with data protection and privacy laws. If TCS fails to perform as required or terminates our arrangements, we might not realize the expected financial and operational benefits of the outsourcing arrangement and may be required to pursue new third-party relationships, which could significantly disrupt Envestnet Data & Analytics’ operations and adversely affect our business, financial condition, and results of operations. We may also be unable to establish comparable new vendor relationships on as favorable terms or at all. Even if we are able to obtain replacement services in these scenarios, there may be a disruption or delay in our ability to operate our Envestnet Data & Analytics business, and the replacement services might be more expensive than those we have currently. The process of transitioning services and data from one provider to another can be complicated, time consuming, expensive and may lead to significant disruptions in Envestnet Data & Analytics’ business and could adversely affect our business, financial condition, and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
(c)Issuer Purchases of Equity Securities
 
On February 25, 2016, we announced that our Board had authorized a share repurchase program under which we may repurchase up to 2.0 million shares of our common stock. There were no purchases of equity securities made under the share repurchase program in the threenine months ended September 30, 2022.2023. As of September 30, 2022,2023, there were 1.70.3 million shares that may yet be repurchased under the program.

The timing and volume of share repurchases will be determined by our management based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions. No time limit has been set for the completion of the repurchase program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other forward transactions or otherwise, all in compliance with applicable laws and other restrictions.

Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures
 
Not applicable.

Item 5. Other Information
 
None.

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Item 6. Exhibits
 
(a)Exhibits
 
See the exhibit index, which is incorporated herein by reference.
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INDEX TO EXHIBITS
Exhibit
No.		Description
10.1
10.2
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document *
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document *
101.LABInline XBRL Taxonomy Extension Label Linkbase Document *
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document *
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document *
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 


* The following materials are formatted in Inline XBRL (Extensible Business Reporting Language): (i) the cover page; (ii) the Condensed Consolidated Balance Sheets as of September 30, 20222023 and December 31, 2021;2022; (iii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20222023 and 2021;2022; (iv) the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 20222023 and 2021;2022; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 20222023 and 2021;2022; (vi) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20222023 and 2021;2022; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.



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GLOSSARY OF TERMS
The following abbreviations or acronyms used in this Form 10-Q are defined below:
Abbreviations or AcronymsDefinition
2010 Plan2010 Long-Term Incentive Plan
2019 Equity Plan2019 Acquisition Equity Incentive Plan
2022 Form 10-KForm 10-K for the year ended December 31, 2022
AETRAnnual effective tax rate.
ASCAccounting Standards Codification™
ASC 310 - ReceivablesAccounting Standards Codification Topic 310, Receivables
ASC 606Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers
ASC 740-270Accounting Standards Codification Topic 740, Income Taxes—Interim Reporting
ASUAccounting Standards Update
ASU 2021-08ASU Business Combinations (Topic 805): Accounting for Contract Assets and Contract
BoardBoard of Directors
Convertible Notes due 2023$345.0 million of aggregate principal amount of convertible notes issued in May 2018 with an interest rate of 1.75% per year that mature on June 1, 2023. During November 2022, the Company repurchased $300.0 million of the $345.0 million convertible notes resulting in a remaining aggregate principal amount of $45.0 million as of December 31, 2022.
Convertible Notes due 2025$517.5 million of aggregate principal amount of convertible notes issued in August 2020 with an interest rate of 0.75% per year that mature on August 15, 2025. During November 2022, the Company repurchased $200.0 million of the $517.5 million convertible notes resulting in a remaining aggregate principal amount of $317.5 million as of December 31, 2022.
Convertible Notes due 2027$575.0 million aggregate principal amount of convertible notes issued in November 2022 with an interest rate of 2.625% per year that mature on December 1, 2027
Convertible Promissory Note$20.0 million convertible promissory note issued in January 2023 with a customer of the Company's business, a privately held company
ETREffective tax rate
Exchange ActSecurities Exchange Act of 1934, as amended
FASBFinancial Accounting Standards Board
FinancialAppsFinancialApps, LLC
FinTechFinancial Technology
GAAPUnited States Generally Accepted Accounting Principles
IRC Section 174Internal Revenue Code of 1986, Section 174: Amortization of Research and Experimental Expenditures
Convertible NotesCollectively the Convertible Notes due 2023, Convertible Notes due 2025 and Convertible Notes due 2027
PSUPerformance-based restricted stock unit
Quarterly ReportForm 10-Q for the quarter ended September 30, 2023
R&DResearch and Development.
Redi2Redi2 Technologies Inc.
Redi2 acquisitionStock purchase agreement between Envestnet and Redi2 Technologies, dated as of June 24, 2022
Revolving Credit FacilityRevolving credit facility of $500.0 million pursuant to the Third Amended and Restated Credit Agreement
RIAsRegistered investment advisors
RSURestricted stock unit
SECSecurities and Exchange Commission
SOFRSecured Overnight Financing Rate
TCSTata Consultancy Services
U.S.United States
YodleeYodlee, Inc.


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 9, 2022.2023.
 
 ENVESTNET, INC.
   
 By:/s/ William C. Crager
  William C. Crager
  Chief Executive Officer
  Principal Executive Officer
   
 By:/s/ Peter H. D’Arrigo
  Peter H. D’Arrigo
  Chief Financial Officer
  Principal Financial Officer
   
 By:/s/ Matthew J. Majoros
  Matthew J. Majoros
  Senior Vice President, Financial Reporting
  Principal Accounting Officer
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