Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

For the quarterly period ended September 30, 2013

 

 

Commission file number 001-34835

 

 

Envestnet, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code:

(312) 827-2800

 

 

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 o  No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x

 

As of November 1, 2013, 33,799,964 shares of the common stock with a par value of $0.005 per share were outstanding.

 

 

Table of Contents

 

TABLE OF CONTENTS

 

		Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012		3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012		4
Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2013		5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Forward-Looking Statements		19
Overview		20
Results of Operations		23
Liquidity and Capital Resources		30
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings		35
Item 1A. Risk Factors		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		35
Item 6. Exhibits		35

 

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Envestnet, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share information)

(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
Commitments and contingencies
Stockholders’ equity
Common stock, par value $0.005, 500,000,000 shares authorized; 45,510,657 and 44,071,564 shares issued as of September 30, 2013 and December 31, 2012, respectively; 33,758,951 and 32,355,675 shares outstanding as of September 30, 2013 and December 31, 2012, respectively		228			220
Additional paid-in capital		188,187			173,611
Accumulated deficit		(34,312		)	(37,277		)
Treasury stock at cost, 11,751,706 and 11,715,889 shares as of September 30, 2013 and December 31, 2012, respectively		(11,144		)	(10,558		)
Total stockholders’ equity		142,959			125,996
Total liabilities and stockholders’ equity		$	208,501		$	162,399

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

 

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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

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

 

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Envestnet, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(In thousands, except share information)

(Unaudited)

 

		Common Stock					Treasury Stock					Additional						Total
		Shares		Amount			Common  Shares		Amount			Paid-in  Capital			Accumulated  deficit			Stockholders’ Equity
Balance, December 31, 2012		44,071,564		$	220		(11,715,889	)	$	(10,558	)	$	173,611		$	(37,277	)	$	125,996
Exercise of stock options		606,227		3			—		—			5,575			—			5,578
Issuance of common stock - vesting of restricted stock		70,964		1			—		—			—			—			1
Exercise of warrants		761,902		4			—		—			—			—			4
Stock-based compensation		—		—			—		—			6,281			—			6,281
Tax benefit attributable to exercise of stock options		—		—			—		—			2,704			—			2,704
Reversal of state uncertain tax position		—		—			—		—			16			—			16
Purchase of treasury stock (at cost)		—		—			(35,817	)	(586		)	—			—			(586		)
Net income		—		—			—		—			—			2,965			2,965
Balance, September 30, 2013		45,510,657		$	228		(11,751,706	)	$	(11,144	)	$	188,187		$	(34,312	)	$	142,959

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

 

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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 businesses, 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
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes, net of refunds		$	4,389		$	604
Supplemental disclosure of non-cash investing and financing activities:
Leasehold improvements funded by lease incentive		—			1,054
Contigent consideration liability issued in acquisition of business		15,738			—

 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

 

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1.                       Organization and Description of Business

 

Envestnet, Inc. (“Envestnet”) and its subsidiaries (collectively, the “Company”) provides open-architecture wealth management services and technology to independent financial advisors and financial institutions. These services and related technology are provided via the Envestnet Advisor Suite®, Envestnet | PMC®, Envestnet | Vantage®, and Envestnet | TamaracTM.

 

Advisor Suite is a platform of integrated, internet-based technology applications and related services that provide portfolio diagnostics, proposal generation, investment model management, rebalancing and trading, portfolio performance reporting and monitoring solutions, billing, and back-office and middle-office operations and administration.

 

The Company’s investment consulting group, Envestnet | PMC, provides investment manager due diligence and research, a full spectrum of investment offerings supported by both proprietary and third-party research, and overlay portfolio management services.

 

Envestnet | Tamarac provides leading portfolio accounting, rebalancing, trading, performance reporting and client relationship management software, principally to high-end Registered Investment Advisors (“RIAs”).

 

Through these platform and service offerings, the Company provides open-architecture support for a wide range of investment products (separately managed accounts, multi-manager accounts, mutual funds, exchange-traded funds, stock baskets, alternative investments, and other fee-based investment solutions) from Envestnet | PMC and other leading investment providers via multiple custodians, and also account administration and reporting services.

 

Envestnet operates four RIAs and a registered broker-dealer. The RIAs are registered as investment advisors with the Securities and Exchange Commission (“SEC”). The broker-dealer is registered as a broker-dealer with the SEC, all 50 states and the District of Columbia and is a member of the Financial Industry Regulatory Authority (“FINRA”).

 

2.                       Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements 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, 2013 and the results of operations, stockholders’ equity and cash flows for the periods presented herein. The unaudited condensed consolidated balance sheet as of December 31, 2012 was derived from the Company’s audited financial statements for the year ended December 31, 2012 but does not include all disclosures, including notes required by accounting principles generally accepted in the United States of America (“GAAP”). The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year. Dollar amounts contained in these unaudited condensed consolidated financial statements are in thousands, except share and per share amounts.

 

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. 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 filed for the year ended December 31, 2012.

 

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions related to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with GAAP. Significant areas requiring the use of management estimates relate to estimating uncollectible receivables, revenue recognition, costs capitalized for internally developed software, valuations and assumptions used for impairment testing of goodwill, intangible and other long-lived assets, fair value of stock options issued, realization of deferred tax assets and assumptions used to allocate purchase prices in business combinations. Actual results could differ materially from these estimates under different assumptions or conditions.

 

Segments — The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis. Historically, the Company has determined that it has a single reporting segment and operating unit structure. As a result of the acquisition as discussed in Note 3, the Company has re-examined its reporting and operating structure and has determined it continues to maintain a single reporting segment and operating unit structure.

 

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

Prepaid expenses and other current assets — Federal and state income tax receivables of $5,375 and $186 are included in the prepaid expenses and other current asset amounts reported in the condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, respectively.

 

3.                       Business Acquisitions

 

Acquisition of Wealth Management Solutions

 

On July 1, 2013, the Company completed the acquisition of the Wealth Management Solutions (“WMS”) division of Prudential Investments.  In accordance with the purchase agreement, the Company acquired substantially all of the assets and assumed certain liabilities of WMS for total consideration of $24,730.  WMS is a provider of technology solutions that enables financial services firms to develop and enhance their wealth management offerings.  The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place.  The goodwill recognized is deductible for income tax purposes.

 

The consideration in the acquisition was as follows:

 

Cash consideration		$	8,992
Contingent consideration		15,738
Total estimated fair value of consideration		$	24,730

 

In connection with the acquisition of WMS, the Company is required to pay Prudential Investments, contingent consideration of up to a total of $23,000 in cash, based upon meeting certain performance targets. The Company has recorded a liability as of the date of acquisition of $15,738, which represents the estimated fair value of contingent consideration on the date of acquisition and is considered a Level 3 fair value measurement as described in Note 8.  This amount is the present value of an undiscounted liability of $19,043, applying a discount rate of 10%.  Payments will be made at the end of three twelve month closing periods.  The future undiscounted payments are anticipated to be $6,000 on July 31, 2014, $6,434 on July 31, 2015 and $6,609 on July 31, 2016.  The final future payments may be greater or lower than these amounts, based upon the attainment of performance targets.  Changes to the estimated fair value of the contingent consideration will be recognized in earnings of the Company.

 

During the three months ended September 30, 2013, the Company recognized imputed interest expense on contingent consideration of $392, which is included in general and administration expense in the condensed consolidated statement of operations.

 

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

 

Total tangible assets acquired		$	1,296
Total liabilities assumed		(2,257		)
Identifiable intangible assets:
Customer list		14,000
Proprietary technology		3,000
Goodwill		8,691
Total net assets acquired		$	24,730

 

The estimated fair value of the intangible assets is provisional and is based on the information that was available as of the acquisition date to estimate the fair value of these amounts. The Company believes the 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 value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of intangible assets, and complete the acquisition accounting as soon as practicable but no later than December 31, 2013.

 

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

 

					Weighted Average
					Useful Life		Amortization
		Amount			in Years		Method
Customer list		$	14,000		12		Accelerated
Proprietary technology		3,000			1.5		Accelerated
Total		$	17,000

 

The results of WMS operations are included in the condensed consolidated statement of operations beginning July 1, 2013.  WMS’s revenues and net loss for the three and nine month periods ended September 30, 2013 totaled $16,130 and $392, respectively.  The net loss includes acquired intangible asset amortization of $1,082 and imputed interest expense on contingent consideration of $392.

 

For the three and nine months ended September 30, 2013, acquisition related costs for WMS totaled $197 and $844, respectively, and are included in general and administration expenses. The Company may incur additional WMS acquisition related costs during the fourth quarter of 2013.

 

Pro forma results for Envestnet, Inc. giving effect to the Prima Capital Holding, Inc., Tamarac, Inc. and WMS acquisitions

 

The following pro forma financial information presents the combined results of operations of Envestnet, Prima Capital Holding, Inc. (“Prima”), acquired on April 1, 2012, Tamarac, Inc. (“Tamarac”), acquired on May 1, 2012, and WMS, acquired on July 1, 2013, for the three and nine months ended September 30, 2012 and the nine months ended September 30, 2013. The pro forma financial information presents the results as if the acquisitions had occurred as of the beginning of 2012.

 

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

The unaudited pro forma results presented include amortization charges for acquired intangible assets, the elimination of intercompany transactions, restructuring charges, unrealized gain or loss on warrant and imputed interest expense, stock-based compensation expense and the related tax effect on the aforementioned items.

 

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2012.

 

		Three Months Ended			Nine Months Ended			Nine Months Ended
		September 30,			September 30,			September 30,
		2012			2013			2012
Revenue		$	57,342		$	200,585		$	164,024
Net loss		(3,005		)	(9,593		)	(13,700		)
Net loss per share:
Basic		(0.09		)	(0.29		)	(0.43		)
Diluted		(0.09		)	(0.29		)	(0.43		)

 

4.                       Property and Equipment

 

				September 30,			December 31,
		Estimated Useful Life		2013			2012
Cost:
Office furniture and fixtures		5-7 years		$	3,884		$	3,613
Computer equipment and software		3 years		26,000			22,098
Other office equipment		5 years		598			598
Leasehold improvements		Shorter of the term of the lease or useful life of the asset		7,766			7,638
				38,248			33,947
Less accumulated depreciation and amortization				(25,755		)	(22,156		)
Property and equipment, net				$	12,493		$	11,791

 

Depreciation and amortization expense was as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Depreciation and amortization expense		$	1,381		$	1,182		$	3,599		$	3,442

 

5.                       Internally Developed Software

 

Internally developed software consists of the following:

 

				September 30,			December 31,
		Estimated Useful Life		2013			2012
Internally developed software		5 years		$	15,525		$	13,232
Less accumulated amortization				(10,173		)	(8,908		)
Internally developed software, net				$	5,352		$	4,324

 

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Amortization expense was as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Amortization expense		$	436		$	409		$	1,265		$	1,169

 

6.                       Goodwill and Intangible Assets

 

Changes in the carrying amount of the Company’s goodwill were as follows:

 

Balance at December 31, 2012		$	65,644
WMS acquisition		8,691
Balance at September 30, 2013		$	74,335

 

Intangible assets consist of the following:

 

				September 30, 2013									December 31, 2012
				Gross						Net			Gross						Net
				Carrying			Accumulated			Carrying			Carrying			Accumulated			Carrying
		Useful Life		Amount			Amortization			Amount			Amount			Amortization			Amount
Customer lists		4 - 12 years		$	42,103		$	(12,858	)	29,245			$	28,103		$	(8,720	)	$	19,383
Proprietary technology		1.5 - 8 years		9,580			(1,987		)	7,593			6,580			(657		)	5,923
Trade names		5 years		2,090			(580		)	1,510			2,090			(246		)	1,844
Total intangible assets				$	53,773		$	(15,425	)	$	38,348		$	36,773		$	(9,623	)	$	27,150

 

Amortization expense was as follows:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Amortization expense		$	2,650		$	1,802		$	5,802		$	4,405

 

7.                       Other Non-Current Assets

 

Other non-current assets consist of the following:

 

		September 30,			December 31,
		2013			2012
Investment in private company		$	1,250		$	1,250
Deposits
Lease		1,647			1,655
Other		286			264
Other		1,617			366
Total other non-current assets		$	4,800		$	3,535

 

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8.                       Fair Value Measurements

 

Financial assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon a fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

Level 1:		Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level 2:		Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or inputs that are observable and can be corroborated by observable market data.
Level 3:		Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

Fair Value on a Recurring Basis:

 

The Company periodically invests excess cash in money-market funds not insured by the Federal Deposit Insurance Corporation. The Company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. The fair values of the Company’s investments in money market funds are based on the daily quoted market prices of the net asset value of the various money market funds. These money market funds are considered Level 1 assets, totaled approximately $25,639 and $20,682 as of September 30, 2013 and December 31, 2012, respectively, and are included in cash and cash equivalents in the condensed consolidated balance sheets.

 

The fair value of the contingent consideration liability described in Note 3 was estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in the FASB’s Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures.  The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future cash flows related to our acquisition of WMS during the subsequent three years from the date of acquisition, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the agreement.

 

The Company utilized a discounted cash flow method with expected future performance of WMS, and its ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair value of the contingent consideration. The Company will continue to reassess the fair value of the contingent consideration at each reporting date until settlement.  Changes to the estimated fair value of the contingent consideration will be recognized in earnings of the Company.

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liability for the nine months ended September 30, 2013:

 

		Fair Value of
		Contingent
		Consideration
		Liability
Balance at December 31, 2012		$	—
Fair value on WMS acquisition date of July 1, 2013		15,738
Imputed interest for the period July 1, 2013 - September 30, 2013		392
Balance at September 30, 2013		$	16,130

 

9.                       Accrued Expenses

 

Accrued expenses consist of the following:

 

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands, except share and per share amounts)

 

		September 30,			December 31,
		2013			2012
Accrued investment manager fees		$	17,659		$	12,937
Accrued compensation and related taxes		9,629			5,726
Accrued professional services		626			408
Other accrued expenses		2,491			1,130
Total accrued expenses		$	30,405		$	20,201

 

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Table of Contents

 

10.                Income Taxes

 

The following table includes income tax provision and the effective tax rate for the Company’s income from operations:

 

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2013			2012			2013			2012
Income before income taxes		$	1,741		$	923		$	4,277		$	1,043
Income tax provision		435			372			1,312			420
Effective tax rate		25.0		%	40.3		%	30.7		%	40.3		%

 

The Company’s effective tax rate in the three and nine months ended September 30, 2013, was lower than the effective tax rate in the three and nine months ended September 30, 2012, primarily due to the effect of research and development tax credits.

 

The liability for unrecognized tax benefits reported in other non-current liabilities was $2,625 and $1,739 at September 30, 2013 and December 31, 2012, respectively. At September 30, 2013, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if recognized, was $1,785. At this time, the Company estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $261 in the next twelve months due to the completion of reviews by tax authorities, the voluntary filing of certain state income tax returns and the expiration of certain statutes of limitations.

 

The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. The Company had accrued interest and penalties of $661 and $642 as of September 30, 2013 and December 31, 2012, respectively.

 

The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally, a subsidiary of the Company files a tax return in a foreign jurisdiction. The Company’s tax returns for the calendar years ended December 31, 2012, 2011 and 2010 remain open to examination by the Internal Revenue Service in their entirety. With respect to state taxing jurisdictions, the Company’s tax returns for calendar years ended December 31, 2012, 2011 and 2010 remain open to examination by various state revenue services.

 

The Company’s India subsidiary is currently under examination by the India Taxing Authority for the fiscal years ended March 31, 2009 and March 31, 2010. Based on the outcome of examinations of the Company’s subsidiary or the result of the expiration of statutes of limitations, it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the condensed consolidated balance sheets. It is possible that one or more of these audits may be finalized within the next twelve months. The Company’s subsidiary’s tax returns for the fiscal years ended March 31, 2007 through March 31, 2012 remain open to examination by the India Taxing Authority in their entirety.

 

11.                Stockholders’ Equity

 

In February 2010, in connection with a Platform Services Agreement between the Company and FundQuest Incorporated (“FundQuest”), a subsidiary of BNP Paribas Investment Partners USA Holdings, Inc., the Company issued to FundQuest a warrant to purchase 1,388,888 shares of the Company’s common stock, with an exercise price of $10.80 per share.  During 2011, the warrant was sold by FundQuest to a third party.  On June 24, 2013, the third party exercised the warrant via a cashless exercise, and as a result, the Company issued 761,902 shares of the Company’s common stock to the third party.

 

12.                Stock-Based Compensation

 

The Company has stock options and restricted stock outstanding under the 2004 Stock Incentive Plan (the “2004 Plan”), the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”). As of September 30, 2013, the maximum number of stock options and restricted stock available for future issuance under the Company’s plans is 1,263,640.

 

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