Envestnet Reports Third Quarter 2013 Financial Results

CHICAGO--(BUSINESS WIRE)-- Envestnet (NYSE:ENV), a leading provider of unified wealth management technology and services to financial advisors, today reported financial results for its third quarter ended September 30, 2013.

      Key Financial Metrics     Third Quarter   %       Year to Date   %  
  (in millions except per share data)     2013   2012   Change     2013   2012   Change  
   
Adjusted Revenues(1) $ 69.9 $ 42.7 64 % $ 168.3 $ 113.9 48 %
Adjusted EBITDA(1) $ 10.0 $ 6.4 58 % $ 27.6 $ 16.8 64 %
Adjusted Net Income per Share(1) $ 0.14 $ 0.09 56 % $ 0.39 $ 0.22 77 %
 

Financial Results for the Third Quarter of 2013 Compared to the Third Quarter of 2012:

  • Adjusted Revenues(1) increased 64% to $69.9 million for the third quarter of 2013 from $42.7 million for the third quarter of 2012.
  • Revenues from assets under management (AUM) or assets under administration (AUA) increased 79% to $59.6 million for the third quarter of 2013 from $33.2 million for the third quarter of 2012; total revenues, which include licensing and professional services fees, increased 65% to $69.9 million for the third quarter of 2013 from $42.3 million for the third quarter of 2012.
  • Adjusted EBITDA(1) increased 58% to $10.0 million for the third quarter of 2013 compared to $6.4 million for the third quarter of 2012.
  • Adjusted Net Income(1) was $5.1 million, or $0.14 per diluted share, for the third quarter of 2013 compared to $2.9 million, or $0.09 per diluted share, for the third quarter of 2012.
  • Net income was $1.3 million, or $0.04 per diluted share, for the third quarter of 2013 compared to $0.6 million, or $0.02 per diluted share, for the third quarter of 2012.

“We believe Envestnet is uniquely positioned to lead, and benefit from, the transformation of wealth management as we unify the process for advisors, empowering them to deliver better outcomes in portfolio and practice management,” said Jud Bergman, Chairman and CEO.

“Our third quarter financial performance reflects the ongoing strength in our core business, as we continued to add advisors, accounts and assets to the platform. We remain on track to deliver strong growth in revenue and adjusted EBITDA compared to last year,” concluded Mr. Bergman.

Key Operating Metrics as of and for the Quarter Ended September 30, 2013:

  • AUM/A of $160.2 billion, up 71% from September 30, 2012
  • Accounts (AUM/A only) of 657,109, up 54% from September 30, 2012
  • Advisors (AUM/A only) served totaled 21,759, up 38% from September 30, 2012
  • Gross sales of AUM/A of $15.3 billion, resulting in net flows of $5.8 billion

The following table summarizes the changes in AUM and AUA for the quarter ended September 30, 2013:

In Millions Except Account Data     6/30/13   WMS  

Gross

Sales

 

Redemp-

tions

 

Net

Flows

 

Market

Impact

  9/30/13
   
Assets under Management (AUM) $ 38,705 $ - $ 4,437 $ (2,715 ) $ 1,722 $ 1,505 $ 41,932
Assets under Administration (AUA)   85,601   24,680   10,841     (6,796 )     4,045   3,902   118,228
Total AUM/A $ 124,306 $ 24,680 $ 15,278   $ (9,511 )   $ 5,767 $ 5,407 $ 160,160
Fee-Based Accounts 548,166 86,014 53,804 (30,875 ) 22,929 657,109
 

During the third quarter, the Company added $3.1 billion of conversions included in the above AUM/A gross sales figures, and an additional $4.0 billion of conversions in Licensing.

Review of Third Quarter 2013 Financial Results

Adjusted revenues increased 64% to $69.9 million for the third quarter of 2013 from $42.7 million for the third quarter of 2012. The increase was primarily due to a 79% increase in revenues from AUM or AUA to $59.6 million from $33.2 million in the prior year period. Revenue from Prudential’s Wealth Management Solutions (“WMS”) business, acquired by the Company, is included for the entire third quarter of 2013.

Total operating expenses in the third quarter of 2013 increased 65% to $68.1 million from $41.4 million in the prior year period. Cost of revenues increased 100% to $30.2 million in the third quarter of 2013 from $15.1 million in the third quarter of 2012 due to the increase in revenue from AUM or AUA and additional cost from WMS. Compensation and benefits increased 38% to $21.1 million in the third quarter of 2013 from $15.3 million in the prior year period due to higher personnel cost from WMS, as well as higher non-cash compensation expense. General and administration expenses increased 57% to $12.0 million in the third quarter of 2013 from $7.6 million in the prior year period primarily due to WMS.

Income from operations was $1.7 million for the third quarter of 2013 compared to $0.9 million for the third quarter of 2012. Net income was $1.3 million, or $0.04 per diluted share, for the third quarter of 2013 compared to $0.6 million, or $0.02 per diluted share, for the third quarter of 2012. Adjusted EBITDA(1) in the third quarter of 2013 was $10.0 million, compared to $6.4 million in the prior year period. Adjusted Net Income(1) was $5.1 million, compared to $2.9 million in the third quarter of 2012. Adjusted Net Income Per Share(1) was $0.14 per diluted share, compared to $0.09 per diluted share in the third quarter of 2012.

At September 30, 2013, the Company had $36.7 million in cash and cash equivalents with no debt.

Conference Call

The Company will host a conference call to discuss third quarter 2013 financial results today at 5:00 p.m. ET. The live webcast can be accessed from the Company's investor relations website at http://ir.envestnet.com/. The conference call can also be accessed live over the phone by dialing (877) 741-4253, or (719) 325-4876 for international callers. A replay will be available beginning one hour after the call and can be accessed from the Company’s investor relations website, or by dialing (877) 870-5176 or (858) 384-5517 for international callers; the conference ID is 1958568. The dial-in replay will be available for one week and the webcast replay will be available for one month following the date of the conference call.

About Envestnet

Envestnet, Inc. (NYSE:ENV) is a leading provider of unified wealth management technology and services to investment advisors. Our open-architecture platforms unify and fortify the wealth management process, delivering unparalleled flexibility, accuracy, performance and value. Envestnet solutions enable the transformation of wealth management into a transparent, objective, independent and fully-aligned standard of care, and empower advisors to deliver better results.

Envestnet's Advisor Suite® software empowers financial advisors to better manage client outcomes and strengthen their practice. Envestnet provides institutional-quality research and advanced portfolio solutions through our Portfolio Management Consultants group, Envestnet | PMC®. Envestnet | Tamarac™ provides leading rebalancing, reporting and practice management software. For more information on Envestnet, please visit www.envestnet.com.

(1) Non-GAAP Financial Measures

“Adjusted revenues” exclude the effect of purchase accounting on the fair value of acquired deferred revenue. Under GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the full amount of revenue that would have been recorded by these entities had they remained stand-alone entities.

“Adjusted EBITDA” represents net income before deferred revenue fair value adjustment, interest income, interest expense, income tax provision, depreciation and amortization, non-cash compensation expense, restructuring charges and transaction costs, re-audit related expenses, severance, imputed interest on contingent consideration liability and litigation related expense.

“Adjusted net income” represents net income before deferred revenue fair value adjustment, non-cash compensation expense, restructuring charges and transaction costs, re-audit related expenses, severance, amortization of acquired intangibles, imputed interest on contingent consideration liability and litigation related expense. Reconciling items are tax effected using the income tax rates in effect on the applicable date.

“Adjusted net income per share” represents adjusted net income divided by the diluted number of weighted-average shares outstanding.

See reconciliation of Non-GAAP Financial Measures at the end of this press release. These measures should not be viewed as a substitute for revenues or net income determined in accordance with United States generally accepted accounting principles (GAAP).

Cautionary Statement Regarding Forward-Looking Statements

The forward-looking statements made in this press release and its attachments concerning, among other things, Envestnet, Inc.’s (the “Company”) expected financial performance and outlook, its strategic operational plans and growth strategy are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties and the Company’s actual results could differ materially from the results expressed or implied by such forward-looking statements. Furthermore, reported results should not be considered as an indication of future performance. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this press release include, but are not limited to, difficulty in sustaining rapid revenue growth, which may place significant demands on the Company’s administrative, operational and financial resources, fluctuations in the Company’s revenue, the concentration of nearly all of the Company’s revenues from the delivery of investment solutions and services to clients in the financial advisory industry, the Company’s reliance on a limited number of clients for a material portion of its revenue, the renegotiation of fee percentages or termination of the Company’s services by its clients, the Company’s ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies, the impact of market and economic conditions on the Company’s revenues, compliance failures, regulatory actions against the Company, the failure to protect the Company’s intellectual property rights, the Company’s inability to successfully execute the conversion of its clients’ assets from their technology platform to the Company’s technology platform in a timely and accurate manner, general economic conditions, changes to the Company’s previously reported financial information as a result of audit, political and regulatory conditions, as well as management’s response to these factors. More information regarding these and other risks, uncertainties and factors is contained in the Company’s filings with the Securities and Exchange Commission (“SEC”) which are available on the SEC’s website at www.sec.gov or the Company’s Investor Relations website at http://ir.envestnet.com/. You are cautioned not to unduly rely on these forward-looking statements, which speak only as of the date of this press release. All information in this press release and its attachments is as of November 6, 2013 and, unless required by law, the Company undertakes no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this press release or to report the occurrence of unanticipated events.

 
 
Envestnet, Inc.
Condensed Consolidated Balance Sheets
(In thousands, unaudited)
         
September 30, December 31,
2013 2012
Assets
Current assets:
Cash and cash equivalents $ 36,683 $ 29,983
Fees receivable, net 18,634 9,188
Deferred tax assets, net 2,716 2,089
Prepaid expenses and other current assets   8,198   2,501
Total current assets   66,231   43,761
 
Property and equipment, net 12,493 11,791
Internally developed software, net 5,352 4,324
Intangible assets, net 38,348 27,150
Goodwill 74,335 65,644
Deferred tax assets, net 6,942 6,194
Other non-current assets   4,800   3,535
Total assets $ 208,501 $ 162,399
 
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses $ 30,405 $ 20,201
Accounts payable 4,505 2,614
Contingent consideration liability 5,591 -
Deferred revenue   6,522   5,768
Total current liabilities   47,023   28,583
 
Contingent consideration liability 10,539 -
Deferred rent liability 1,916 2,195
Lease incentive liability 3,381 3,886
Other non-current liabilities   2,683   1,739
Total liabilities 65,542 36,403
 
Stockholders' equity   142,959   125,996
Total liabilities and stockholders' equity $ 208,501 $ 162,399
 
 
Envestnet, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share information)
(Unaudited)
           
Three Months Ended Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
 
Revenues:
Assets under management or administration $ 59,580 $ 33,223 $ 137,150 $ 92,498
Licensing and professional services   10,300   9,060   30,987   20,389  
Total revenues   69,880   42,283   168,137   112,887  
 
Operating expenses:
Cost of revenues 30,154 15,088 66,600 40,163
Compensation and benefits 21,063 15,261 55,475 40,031
General and administration 11,985 7,621 30,840 22,542
Depreciation and amortization 4,467 3,393 10,666 9,016
Restructuring charges   474   -   474   115  
Total operating expenses   68,143   41,363   164,055   111,867  
 
Income from operations 1,737 920 4,082 1,020
 
Other income (expense):
Interest income 4 3 13 26
Interest expense - - - (3 )
Other income   -   -   182   -  
Total other income   4   3   195   23  
 
Income before income tax provision 1,741 923 4,277 1,043
 
Income tax provision   435   372   1,312   420  
 
Net income $ 1,306 $ 551 $ 2,965 $ 623  
 
 
Net income per share:
Basic $ 0.04 $ 0.02 $ 0.09 $ 0.02  
 
Diluted $ 0.04 $ 0.02 $ 0.08 $ 0.02  
 
Weighted average common shares outstanding:
Basic   33,686,112   32,296,636   32,912,084   32,102,386  
 
Diluted   35,871,975   33,358,706   35,260,044   33,179,044  
 
 
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
         
Nine Months Ended
September 30,

       2013       

        2012       

 
OPERATING ACTIVITIES:
Net income $ 2,965 $ 623

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 10,666 9,016
Deferred rent and lease incentive (784 ) 1,366
Provision for doubtful accounts 153 -
Deferred income taxes (1,375 ) (562 )
Stock-based compensation 6,281 3,125
Excess tax benefits from stock-based compensation (2,704 ) -
Interest expense 392 3
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable (8,302 ) (487 )
Prepaid expenses and other current assets (2,993 ) 3,084
Other non-current assets (1,265 ) (190 )
Accrued expenses 7,946 1,791
Accounts payable 1,891 545
Deferred revenue 754 600
Other non-current liabilities   960     179  
Net cash provided by operating activities   14,585     19,093  
 
INVESTING ACTIVITIES:
Purchase of property and equipment (4,301 ) (4,098 )
Capitalization of internally developed software (2,293 ) (1,698 )
Repayment of notes payable assumed in acquisition - (174 )
Acquisition of business, net of cash acquired   (8,992 )   (61,463 )
Net cash used in investing activities   (15,586 )   (67,433 )
 
FINANCING ACTIVITIES:
Proceeds from exercise of warrants 4 -
Proceeds from exercise of stock options 5,578 1,927
Issuance of restricted stock 1 2,759
Excess tax benefits from stock-based compensation 2,704 -
Purchase of treasury stock   (586 )   (122 )
Net cash provided by financing activities   7,701     4,564  
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   6,700     (43,776 )
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 29,983 64,909
   
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 36,683   $ 21,133  
 
 
Envestnet, Inc.
Reconciliation of Non-GAAP Financial Measures
(in thousands, except share and per share information, unaudited)
             
Three Months Ended Nine Months Ended
September 30, September 30,
2013 2012 2013 2012
 
Revenues $ 69,880 $ 42,283 $ 168,137 $ 112,887
Deferred revenue fair value adjustment   -     401     160     1,018  
Adjusted revenues $ 69,880   $ 42,684   $ 168,297   $ 113,905  
 
Net income $ 1,306 $ 551 $ 2,965 $ 623
Add (deduct):
Deferred revenue fair value adjustment - 401 160 1,018
Interest income (4 ) (3 ) (13 ) (26 )
Interest expense - - - 3
Income tax provision 435 372 1,312 420
Depreciation and amortization 4,467 3,393 10,666 9,016
Non-cash compensation expense 2,015 1,195 6,462 3,125
Restructuring charges and transaction costs 1,119 215 2,173 2,212
Re-audit related expenses 118 - 3,005 -
Severance 193 146 425 229
Imputed interest expense 392 - 392 -
Litigation related expense   -     92     7     150  
Adjusted EBITDA $ 10,041   $ 6,362   $ 27,554   $ 16,770  
 
Net income $ 1,306 $ 551 $ 2,965 $ 623
Add:
Deferred revenue fair value adjustment - 240 93 609
Non-cash compensation expense 1,169 714 3,748 1,868
Restructuring charges and transaction costs 648 129 1,260 1,322
Re-audit related expenses 68 - 1,742 -
Severance 112 87 247 137
Amortization of acquired intangibles 1,537 1,077 3,366 2,633
Imputed interest expense 228 - 228 -
Litigation related expense   -     55     4     90  
Adjusted net income $ 5,068   $ 2,853   $ 13,653   $ 7,282  
 
Diluted number of weighted-average shares outstanding   35,871,975     33,358,706     35,260,044     33,179,044  
 
Adjusted net income per share - diluted $ 0.14   $ 0.09   $ 0.39   $ 0.22  
 
Note: Adjustments to net income are tax effected using an income tax rate of 42.0% for 2013 and 40.2% for 2012.
 
 
Envestnet, Inc.
Historical Assets, Accounts and Advisors
(in millions, except account and advisor data; unaudited)
                       
  As of  
 

September 30,
2012

   

December 31,
2012

   

March 31,
2013

   

June 30,
2013

   

September 30,
2013

 
 
Platform Assets
Assets Under Management (AUM) $ 29,232 $ 30,970 $ 34,870 $ 38,705 $

41,932

Assets Under Administration (AUA)     64,229       67,368       74,839       85,601      

118,228

 
Subtotal AUM/A 93,461 98,338 109,709 124,306 160,160
Licensing     254,256       269,729       295,330       302,604       326,567  
Total Platform Assets   $ 347,717     $ 368,067     $ 405,039     $ 426,910     $ 486,727  
 
Platform Accounts
AUM 148,920 156,327 167,167 190,883

200,648

AUA     278,192       293,151       311,884       357,283      

456,461

 
Subtotal AUM/A 427,112 449,478 479,051 548,166 657,109
Licensing     1,170,978       1,228,016       1,289,491       1,365,773       1,425,102  
Total Platform Accounts     1,598,090       1,677,494       1,768,542       1,913,939       2,082,211  
 
Advisors
AUM/A 15,735 16,085 16,419 18,154 21,759
Licensing     6,878       6,941       6,970       7,261       7,511  
Total Advisors     22,613       23,026       23,389       25,415       29,270  
 
Note: AUM/A metrics include WMS, which added approximately $25 billion in assets, 86,000 accounts and 3,100 advisors as of July 1, 2013.
 

Envestnet
Investor Relations
investor.relations@envestnet.com
312-827-3940
or
Media Relations
mediarelations@envestnet.com

Source: Envestnet