UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34835
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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20-1409613 |
(State or other jurisdiction of |
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(I.R.S Employer |
35 East Wacker Drive, Suite 2400, Chicago, IL |
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60601 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants 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 x No o
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):
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
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, 2014, 34,342,058 shares of the common stock with a par value of $0.005 per share were outstanding.
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Page |
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PART I - FINANCIAL INFORMATION |
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Item 1. Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 |
3 |
4 | |
Condensed Consolidated Statement of Equity for the nine months ended September 30, 2014 |
5 |
6 | |
7 | |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |
20 |
20 | |
21 | |
25 | |
32 | |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
33 |
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33 | |
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| |
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33 | |
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33 | |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
34 |
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34 |
Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share information)
(unaudited)
|
|
September 30, |
|
December 31, |
| ||
|
|
2014 |
|
2013 |
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
105,899 |
|
$ |
49,942 |
|
Fees and other receivables, net |
|
24,514 |
|
19,848 |
| ||
Deferred tax assets, net |
|
4,380 |
|
2,462 |
| ||
Prepaid expenses and other current assets |
|
6,357 |
|
7,155 |
| ||
Total current assets |
|
141,150 |
|
79,407 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
16,438 |
|
12,766 |
| ||
Internally developed software, net |
|
6,740 |
|
5,740 |
| ||
Intangible assets, net |
|
32,210 |
|
35,698 |
| ||
Goodwill |
|
77,918 |
|
74,335 |
| ||
Deferred tax assets, net |
|
8,367 |
|
8,367 |
| ||
Other non-current assets |
|
4,710 |
|
4,929 |
| ||
Total assets |
|
$ |
287,533 |
|
$ |
221,242 |
|
|
|
|
|
|
| ||
Liabilities and Equity |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accrued expenses |
|
$ |
38,584 |
|
$ |
35,242 |
|
Accounts payable |
|
7,537 |
|
5,528 |
| ||
Bank indebtedness |
|
30,000 |
|
|
| ||
Contingent consideration |
|
6,095 |
|
6,008 |
| ||
Deferred revenue |
|
5,958 |
|
6,245 |
| ||
Total current liabilities |
|
88,174 |
|
53,023 |
| ||
|
|
|
|
|
| ||
Contingent consideration |
|
8,981 |
|
11,297 |
| ||
Deferred revenue |
|
4,270 |
|
1,148 |
| ||
Deferred rent |
|
2,910 |
|
2,051 |
| ||
Lease incentive |
|
5,726 |
|
3,547 |
| ||
Other non-current liabilities |
|
2,682 |
|
2,404 |
| ||
Total liabilities |
|
112,743 |
|
73,470 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Redeemable units in ERS, LLC |
|
1,500 |
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
Stockholders equity: |
|
|
|
|
| ||
Preferred stock, par value $0.005, 50,000,000 shares authorized |
|
|
|
|
| ||
Common stock, par value $0.005, 500,000,000 shares authorized; 46,099,095 and 45,628,814 shares issued as of September 30, 2014 and December 31, 2013, respectively; 34,299,725 and 33,876,020 shares outstanding as of September 30, 2014 and December 31, 2013, respectively |
|
230 |
|
228 |
| ||
Additional paid-in capital |
|
208,819 |
|
192,341 |
| ||
Accumulated deficit |
|
(23,136 |
) |
(33,617 |
) | ||
Treasury stock at cost, 11,799,370 and 11,752,794 shares as of September 30, 2014 and December 31, 2013, respectively |
|
(13,179 |
) |
(11,180 |
) | ||
Total stockholders equity |
|
172,734 |
|
147,772 |
| ||
Non-controlling interest |
|
556 |
|
|
| ||
Total equity |
|
173,290 |
|
147,772 |
| ||
Total liabilities and equity |
|
$ |
287,533 |
|
$ |
221,242 |
|
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
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September 30, |
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|
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues: |
|
|
|
|
|
|
|
|
| ||||
Assets under management or administration |
|
$ |
74,899 |
|
$ |
59,580 |
|
$ |
212,707 |
|
$ |
137,150 |
|
Licensing and professional services |
|
13,678 |
|
10,300 |
|
39,238 |
|
30,987 |
| ||||
Total revenues |
|
88,577 |
|
69,880 |
|
251,945 |
|
168,137 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Cost of revenues |
|
39,111 |
|
30,154 |
|
111,503 |
|
66,600 |
| ||||
Compensation and benefits |
|
25,833 |
|
21,063 |
|
74,449 |
|
55,475 |
| ||||
General and administration |
|
13,428 |
|
11,985 |
|
38,514 |
|
30,840 |
| ||||
Depreciation and amortization |
|
4,253 |
|
4,467 |
|
13,290 |
|
10,666 |
| ||||
Restructuring charges |
|
|
|
474 |
|
|
|
474 |
| ||||
Total operating expenses |
|
82,625 |
|
68,143 |
|
237,756 |
|
164,055 |
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|
|
|
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|
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| ||||
Income from operations |
|
5,952 |
|
1,737 |
|
14,189 |
|
4,082 |
| ||||
Other income (expense) |
|
(11 |
) |
4 |
|
1,909 |
|
195 |
| ||||
Income before income tax provision |
|
5,941 |
|
1,741 |
|
16,098 |
|
4,277 |
| ||||
Income tax provision |
|
2,173 |
|
435 |
|
5,812 |
|
1,312 |
| ||||
|
|
|
|
|
|
|
|
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| ||||
Net income |
|
3,768 |
|
1,306 |
|
10,286 |
|
2,965 |
| ||||
Add: Net loss attributable to non-controlling interest |
|
|
|
|
|
195 |
|
|
| ||||
Net income attributable to Envestnet, Inc. |
|
$ |
3,768 |
|
$ |
1,306 |
|
$ |
10,481 |
|
$ |
2,965 |
|
|
|
|
|
|
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| ||||
Net income per share attributable to Envestnet, Inc.: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.11 |
|
$ |
0.04 |
|
$ |
0.30 |
|
$ |
0.09 |
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|
|
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|
|
|
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| ||||
Diluted |
|
$ |
0.10 |
|
$ |
0.04 |
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$ |
0.28 |
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$ |
0.08 |
|
|
|
|
|
|
|
|
|
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| ||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
34,674,245 |
|
33,686,112 |
|
34,447,619 |
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32,912,084 |
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|
|
|
|
|
|
|
| ||||
Diluted |
|
37,006,796 |
|
35,871,975 |
|
36,832,154 |
|
35,260,044 |
|
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statement of Equity
(in thousands, except share information)
(unaudited)
|
|
Common Stock |
|
Treasury Stock |
|
Additional |
|
|
|
|
|
|
| ||||||||||||
|
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Shares |
|
Amount |
|
Common |
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Amount |
|
Paid-in |
|
Accumulated |
|
Non-controlling |
|
Total Equity |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance, December 31, 2013 |
|
45,628,814 |
|
$ |
228 |
|
(11,752,794 |
) |
$ |
(11,180 |
) |
$ |
192,341 |
|
$ |
|
(33,617 |
) |
$ |
|
|
|
$ |
147,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Exercise of stock options |
|
333,067 |
|
2 |
|
|
|
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|
3,144 |
|
|
|
|
|
3,146 |
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Issuance of common stock - vesting of restricted stock |
|
137,214 |
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|
|
|
|
|
|
|
|
|
|
|
|
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Purchase of treasury stock for stock-based minimum tax withholdings |
|
|
|
|
|
(46,576 |
) |
(1,999 |
) |
|
|
|
|
|
|
(1,999 |
) | ||||||||
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
8,248 |
|
|
|
195 |
|
8,443 |
| ||||||||
Excess tax benefits from stock-based compensation expense |
|
|
|
|
|
|
|
|
|
5,086 |
|
|
|
|
|
5,086 |
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Issuance of membership interest in ERS, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
556 |
|
556 |
| ||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
10,481 |
|
(195 |
) |
10,286 |
| ||||||||
Balance, September 30, 2014 |
|
46,099,095 |
|
$ |
230 |
|
(11,799,370 |
) |
$ |
(13,179 |
) |
$ |
208,819 |
|
$ |
|
(23,136 |
) |
$ |
|
556 |
|
$ |
173,290 |
|
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
| ||||
|
|
2014 |
|
2013 |
| ||
OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net income |
|
$ |
10,286 |
|
$ |
2,965 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
13,290 |
|
10,666 |
| ||
Deferred rent and lease incentive |
|
173 |
|
(784 |
) | ||
Provision for doubtful accounts |
|
|
|
153 |
| ||
Deferred income taxes |
|
|
|
(1,375 |
) | ||
Stock-based compensation expense |
|
8,443 |
|
6,281 |
| ||
Excess tax benefits from stock-based compensation expense |
|
(5,086 |
) |
(2,704 |
) | ||
Imputed interest expense |
|
1,108 |
|
392 |
| ||
Fair market value adjustment on contingent consideration |
|
(342 |
) |
|
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Fees and other receivables, net |
|
(4,613 |
) |
(8,302 |
) | ||
Prepaid expenses and other current assets |
|
3,966 |
|
(2,993 |
) | ||
Other non-current assets |
|
(736 |
) |
(1,265 |
) | ||
Accrued expenses |
|
3,212 |
|
7,946 |
| ||
Accounts payable |
|
2,009 |
|
1,891 |
| ||
Deferred revenue |
|
2,835 |
|
754 |
| ||
Other non-current liabilities |
|
278 |
|
960 |
| ||
Net cash provided by operating activities |
|
34,823 |
|
14,585 |
| ||
|
|
|
|
|
| ||
INVESTING ACTIVITIES: |
|
|
|
|
| ||
Purchase of property and equipment |
|
(5,249 |
) |
(4,301 |
) | ||
Capitalization of internally developed software |
|
(2,562 |
) |
(2,293 |
) | ||
Acquisition of businesses, net of cash acquired |
|
(1,288 |
) |
(8,992 |
) | ||
Net cash used in investing activities |
|
(9,099 |
) |
(15,586 |
) | ||
|
|
|
|
|
| ||
FINANCING ACTIVITIES: |
|
|
|
|
| ||
Proceeds from bank indebtedness |
|
30,000 |
|
|
| ||
Payment of contingent consideration |
|
(6,000 |
) |
|
| ||
Proceeds from exercise of warrants |
|
|
|
4 |
| ||
Proceeds from exercise of stock options |
|
3,146 |
|
5,578 |
| ||
Issuance of ERS, LLC redeemable units |
|
1,500 |
|
|
| ||
Payment of promissory note |
|
(1,500 |
) |
|
| ||
Issuance of restricted stock |
|
|
|
1 |
| ||
Purchase of treasury stock for stock-based minimum tax withholdings |
|
(1,999 |
) |
(586 |
) | ||
Excess tax benefits from stock-based compensation expense |
|
5,086 |
|
2,704 |
| ||
Net cash provided by financing activities |
|
30,233 |
|
7,701 |
| ||
|
|
|
|
|
| ||
INCREASE IN CASH AND CASH EQUIVALENTS |
|
55,957 |
|
6,700 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
49,942 |
|
29,983 |
| ||
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
105,899 |
|
$ |
36,683 |
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information - cash paid during the period for income taxes, net of refunds |
|
$ |
154 |
|
$ |
4,389 |
|
Supplemental disclosure of non-cash operating, investing and financing activities: |
|
|
|
|
| ||
Settlement of contingent consideration liability upon issuance of ERS, LLC membership interest |
|
158 |
|
|
| ||
Contingent consideration liability issued in acquisition of business |
|
3,285 |
|
15,738 |
| ||
Leasehold improvements funded by lease incentive |
|
2,865 |
|
|
|
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
1. Organization and Description of Business
Envestnet, Inc. (Envestnet) and its subsidiaries (collectively, the Company) provide open-architecture wealth management services and technology to independent financial advisors and financial institutions. These services and related technology are provided via Envestnets wealth management software, Envestnet | PMC®, Envestnet | Tamarac, Vantage Reporting Solution and Envestnet | WMS.
Envestnets wealth management software 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 Companys 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 manager selection, 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).
Vantage Reporting Solution software aggregates and manages investment data, provides performance reporting and benchmarking, giving advisors an in-depth view of clients various investments, empowering advisors to give holistic, personalized advice.
Envestnet | WMS offers financial institutions access to an integrated wealth platform, which helps construct and manage sophisticated portfolio solutions across an entire account life cycle, particularly in the area of unified managed account trading. Envestnet | WMSs Overlay Portfolio Management console helps wealth managers efficiently build customized client portfolios that consider both proprietary and open-architecture investment solutions.
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 with the Securities and Exchange Commission (SEC). The broker-dealer is registered 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, 2014 and for the three and nine months ended September 30, 2014 and 2013 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, 2013 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Companys financial position as of September 30, 2014 and the results of operations, equity and cash flows for the periods presented herein. The unaudited condensed consolidated balance sheet as of December 31, 2013 was derived from the Companys audited financial statements for the year ended December 31, 2013 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, 2014 are not necessarily indicative of the operating results 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 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 Companys Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 17, 2014.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
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. 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 and stock options issued, fair value of contingent consideration, realization of deferred tax assets, uncertain tax positions and assumptions used to allocate purchase prices in business combinations. Actual results could differ materially from these estimates under different assumptions or conditions.
Other Income - On June 18, 2014, the Company reached an agreement with a vendor regarding the recovery of certain expenses the Company incurred in 2013. Under the terms of the agreement, the vendor agreed to pay the Company $1,825. The Company recognized a pre-tax gain of $1,825 resulting from the agreement, which is included in Other income in the condensed consolidated statements of operations for the nine months ended September 30, 2014.
Non-controlling Interest - Effective February 1, 2014, the Company formed Envestnet Retirement Solutions, LLC (ERS, LLC) with various third parties. ERS, LLC offers advisory and technology enabled services to financial advisors and retirement plans. In exchange for a 64.5% ownership interest in ERS, LLC, the Company contributed certain assets and has agreed to fund a certain amount of the operating expenses of ERS, LLC. As described in Note 3, due to the issuance of units related to the acquisition of Klein Decisions, Inc. (Klein) the Companys ownership in ERS, LLC is 57% as of September 30, 2014.
The allocation of gains and losses to the members of ERS, LLC is based on a hypothetical liquidation book value method in accordance with the ERS, LLC operating agreement. In the three and nine months ended September 30, 2014, losses of $0 and $195, respectively, are reflected as non-controlling interest in the condensed consolidated statements of operations.
Recent Accounting Pronouncements - On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its consolidated financial statements.
3. Business Acquisitions
Acquisition of Klein Decisions, Inc.
On July 1, 2014, ERS, LLC completed the acquisition of Klein. In accordance with the stock purchase agreement, ERS, LLC acquired all of the outstanding shares of Klein for cash consideration of approximately $1,288, a promissory note in the amount of $1,500, and estimated fair value of $3,285 in contingent consideration (with a minimum guaranteed amount of $1,175), to be paid over three years. The promissory note was paid by ERS, LLC on July 31, 2014. Klein develops dynamic decision systems that incorporate investor preferences, goals, and priorities into the investment process. ERS, LLC acquired Klein for its capabilities in delivering personal participant solutions, as well as its personnel to further build out ERSs business of serving advisors who support the small retirement plan market. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, which relate to an increase in future ERS, LLC revenues as a result of leveraging Kleins systems and expertise of its employees. The goodwill is deductible for income tax purposes.
The consideration in the acquisition was as follows:
Cash consideration |
|
$ |
1,288 |
|
Promissory note |
|
1,500 |
| |
Contingent consideration |
|
3,285 |
| |
|
|
$ |
6,073 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
The contingent consideration liability of $3,285 is the present value of an undiscounted liability of $3,520, applying a discount rate of 3% and is considered a Level 3 fair value measurement as described in Note 8. Payments will be made at the end of three twelve month closing periods. The future undiscounted payments are anticipated to be $332 on July 31, 2015, $906 on July 31, 2016 and $2,282 on July 31, 2017. Changes to the estimated fair value of the contingent consideration are recognized in earnings of the Company. No change in the estimated fair value of the contingent consideration was determined for the three month period ended September 30, 2014.
The estimated fair values of the contingent consideration, deferred income taxes, and intangible assets are provisional and are based on the information that was available as of the acquisition date. 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 values reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of contingent consideration, deferred income taxes and intangible assets, and complete the acquisition accounting as soon as practicable but no later than December 31, 2014.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
Total tangible assets acquired |
|
$ |
54 |
|
Total liabilities assumed |
|
(132 |
) | |
|
|
|
| |
Identifiable intangible assets: |
|
|
| |
Customer list |
|
2,100 |
| |
Proprietary technology |
|
1,000 |
| |
Goodwill |
|
3,051 |
| |
Total net assets acquired |
|
$ |
6,073 |
|
A summary of intangible assets acquired, estimated useful lives and amortization method at the date of acquisition is as follows:
|
|
|
|
Weighted Average |
|
Amortization |
| |
|
|
Amount |
|
Useful Life in Years |
|
Method |
| |
Customer list |
|
$ |
2,100 |
|
10 |
|
Accelerated |
|
Proprietary technology |
|
1,000 |
|
3 |
|
Straight-line |
| |
Total |
|
$ |
3,100 |
|
|
|
|
|
The results of Klein operations are included in the condensed consolidated statements of operations beginning July 1, 2014. The results are not material to the Company.
For the three and nine months ended September 30, 2014, acquisition related costs for Klein totaled $112 and $309, respectively, and are included in general and administration expenses.
On July 9, 2014, ERS, LLC accepted the subscription of former owners of Klein (the Klein Parties) to purchase an 11.7% ownership interest of ERS, LLC for $1,500. The Klein Parties have the right to require ERS, LLC to repurchase units issued pursuant to the subscription anytime between 18 and approximately 36 months after July 1, 2014 for the amount of $1,500. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in the condensed consolidated balance sheet. After taking into account the subscription of the Klein Parties, the Companys ownership interest in ERS, LLC is 57%.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Acquisition of Wealth Management Solutions
On July 1, 2013, the Company acquired the Wealth Management Solutions (WMS) division of Prudential Investments LLC. 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 Company acquired WMS to better serve the wealth management needs of the bank channel, deepen the Companys practice management capabilities, and benefit from the operational leverage resulting from consolidating WMSs business onto the Companys unified wealth management platform.
The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of potential cross selling opportunities, as well as lower future operating expenses, including a reduction in headcount from pre-acquisition levels and lower technology platform-related costs due to the migration of WMSs clients to the Envestnet technology platform. The goodwill is also related to the knowledge and experience of the workforce in place.
The consideration in the acquisition was as follows:
Cash consideration |
|
$ |
8,992 |
|
Contingent consideration |
|
15,738 |
| |
|
|
$ |
24,730 |
|
In connection with the acquisition of WMS, the Company is required to pay Prudential Investments contingent consideration of $6,000 per year for three years, based upon WMSs annualized net revenue relative to a target of $28,000 per year, with lower payments for performance below the target and higher payments for performance above the target, subject to an aggregate maximum of $23,000. The Company recorded a liability as of the date of acquisition of $15,738, which represented 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.
The estimated fair value of contingent consideration as of September 30, 2014 was $11,791. This amount is the present value of an undiscounted liability of $13,227, applying a discount rate of 10%. Payments will be made at the end of three twelve month closing periods. The first undiscounted payment of $6,000 was paid on August 12, 2014. The second and third undiscounted payments are anticipated to be $7,066 on August 15, 2015 and $6,161 on August 15, 2016. Changes to the estimated fair value of the contingent consideration are recognized in earnings of the Company. During the three months ended September 30, 2014, the Company recorded a fair value adjustment to increase the contingent consideration liability by $118 as a result of an increase in the revenue assumptions. This adjustment is included in general and administration expense in the condensed consolidated statements of operations. For the nine months ended September 30, 2014, the Company recorded a fair value adjustment to decrease the contingent consideration arrangement by $342 (Note 8) as a result of a decrease in the revenue assumptions for years 2 and 3. This adjustment is included in general and administration expense in the condensed consolidated statements of operations.
For the three and nine months ended September 30, 2014, the Company recognized imputed interest expense on contingent consideration of $284 and $1,108, respectively.
The following table summarizes the 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 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
A summary of intangibles assets acquired, estimated useful lives and amortization method at the date of acquisition is as follows:
|
|
Amount |
|
Weighted Average Useful |
|
Amortization |
| |
Customer list |
|
$ |
14,000 |
|
12 |
|
Accelerated |
|
Proprietary technology |
|
3,000 |
|
1.5 |
|
Accelerated |
| |
Total |
|
$ |
17,000 |
|
|
|
|
|
For the three and nine months ended September 30, 2014, acquisition related costs for WMS totaled $0 and $95, respectively, and are included in general and administration expenses. 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.
Pro forma results for Envestnet, Inc. giving effect to the WMS acquisition
The following pro forma financial information presents the combined results of operations of Envestnet and WMS, acquired on July 1, 2013, for the nine months ended September 30, 2013. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of 2013. The results of Klein are not included in the pro forma presented below as the Klein acquisition was not material to the Company.
The unaudited pro forma results presented include amortization charges for acquired intangible assets, imputed interest expense, stock-based compensation expense and the related tax effect on the aforementioned items.
Pro forma financial information for the nine months ended September 30, 2013 is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisition had taken place as of the beginning of 2013.
|
|
Nine Months Ended |
| |
|
|
|
| |
Revenues |
|
$ |
200,585 |
|
Net loss |
|
(9,496 |
) | |
Net loss per share: |
|
|
| |
Basic |
|
(0.29 |
) | |
Diluted |
|
(0.29 |
) | |
4. Property and Equipment
|
|
|
|
September 30, |
|
December 31, |
| ||
|
|
Estimated Useful Life |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
|
|
| ||
Cost: |
|
|
|
|
|
|
| ||
Office furniture and fixtures |
|
5-7 years |
|
$ |
5,314 |
|
$ |
4,266 |
|
Computer equipment and software |
|
3 years |
|
30,728 |
|
26,910 |
| ||
Other office equipment |
|
5 years |
|
598 |
|
598 |
| ||
Leasehold improvements |
|
Shorter of the lease term or useful life of the asset |
|
11,547 |
|
8,299 |
| ||
|
|
|
|
48,187 |
|
40,073 |
| ||
Less accumulated depreciation and amortization |
|
|
|
(31,749 |
) |
(27,307 |
) | ||
Property and equipment, net |
|
|
|
$ |
16,438 |
|
$ |
12,766 |
|
Depreciation and amortization expense was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization expense |
|
$ |
1,400 |
|
$ |
1,381 |
|
$ |
4,442 |
|
$ |
3,599 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
5. Internally Developed Software
Internally developed software consists of the following:
|
|
|
|
September 30, |
|
December 31, |
| ||
|
|
Estimated Useful Life |
|
2014 |
|
2013 |
| ||
|
|
|
|
|
|
|
| ||
Internally developed software |
|
5 years |
|
$ |
18,936 |
|
$ |
16,374 |
|
Less accumulated amortization |
|
|
|
(12,196 |
) |
(10,634 |
) | ||
Internally developed software, net |
|
|
|
$ |
6,740 |
|
$ |
5,740 |
|
Amortization expense was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Amortization expense |
|
$ |
565 |
|
$ |
436 |
|
$ |
1,562 |
|
$ |
1,265 |
|
6. Goodwill and Intangible Assets
Changes in the carrying amount of the Companys goodwill were as follows:
Balance at December 31, 2013 |
|
$ |
74,335 |
|
ERS formation |
|
532 |
| |
Klein acquisition |
|
3,051 |
| |
Balance at September 30, 2014 |
|
$ |
77,918 |
|
Intangible assets consist of the following:
|
|
|
|
September 30, 2014 |
|
December 31, 2013 |
| ||||||||||||||
|
|
|
|
Gross |
|
|
|
Net |
|
Gross |
|
|
|
Net |
| ||||||
|
|
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Carrying |
|
Accumulated |
|
Carrying |
| ||||||
|
|
Useful Life |
|
Amount |
|
Amortization |
|
Amount |
|
Amount |
|
Amortization |
|
Amount |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Customer lists |
|
4 - 12 years |
|
$ |
44,503 |
|
$ |
(19,206 |
) |
$ |
25,297 |
|
$ |
42,103 |
|
$ |
(14,593 |
) |
$ |
27,510 |
|
Proprietary technologies |
|
1.5 - 8 years |
|
10,978 |
|
(5,113 |
) |
5,865 |
|
9,580 |
|
(2,792 |
) |
6,788 |
| ||||||
Trade names |
|
5 years |
|
2,090 |
|
(1,042 |
) |
1,048 |
|
2,090 |
|
(690 |
) |
1,400 |
| ||||||
Total intangible assets |
|
|
|
$ |
57,571 |
|
$ |
(25,361 |
) |
$ |
32,210 |
|
$ |
53,773 |
|
$ |
(18,075 |
) |
$ |
35,698 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Amortization expense was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Amortization expense |
|
$ |
2,288 |
|
$ |
2,650 |
|
$ |
7,286 |
|
$ |
5,802 |
|
7. Other Non-Current Assets
Other non-current assets consist of the following:
|
|
September 30, |
|
December 31, |
| ||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Investment in private company |
|
$ |
1,250 |
|
$ |
1,250 |
|
Deposits: |
|
|
|
|
| ||
Lease |
|
1,794 |
|
1,751 |
| ||
Other |
|
436 |
|
286 |
| ||
Other |
|
1,230 |
|
1,642 |
| ||
|
|
$ |
4,710 |
|
$ |
4,929 |
|
8. Fair Value Measurements
Financial assets and liabilities recorded at fair value in the condensed 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 managements 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.
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 Companys 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 $82,233 and $32,358 as of September 30, 2014 and December 31, 2013, respectively, and are included in cash and cash equivalents in the condensed consolidated balance sheets.
The fair value of the contingent consideration liability related to the WMS acquisition on July 1, 2013 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 FASBs 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.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
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 fair value of the contingent consideration liability related to the Klein acquisition on July 1, 2014 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 FASBs 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 Klein 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 Klein 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 Companys Level 3 liability for the nine months ended September 30, 2014:
|
|
Fair Value of |
| |
|
|
|
| |
Balance at December 31, 2013 |
|
$ |
17,305 |
|
|
|
|
| |
Settlement of contingent consideration liabilities |
|
(6,158 |
) | |
Klein acquisition |
|
3,285 |
| |
Measurement period adjustment |
|
(122 |
) | |
Fair market value adjustment |
|
(342 |
) | |
Imputed interest |
|
1,108 |
| |
Balance at September 30, 2014 |
|
$ |
15,076 |
|
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 change in circumstances that caused the transfer, in accordance with the Companys accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels 1, 2 and 3 during the nine months ended September 30, 2014.
9. Accrued Expenses
Accrued expenses consist of the following:
|
|
September 30, |
|
December 31, |
| ||
|
|
2014 |
|
2013 |
| ||
|
|
|
|
|
| ||
Accrued investment manager fees |
|
$ |
24,053 |
|
$ |
19,310 |
|
Accrued compensation and related taxes |
|
12,309 |
|
12,125 |
| ||
Accrued professional services |
|
493 |
|
694 |
| ||
Accrued restructuring charges |
|
|
|
551 |
| ||
Other accrued expenses |
|
1,729 |
|
2,562 |
| ||
|
|
$ |
38,584 |
|
$ |
35,242 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
10. Income Taxes
The following table includes the Companys income before income tax provision, income tax provision and effective tax rate:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before income tax provision |
|
$ |
5,941 |
|
$ |
1,741 |
|
$ |
16,098 |
|
$ |
4,277 |
|
Income tax provision |
|
2,173 |
|
435 |
|
5,812 |
|
1,312 |
| ||||
Effective tax rate |
|
36.6 |
% |
25.0 |
% |
36.1 |
% |
30.7 |
% | ||||
The Companys effective tax rate in the three months ended September 30, 2014, was higher than the effective tax rate in the three months ended September 30, 2013, primarily due an increase in the U.S. federal tax rate used in the tax provision calculation from 34% to 35%, an increase in various permanent differences and the impact of Research and Development (R&D) tax credits generated in Q3 of 2013.
The Companys effective tax rate in the nine months ended Septemeber 30, 2014, was higher than the effective tax rate in the nine months ended September 30, 2013, primarily due to an increase in the U.S. federal tax rate used in the tax provision calculation from 34% to 35%, an increase in various permanent differences and the impact of R&D tax credits generated in Q3 of 2013.
The liability for unrecognized tax benefits reported in other non-current liabilities was $2,519 and $2,693 at September 30, 2014 and December 31, 2013, respectively. At September 30, 2014, the amount of unrecognized tax benefits that would benefit the Companys effective tax rate, if recognized, was $1,798. At this time, the Company estimates it is reasonably possible that the liability for unrecognized tax benefits will decrease by as much as $157 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 $540 and $636 as of September 30, 2014 and December 31, 2013, respectively.
The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally, foreign subsidiaries of the Company file tax returns in foreign jurisdictions. The Companys tax returns for the calendar years ended December 31, 2013, 2012, 2011 and 2010 remain open to examination by the Internal Revenue Service in their entirety. With respect to state taxing jurisdictions, the Companys tax returns for the calendar years ended December 31, 2013, 2012, 2011, 2010 and 2009 remain open to examination by various state revenue services.
The Companys Indian subsidiary is currently under examination by the India Tax Authority for the fiscal year ended March 31, 2012, 2011 and 2009. Based on the outcome of examinations of our 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 consolidated balance sheet. It is possible that one or more of these audits may be finalized within the next twelve months.
11. 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, 2014, the maximum number of stock options and restricted stock available for future issuance under the Companys plans is 867,782.
Employee stock-based compensation expense under the Companys plans was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Employee stock-based compensation expense |
|
$ |
2,676 |
|
$ |
2,015 |
|
$ |
8,443 |
|
$ |
6,281 |
|
Tax effect on employee stock-based compensation expense |
|
(1,070 |
) |
(503 |
) |
(3,377 |
) |
(1,927 |
) | ||||
Net effect on income |
|
$ |
1,606 |
|
$ |
1,512 |
|
$ |
5,066 |
|
$ |
4,354 |
|
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Stock Options
The following weighted average assumptions were used to value stock options granted during the periods indicated:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Grant date fair value of options |
|
$ |
16.80 |
|
$ |
|
|
$ |
16.81 |
|
$ |
6.11 |
|
Volatility |
|
33.7 |
% |
|
|
37.3 |
% |
40.4 |
% | ||||
Risk-free interest rate |
|
2.0 |
% |
|
|
1.9 |
% |
1.0 |
% | ||||
Dividend yield |
|
|
|
|
|
|
|
|
| ||||
Expected term (in years) |
|
6.0 |
|
|
|
6.0 |
|
6.0 |
| ||||
The following table summarizes stock option activity under the Companys plans:
|
|
Options |
|
Weighted- |
|
Weighted- |
|
Aggregate |
| ||
|
|
|
|
|
|
|
|
|
| ||
Outstanding as of December 31, 2013 |
|
4,637,471 |
|
$ |
9.04 |
|
|
|
|
| |
Granted |
|
155,753 |
|
41.84 |
|
|
|
|
| ||
Exercised |
|
(95,609 |
) |
8.77 |
|
|
|
|
| ||
Forfeited |
|
(4,150 |
) |
9.00 |
|
|
|
|
| ||
Outstanding as of March 31, 2014 |
|
4,693,465 |
|
10.13 |
|
5.3 |
|
$ |
141,293 |
| |
Granted |
|
|
|
|
|
|
|
|
| ||
Exercised |
|
(95,352 |
) |
8.14 |
|
|
|
|
| ||
Forfeited |
|
(3,300 |
) |
7.80 |
|
|
|
|
| ||
Outstanding as of June 30, 2014 |
|
4,594,813 |
|
10.17 |
|
5.0 |
|
178,031 |
| ||
Granted |
|
58,500 |
|
45.81 |
|
|
|
|
| ||
Exercised |
|
(142,106 |
) |
10.77 |
|
|
|
|
| ||
Forfeited |
|
(533 |
) |
9.87 |
|
|
|
|
| ||
Outstanding as of September 30, 2014 |
|
4,510,674 |
|
10.62 |
|
4.8 |
|
155,137 |
| ||
Options exercisable |
|
4,022,167 |
|
8.69 |
|
4.4 |
|
146,046 |
| ||
Exercise prices of stock options outstanding as of September 30, 2014 range from $0.11 to $45.81. At September 30, 2014, there was $3,912 of unrecognized compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 2.3 years.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Restricted Stock
Periodically, the Company grants restricted stock awards to employees that vest one-third on each of the first three anniversaries of the grant date. The following is a summary of the activity for unvested restricted stock awards granted under the Companys plans:
|
|
|
|
Weighted- |
| |
|
|
|
|
Average Grant |
| |
|
|
Number of |
|
Date Fair Value |
| |
|
|
Shares |
|
per Share |
| |
|
|
|
|
|
| |
Balance at December 31, 2013 |
|
901,551 |
|
$ |
16.50 |
|
Granted |
|
240,626 |
|
41.83 |
| |
Vested |
|
(116,706 |
) |
14.22 |
| |
Forfeited |
|
(10,324 |
) |
26.94 |
| |
Balance at March 31, 2014 |
|
1,015,147 |
|
22.69 |
| |
Vested |
|
(5,671 |
) |
24.60 |
| |
Forfeited |
|
(4,312 |
) |
29.79 |
| |
Balance at June 30, 2014 |
|
1,005,164 |
|
22.65 |
| |
Granted |
|
8,527 |
|
46.62 |
| |
Vested |
|
(14,837 |
) |
26.97 |
| |
Forfeited |
|
(5,336 |
) |
28.72 |
| |
Balance at September 30, 2014 |
|
993,518 |
|
22.76 |
| |
At September 30, 2014, there was $10,160 of unrecognized compensation expense related to unvested restricted stock awards, which the Company expects to recognize over a weighted-average period of 2.2 years. At September 30, 2014, there was an additional $3,509 of potential unrecognized stock compensation expense related to unvested restricted stock granted under the 2012 Plan that vests based upon Tamarac meeting certain performance conditions and then a subsequent two-year service condition, which the Company expects to recognize, if earned, over the remaining estimated vesting period of 0.5 to 2.5 years.
12. Earnings Per Share
Basic net income per share attributable to Envestnet, Inc. is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted earnings per share attributable to Envestnet, Inc., the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants and restricted stock using the treasury-stock method.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
The following table provides a reconciliation of the numerators and denominators used in computing basic and diluted net income per share attributable to Envestnet, Inc.:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to Envestnet, Inc. |
|
$ |
3,768 |
|
$ |
1,306 |
|
$ |
10,481 |
|
$ |
2,965 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic number of weighted-average shares outstanding |
|
34,674,245 |
|
33,686,112 |
|
34,447,619 |
|
32,912,084 |
| ||||
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
| ||||
Options to purchase common stock |
|
2,179,828 |
|
2,057,245 |
|
2,190,134 |
|
1,812,114 |
| ||||
Common warrants |
|
|
|
|
|
|
|
434,392 |
| ||||
Unvested restricted stock |
|
152,723 |
|
128,618 |
|
194,401 |
|
101,454 |
| ||||
Diluted number of weighted-average shares outstanding |
|
37,006,796 |
|
35,871,975 |
|
36,832,154 |
|
35,260,044 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income per share attribuatable to Envestnet, Inc.: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.11 |
|
$ |
0.04 |
|
$ |
0.30 |
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted |
|
$ |
0.10 |
|
$ |
0.04 |
|
$ |
0.28 |
|
$ |
0.08 |
|
Common share equivalents for securities that were anti-dilutive and therefore excluded from the computation of diluted net income per share attributable to Envestnet, Inc. were as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 30, |
| ||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock |
|
|
|
|
|
58,500 |
|
|
|
Unvested restricted stock |
|
95,581 |
|
377,926 |
|
95,908 |
|
434,609 |
|
13. Major Customers
One customer accounted for more than 10% of the Companys total revenues:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 30, |
| ||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
Fidelity |
|
19 |
% |
19 |
% |
19 |
% |
21 |
% |
14. Commitments and Contingencies
The Company is involved in litigation arising in the ordinary course of its business. The Company does not believe that the outcome of any of the current litigation, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on the Companys results of operations, financial condition, cash flows or business.
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 in the condensed consolidated balance sheets.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
The Klein Parties have the right to require ERS, LLC to repurchase units issued pursuant to the subscription anytime between 18 and approximately 36 months after July 1, 2014 for the amount of $1,500. This purchase obligation is guaranteed by the Company. The contingent consideration payments have a minimum guaranteed amount of $1,175.
15. Credit Agreement
On June 19, 2014, Envestnet and certain of its subsidiaries entered into a credit agreement (the Credit Agreement) with a group of banks (the Banks), for which Bank of Montreal is acting as administrative agent, pursuant to which the Banks agreed to provide an unsecured revolving credit facility of $70,000 with a sublimit for the issuance of letters of credit of $5,000. Subject to certain conditions, Envestnet has the right to increase the facility by up to $25,000. The Credit Agreement is scheduled to terminate on June 19, 2017, at which time any aggregate principal amount of borrowings outstanding becomes payable in full. Any borrowings made under the Credit Agreement will accrue interest at rates between 1.25 percent and 1.75 percent above LIBOR based on the Companys total leverage ratio. There is also a commitment fee equal to 0.25 percent per annum on the daily unused portion of the facility.
The Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants and events of default. The covenants include certain financial covenants requiring Envestnet to maintain compliance with a maximum senior leverage ratio, a maximum total leverage ratio, a minimum interest coverage ratio and minimum adjusted EBITDA, and provisions that limit the ability of Envestnet and its subsidiaries to incur debt, make investments, sell assets, create liens, engage in transactions with affiliates, engage in mergers and acquisitions, pay dividends and other restricted payments, grant negative pledges and change their business activities. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events constituting an event of default under the Credit Agreement, all borrowings outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated. The Company had $30,000 in borrowings under the Credit Agreement at September 30, 2014. The Company incurred interest expense of $22 for the three and nine months ended September 30, 2014. The Company was in compliance with all covenants of the Credit Agreement as of September 30, 2014.
16. Subsequent Events
Acquisition of Placemark Holdings, Inc.
On October 1, 2014, Envestnet, Inc. (Envestnet) completed the acquisition (the Acquisition) of Placemark Holdings, Inc., a Delaware corporation (Placemark). Placemark develops Unified Managed Account (UMA) programs and other portfolio management outsourcing solutions, including patented portfolio overlay and tax optimization services, for banks, full-service broker-dealers and RIA firms.
Under the terms of the Acquisition, Envestnet paid approximately $66,000 in cash, subject to certain post-closing adjustments of which the Company is still in the process of completing, for all of the outstanding capital stock of Placemark. Envestnet funded the Acquisition with available cash and borrowings under its Credit Agreement (see Note 15).
The Company is currently in the initial phase of gathering financial information and has not determined the estimated fair values of the assets acquired and liabilities assumed.
For the three and nine months ended September 30, 2014, acquisition costs for Placemark totaled $580 and $994, respectively, and are included in general and administration expenses. The Company will incur additional Placemark related acquisition costs during the fourth quarter of 2014.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Unless otherwise indicated, the terms Envestnet, the Company, we, us and our refer to Envestnet, Inc. and its subsidiaries.
Unless otherwise indicated, all amounts are in thousands, except share and per share information, financial advisors and investor accounts.
This quarterly report on Form 10-Q 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 Managements 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. Forward-looking statements may include, among others, statements relating to:
· difficulty in sustaining rapid revenue growth, which may place significant demands on the Companys administrative, operational and financial resources;
· fluctuations in the Companys revenue;
· the concentration of nearly all of the Companys revenues from the delivery of investment solutions and services to clients in the financial advisory industry;
· the impact of market and economic conditions on the Companys revenues;
· the Companys reliance on a limited number of clients for a material portion of its revenue;
· the renegotiation of fee percentages or termination of the Companys services by its clients;
· the Companys ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
· compliance failures;
· regulatory actions against the Company;
· the failure to protect the Companys intellectual property rights;
· the Companys inability to successfully execute the conversion of its clients assets from their technology platform to the Companys technology platform in a timely and accurate manner;
· general economic conditions, political and regulatory conditions, and
· managements 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 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. 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 under Risk Factors in our 2013 Form 10-K; 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 on Form 10-Q and our 2013 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 2013 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.
We are a leading provider of unified wealth management software and services to financial advisors and institutions. By integrating a wide range of investment solutions and services, our technology platforms provides financial advisors with the flexibility to address their clients needs. As of September 30, 2014, approximately 36,000 advisors used our technology platforms, supporting approximately $668 billion of assets in approximately 2.7 million investor accounts.
Envestnet empowers financial advisors to deliver fee-based advice to their clients. We work with both Independent Registered Investment Advisors (RIAs), as well as advisors associated with financial institutions such as broker-dealers and banks. The services we offer and market to financial advisors address the advisors ability to grow their practice as well as to operate more efficientlythe Envestnet platforms span the various elements of the wealth management process, from the initial meeting an advisor has with a prospective client to the ongoing day-to-day operations of managing an advisory practice.
Our centrally-hosted technology platforms, which we refer to as having open architecture because of their flexibility, provide financial advisors with access to a series of integrated services to help them better serve their clients. These services include risk assessment and selection of investment strategies and solutions, asset allocation models, research and due diligence, 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, as well as access to a wide range of leading third-party asset custodians.
We offer these solutions principally through the following product and services suites:
· Envestnets wealth management software empowers advisors to better manage client outcomes and strengthen their practice. Our software unifies the applications and services advisors use to manage their practice and advise their clients, including financial planning; capital markets assumptions; asset allocation guidance; research and due diligence on investment managers and funds; portfolio management, trading and rebalancing; multi-custodial, aggregated performance reporting; and billing calculation and administration.
· Envestnet | PMC, our Portfolio Management Consultants group primarily engages in consulting services aimed at providing financial advisors with additional support in addressing their clients needs, as well as the creation of proprietary investment solutions and products. Envestnet | PMCs investment solutions and products include managed account and multi-manager portfolios, mutual fund portfolios and Exchange Traded Fund (ETF) portfolios. Envestnet | PMC also offers Prima Premium Research, comprising institutional-quality research and due diligence on investment managers, mutual funds, ETFs and liquid alternatives funds.
· Envestnet | Tamarac provides leading portfolio accounting, rebalancing, trading, performance reporting and client relationship management software, principally to high-end RIAs.
· Vantage Reporting Solution software aggregates and manages investment data, provides performance reporting and benchmarking, giving advisors an in-depth view of clients various investments, empowering advisors to give holistic, personalized advice and consulting.
· Envestnet | WMS offers financial institutions access to an integrated wealth platform, which helps construct and manage sophisticated portfolio solutions across an entire account life cycle, particularly in the area of unified managed account trading. Envestnet | WMSs Overlay Portfolio Management console helps wealth managers efficiently build customized client portfolios that consider both proprietary and open-architecture investment solutions.
Operational Highlights
Revenues from assets under management (AUM) or assets under administration (AUA) or collectively (AUM/A) increased 26% from $59,580 in the three months ended September 30, 2013 to $74,899 in the three months ended September 30, 2014. Total revenues, which include licensing and professional service fees, increased 27% from $69,880 in the three months ended September 30, 2013 to $88,577 in the three months ended September 30, 2014.
Revenues from assets under management (AUM) or assets under administration (AUA) or collectively (AUM/A) increased 55% from $137,150 in the nine months ended September 30, 2013 to $212,707 in the nine months ended September 30, 2014. Total revenues, which include licensing and professional service fees, increased 50% from $168,137 in the nine months ended September 30, 2013 to $251,945 in the nine months ended September 30, 2014.
The increase in total revenues was a result of the positive effects of new account growth and positive net flows of AUM or AUA. Net income attributable to Envestnet, Inc. for the three months ended September 30, 2014 was $3,768, or $0.10 per diluted share, compared to $1,306, or $0.04 per diluted share for the three months ended September 30, 2013. Net income attributable to Envestnet, Inc. for the nine months ended September 30, 2014 was $10,481, or $0.28 per diluted share, compared to $2,965, or $0.08 per diluted share for the nine months ended September 30, 2013.
Adjusted revenues for the three months ended September 30, 2014 was $88,577, an increase of 27% from $69,880 in the prior year period. Adjusted EBITDA for the three months ended September 30, 2014 was $14,672, an increase of 46% from $10,041 in the prior year period. Adjusted net income for the three months ended September 30, 2014 was $7,903, or $0.21 per diluted share, compared to adjusted net income of $5,068, or $0.14 per diluted share in the prior year period.
Adjusted revenues for the nine months ended September 30, 2014 was $251,945, an increase of 50% from $168,297 in the prior year period. Adjusted EBITDA for the nine months ended September 30, 2014 was $39,310, an increase of 43% from $27,554 in the prior year period. Adjusted net income for the nine months ended September 30, 2014 was $20,843, or $0.57 per diluted share, compared to adjusted net income of $13,653, or $0.39 per diluted share in the prior year period.
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are non-GAAP financial measures. See Non-GAAP Financial Measures for a discussion of non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures.
Recent Events
Non-controlling Interest
Effective February 1, 2014, Envestnet formed Envestnet Retirement Solutions, LLC (ERS, LLC) with various third parties. ERS, LLC offers advisory and technology enabled services to financial advisors and retirement plans. In exchange for a 64.5% ownership interest in ERS, LLC, Envestnet contributed certain assets and has agreed to fund a certain amount of the operating expenses of ERS, LLC. As described below, due to the issuance of units related to the acquisition of Klein Decisions, Inc. (Klein) Envestnets ownership in ERS, LLC is 57% as of September 30, 2014.
Acquisition of Klein Decisions, Inc.
On July 1, 2014, ERS, LLC completed the acquisition of Klein. In accordance with the stock purchase agreement, ERS, LLC acquired all of the outstanding shares of Klein for cash consideration of approximately $1,288, a promissory note in the amount of $1,500, and estimated fair value of $3,285 in contingent consideration (with a minimum guaranteed amount of $1,175), to be paid over three years. The promissory note was paid by ERS, LLC on July 31, 2014. Klein develops dynamic decision systems that incorporate investor preferences, goals, and priorities into the investment process. ERS, LLC acquired Klein for its capabilities in delivering personal participant solutions, as well as its personnel to further build out ERSs business of serving advisors who support the small retirement plan market.
On July 9, 2014, ERS, LLC accepted the subscription of former owners of Klein (the Klein Parties) to purchase an 11.7% ownership interest of ERS, LLC for $1,500. The Klein Parties have the right to require ERS, LLC to repurchase units issued pursuant to the subscription anytime between 18 and approximately 36 months after July 1, 2014 for the amount of $1,500. This purchase obligation is guaranteed by Envestnet. After taking into account the subscription of the Klein Parties, the Envestnets ownership interest in ERS, LLC is 57%.
The results of Klein operations are included in the condensed consolidated statements of operations beginning July 1, 2014. The results are not material to Envestnet.
Acquisition of Placemark Holdings, Inc.
On October 1, 2014, Envestnet completed the acquisition (the Acquisition) of Placemark Holdings, Inc., a Delaware corporation (Placemark). Placemark develops Unified Managed Account (UMA) programs and other portfolio management outsourcing solutions, including patented portfolio overlay and tax optimization services, for banks, full-service broker-dealers and RIA firms.
Under the terms of the Acquisition, Envestnet paid approximately $66,000 in cash, subject to certain post-closing adjustments of which Envestnet is still in the process of completing. Envestnet funded the Acquisition with available cash and borrowings under its credit agreement (see Note 15 to the notes of the condensed consolidated financial statements).
For the three and nine months ended September 30, 2014, acquisition costs for Placemark totaled $580 and $994, respectively, and are included in general and administration expenses. Envestnet will incur additional Placemark related acquisition costs during the fourth quarter of 2014.
Credit Agreement
On June 19, 2014, Envestnet and certain of its subsidiaries entered into a credit agreement (the Credit Agreement) with a group of banks (the Banks), for which Bank of Montreal is acting as administrative agent, pursuant to which the Banks agreed to provide an unsecured revolving credit facility of $70,000 with a sublimit for the issuance of letters of credit of $5,000. Subject to certain conditions, Envestnet has the right to increase the facility by up to $25,000. The Credit Agreement is scheduled to terminate on June 19, 2017, at which time any aggregate principal amount of borrowings outstanding becomes payable in full. Any borrowings made under the Credit Agreement will accrue interest at rates between 1.25 percent and 1.75 percent above LIBOR based on Envestnets total leverage ratio. There is also a commitment fee equal to 0.25 percent per annum on the daily unused portion of the facility.
The Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants and events of default. The covenants include certain financial covenants requiring Envestnet to maintain compliance with a maximum senior leverage ratio, a maximum total leverage ratio, a minimum interest coverage ratio and minimum adjusted EBITDA, and provisions that limit the ability of Envestnet and its subsidiaries to incur debt, make investments, sell assets, create liens, engage in transactions with affiliates, engage in mergers and acquisitions, pay dividends and other restricted payments, grant negative pledges and change their business activities. Upon the occurrence of certain financial or economic events, significant corporate events, or certain other events constituting an event of default under the Credit Agreement, all borrowings outstanding may be declared immediately due and payable and all commitments under the agreement may be terminated. Envestnet had $30,000 of borrowings under the Credit Agreement at September 30, 2014. Envestnet incurred interest expense of $22 for the three and nine months ended September 30, 2014. Envestnet was in compliance with all covenants of the Credit Agreement as of September 30, 2014.
Recent Accounting Pronouncements
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for Envestnet on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. Envestnet is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. Envestnet has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
Key Operating Metrics
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, |
| |||||
|
|
2013 |
|
2013 |
|
2014 |
|
2014 |
|
2014 |
| |||||
|
|
(in millions, except accounts and advisors) |
| |||||||||||||
Platform Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Assets Under Management (AUM) |
|
$ |
41,932 |
|
$ |
45,706 |
|
$ |
49,383 |
|
$ |
53,063 |
|
$ |
54,935 |
|
Assets Under Administration (AUA) |
|
118,228 |
|
132,215 |
|
146,748 |
|
156,723 |
|
164,639 |
| |||||
Subtotal AUM/A |
|
160,160 |
|
177,921 |
|
196,131 |
|
209,786 |
|
219,574 |
| |||||
Licensing |
|
326,567 |
|
358,919 |
|
376,341 |
|
412,141 |
|
448,169 |
| |||||
Total Platform Assets |
|
$ |
486,727 |
|
$ |
536,840 |
|
$ |
572,472 |
|
$ |
621,927 |
|
$ |
667,743 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Platform Accounts |
|
|
|
|
|
|
|
|
|
|
| |||||
AUM |
|
200,648 |
|
211,039 |
|
226,452 |
|
239,367 |
|
255,359 |
| |||||
AUA |
|
456,461 |
|
524,806 |
|
566,139 |
|
596,886 |
|
642,192 |
| |||||
Subtotal AUM/A |
|
657,109 |
|
735,845 |
|
792,591 |
|
836,253 |
|
897,551 |
| |||||
Licensing |
|
1,425,102 |
|
1,508,254 |
|
1,559,188 |
|
1,659,313 |
|
1,830,678 |
| |||||
Total Platform Accounts |
|
2,082,211 |
|
2,244,099 |
|
2,351,779 |
|
2,495,566 |
|
2,728,229 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Advisors |
|
|
|
|
|
|
|
|
|
|
| |||||
AUM/A |
|
21,759 |
|
22,838 |
|
24,369 |
|
24,945 |
|
24,887 |
| |||||
Licensing |
|
7,511 |
|
7,794 |
|
8,025 |
|
8,583 |
|
11,266 |
| |||||
Total Advisors |
|
29,270 |
|
30,632 |
|
32,394 |
|
33,528 |
|
36,153 |
|
During the third quarter of 2014, approximately $3.2 billion in assets, 23,000 accounts and 1,100 advisors were reclassified from AUA to Licensing in connection with client conversion activity.
The following table provides information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated.
|
|
Asset Rollforward - Three Months Ended September 30, 2014 |
| |||||||||||||||||||
|
|
As of 6/30/14 |
|
Gross |
|
Redemptions |
|
Net Flows |
|
Market Impact |
|
Reclass to |
|
As of 9/30/14 |
| |||||||
|
|
(in millions except accounts) |
| |||||||||||||||||||
Assets under Management (AUM) |
|
$ |
53,063 |
|
$ |
5,404 |
|
$ |
(2,345 |
) |
$ |
3,059 |
|
$ |
(1,187 |
) |
$ |
|
|
$ |
54,935 |
|
Assets under Administration (AUA) |
|
156,723 |
|
25,765 |
|
(11,945 |
) |
13,820 |
|
(2,746 |
) |
(3,158 |
) |
164,639 |
| |||||||
Total AUM/A |
|
$ |
209,786 |
|
$ |
31,169 |
|
$ |
(14,290 |
) |
$ |
16,879 |
|
$ |
(3,933 |
) |
$ |
(3,158 |
) |
$ |
219,574 |
|
Fee-Based Accounts |
|
836,253 |
|
|
|
|
|
84,708 |
|
|
|
(23,410 |
) |
897,551 |
|
Gross sales for the three months ended September 30, 2014 included $12.8 billion in new client conversions included in the above AUM/A gross sales figures, and an additional $33.6 billion of conversions in Licensing. Also during the third quarter, approximately $3.2 billion in assets were reclassified from AUA to Licensing in connection with client conversion activity.
|
|
Asset Rollforward - Nine Months Ended September 30, 2014 |
| |||||||||||||||||||
|
|
As of 12/31/13 |
|
Gross |
|
Redemptions |
|
Net Flows |
|
Market Impact |
|
Reclass to |
|
As of 9/30/14 |
| |||||||
|
|
(in millions except accounts) |
| |||||||||||||||||||
Assets under Management (AUM) |
|
$ |
45,706 |
|
$ |
16,509 |
|
$ |
(8,043 |
) |
$ |
8,466 |
|
$ |
763 |
|
$ |
|
|
$ |
54,935 |
|
Assets under Administration (AUA) |
|
132,215 |
|
59,235 |
|
(27,563 |
) |
31,672 |
|
3,910 |
|
(3,158 |
) |
164,639 |
| |||||||
Total AUM/A |
|
$ |
177,921 |
|
$ |
75,744 |
|
$ |
(35,606 |
) |
$ |
40,138 |
|
$ |
4,673 |
|
$ |
(3,158 |
) |
$ |
219,574 |
|
Fee-Based Accounts |
|
735,845 |
|
|
|
|
|
185,116 |
|
|
|
(23,410 |
) |
897,551 |
|
Gross sales for the nine months ended September 30, 2014 included $23.2 billion in new client conversions included in the above AUM/A gross sales figures, and an additional $58.0 billion of conversions in Licensing. Also during the third quarter, approximately $3.2 billion in assets were reclassified from AUA to Licensing in connection with client conversion activity.
Metrics as of September 30, 2014 exclude placemark, which added approximately $15.4 billion in AUM, 45,000 accounts and 3,400 advisors as of October 1, 2014.
The mix of AUM and AUA was as follows for the periods indicated:
|
|
September 30, |
|
December 31, |
|
March 31, |
|
June 30, |
|
September 30, |
|
|
|
2013 |
|
2013 |
|
2014 |
|
2014 |
|
2014 |
|
Assets under management (AUM) |
|
31 |
% |
26 |
% |
25 |
% |
25 |
% |
25 |
% |
Assets under administration (AUA) |
|
69 |
% |
74 |
% |
75 |
% |
75 |
% |
75 |
% |
|
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Three months ended September 30, 2014 compared to three months ended September 30, 2013
|
|
Three Months Ended September 30, |
|
Increase (Decrease) |
| |||||||
|
|
2014 |
|
2013 |
|
Amount |
|
% |
| |||
|
|
(in thousands) |
|
|
| |||||||
Revenues: |
|
|
|
|
|