env-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-34835

Envestnet, Inc.

(Exact name of registrant as specified in its charter)


Delaware						20-1409613
(State or other jurisdiction of incorporation or organization)						(I.R.S Employer Identification No.)

1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania

19312

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(312) 827-2800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of exchange on which registered
Common Stock, par value $0.005 per share	ENV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

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

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

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

As of November 3, 2023, Envestnet, Inc. had 54,656,335 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Comprehensive Income (Loss)			5
Condensed Consolidated Statements of Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Unaudited Condensed Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			26
Overview			26
Results of Operations			32
Liquidity and Capital Resources			52

Item 3. Quantitative and Qualitative Disclosures About Market Risk			53

Item 4. Controls and Procedures			53

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			54

Item 1A. Risk Factors			54

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			54

Item 3. Defaults Upon Senior Securities			54

Item 4. Mine Safety Disclosures			54

Item 5. Other Information			54

Item 6. Exhibits			54

Index to Exhibits			55

Glossary of Terms			56

Signatures			57

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	43,211	$	162,173
Fees receivable, net	110,643		101,696
Prepaid expenses and other current assets	49,299		41,363
Total current assets	203,153		305,232
Property and equipment, net	65,785		62,443
Internally developed software, net	217,411		184,558
Intangible assets, net	346,211		379,995
Goodwill	998,381		998,414
Operating lease right-of-use assets, net	72,929		81,596
Other assets	127,019		99,927
Total assets	$	2,030,889	$	2,112,165
Liabilities and equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	224,385	$	233,866
Operating lease liabilities	13,297		11,949
Deferred revenue	32,563		36,363
Current portion of debt	—		44,886
Total current liabilities	270,245		327,064
Debt	875,390		871,769
Operating lease liabilities, net of current portion	102,717		110,652
Deferred tax liabilities, net	14,598		16,196
Other liabilities	16,138		18,880
Total liabilities	1,279,088		1,344,561
Commitments and contingencies (note 19)
Stockholders' equity
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2023 and December 31, 2022	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 70,950,023 and 70,025,733 shares issued as of September 30, 2023 and December 31, 2022, respectively; 54,648,721 and 54,013,826 shares outstanding as of September 30, 2023 and December 31, 2022, respectively	354		350
Treasury stock at cost, 16,301,302 and 16,011,907 shares as of September 30, 2023 and December 31, 2022, respectively	(270,555)		(253,551)
Additional paid-in capital	1,193,036		1,135,284
Accumulated deficit	(174,480)		(118,927)
Accumulated other comprehensive loss	(4,559)		(8,589)
Total stockholders’ equity, attributable to Envestnet, Inc.	743,796		754,567
Non-controlling interest	8,005		13,037
Total equity	751,801		767,604
Total liabilities and equity	$	2,030,889	$	2,112,165

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,				September 30,
	2023		2022		2023		2022
Revenue:
Asset-based	$	193,901	$	177,131	$	556,595	$	571,820
Subscription-based	114,939		123,747		346,977		356,601
Total recurring revenue	308,840		300,878		903,572		928,421
Professional services and other revenue	8,007		5,817		24,416		18,489
Total revenue	316,847		306,695		927,988		946,910
Operating expenses:
Direct expense	119,538		110,108		352,024		361,872
Employee compensation	113,334		116,837		344,646		369,453
General and administrative	49,063		47,388		156,028		157,867
Depreciation and amortization	34,311		33,408		101,058		97,208
Total operating expenses	316,246		307,741		953,756		986,400
Income (loss) from operations	601		(1,046)		(25,768)		(39,490)
Other expense, net	(4,369)		(5,346)		(19,706)		(9,691)
Loss before income tax provision (benefit)	(3,768)		(6,392)		(45,474)		(49,181)
Income tax provision (benefit)	(8,824)		2,271		15,363		(1,542)
Net income (loss)	5,056		(8,663)		(60,837)		(47,639)
Add: Net loss attributable to non-controlling interest	2,035		1,373		5,284		3,205
Net income (loss) attributable to Envestnet, Inc.	$	7,091	$	(7,290)	$	(55,553)	$	(44,434)
Net income (loss) attributable to Envestnet, Inc. per share:
Basic	$	0.13	$	(0.13)	$	(1.02)	$	(0.81)
Diluted	$	0.13	$	(0.13)	$	(1.02)	$	(0.81)
Weighted average common shares outstanding:
Basic	54,562,270		55,226,777		54,380,231		55,109,387
Diluted	54,970,616		55,226,777		54,380,231		55,109,387

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income (loss) attributable to Envestnet, Inc.	$	7,091	$	(7,290)	$	(55,553)	$	(44,434)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(151)		(1,479)		4,030		(6,050)
Total other comprehensive income (loss), net of tax	(151)		(1,479)		4,030		(6,050)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	6,940	$	(8,769)	$	(51,523)	$	(50,484)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share information)

(unaudited)


									Accumulated
							Additional		Other				Non-
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Accumulated		Controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity
Balance, December 31, 2022	70,025,733	$	350	(16,011,907)	$	(253,551)	$	1,135,284	$	(8,589)	$	(118,927)	$	13,037	$	767,604
Net loss	—	—		—	—		—		—		(41,228)		(1,533)		(42,761)
Other comprehensive income, net of tax	—	—		—	—		—		4,277		—		—		4,277
Stock-based compensation expense	—	—		—	—		19,345		—		—		108		19,453
Issuance of common stock, vesting of RSUs and PSUs	524,316	2		—	—		—		—		—		—		2
Net cash paid related to tax withholding for stock-based compensation	—	—		(173,612)	(10,732)		—		—		—		—		(10,732)
Proceeds from the exercise of stock options	37,454	—		—	—		367		—		—		—		367
Purchase of non-controlling units from third-party shareholders	—	—		—	—		(984)		—		—		(24)		(1,008)
Other	—	—		—	—		—		—		—		(22)		(22)
Balance, March 31, 2023	70,587,503	352		(16,185,519)	(264,283)		$	1,154,012	(4,312)		(160,155)		11,566		737,180
Net loss	—	—		—	—		—		—		(21,416)		(1,716)		(23,132)
Other comprehensive loss, net of tax	—	—		—	—		—		(96)		—		—		(96)
Stock-based compensation expense	—	—		—	—		21,347		—		—		43		21,390
Issuance of common stock, vesting of RSUs and PSUs	162,770	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(55,971)	(3,042)		—		—		—		—		(3,042)
Proceeds from the exercise of stock options	2,500	—		—	—		105		—		—		—		105

Other	—	—		—	—		—				—		52		52
Balance, June 30, 2023	70,752,773	353		(16,241,490)	(267,325)		$	1,175,464	(4,408)		(181,571)		9,945		732,458
Net income (loss)	—	—		—	—		—		—		7,091		(2,035)		5,056
Other comprehensive loss, net of tax	—	—		—	—		—		(151)		—		—		(151)
Stock-based compensation expense	—	—		—	—		17,205		—		—		93		17,298
Issuance of common stock, vesting of RSUs and PSUs	184,828	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(59,812)	(3,230)		—		—		—		—		(3,230)
Proceeds from the exercise of stock options	12,422	—		—	—		367		—		—		—		367
Other	—	—		—	—		—		—		—		2		2
Balance, September 30, 2023	70,950,023	$	354	(16,301,302)	$	(270,555)	$	1,193,036	$	(4,559)	$	(174,480)	$	8,005	$	751,801

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(in thousands, except share information)

(unaudited)


									Accumulated
							Additional		Other				Non-
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Accumulated		Controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity
Balance, December 31, 2021	68,879,152	$	344	(14,086,064)	$	(134,996)	$	1,131,628	$	(1,899)	$	(37,988)	$	2,453	$	959,542
Net loss	—	—		—	—		—		—		(13,859)		(849)		(14,708)
Other comprehensive loss, net of tax	—	—		—	—		—		(1,478)		—		—		(1,478)
Stock-based compensation expense	—	—		—	—		21,690		—		—		—		21,690
Issuance of common stock, vesting of RSUs and PSUs	514,319	3		—	—		—		—		—		—		3
Net cash paid related to tax withholding for stock-based compensation	—	—		(170,992)	(12,570)		—		—		—		—		(12,570)
Proceeds from the exercise of stock options	38,681	—		—	—		658		—		—		—		658
Other	—	—		—	—		(84)		—		—		102		18
Balance, March 31, 2022	69,432,152	347		(14,257,056)	(147,566)		1,153,892		(3,377)		(51,847)		1,706		953,155
Net loss	—	—		—	—		—		—		(23,285)		(983)		(24,268)
Other comprehensive loss, net of tax	—	—		—	—		—		(3,093)		—		—		(3,093)
Stock-based compensation expense	—	—		—	—		22,876		—		—		—		22,876
Issuance of common stock, vesting of RSUs and PSUs	232,328	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(78,506)	(5,543)		—		—		—		—		(5,543)
Proceeds from the exercise of stock options	2,503	—		—	—		84		—		—		—		84
Share repurchases	—	—		(152,020)	(9,235)		—		—		—		—		(9,235)
Other	—	—		—	—		(89)		—		—		104		15
Balance, June 30, 2022	69,666,983	348		(14,487,582)	(162,344)		1,176,763		(6,470)		(75,132)		827		933,992
Net loss	—	—		—	—		—		—		(7,290)		(1,373)		(8,663)
Other comprehensive loss, net of tax	—	—		—	—		—		(1,479)		—		—		(1,479)
Stock-based compensation expense	—	—		—	—		17,265		—		—		—		17,265
Issuance of common stock, vesting of RSUs and PSUs	162,187	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(55,984)	(2,500)		—		—		—		—		(2,500)
Proceeds from the exercise of stock options	37,618	—		—	—		1,817		—		—		—		1,817
Other	—	—		—	—		(221)		—		—		72		(149)
Balance, September 30, 2022	69,866,788	$	349	(14,543,566)	$	(164,844)	$	1,195,624	$	(7,949)	$	(82,422)	$	(474)	$	940,284

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(60,837)	$	(47,639)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	101,058		97,208
Deferred income taxes	(1,458)		(4,380)
Release of uncertain tax positions	—		(3,095)
Non-cash compensation expense	58,141		62,583
Non-cash interest expense	6,822		5,436
Loss allocations from equity method investments	8,240		5,332
Fair market value adjustment to investment in private company	(2,804)		—
Dilution gain on equity method investee share issuance	(546)		(6,934)
Lease related impairments	2,483		14,050
Loss on property and equipment disposals - office closures	—		3,710
Other	1,155		(149)
Changes in operating assets and liabilities:
Fees receivable, net	(9,621)		1,546
Prepaid expenses and other assets	(17,534)		(12,524)
Accounts payable, accrued expenses and other liabilities	(1,848)		(26,580)
Deferred revenue	(3,974)		(2,329)
Net cash provided by operating activities	79,277		86,235
Cash flows from investing activities:
Purchases of property and equipment	(18,275)		(13,114)
Capitalization of internally developed software	(71,117)		(67,755)
Acquisitions of businesses, net of cash acquired	—		(104,185)
Investments in private companies	(4,175)		(16,351)
Acquisition of proprietary technology	(12,000)		(19,000)
Issuance of loan receivable to private company	(20,000)		—
Issuance of note receivable to equity method investees	—		(6,350)
Other	400		—
Net cash used in investing activities	(125,167)		(226,755)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility	55,000		—
Payments related to Revolving Credit Facility	(55,000)		(1,872)
Payments related to Convertible Notes	(45,000)		—
Payments on finance lease obligations	(5,511)		(14,544)
Proceeds from exercise of stock options	839		2,559
Payments related to tax withholdings for stock-based compensation	(17,004)		(20,613)
Payments related to share repurchases	(9,289)		(9,235)
Purchase of non-controlling units from third-party shareholders	(1,008)		—
Payments of contingent consideration	—		(750)
Other	4		5
Net cash used in financing activities	(76,969)		(44,450)
Effect of exchange rate on changes on cash, cash equivalents and restricted cash	3,897		(3,128)
Net change in cash, cash equivalents and restricted cash	(118,962)		(188,098)
Cash, cash equivalents and restricted cash, beginning of period	162,173		429,428
Cash, cash equivalents and restricted cash, end of period	$	43,211	$	241,330
Supplemental disclosures of cash flow information
Net cash paid for income taxes	$	13,552	$	7,916
Cash paid for interest	$	12,231	$	7,851
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares	$	4,129	$	2,623
Right-of-use assets obtained in exchange for lease liabilities, net	$	359	$	11,805
Property and equipment acquired through finance lease	$	5,511	$	15,382
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities	$	930	$	1,370

Membership interest liabilities included in other liabilities	$	—	$	752

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

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

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

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

Glossary of Terms.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 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, 2022 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 2023 and results of operations, equity, comprehensive income (loss) and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a functional currency other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenue and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the unaudited condensed consolidated balance sheets as accumulated other comprehensive income (loss) within stockholders' equity. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations to be expected for other interim periods or for the full fiscal year.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the 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. References to GAAP in these notes are to the FASB ASC and ASUs. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 28, 2023.

Use of Estimates

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

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Reclassifications

Certain amounts in the condensed consolidated balance sheets as of December 31, 2022 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2022 have been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, or net change in cash and cash equivalents and did not affect the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 3.8% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. Revenue from the private services company totaled $2.8 million and $3.7 million in the three months ended September 30, 2023 and 2022, respectively. Revenue from the private services company totaled $9.7 million and $12.7 million in the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the Company recorded a net receivable from the private services company of $1.8 million and $2.0 million, respectively.

Recent Accounting Pronouncements Not Yet Adopted

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” This update amends ASC 842 and the accounting for leasehold improvements associated with common control leases. This standard is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the consolidated financial statements.

3.Acquisitions

Acquisition of Redi2 Technologies

On July 1, 2022, the Company completed the acquisition of all of the issued and outstanding shares of Redi2 Technologies ("Redi2"). Redi2 provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. Redi2 has been integrated into the Envestnet Wealth Solutions segment.

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





Cash consideration, net	$	69,406
Working capital adjustment	(533)
Total	$	68,873

The Company funded the Redi2 acquisition with available cash resources. In addition, certain executives may earn up to $20.0 million in performance bonuses based upon the achievement of certain target financial and non-financial metrics. These performance bonuses will be recognized as compensation and benefits expense in the condensed consolidated statements of operations. The Company recognized $0.4 million and $1.9 million related to these performance bonuses during the three and nine months ended September 30, 2023, respectively.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table summarizes the final fair values of the assets acquired and liabilities assumed as of the acquisition date (in thousands):





Total current assets	$	1,985
Other non-current assets	3,321
Identifiable intangible assets	26,500
Goodwill	46,467
Total assets acquired	78,273

Accounts payable, accrued expenses and other current liabilities	(2,428)
Operating lease liabilities	(2,201)
Deferred revenue	(4,771)
Total liabilities assumed	(9,400)
Total net assets acquired, net of cash received	$	68,873

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

A summary of intangible assets acquired is as follows:


	Gross Carrying Amount		Estimated Useful Life	Amortization Method

	(in thousands)		(in years)
Customer lists	$	14,000	14 - 16	Accelerated
Proprietary technologies	9,500		6	Straight-line
Trade names	3,000		6 - 7	Straight-line
Total intangible assets acquired	$	26,500

The Company completed the acquisition accounting related to the Redi2 acquisition during the six months ended June 30, 2023.

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

During the three and nine months ended September 30, 2023, the Company’s acquisition related costs included in general and administrative expense in the condensed consolidated statements of operations were not material.

4.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	September 30,		December 31,
	2023		2022

	(in thousands)
Prepaid technology	$	16,500	$	16,649

Income tax prepayments and receivables	6,785		2,515
Prepaid insurance	4,487		2,881
Non-income tax receivable	4,231		5,488

Other	17,296		13,830
Total prepaid expenses and other current assets	$	49,299	$	41,363

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

5.Internally Developed Software, Net

Internally developed software, net consisted of the following:


		September 30,		December 31,
	Estimated Useful Life	2023		2022

		(in thousands)
Internally developed software	5 years	$	383,041	$	313,200
Less: accumulated amortization		(165,630)		(128,642)
Internally developed software, net		$	217,411	$	184,558

6.Geographical Information

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


	September 30,		December 31,
	2023		2022

	(in thousands)
United States	$	280,589	$	245,817
India	2,607		1,093
Other	—		91
Total long-lived assets, net	$	283,196	$	247,001

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

7.Intangible Assets, Net

Intangible assets, net consisted of the following:


			September 30, 2023						December 31, 2022
			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
			Amount		Amortization		Amount		Amount		Amortization		Amount

			(in thousands)
Customer lists			$	604,080	$	(316,805)	$	287,275	$	604,080	$	(285,288)	$	318,792
Proprietary technologies			86,057		(32,735)		53,322		113,224		(59,401)		53,823
Trade names			15,700		(10,086)		5,614		15,700		(8,320)		7,380
Total intangible assets	$	705,837	$	(359,626)	$	346,211	$	733,004	$	(353,009)	$	379,995

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

On May 19, 2023, the Company entered into a purchase agreement with this same privately held company to acquire technology solutions being developed by this privately held company for a purchase price of $7.0 million, including an advance of $2.0 million. In addition, the prior purchase agreements that were entered into with this privately held company in June 2021 and April 2022 were amended in May 2023 to remove the earn-out payment provisions.

During the nine months ended September 30, 2023, the Company retired fully amortized proprietary technologies with a historical cost of $40.5 million.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Future amortization expense of the Company's intangible assets as of September 30, 2023, is expected to be as follows (in thousands):



Remainder of 2023	$	15,012
2024	55,968
2025	52,573
2026	45,048
2027	36,283
Thereafter	141,327
Total	$	346,211

8.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands)
Intangible asset amortization	$	15,124	$	18,649	$	47,784	$	53,814
Internally developed software amortization	13,500		9,441		36,988		27,022
Property and equipment depreciation	5,687		5,318		16,286		16,372
Total depreciation and amortization	$	34,311	$	33,408	$	101,058	$	97,208

9.Goodwill

Changes in the carrying amount of goodwill by reportable segment were as follows:


	Envestnet Wealth Solutions		Envestnet Data & Analytics		Total

	(in thousands)
Balance as of December 31, 2022	$	679,739	$	318,675	$	998,414



Foreign currency translation	—		(33)		(33)
Balance as of September 30, 2023	$	679,739	$	318,642	$	998,381

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

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

10.Other Assets

On January 31, 2023, the Company entered into a Convertible Promissory Note with a customer of the Company's business, a privately held company, whereby the Company was issued a convertible promissory note with a principal amount of $20.0 million and a stated interest rate of 8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified financing events or corporate transactions. During the three and nine months ended September 30, 2023, interest income related to the Convertible Promissory Note included in other expense, net in the condensed consolidated statements of operations was $0.4 million and $1.1 million, respectively.

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

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

11.Accounts Payable, Accrued Expenses and Other Current Liabilities

Accounts payable, accrued expenses and other current liabilities consisted of the following:


	September 30,		December 31,
	2023		2022

	(in thousands)
Accrued investment manager fees	$	110,496	$	99,851
Accrued compensation and related taxes	69,943		77,939
Accounts payable	16,594		11,271
Accrued professional services	9,779		10,762
Accrued interest	5,654		3,091
Accrued technology	5,285		6,393



Accrued treasury stock purchases	—		9,289

Other accrued expenses	6,634		15,270
Total accounts payable, accrued expenses and other current liabilities	$	224,385	$	233,866

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

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

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table presents a reconciliation of the beginning and ending liability balance related to these efforts, which is primarily included within "Accrued compensation and related taxes" in the table above.


	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Balance as of December 31, 2022	$	11,929	$	3,439	$	—	$	15,368
Severance expense	9,931		11,849		4,124		25,904
Cash payments	(14,170)		(9,535)		(4,124)		(27,829)

Balance as of September 30, 2023	$	7,690	$	5,753	$	—	$	13,443

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

12.Debt

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


	September 30, 2023
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2025	317,500		(3,419)		314,081		293,875
Convertible Notes due 2027	575,000		(13,691)		561,309		523,595
Total debt	$	892,500	$	(17,110)	$	875,390	$	817,470


	December 31, 2022
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2023	45,000		(114)		44,886		46,058
Convertible Notes due 2025	317,500		(4,765)		312,735		293,688
Convertible Notes due 2027	575,000		(15,966)		559,034		606,119
Total debt	$	937,500	$	(20,845)	$	916,655	$	945,865

Revolving Credit Facility

The Revolving Credit Facility contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio and a minimum interest coverage ratio. The Company was in compliance with these financial covenants as of September 30, 2023.

As of September 30, 2023 and December 31, 2022 there were no amounts outstanding under the Revolving Credit Facility, and all $500.0 million was available to borrow as of September 30, 2023.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

As of September 30, 2023 and December 31, 2022, debt issuance costs related to the Revolving Credit Facility included in prepaid expense and other current assets in the condensed consolidated balance sheets was $0.7 million and $0.7 million, respectively, and included in other assets in the condensed consolidated balance sheets was $1.6 million and $2.2 million, respectively.

Convertible Notes due 2023

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

Interest Expense

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022

	(in thousands)
Convertible Notes interest	$	4,368	$	2,479	$	13,476	$	7,439
Amortization of debt discount and issuance costs	1,389		1,443		4,258		4,917
Undrawn and other fees	312		320		936		951
Revolving Credit Facility interest	133		—		383		—
Total interest expense	$	6,202	$	4,242	$	19,053	$	13,307

The effective interest rate of the Convertible Notes was equal to the stated interest rate plus the amortization of the debt issuance costs and is set forth below:


	September 30,		September 30,
	2023		2022

Convertible Notes due 2023	N/A		2.4	%
Convertible Notes due 2025	1.3	%	1.3	%
Convertible Notes due 2027	3.2	%	N/A

13.Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, based on the three-tier fair value hierarchy, as described in detail within the Company's Annual Report on Form 10-K:


	September 30, 2023
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	22,701	$	22,701	$	—	$	—

Assets to fund deferred compensation liability	10,366		—		—		10,366
Total assets	$	33,067	$	22,701	$	—	$	10,366
Liabilities:

Deferred compensation liability	7,849		7,849		—		—
Total liabilities	$	7,849	$	7,849	$	—	$	—

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)


	December 31, 2022
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	2,628	$	2,628	$	—	$	—
Assets to fund deferred compensation liability	10,074		—		—		10,074
Total assets	$	12,702	$	2,628	$	—	$	10,074
Liabilities:

Deferred compensation liability	8,088		8,088		—		—
Total liabilities	$	8,088	$	8,088	$	—	$	—

The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or when changes in circumstances caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the nine months ended September 30, 2023 and 2022.

Fair Value of Assets Used to Fund the Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund the Company's deferred compensation liability, which is measured at fair value on a recurring basis u