Envestnet Reports Fourth Quarter 2020 Financial Results

Envestnet Sees Large Opportunity to Enable The Intelligent Financial LifeTM

CHICAGO--(BUSINESS WIRE)-- Envestnet (NYSE: ENV), a leading provider of intelligent systems for wealth management and financial wellness, today reported financial results for its quarter and year ended December 31, 2020.

“Fourth quarter results were strong, with revenue, adjusted EBITDA and adjusted earnings per share exceeding our expectations,” said Bill Crager, Chief Executive Officer.

“We enter 2021 with an expanded strategic purpose, and a bold investment plan to capture the sizable opportunity before us, as we work to make financial wellness a reality for everyone.” concluded Mr. Crager.

Financial Results for the Fourth Quarter of 2020 Compared to the Fourth Quarter of 2019:

Total revenues increased 10% to $263.8 million for the fourth quarter of 2020 from $239.9 million for the fourth quarter of 2019. Asset-based recurring revenues increased 14% from the prior year period, and represented 55% of total revenues for the fourth quarter of 2020, compared to 54% of total revenues for the same period in 2019. Subscription-based recurring revenues increased 6% from the prior year period, and represented 41% of total revenues for the fourth quarter of 2020, compared to 43% of total revenues for the same period in 2019. Professional services and other non-recurring revenues increased 3% from the prior year period.

Total operating expenses for the fourth quarter of 2020 increased 11% to $252.4 million from $226.9 million in the prior year period. Cost of revenues increased 14% to $83.6 million for the fourth quarter of 2020 from $73.2 million for the fourth quarter of 2019. Compensation and benefits increased 1% to $98.5 million for the fourth quarter of 2020 from $98.0 million for the prior year period. Compensation and benefits were 37% of total revenues for the fourth quarter of 2020, compared to 41% in the prior year period. General and administration expenses increased 51% to $41.7 million for the fourth quarter of 2020 from $27.6 million for the prior year period. General and administration expenses were 16% of total revenues for the fourth quarter of 2020, compared to 12% in the prior year period.

Income from operations was $11.4 million for the fourth quarter of 2020 compared to income from operations of $13.0 million for the fourth quarter of 2019. Net income attributable to Envestnet, Inc. was $7.2 million, or $0.13 per diluted share, for the fourth quarter of 2020 compared to net income of $3.6 million, or $0.07 per diluted share, for the fourth quarter of 2019.

Adjusted revenues⁽¹⁾ for the fourth quarter of 2020 increased 9% to $263.9 million from $242.5 million for the prior year period. Adjusted EBITDA⁽¹⁾ for the fourth quarter of 2020 increased 6% to $65.0 million from $61.5 million for the prior year period. Adjusted Net Income⁽¹⁾ for the fourth quarter of 2020 increased 3% to $38.3 million from $37.1 million for the prior year period. Adjusted Net Income per Diluted Share⁽¹⁾ for the fourth quarter of 2020 was $0.69, consistent with the fourth quarter of 2019.

Financial Results for the Full Year of 2020 Compared to the Full Year of 2019:

Total revenues increased 11% to $998.2 million for the year ended December 31, 2020 from $900.1 million for the year ended December 31, 2019. Asset-based recurring revenues increased 12% from the prior year period, and represented 54% of total revenues for the year ended December 31, 2020 consistent with the fourth quarter of 2019. Subscription-based revenues increased 13% from the prior year period, and represented 43% of total revenues for the year ended December 31, 2020 compared to 42% of total revenues for the same period in 2019. Professional services and other non-recurring revenues decreased 17% from the prior year period.

Total operating expenses for the year ended December 31, 2020 increased 7% to $978.8 million from $916.2 million in the prior year period. Cost of revenues increased 10% to $305.9 million for the year ended December 31, 2020 from $278.8 million for the year ended December 31, 2019. Compensation and benefits increased 4% to $399.0 million for the year ended December 31, 2020 from $383.6 million for the prior year period. Compensation and benefits were 40% of total revenues for the year ended December 31, 2020, compared to 43% in the prior year period. General and administration expenses increased 5% to $160.2 million for the year ended December 31, 2020 from $152.6 million for the prior year period. General and administration expenses were 16% of total revenues for the year ended December 31, 2020, compared to 17% in the prior year period.

Income from operations was $19.4 million for the year ended December 31, 2020 compared to loss from operations of $16.1 million for the year ended December 31, 2019. Net loss attributable to Envestnet, Inc. was $3.1 million, or $0.06 per diluted share, for the year ended December 31, 2020 compared to net loss of $16.8 million, or $0.33 per diluted share, for the year ended December 31, 2019.

Adjusted revenues⁽¹⁾ for the year ended December 31, 2020 increased 10% to $998.9 million from $909.4 million for the prior year period. Adjusted EBITDA⁽¹⁾ for the year ended December 31, 2020 increased 26% to $242.9 million from $193.3 million for the prior year period. Adjusted Net Income⁽¹⁾ increased 25% for the year ended December 31, 2020 to $141.5 million from $113.4 million for the prior year period. Adjusted Net Income per Diluted Share⁽¹⁾ for the year ended December 31, 2020 increased 20% to $2.57 from $2.15 in the year ended December 31, 2019.

Outlook

Envestnet provided the following outlook for the first quarter ending March 31, 2021 and full year ending December 31, 2021. This outlook is based on the market value of assets on December 31, 2020. We caution that we cannot predict the market value of our assets on any future date. See “Cautionary Statement Regarding Forward-Looking Statements.”

Highlights:

• Envestnet to surpass $1 billion in revenue for the first time, expecting to grow 10.5% to 12% compared to 2020.

• Accelerated investments in Financial Wellness ecosystem to drive higher long-term growth, resulting in expected Adjusted EBITDA to be slightly down from 2020.

• Adjusted earnings per share negatively impacted by $0.20 in 2021 due to early adoption of new convertible debt accounting standard.

(a) The Company does not forecast net income and net income per diluted share due to the unpredictable nature of various items adjusted for non-GAAP disclosure purposes, including the periodic GAAP income tax provision.

Conference Call

Envestnet will host a conference call to discuss fourth quarter 2020 financial results today at 5:00 p.m. ET. The live webcast and accompanying presentation can be accessed from Envestnet’s investor relations website at http://ir.envestnet.com/. A replay of the webcast will be available on the investor relations website following the call.

About Envestnet

Envestnet, Inc. (NYSE: ENV) is transforming the way financial advice and wellness are delivered. Our mission is to empower advisors and financial service providers with innovative technology, solutions, and intelligence to make financial wellness a reality for everyone. Over 106,000 advisors and more than 5,100 companies including: 17 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs and hundreds of FinTech companies, leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients.

For more information on Envestnet, please visit www.envestnet.com and follow us on Twitter @ENVintel.

(1) Non-GAAP Financial Measures

“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. Under GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the full amount of revenue that would have been recorded by these entities had they remained stand‑alone entities. Adjusted revenues has limitations as a financial measure, should be considered as supplemental in nature and are not meant as a substitute for revenues prepared in accordance with GAAP.

“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, accretion on contingent consideration and purchase liability, income tax provision (benefit), depreciation and amortization, non‑cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration liability, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, non-recurring gains, loss allocation from equity method investments and (income) loss attributable to non‑controlling interest.

“Adjusted net income” represents net income before deferred revenue fair value adjustment, accretion on contingent consideration and purchase liability, non‑cash interest expense, non‑cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration liability, amortization of acquired intangibles, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, non-recurring gains, loss allocation 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 share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted‑average shares outstanding.

See reconciliation of Non-GAAP Financial Measures on pages 11-17 of this press release. Reconciliations are not provided for guidance on such measures as the Company is unable to predict the amounts to be adjusted, such as the GAAP tax provision. The Company’s Non-GAAP Financial Measures should not be viewed as a substitute for revenues, net income (loss) or net income (loss) per share determined in accordance with 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 expected financial performance and outlook for the first quarter and full year of 2021, 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, a pandemic or health crisis, including the COVID-19 pandemic, and its impact on the global economy and capital markets, as well as our products, clients, vendors and employees, and our results of operations, the full extent of which may be unknown; 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 internet services 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 condition and interest rates on the demand for our products and services and the value of assets under management or administration; our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients; risks associated with our international operations; the competitiveness of our solutions and services as compared to those of others; liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest; harm to our reputation; our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies; our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner; the failure to protect our intellectual property rights; our ability to introduce new solutions and services and enhancements; our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal information and potential liabilities for data security breaches; the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations on how we operate our business and the negative effects of failure to comply with these requirements; regulatory compliance failures; failure by our customers to obtain proper permissions or waivers for our use of disclosure of information; adverse judicial or regulatory proceedings against us; failure of our solutions, services or systems, or those of third parties on which we rely, to work properly; potential liability for use of inaccurate information by third parties provided by us; the occurrence of a deemed “change of control”; the uncertainty of the application and interpretation of certain tax laws; issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our existing stockholders; general economic conditions, 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. More information regarding these and other risks, uncertainties and factors is contained in our filings with the Securities and Exchange Commission (“SEC”) which are available on the SEC’s website at www.sec.gov or our 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 February 25, 2021 and, unless required by law, we undertake 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.

The following table reconciles cash, cash equivalents and restricted cash from the consolidated balance sheets to amounts reported in the consolidated statements of cash flows:

(a) For the three months ended December 31, 2020 and 2019, $85 and $2,599, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. For the years ended December 31, 2020 and 2019, $690 and $9,263, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. The remaining amounts for all periods were included within professional services and other revenues in the condensed consolidated statements of operations.

(b) Included within other expense, net in the condensed consolidated statements of operations.

(c) Included within general and administration expenses in the condensed consolidated statements of operations.

(d) For the three months ended December 31, 2020, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020, $59,637 was included in compensation and benefits and a fair value adjustment of $(2,524) was included in other expense, net in the condensed consolidated statements of operations. For the three months and year ended December 31, 2019, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations.

(e) For the three months ended December 31, 2020 and 2019, $4,121 and $(1,334), respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the three months ended December 31, 2020 and 2019, $833 and $689, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $15,606 and $14,415, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $3,597 and $11,343, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. The remaining amounts for the 2020 periods were included within other expense, net in the condensed consolidated statements of operations.

(f) Included within compensation and benefits in the condensed consolidated statements of operations.

(a) For the three months ended December 31, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled (213.5)% and 17.0%, respectively. For the year ended December 31, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled 67.1% and 64.2%, respectively.

(b) For the three months ended December 31, 2020 and 2019, $85 and $2,599, respectively, were included within subscription-based revenues, in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $690 and $9,263, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. The remaining amounts for all periods were included within professional services and other revenues in the condensed consolidated statements of operations.

(c) Included within other expense, net in the condensed consolidated statements of operations.

(d) Included within general and administration expenses in the condensed consolidated statements of operations.

(e) For the three months ended December 31, 2020 and 2019, $4,121 and $345, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the three months ended December 31, 2020 and 2019, $833 and $689, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $15,606 and $14,416, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $3,597 and $11,343, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. The remaining amounts for the 2020 periods were included within other expense, net in the condensed consolidated statements of operations.

(f) For the three months ended December 31, 2020, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020, $59,637 included in compensation and benefits and a fair value adjustment of $(2,524) was included in other expense, net, in the condensed consolidated statements of operations. For the three months and year ended December 31, 2019, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations.

(g) Included within compensation and benefits in the condensed consolidated statements of operations.

(h) Included within depreciation and amortization in the condensed consolidated statements of operations.

(i) An estimated normalized effective tax rate of 25.5% have been used to compute adjusted net income for the three months and year ended December 31, 2020 and 2019.

(a) Included within subscription-based revenues in the condensed consolidated statements of operations.

(b) Included within general and administration expenses in the condensed consolidated statements of operations.

(c) Included within compensation and benefits in the condensed consolidated statements of operations.

(d) $4,121 included within general and administration expenses, $833 included within compensation and benefits and $(32) included within other expense, net in the condensed consolidated statements of operations.