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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 March 31, 2024
or
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
env-logo.jpg
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-1409613
(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 classTrading symbol(s)Name of exchange on which registered
Common Stock, par value $0.005 per shareENVNew 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 filerý 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 May 3, 2024, Envestnet, Inc. had 55,109,097 shares of common stock outstanding.



TABLE OF CONTENTS
Page





Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
March 31,December 31,
20242023
Assets
Current assets:
Cash and cash equivalents$61,226 $91,378 
Fees receivable, net135,630 120,958 
Prepaid expenses and other current assets53,330 51,472 
Assets held for deconsolidation
55,016  
Total current assets305,202 263,808 
Property and equipment, net46,856 48,223 
Internally developed software, net214,507 224,713 
Intangible assets, net323,326 338,068 
Goodwill779,916 806,563 
Operating lease right-of-use assets, net67,127 69,154 
Other assets127,111 126,723 
Total assets$1,864,045 $1,877,252 
Liabilities and equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities$201,126 $241,424 
Operating lease liabilities12,479 12,909 
Deferred revenue34,584 38,201 
Liabilities held for deconsolidation
8,998  
Total current liabilities257,187 292,534 
Debt
877,842 876,612 
Operating lease liabilities, net of current portion98,085 100,830 
Deferred tax liabilities, net15,716 16,568 
Other liabilities17,897 16,202 
Total liabilities1,266,727 1,302,746 
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2024 and December 31, 2023
  
Common stock, par value $0.005, 500,000,000 shares authorized; 71,633,071 and 71,129,801 shares issued as of March 31, 2024 and December 31, 2023, respectively; 55,099,000 and 54,773,662 shares outstanding as of March 31, 2024 and December 31, 2023, respectively
358 355 
Treasury stock at cost, 16,534,071 and 16,356,139 shares as of March 31, 2024 and December 31, 2023, respectively
(281,022)(272,573)
Additional paid-in capital1,225,270 1,206,627 
Accumulated deficit(355,138)(357,651)
Accumulated other comprehensive loss
(8,571)(8,567)
Total stockholders’ equity, attributable to Envestnet, Inc.580,897 568,191 
Non-controlling interest16,421 6,315 
Total equity597,318 574,506 
Total liabilities and equity$1,864,045 $1,877,252 

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
March 31,
20242023
Revenue:
Asset-based$202,616 $176,932 
Subscription-based117,462 117,079 
Total recurring revenue320,078 294,011 
Professional services and other revenue4,872 4,696 
Total revenue324,950 298,707 
Operating expenses:
Direct expense126,633 109,679 
Employee compensation103,652 114,215 
General and administrative52,065 54,350 
Depreciation and amortization33,892 31,520 
Total operating expenses316,242 309,764 
Income (loss) from operations
8,708 (11,057)
Other expense, net
(6,664)(7,935)
Income (loss) before income tax provision
2,044 (18,992)
Income tax provision
1,505 23,769 
Net income (loss)
539 (42,761)
Add: Net loss attributable to non-controlling interest1,974 1,533 
Net income (loss) attributable to Envestnet, Inc.
$2,513 $(41,228)
Net income (loss) attributable to Envestnet, Inc. per share:
Basic
$0.05 $(0.76)
Diluted
$0.05 $(0.76)
Weighted average common shares outstanding:
Basic
54,884,074 54,143,259 
Diluted
55,385,066 54,143,259 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.



Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
Three Months Ended
March 31,
20242023
Net income (loss) attributable to Envestnet, Inc.
$2,513 $(41,228)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(4)4,277 
Total other comprehensive income (loss), net of tax(4)4,277 
Comprehensive income (loss) attributable to Envestnet, Inc.
$2,509 $(36,951)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.




Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share information)
(unaudited)

Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapital
Loss
DeficitInterestEquity
Balance, December 31, 202371,129,801 $355 (16,356,139)$(272,573)$1,206,627 $(8,567)$(357,651)$6,315 $574,506 
Net income (loss)— — — — — — 2,513 (1,974)539 
Other comprehensive loss, net of tax— — — — — (4)— — (4)
Stock-based compensation expense— — — — 18,572 — — 326 18,898 
Issuance of common stock, vesting of RSUs and PSUs
483,237 3 — — — — — — 3 
Net cash paid related to tax withholding for stock-based compensation— — (177,932)(8,449)— — — — (8,449)
Proceeds from the exercise of stock options20,033 — — — 71 — — — 71 
Proceeds from capital contributions received by non-controlling interest— — — — — — — 12,012 12,012 
Other— — — — — — — (258)(258)
Balance, March 31, 202471,633,071 $358 (16,534,071)$(281,022)$1,225,270 $(8,571)$(355,138)$16,421 $597,318 
Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202270,025,733 $350 (16,011,907)$(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 PSUs524,316 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 options37,454 — — — 367 — — — 367 
Purchase of non-controlling units from third-party shareholders— — — — (984)— — (24)(1,008)
Other— — — — — — — (22)(22)
Balance, March 31, 202370,587,503 $352 (16,185,519)$(264,283)$1,154,012 $(4,312)$(160,155)$11,566 $737,180 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.



Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended
March 31,
20242023
Cash flows from operating activities:
Net income (loss)$539 $(42,761)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization33,892 31,520 
Deferred income taxes(855)5,221 
Non-cash compensation expense18,898 19,453 
Non-cash interest expense4,580 4,498 
Loss allocations from equity method investments2,283 2,940 
Other2,078 468 
Changes in operating assets and liabilities:
Fees receivable, net(18,841)(21,579)
Prepaid expenses and other assets(2,371)(9,858)
Accounts payable, accrued expenses and other liabilities(40,659)(31,648)
Deferred revenue2,400 8,073 
Net cash provided by (used in) operating activities1,944 (33,673)
Cash flows from investing activities:
Purchases of property and equipment(1,900)(4,402)
Capitalization of internally developed software(19,953)(23,664)
Investments in private companies(2,805)(950)
Acquisition of proprietary technology (10,000)
Issuance of loan receivable to private company (20,000)
Other 260 
Net cash used in investing activities(24,658)(58,756)
Cash flows from financing activities:
Proceeds from exercise of stock options71 367 
Payments related to tax withholdings for stock-based compensation(8,449)(10,732)
Payments related to share repurchases (9,289)
Proceeds from capital contributions received by non-controlling interest
12,012  
Purchase of non-controlling units from third-party shareholders (1,008)
Other3 2 
Net cash provided by (used in) financing activities
3,637 (20,660)
Effect of exchange rate on changes on cash and cash equivalents
(2)3,580 
Net change in cash and cash equivalents due to cash reclassified to assets held for deconsolidation
(11,073) 
Net change in cash and cash equivalents
(30,152)(109,509)
Cash and cash equivalents, beginning of period
91,378 162,173 
Cash and cash equivalents, end of period
$61,226 $52,664 
Supplemental disclosures of cash flow information
Net cash paid for income taxes$568 $1,110 
Cash paid for interest$1,509 $1,822 
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares$ $4,129 
Right-of-use assets obtained in exchange for lease liabilities, net$ $206 
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities$1,349 $2,018 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

Envestnet, through its subsidiaries, 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 is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that its clients can better serve their clients.

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. 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.

For a summary of commonly used industry terms and abbreviations used in this Quarterly Report, 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 March 31, 2024 and for the three months ended March 31, 2024 and 2023 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 the Company's audited consolidated financial statements for the year ended December 31, 2023 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of March 31, 2024 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 months ended March 31, 2024 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, filed with the SEC on February 28, 2024.

Segment Reporting

On October 1, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. All segment information presented within this Quarterly Report is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.
Correction of Immaterial Error

During the fourth quarter of 2023, the Company identified that the arrangement with a third-party for the use of cloud hosted virtual servers which was previously accounted for as a finance lease transaction and included as a component of


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
property and equipment, net in the condensed consolidated balance sheets should have been recognized as a prepayment included within prepaid expenses and other current assets and other assets in the condensed consolidated balance sheets. The Company concluded that the classification of these transactions was immaterial in prior period financial statements and that amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior period reported within this Quarterly Report.
In the condensed consolidated statements of operations for the three months ended March 31, 2023, these adjustments resulted in an increase in direct expense of $0.7 million, an increase in general and administrative expense of $0.7 million and a corresponding decrease in depreciation and amortization expense of $1.4 million. In the condensed consolidated statements of cash flows for the three months ended March 31, 2023, these adjustments resulted in a decrease in net cash provided by operating activities of $0.2 million and a corresponding decrease in net cash used in financing activities of $0.2 million.
Assets and Liabilities Held for Sale

Assets and the related liabilities are classified as held for sale in the period in which all of the following criteria are met: management commits to a plan of sale, the assets are available for immediate sale, an active program to locate a buyer has been initiated, the assets are actively marketed at a reasonable price, the sale is probable within one year and significant changes to the plan are unlikely. Assets and liabilities classified as held for sale are presented separately in the condensed consolidated balance sheets at the lower of their carrying amount and fair value, less costs to sell for each reporting period they meet the held for sale criteria. Depreciation and amortization expense is not recognized on long-lived assets once they are classified as assets held for sale. Unless otherwise specified, the amounts and information presented in the notes do not include assets and liabilities classified as held for sale as of March 31, 2024. See "Note 3— Assets and Liabilities Held for Deconsolidation" for additional information.
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.

 Reclassifications

Certain amounts in the condensed consolidated statements of cash flows for the three months ended March 31, 2023 have been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported net change in cash and cash equivalents and did not affect the condensed consolidated balance sheets, condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 3.7% 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 $2.6 million and $3.6 million in the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company recorded a net receivable from the private services company of $0.7 million and $1.7 million, respectively.

Recently Adopted Accounting Pronouncements

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. The Company adopted this standard as of January 1, 2024 and it did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This update amends the requirements for segment disclosures. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This update amends the requirements for income tax disclosures. This standard is effective for fiscal years beginning after December 15, 2024. 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 Company's consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, "Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards." This update clarifies how to account for profits interest and similar awards. This standard is effective for fiscal years beginning after December 15, 2024, and 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 Company's consolidated financial statements.

In March 2024, the SEC adopted “The Enhancement and Standardization of Climate-Related Disclosures for Investors” that requires public companies to disclose information about the material impacts of climate-related risks on their business, financial condition and governance. These rules are effective, pending judicial review, starting with fiscal year 2025. The Company is analyzing the impact of these rules and has not yet determined the impact on the Company's consolidated financial statements and related disclosures.

3.Assets and Liabilities Held for Deconsolidation

As of March 31, 2024, the Company held a controlling financial interest in a private company due to its majority representation on the company’s board and, as such, used the consolidation method of accounting to include the private company’s assets, liabilities and results of operations within the Envestnet Wealth Solutions segment of the Company’s condensed consolidated financial statements.

During the three months ended March 31, 2024, this private company entered into an amended operating agreement with its members which will result in Envestnet no longer having majority representation of the company's board and therefore no longer holding a controlling financial interest in the private company as of April 1, 2024. Upon no longer having controlling financial interest, Envestnet will deconsolidate the private company's assets, liabilities and results of operations. This transaction qualifies for fair value measurement which results in it being considered a sale. This plan of sale meets the held for sale criteria as of March 31, 2024 and therefore the assets and related liabilities of this private company were classified as held for deconsolidation in the Company's condensed consolidated balance sheets as of March 31, 2024.


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Assets and liabilities held for deconsolidation consisted of the following:

March 31,
 2024
(in thousands)
Cash and cash equivalents$11,073 
Fees receivable, net2,319 
Prepaid expenses and other current assets513 
Internally developed software, net14,090 
Goodwill (1)
26,647 
Other assets374 
Total assets held for deconsolidation
$55,016 
Accounts payable, accrued expenses and other current liabilities$2,463 
Deferred revenue5,085 
Other liabilities1,450 
Total liabilities held for deconsolidation
$8,998 
__________________________________________________________
(1) The assignment of goodwill was based on the relative fair value of the private company and the Envestnet Wealth Solutions reporting unit prior to the private company being classified as held for deconsolidation.

Effective April 1, 2024, the Company no longer had a controlling financial interest in the private company which will result in the derecognition of the carrying amount of the noncontrolling interest as of April 1, 2024, the derecognition of the above assets and liabilities held for deconsolidation and which may result in the recognition of a gain during the three months ended June 30, 2024. This transaction does not represent a strategic shift and therefore does not meet the criteria to be classified as discontinued operations. The Company will apply the equity method to account for its noncontrolling investment in this private company starting April 1, 2024.

4.Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets consisted of the following:

March 31,December 31,
 20242023
(in thousands)
Prepaid technology$17,275 $14,630 
Income tax prepayments and receivables8,441 9,625 
Prepaid data servers7,147 7,991 
Elevate Summit prepayments and deposits3,932 773 
Non-income tax receivable3,507 4,041 
Prepaid insurance1,113 2,785 
Other11,915 11,627 
Total prepaid expenses and other current assets$53,330 $51,472 
  


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
5.Internally Developed Software, Net

Internally developed software, net consisted of the following:

  March 31,December 31,
 Estimated Useful Life20242023
(in thousands)
Internally developed software5 years$398,021 $405,078 
Less: accumulated amortization (183,514)(180,365)
Internally developed software, net $214,507 $224,713 

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:

 March 31,December 31,
 20242023
(in thousands)
United States$259,085 $270,381 
India2,278 2,555 
Total long-lived assets, net$261,363 $272,936 

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:

 March 31, 2024December 31, 2023
 Gross NetGross Net
 CarryingAccumulatedCarryingCarryingAccumulatedCarrying
 AmountAmortizationAmountAmountAmortizationAmount
(in thousands)
Customer lists$595,400 $(328,293)$267,107 $604,080 $(327,042)$277,038 
Proprietary technologies90,058 (38,476)51,582 93,058 (37,052)56,006 
Trade names11,000 (6,363)4,637 15,700 (10,676)5,024 
Total intangible assets$696,458 $(373,132)$323,326 $712,838 $(374,770)$338,068 

During the three months ended March 31, 2024 and 2023, the Company retired fully amortized intangible assets with historical costs of $16.4 million and $17.5 million, respectively.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The estimated future amortization expense of the Company's intangible assets as of March 31, 2024 was as follows (in thousands):

Remainder of 2024$42,626 
202553,973 
202646,448 
202737,672 
202830,296 
Thereafter112,311 
Total$323,326 

8.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:

Three Months Ended
 March 31,
20242023
(in thousands)
Intangible asset amortization$14,742 $16,940 
Internally developed software amortization15,868 11,090 
Property and equipment depreciation3,282 3,490 
Total depreciation and amortization$33,892 $31,520 

9.Goodwill

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

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Balance as of December 31, 2023$710,326 $96,237 $806,563 
Goodwill reclassified to assets held for deconsolidation (1)
(26,647) (26,647)
Balance as of March 31, 2024$683,679 $96,237 $779,916 
__________________________________________________________
(1) The reclassification of goodwill to assets held for deconsolidation was considered an event or change in circumstance which required goodwill to be tested for impairment as of March 31, 2024. A qualitative assessment was performed and it was determined that it was not more likely than not that the carrying value of the reporting unit exceeded its fair value and therefore a quantitative goodwill impairment evaluation was not required and no impairment was recorded.



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 months ended March 31, 2024 and 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 $0.3 million, respectively.

The Company accounts for this Convertible Promissory Note as a loan receivable in accordance with ASC 310 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 three months ended March 31, 2024.

11.Accounts Payable, Accrued Expenses and Other Current Liabilities
 
Accounts payable, accrued expenses and other current liabilities consisted of the following:

March 31,December 31,
 20242023
(in thousands)
Accrued investment manager fees$116,092 $106,612 
Accrued compensation and related taxes36,603 72,466 
Accounts payable22,765 35,738 
Accrued professional services10,482 14,289 
Accrued interest5,648 2,473 
Accrued technology4,349 4,151 
Other accrued expenses5,187 5,695 
Total accounts payable, accrued expenses and other current liabilities$201,126 $241,424 

As of March 31, 2024 the Company had an ending liability balance of $7.2 million primarily in connection with a reduction in force initiative that began during the first quarter of 2023. The Company anticipates approximately $4.6 million to be paid during the remainder of 2024, $1.7 million to be paid throughout 2025, with the remaining balance paid through 2030.

The following table presents a reconciliation of the beginning and ending liability balance related to this effort, which is primarily included within accrued compensation and related taxes in the table above.

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
(in thousands)
Balance as of December 31, 2023$9,793 $486 $ $10,279 
Severance expense
1,804 13 1,608 3,425 
Cash payments(4,442)(499)(1,608)(6,549)
Balance as of March 31, 2024$7,155 $ $ $7,155 



Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
12.Debt

The following tables set forth the carrying value and estimated fair value of the Company's debt obligations as of March 31, 2024 and December 31, 2023:

 March 31, 2024
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$ $ $ $ 
Convertible Notes due 2025317,500 (2,514)314,986 309,404 
Convertible Notes due 2027575,000 (12,144)562,856 609,500 
Total debt$892,500 $(14,658)$877,842 $918,904 

 December 31, 2023
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$ $ $ $ 
Convertible Notes due 2025317,500 (2,968)314,532 294,958 
Convertible Notes due 2027575,000 (12,920)562,080 571,746 
Total debt$892,500 $(15,888)$876,612 $866,704 

Revolving Credit Facility

The Revolving Credit Facility provides for a $500.0 million revolving line of credit, including a sub-facility for a $20.0 million letter of credit. There were no amounts outstanding under the Revolving Credit Facility as of March 31, 2024 and December 31, 2023.

As of March 31, 2024 and December 31, 2023, debt issuance costs related to the Revolving Credit Facility included in prepaid expenses 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 $1.3 million and $1.5 million, respectively.

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.

On February 20, 2024, the Company entered into a Waiver with respect to the Revolving Credit Facility, between the Company, the Guarantors party thereto from time to time, the Lenders party thereto from time to time and Bank of Montreal, as administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and June 30, 2023. The Company was in compliance with all other covenants in the Revolving Credit Facility as of March 31, 2024.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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
 March 31,
 20242023
(in thousands)
Convertible Notes interest$4,369 $4,565 
Amortization of debt discount and issuance costs1,405 1,442 
Undrawn and other fees315 313 
 Total interest expense$6,089 $6,320 

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:

Three Months Ended
 March 31,
 20242023
Convertible Notes due 2023N/A2.4 %
Convertible Notes due 20251.3 %1.3 %
Convertible Notes due 20273.2 %3.2 %

13.Fair Value Measurements
  
The following tables set forth the Company's financial assets and liabilities measured at fair value on a recurring basis, based on the three-tier fair value hierarchy, as described in detail within the Company's Annual Report:

 March 31, 2024
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$30,347 $30,347 $ $ 
Assets to fund deferred compensation liability11,373   11,373 
Total assets$41,720 $30,347 $ $11,373 
Liabilities:    
Deferred compensation liability$9,291 $9,291 $ $ 
Total liabilities$9,291 $9,291 $ $ 

 December 31, 2023
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$51,653 $51,653 $ $ 
Assets to fund deferred compensation liability10,961   10,961 
Total assets$62,614 $51,653 $ $10,961 
Liabilities:    
Deferred compensation liability$8,045 $8,045 $ $ 
Total liabilities$8,045 $8,045 $ $ 


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 cause 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 three months ended March 31, 2024.

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 using significant unobservable inputs (Level III):

 Fair Value of Assets Used to Fund Deferred Compensation Liability
(in thousands)
Balance as of December 31, 2023$10,961 
Fair value adjustments and fees412 
Balance as of March 31, 2024$11,373 

The fair market value of the assets used to fund the Company's deferred compensation liability is measured using the cash surrender value of the Company's life insurance premiums and is included in other assets in the condensed consolidated balance sheets. Changes in fair value, if any, are recognized in the Company's earnings and included in general and administrative expense in the condensed consolidated statements of operations.

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities as of March 31, 2024 and December 31, 2023, and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on March 31, 2024 and December 31, 2023, respectively (See “Note 12—Debt”).

Fair Value of Other Financial Assets and Liabilities

The Company considered the recorded value of its other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities as of March 31, 2024 and December 31, 2023, based upon the short-term nature of these assets and liabilities.



Table of Contents
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
14.Revenue and Direct Expense

Disaggregation of Revenue
 
The following table presents the Company’s revenue by segment disaggregated by major source:

 Three Months Ended March 31,
 20242023
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotalEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Revenue:      
Asset-based$202,616 $ $202,616 $176,932 $ $176,932 
Subscription-based84,168 33,294 117,462 80,470 36,609 117,079 
Total recurring revenue286,784 33,294 320,078 257,402 36,609 294,011 
Professional services and other revenue3,026 1,846 4,872 3,247 1,449 4,696 
Total revenue$289,810 $35,140 $324,950 $260,649 $38,058 $298,707 

The following table presents the Company’s revenue disaggregated by geography, based on the billing address of the customer:

 Three Months Ended
 March 31,
 20242023
(in thousands)
United States$319,571 $293,214 
International5,379 5,493 
Total revenue$324,950 $298,707 

Remaining Performance Obligations
 
As of March 31, 2024, the Company's estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $554.5 million. The Company expects to recognize approximately 31% of this revenue during the remainder of 2024, approximately 50% throughout 2025 and 2026, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future periods.

Contract Balances

Total deferred revenue as of March 31, 2024 decreased by $4.1 million from December 31, 2023, primarily the result of timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue as of March 31, 2024 will be recognized over the course of the next twelve months.

The amount of revenue recognized for the three months ended March 31, 2024 and 2023 that was included in the opening deferred revenue balance was $15.9 million and $16.8 million, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was $11.3 million and $11.5 million as of March 31, 2024 and December 31, 2023, respectively. Amortization expense for deferred sales incentive compensation was $1.2 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively. Deferred sales incentive compensation is included in other assets in


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
the condensed consolidated balance sheets and amortization expense is included in employee compensation expense in the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the three months ended March 31, 2024 and 2023.

Direct Expense

The following table summarizes direct expense by revenue category:

 Three Months Ended
 March 31,
 20242023
(in thousands)
Asset-based$118,403 $102,623 
Subscription-based8,230 7,052 
Professional services and other 4 
Total direct expense$126,633 $109,679 

15.Stock-Based Compensation
 
The Company has stock options, RSUs and PSUs outstanding under the 2010 Plan and the 2019 Equity Plan. As of March 31, 2024, the maximum number of common shares available for future issuance under the Company's plans is 654,040.

Stock-based compensation expense under the Company’s plans was as follows:

 Three Months Ended
 March 31,
 20242023
(in thousands)
Stock-based compensation expense$18,898 $19,453 
Tax effect on stock-based compensation expense(4,819)(4,961)
Net effect on income (loss)
$14,079 $14,492 
 
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the three months ended March 31, 2024 and 2023.

Stock Options
 
The following table summarizes option activity under the Company’s plans:

  Weighted-Weighted-Average 
  AverageRemainingAggregate
 OptionsExercise PriceContractual LifeIntrinsic Value
(in years)(in thousands)
Outstanding as of December 31, 2023202,166$45.22 
Exercised(20,033)$40.71 
Forfeited(186)$71.21 
Outstanding and exercisable as of March 31, 2024181,947$45.69 1.3$2,224 
 
As of March 31, 2024, there was no amount of unrecognized stock-based compensation expense related to stock options.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Restricted Stock Units and Performance Stock Units
 
The following table summarizes RSU and PSU activity under the Company’s plans:

RSUsPSUs
 Number of
Shares
Weighted-
Average Grant
Date Fair Value
per Share
Number of
Shares
Weighted-
Average Grant
Date Fair Value
per Share
Non-vested as of December 31, 20231,449,253 $65.78 223,058 $72.92 
Granted1,313,955 $51.49 37,270 $83.76 
Vested(460,680)$65.45 (22,557)$69.24 
Forfeited(104,822)$58.98 (81,221)$70.28 
Non-vested as of March 31, 20242,197,706 $57.63 156,550 $77.40 

As of March 31, 2024, there was $112.4 million of unrecognized stock-based compensation expense related to RSUs, which the Company expects to recognize over a weighted-average period of 2.1 years. As of March 31, 2024, there was $4.0 million of unrecognized stock-based compensation expense related to PSUs, which the Company expects to recognize over a weighted-average period of 2.1 years.

16. Income Taxes

The following table includes the Company’s income (loss) before income tax provision, income tax provision and effective tax rate:

 Three Months Ended
 March 31,
 20242023
(in thousands, except for effective tax rate)
Income (loss) before income tax provision$2,044 $(18,992)
Income tax provision$1,505 $23,769 
Effective tax rate73.6 %(125.2)%

Under ASC 740-270-25, the Company is required to report income tax expense by applying a projected AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change.

For the three months ended March 31, 2024 and March 31, 2023, the Company's effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
17.Net Income (Loss) Per Share

The following table provides the numerators and denominators used in computing basic and diluted net income (loss) attributable to Envestnet, Inc., per share:

Three Months Ended
 March 31,
20242023
(in thousands, except share and per share data)
Net income (loss) attributable to Envestnet, Inc.$2,513 $(41,228)
Weighted average common shares outstanding:
Basic54,884,074 54,143,259 
Effect of dilutive shares:
Non-vested RSUs and PSUs473,738  
Options to purchase common stock27,254  
Diluted55,385,066 54,143,259 
Net income (loss) attributable to Envestnet, Inc., per share:
Basic$0.05 $(0.76)
Diluted$0.05 $(0.76)
 
Securities that were anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share were as follows:

Three Months Ended
 March 31,
20242023
Convertible Notes10,811,884 11,470,645 
Non-vested RSUs and PSUs830,315 2,431,316 
Options to purchase common stock133,410 240,081 
Total anti-dilutive securities11,775,609 14,142,042 
 
18.Segment Information
 
Envestnet is organized around two business segments based on clients served and products provided to meet those needs. The Company's business segments are:
 
Envestnet Wealth Solutions a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.

Envestnet Data & Analytics – a leading provider of financial data aggregation, analytics and digital experiences to meet the needs of financial institutions, enterprise FinTech firms and market investment research firms worldwide.

The Company also incurs expenses not directly attributable to the segments listed above. These nonsegment operating expenses primarily consist of employee compensation for certain corporate officers, certain types of professional service expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.

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



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The following table presents a reconciliation from income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:

 Three Months Ended
 March 31,
 20242023
(in thousands)
Envestnet Wealth Solutions$38,930 $22,598 
Envestnet Data & Analytics(5,739)(6,915)
Nonsegment operating expenses(24,483)(26,740)
Income (loss) from operations8,708 (11,057)
Other expense, net(6,664)(7,935)
Income (loss) before income tax provision
2,044 (18,992)
Income tax provision1,505 23,769 
Net income (loss)539 (42,761)
Add: Net loss attributable to non-controlling interest1,974 1,533 
Net income (loss) attributable to Envestnet, Inc.$2,513 $(41,228)

The following table presents a summary of consolidated total assets by segment:

 March 31,December 31,
 20242023
(in thousands)
Envestnet Wealth Solutions$1,550,105 $1,562,600 
Envestnet Data & Analytics313,940 314,652 
Consolidated total assets$1,864,045 $1,877,252 

19.Commitments and Contingencies
 
Purchase Obligations and Indemnifications
 
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 associated with these arrangements in the condensed consolidated balance sheets.

 The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.

In connection with the Redi2 acquisition, the Company has agreed to pay up to $20.0 million in performance bonuses based upon the achievement of certain performance targets. These performance bonuses will be recognized as employee compensation in the condensed consolidated statements of operations. The amount recognized during the three months ended March 31, 2024 and 2023, as well as the liability as of March 31, 2024, associated with these performance bonuses were immaterial.



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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Legal Proceedings
 
The Company and its subsidiary, Yodlee, have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief.

On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.

On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps' claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps' claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery concluded on September 30, 2022. The parties’ respective summary judgment and motions to exclude the presentation of expert testimony (a “Daubert Motion”) are fully briefed and are awaiting final ruling. On July 25, 2023, the Magistrate Judge issued a report and recommendation that the Court grant FinancialApps’ summary judgment motion on Envestnet’s defamation counterclaim. The Magistrate Judge did not make a ruling as to Yodlee’s defamation counterclaim. On July 28, 2023, the Magistrate Judge denied Envestnet and Yodlee's Daubert motion to exclude FinancialApps' technical expert, Isaac Pflaum. On July 31, 2023, the Magistrate Judge issued a report and recommendation that the Court grant in part and deny in part Envestnet's summary judgment motion. The Magistrate Judge recommended that the motion be denied as to FinancialApps' vicarious liability theory and direct liability theory but recommended that the motion be granted with respect to the unjust enrichment count. The reports and recommendations are not final rulings, however, and the Company has filed objections against their adoption by the District Court. Those objections are fully briefed and pending before the District Court. On August 14, 2023, the Magistrate Judge granted-in-part and denied-in-part FinancialApps' Daubert motion to exclude Envestnet and Yodlee's technical expert. On September 13, 2023, the Magistrate Judge granted-in-part and denied-in-part Envestnet and Yodlee's Daubert motion to exclude FinancialApps' damages expert. On January 18, 2024, FinancialApps filed a motion seeking sanctions for purported spoliation of evidence against Yodlee and Envestnet. Yodlee and Envestnet filed a brief opposing the motion on February 22, 2024. The motion is fully briefed and pending before the Magistrate Judge. The Company believes FinancialApps' allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.

The Company and Yodlee were named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption currently is Clark, et al., v. Yodlee, Inc. Case No. 3:20-cv-5991-SK (formerly entitled Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK). Plaintiffs alleged that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s Instant Account Verification API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleged violations of certain California


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Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present.

On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court granted Yodlee’s motion for reconsideration and dismissed one additional claim. Plaintiffs filed an amended complaint on September 19, 2023, which Yodlee answered on October 3, 2023. Yodlee believes the allegations are without merit and will continue to vigorously defend the remaining claims against it.

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of March 31, 2024. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company’s results of operations or cash flow in a particular quarter or year. 
 


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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
 
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q for the quarter ended March 31, 2024 and the consolidated financial statements and related notes included on Form 10-K for the year ended December 31, 2023.

This Quarterly Report 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 “Management’s 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. 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, Item 1A.“Risk Factors” in our Annual Report; 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 and Annual Report 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, 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.

Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.

Overview
 
Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can better serve their clients.
 
Envestnet's clients include more than 109,000 advisors, 17 of the 20 largest U.S. banks, 48 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs, and hundreds of FinTech companies, all of which leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients.

Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive better outcomes.

Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters in Berwyn, Pennsylvania, as well as other locations throughout the United States, India and other international locations.





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Recent Developments

Leadership Update

On January 7, 2024, the Company entered into a separation and release agreement with Mr. Crager in which it was agreed that Mr. Crager would step down as chief executive officer on March 31, 2024 and as a member of the Company’s Board of Directors promptly following Envestnet’s 2024 Annual Meeting. On April 1, 2024, Mr. Crager began serving as a senior advisor, focusing on client and partner relationships. James Fox began serving as our Interim Chief Executive Officer on April 1, 2024 and will continue to serve this role until our Board of Directors appoints a new chief executive officer. Mr. Fox has served as a member of our Board of Directors since February 2015 and Chair of the Board of Directors since March 2020.

Operating Results

Beginning in the three months ended December 31, 2021 through March 31, 2024, the Company reported a loss from operations and loss before income tax provision in every quarter with the exception of the three months ended September 30, 2023 and March 31, 2024. We have incurred these quarterly losses as a result of several factors as described below.

Revenue Factors: Throughout 2022, the financial markets experienced a broad downturn and our redemption rates were higher than our historical average, and as a result, in our Wealth Solutions segment, our asset-based recurring revenue was materially adversely affected. Beginning in the three months ended March 31, 2023 asset-based recurring revenue has been increasing steadily. In addition, as a result of competitive pricing pressures in our Data & Analytics segment research business, beginning in the three months ended December 31, 2022 subscription-based recurring revenue has been materially adversely affected.

Expense Factors: We have incurred certain expenses that are not recurring in nature and that are a direct result of significant, distinct enterprise-wide strategic initiatives that we have taken in order to reshape and streamline the organization, which we believe will increase our operational efficiencies and to reduce future operating expenses, while negatively impacting our operating results in the short-term. These actions include both internal and external related expenses associated with office closures announced in the second quarter of 2022, severance and office closure related expenses associated with an organizational realignment and entry into an outsourcing arrangement announced in the fourth quarter of 2022, as well as severance expense for a reduction in force initiative announced in the first quarter of 2023 which continued throughout 2023.

Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets. The return to recurring positive income before income taxes, largely depends on a combination of improved industry dynamics, including overall technology and data spending by financial institutions and an improvement in capital market valuations, including asset flows and redemption rates, both of which are outside of the Company’s control, as well as a reduction in future operating expenses, as a result of the actions taken by management as discussed above.

Segments
 
Envestnet is organized around two business segments based on clients served and products provided to meet those needs. Financial information about each business segment is contained in "Note 18—Segment Information” to the condensed consolidated financial statements. Our business segments are as follows:

Envestnet Wealth Solutions – a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.

Envestnet Data & Analytics – a leading provider of financial data aggregation, analytics and digital experiences to meet the needs of financial institutions, enterprise FinTech firms and market investment research firms worldwide.

The Company also incurs expenses not directly attributable to the segments listed above. These nonsegment operating expenses primarily consist of employee compensation for certain corporate officers, certain types of professional service expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.



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On October 1, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. All segment information presented within this Quarterly Report is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.
Key Metrics

Envestnet Wealth Solutions Segment
 
The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and investor accounts:

As of
March 31,June 30,September 30,December 31,March 31,
20232023202320232024
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)$363,244 $384,773 $375,408 $416,001 $452,464 
Assets under Administration (“AUA”)379,843 394,078 398,082 430,846 471,401 
Total AUM/A743,087 778,851 773,490 846,847 923,865 
Subscription4,566,971 4,643,313 4,579,248 4,959,514 5,158,180 
Total Platform Assets$5,310,058 $5,422,164 $5,352,738 $5,806,361 $6,082,045 
Platform Accounts
AUM1,571,8621,609,6771,614,8731,640,8791,688,044
AUA1,142,1661,144,3751,257,0941,254,9621,315,442
Total AUM/A2,714,0282,754,0522,871,9672,895,8413,003,486
Subscription15,779,98015,916,95516,072,84816,248,59816,641,631
Total Platform Accounts18,494,00818,671,00718,944,81519,144,43919,645,117
Advisors
AUM/A38,61138,80938,07838,69738,814
Subscription67,843