env-20240930

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, 2024

☐ 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 1, 2024, Envestnet, Inc. had 55,345,924 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			28
Overview			28
Results of Operations			34
Liquidity and Capital Resources			54

Item 3. Quantitative and Qualitative Disclosures About Market Risk			56

Item 4. Controls and Procedures			56

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			56

Item 1A. Risk Factors			56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58

Item 3. Defaults Upon Senior Securities			58

Item 4. Mine Safety Disclosures			58

Item 5. Other Information			58

Item 6. Exhibits			59

Index to Exhibits			60

Glossary of Terms			61

Signatures			62

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	193,356	$	91,378
Fees receivable, net	110,098		120,958
Prepaid expenses and other current assets	59,570		51,472

Total current assets	363,024		263,808
Property and equipment, net	41,632		48,223
Internally developed software, net	207,311		224,713
Intangible assets, net	301,426		338,068
Goodwill	690,885		806,563
Operating lease right-of-use assets, net	63,600		69,154
Investments in unconsolidated entities	93,378		56,292
Other assets	67,448		70,431
Total assets	$	1,828,704	$	1,877,252
Liabilities and equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	261,464	$	241,424
Operating lease liabilities	11,768		12,909
Deferred revenue	28,732		38,201
Current portion of debt	315,896		314,532

Total current liabilities	617,860		607,066
Debt, net of current portion	564,429		562,080
Operating lease liabilities, net of current portion	93,115		100,830
Deferred tax liabilities, net	15,169		16,568
Other liabilities	11,518		16,202
Total liabilities	1,302,091		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 September 30, 2024 and December 31, 2023	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 71,989,879 and 71,129,801 shares issued as of September 30, 2024 and December 31, 2023, respectively; 55,342,170 and 54,773,662 shares outstanding as of September 30, 2024 and December 31, 2023, respectively	359		355
Treasury stock at cost, 16,647,709 and 16,356,139 shares as of September 30, 2024 and December 31, 2023, respectively	(288,420)		(272,573)
Additional paid-in capital	1,259,274		1,206,627
Accumulated deficit	(436,000)		(357,651)
Accumulated other comprehensive loss	(8,600)		(8,567)
Total stockholders’ equity attributable to Envestnet, Inc.	526,613		568,191
Non-controlling interest	—		6,315
Total equity	526,613		574,506
Total liabilities and equity	$	1,828,704	$	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				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Revenue:
Asset-based	$	224,980	$	193,901	$	647,081	$	556,595
Subscription-based	115,402		114,939		350,852		346,977
Total recurring revenue	340,382		308,840		997,933		903,572
Professional services and other revenue	5,567		8,007		21,239		24,416
Total revenue	345,949		316,847		1,019,172		927,988
Operating expenses:
Direct expense	136,488		120,421		407,472		354,309
Employee compensation	103,487		113,334		311,205		344,646
General and administrative	63,438		50,091		168,427		158,816
Depreciation and amortization	35,530		32,400		115,155		95,985
Goodwill impairment	—		—		96,269		—
Gain on deconsolidation	—		—		(19,523)		—
Total operating expenses	338,943		316,246		1,079,005		953,756
Income (loss) from operations	7,006		601		(59,833)		(25,768)
Other expense, net	(4,277)		(2,001)		(13,446)		(12,012)
Income (loss) before income tax provision (benefit) and equity method investments	2,729		(1,400)		(73,279)		(37,780)
Income tax provision (benefit)	2,864		(8,824)		3,717		15,363
Loss from equity method investments	(1,526)		(2,368)		(3,327)		(7,694)
Net income (loss)	(1,661)		5,056		(80,323)		(60,837)
Add: Net loss attributable to non-controlling interest	—		2,035		1,974		5,284
Net income (loss) attributable to Envestnet, Inc.	$	(1,661)	$	7,091	$	(78,349)	$	(55,553)
Net income (loss) attributable to Envestnet, Inc. per share:
Basic	$	(0.03)	$	0.13	$	(1.42)	$	(1.02)
Diluted	$	(0.03)	$	0.13	$	(1.42)	$	(1.02)
Weighted average common shares outstanding:
Basic	55,273,324		54,562,270		55,100,239		54,380,231
Diluted	55,273,324		54,970,616		55,100,239		54,380,231

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023
Net income (loss) attributable to Envestnet, Inc.	$	(1,661)	$	7,091	$	(78,349)	$	(55,553)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(173)		(151)		(33)		4,030
Total other comprehensive income (loss), net of tax	(173)		(151)		(33)		4,030
Comprehensive income (loss) attributable to Envestnet, Inc.	$	(1,834)	$	6,940	$	(78,382)	$	(51,523)

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, 2023	71,129,801	$	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 options	20,033	—		—	—		71		—		—		—		71
Proceeds from capital contributions received by non-controlling interest	—	—		—	—		—		—		—		12,012		12,012
Other	—	—		—	—		—		—		—		(258)		(258)
Balance, March 31, 2024	71,633,071	358		(16,534,071)	(281,022)		1,225,270		(8,571)		(355,138)		16,421		597,318
Net loss	—	—		—	—		—		—		(79,201)		—		(79,201)
Other comprehensive income, net of tax	—	—		—	—		—		144		—		—		144
Stock-based compensation expense	—	—		—	—		17,822		—		—		—		17,822
Issuance of common stock, vesting of RSUs and PSUs	161,219	—		—	—		—		—		—		—		—
Net cash paid related to tax withholding for stock-based compensation	—	—		(54,666)	(3,706)		—		—		—		—		(3,706)
Proceeds from the exercise of stock options	16,335	—		—	—		653		—		—		—		653

Deconsolidation of non-controlling interest	—	—		—	—		—		—		—		(16,421)		(16,421)
Other	—	—		—	—		(262)				—		—		(262)
Balance, June 30, 2024	71,810,625	358		(16,588,737)	(284,728)		1,243,483		(8,427)		(434,339)		—		516,347
Net loss	—	—		—	—		—		—		(1,661)		—		(1,661)
Other comprehensive loss, net of tax	—	—		—	—		—		(173)		—		—		(173)
Stock-based compensation expense	—	—		—	—		16,484		—		—		—		16,484
Issuance of common stock, vesting of RSUs and PSUs	170,855	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(58,972)	(3,692)		—		—		—		—		(3,692)
Proceeds from the exercise of stock options	8,399	—		—	—		357		—		—		—		357
Other	—	—		—	—		(1,050)		—		—		—		(1,050)
Balance, September 30, 2024	71,989,879	$	359	(16,647,709)	$	(288,420)	$	1,259,274	$	(8,600)	$	(436,000)	$	—	$	526,613


									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

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,
	2024		2023
Cash flows from operating activities:
Net loss	$	(80,323)	$	(60,837)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	115,155		95,985


Non-cash compensation expense	53,204		58,141
Non-cash interest expense	4,237		4,258
Non-cash goodwill impairment	96,269		—
Non-cash gain on deconsolidation	(19,523)		—
Non-cash Convertible Promissory Note impairment	3,700		—
Loss from equity method investments	3,327		7,694
Fair market value adjustments to investments in private companies	1,508		(2,804)

Lease related impairments	689		2,483

Other	(1,173)		(303)
Changes in operating assets and liabilities:
Fees receivable, net	6,578		(9,621)
Prepaid expenses and other assets	(7,944)		(17,534)
Accounts payable, accrued expenses and other liabilities	14,218		278
Deferred revenue	(3,513)		(3,974)
Net cash provided by operating activities	186,409		73,766
Cash flows from investing activities:
Purchases of property and equipment	(5,939)		(18,275)
Capitalization of internally developed software	(57,127)		(71,117)

Deconsolidation of non-controlling interest	(11,073)		—
Investments in private companies	(3,055)		(4,175)
Acquisition of proprietary technology	(4,481)		(12,000)
Issuance of loan receivable to private company	—		(20,000)

Other	—		400
Net cash used in investing activities	(81,675)		(125,167)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility	—		55,000
Payments related to Revolving Credit Facility	—		(55,000)
Payments related to Convertible Notes	—		(45,000)

Proceeds from exercise of stock options	1,081		839
Payments related to tax withholdings for stock-based compensation	(15,847)		(17,004)
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)

Other	4		4
Net cash used in financing activities	(2,750)		(71,458)
Effect of exchange rate on changes on cash and cash equivalents	(6)		3,897

Net change in cash and cash equivalents	101,978		(118,962)
Cash and cash equivalents, beginning of period	91,378		162,173
Cash and cash equivalents, end of period	$	193,356	$	43,211

Supplemental disclosures of cash flow information
Net cash paid for income taxes	$	13,175	$	13,552
Cash paid for interest	$	12,487	$	12,231
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	$	753	$	359

Purchases of property and equipment included in accounts payable, accrued expenses and other liabilities	$	—	$	6,441

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 September 30, 2024 and for the three and nine months ended September 30, 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 September 30, 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 and nine months ended September 30, 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.

Plan of Merger

On July 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Pequod Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of vehicles managed or advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

The Company's Board has unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (ii) determined that the terms of Merger Agreement and the transactions contemplated

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

thereby are fair to, and in the best interests of, the Company and the Company’s shareholders, (iii) directed that the adoption of the Merger Agreement be submitted to a vote of the Company’s shareholders in accordance with the Merger Agreement, and (iv) subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s shareholders approve the adoption of the Merger Agreement and approve the Merger on the terms and subject to the conditions set forth therein.

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.005 per share, of the Company (the “Common Shares”) that is issued and outstanding as of immediately prior to the Effective Time (other than any Common Shares (i) owned by Parent (or any of its Affiliates), Merger Sub or the Company or any direct or indirect wholly owned subsidiaries of Parent (or any of its Affiliates), Merger Sub or the Company, (ii) that are Rollover Shares (as defined in the Merger Agreement), (iii) held in treasury of the Company, and (iv) as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $63.15, without interest thereon.

On September 24, 2024 the Company announced that, at a special meeting, the Company’s stockholders approved the Merger. The closing of the Merger is expected in the fourth quarter of 2024, subject to the satisfaction or waiver of the remaining customary closing conditions.

If the Merger is consummated, the Common Shares will be delisted from The New York Stock Exchange and deregistered under the Exchange Act, as promptly as practicable after the Effective Time.

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 on Form 10-Q for the quarter ended September 30, 2024 is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.

Correction of Immaterial Errors

In July 2024, the Company identified that as a result of a clerical error an event of default had occurred pursuant to the indenture under which the Convertible Notes due 2025 had been issued, and therefore the Convertible Notes due 2025 should have been classified as current debt instead of as non-current debt as previously recorded in the condensed consolidated balance sheets. Upon identification, the Company promptly cured the technical default. Upon analysis, the Company concluded that the classification error was immaterial in prior period financial statements as the event of default was caused by a clerical error and was not reflective of noncompliance with any factors impacting the Company’s liquidity or financial covenants. If the Company had identified the technical default in the prior period and classified the debt as current, the matter would have been disclosed and promptly resolved. Therefore, amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior year reported within this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024. This adjustment resulted in an increase in Current portion of debt of $314.5 million and a corresponding decrease to Debt, net of current portion of $314.5 million in the condensed consolidated balance sheets as of December 31, 2023.

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 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 on Form 10-Q for the quarter ended September 30, 2024.

In the condensed consolidated statements of operations these adjustments resulted in an increase in direct expense of $0.9 million, an increase in general and administrative expense of $1.0 million and a corresponding decrease in depreciation and amortization expense of $1.9 million for the three months ended September 30, 2023 and an increase in direct expense of $2.3 million, an increase in general and administrative expense of $2.8 million and a corresponding decrease in depreciation and amortization expense of $5.1 million for the nine months ended September 30, 2023. In the condensed consolidated statements of cash flows for the nine months ended September 30, 2023, these adjustments resulted in a decrease in net cash provided by operating activities of $5.5 million and a corresponding decrease in net cash provided by (used in) financing activities of $5.5 million.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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 balance sheets as of December 31, 2023, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 have been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, net income (loss) attributable to Envestnet, Inc., or net change in cash and cash equivalents and did not affect the condensed consolidated statements of comprehensive income (loss) or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 3.4% 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 $2.1 million and $2.8 million for the three months ended September 30, 2024 and 2023, respectively. Revenue from the private services company totaled $6.8 million and $9.7 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company recorded a net receivable from the private services company of $0.2 million and $1.7 million, respectively.

The Company has an approximate 40.0% membership interest in another private company that it accounts for using the equity method of accounting and is considered to be a related party (See "Note 9—Investments in Unconsolidated Entities").

Investments

The Company has investments in private companies for which it has significant influence that are recorded using the equity method of accounting. The Company uses the equity method of accounting because of its less than 50% ownership and/or lack of control in these companies. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records the portion of its earnings or losses in these privately held companies’ net income or loss on a one quarter lag from the actual results of operations in gain (loss) from equity method investments in the condensed consolidated statements of operations.

The Company owns equity interests in various privately held companies for which it does not have significant influence, there is no readily determinable fair value, and its investment qualifies for recognition under the measurement alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records fair value adjustments resulting from observable price changes in other income (expense), net in the condensed consolidated statements of operations.

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.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	September 30,		December 31,
	2024		2023

	(in thousands)
Prepaid technology	$	16,097	$	14,630
Income tax prepayments and receivables	16,404		9,625
Prepaid data servers	4,984		7,991

Prepaid debt issuance costs	4,353		—
Prepaid insurance	3,599		2,785
Non-income tax receivable	2,963		4,041
Other	11,170		12,400
Total prepaid expenses and other current assets	$	59,570	$	51,472

4.Internally Developed Software, Net

Internally developed software, net consisted of the following:


		September 30,		December 31,
	Estimated Useful Life	2024		2023

		(in thousands)
Internally developed software	5 years	$	435,224	$	405,078
Less: accumulated amortization		(227,913)		(180,365)
Internally developed software, net		$	207,311	$	224,713

Due to a change in technology needs of the business, $1.3 million and $14.2 million of net capitalized internally developed software costs, the majority of which was included within the Envestnet Wealth Solutions segment, was written off and included within depreciation and amortization expense in the condensed consolidated statements of operations during the three and nine months ended September 30, 2024, respectively.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

5.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,
	2024		2023

	(in thousands)
United States	$	246,378	$	270,381
India	2,565		2,555

Total long-lived assets, net	$	248,943	$	272,936

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

6.Intangible Assets, Net

Intangible assets, net consisted of the following:


			September 30, 2024						December 31, 2023
			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
			Amount		Amortization		Amount		Amount		Amortization		Amount

			(in thousands)
Customer lists			$	593,200	$	(345,423)	$	247,777	$	604,080	$	(327,042)	$	277,038
Proprietary technologies			93,956		(44,166)		49,790		93,058		(37,052)		56,006
Trade names			11,000		(7,141)		3,859		15,700		(10,676)		5,024
Total intangible assets	$	698,156	$	(396,730)	$	301,426	$	712,838	$	(374,770)	$	338,068

During the nine months ended September 30, 2024 and 2023, the Company retired fully amortized intangible assets with historical costs of $21.8 million and $40.5 million, respectively.

The estimated future amortization expense of the Company's intangible assets as of September 30, 2024 was as follows (in thousands):



Remainder of 2024	$	14,466
2025	55,393
2026	47,868
2027	39,092
2028	31,716
Thereafter	112,891
Total	$	301,426

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

7.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2024		2023		2024		2023

	(in thousands)
Intangible asset amortization	$	14,542	$	15,124	$	43,741	$	47,784
Internally developed software amortization (1)	16,155		13,500		60,261		36,988
Property and equipment depreciation	4,833		3,776		11,153		11,213
Total depreciation and amortization	$	35,530	$	32,400	$	115,155	$	95,985

_________________________________________________________

(1) $1.3 million and $14.2 million of net capitalized internally developed software costs was written off and included within internally developed software amortization expense during the three and nine months ended September 30, 2024, respectively. See Note 4—Internally Developed Software, Net for further information.

8.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, 2023	$	710,326	$	96,237	$	806,563



Deconsolidation of non-controlling interest	(19,409)		—		(19,409)
Goodwill impairment	—		(96,269)		(96,269)
Foreign currency translation and other	(32)		32		—
Balance as of September 30, 2024	$	690,885	$	—	$	690,885

Goodwill Impairment

Due to a strategic shift of business priorities for the Envestnet Data & Analytics segment, which was considered an event or change in circumstance that required an assessment of goodwill for impairment as of June 30, 2024, the Company performed a quantitative goodwill impairment analysis for the reporting unit to determine whether there was an impairment as of June 30, 2024. The impairment test identified that the carrying value of the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill of $96.3 million in the condensed consolidated statements of operations during the second quarter of 2024. Although the Company recorded this impairment charge during the second quarter of 2024, future charges may occur if certain estimates and assumptions change significantly, and such charges could be material.

9.Investments in Unconsolidated Entities

As of December 31, 2023, 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 this private company’s assets, liabilities and results of operations within the Envestnet Wealth Solutions segment of the Company’s condensed consolidated financial statements.

Effective April 1, 2024, the Company no longer had majority representation of the company's board and therefore no longer had a controlling financial interest in this private company. This resulted in the deconsolidation of this private company's assets, liabilities and results of operations and the recognition of a $19.5 million non-cash gain included within gain on deconsolidation in the condensed consolidated statements of operations during the second quarter of 2024. This transaction did not represent a strategic shift and therefore did not meet the criteria to be classified as discontinued operations. The Company applied the equity method to account for its non-controlling investment in this private company starting April 1, 2024 and the

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

fair value of the investment of $41.9 million was included within investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.

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 September 30, 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. During the nine months ended September 30, 2024 and 2023, interest income related to the Convertible Promissory Note was $1.3 million and $1.1 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. Due to a change in circumstance for the customer, the estimated recoverable value of the loan was reassessed during the third quarter of 2024, which resulted in the recognition of a $3.7 million non-cash impairment charge within the Envestnet Data & Analytics reporting unit in general and administrative expense in the condensed consolidated statements of operations during the three and nine months ended September 30, 2024.

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,
	2024		2023

	(in thousands)
Accrued investment manager fees	$	129,277	$	106,612
Accrued compensation and related taxes	74,293		72,466
Accrued merger related costs	17,158		—
Accounts payable	16,933		35,738
Accrued professional services	9,508		14,289
Accrued interest	5,339		2,473
Accrued technology	4,200		4,151





Other accrued expenses	4,756		5,695
Total accounts payable, accrued expenses and other current liabilities	$	261,464	$	241,424

As of September 30, 2024, the Company had an ending liability balance of $4.8 million primarily in connection with a reduction in force initiative that began during the first quarter of 2023. The Company anticipates approximately $2.2 million to be paid during the remainder of 2024, $1.8 million to be paid throughout 2025, with the remaining balance paid through 2030. Expenses related to this reduction in force initiative are included in employee compensation expense in the condensed consolidated statements of operations.

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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 this effort, of which $3.6 million is 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, 2023	$	9,793	$	486	$	—	$	10,279
Severance expense	3,161		13		4,428		7,602
Cash payments	(8,120)		(499)		(4,428)		(13,047)

Balance as of September 30, 2024	$	4,834	$	—	$	—	$	4,834

12.Debt

The following tables set forth the carrying value and estimated fair value of the Company's debt obligations as of September 30, 2024 and December 31, 2023:


	September 30, 2024
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2025	317,500		(1,604)		315,896		313,214
Convertible Notes due 2027	575,000		(10,571)		564,429		609,862
Total debt	$	892,500	$	(12,175)	$	880,325	$	923,076


	December 31, 2023
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2025	317,500		(2,968)		314,532		294,958
Convertible Notes due 2027	575,000		(12,920)		562,080		571,746
Total debt	$	892,500	$	(15,888)	$	876,612	$	866,704

The Company issued $517.5 million aggregate principal amount of 0.75% Convertible Notes due 2025 in August 2020. As of September 30, 2024, $317.5 million aggregate principal of the Convertible Notes due 2025 remained outstanding. Pursuant to the indenture under which the Convertible Notes due 2025 were issued, the Company was required to remove a restrictive legend on the Convertible Notes due 2025 relating to restrictions on transfer under the Securities Act of 1933, as amended, on or before September 9, 2021. Due to a clerical error, the restrictive legend was not removed until June 18, 2022. As a result of its failure to remove the legend on a timely basis, the Company was required to pay certain amounts of Additional Interest and interest thereon after February 15, 2022. Failure to pay the Additional Interest constituted an event of default under the Indenture. The event of default under the Indenture was cured with the payment of an immaterial amount of Additional Interest, as well as certain penalties, in August 2024. In addition, the event of default under the Indenture resulted in an event of default under the Revolving Credit Facility due to a cross-default provision in the Revolving Credit Facility. The resulting event of default was waived by the required lenders under the Revolving Credit Facility in August 2024. As a result, any and all existing defaults and events of default that had arisen or may have arisen therefrom were cured and the Company was in compliance with the covenants contained in the Indenture and the Revolving Credit Facility as of August 9, 2024, and continues to be in compliance as of September 30, 2024.

In connection with the Merger, on October 2, 2024, subsequent to September 30, 2024, the Company gave notice to the Trustees and holders of the Convertible Notes due 2025 and Convertible Notes due 2027 that the Merger constitutes a Fundamental Change and a Make Whole Fundamental Change under each of the indentures under which the Convertible Notes were issued and that the Convertible Notes due 2025 and Convertible Notes due 2027 may be surrendered by the holders for

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

conversion. As a result of this event, the Convertible Notes due 2027 will be reclassified from Debt, net of current portion to Current portion of debt on the condensed consolidated balance sheets during the fourth quarter of 2024.

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 September 30, 2024 and December 31, 2023.

As of September 30, 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 were $0.7 million, and included in other assets in the condensed consolidated balance sheets were $0.9 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. The Company was in compliance with these financial covenants as of September 30, 2024.

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.

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,
	2024		2023		2024		2023

	(in thousands)
Convertible Notes interest	$	5,664	$	4,368	$	14,402	$	13,476
Amortization of debt discount and issuance costs	1,420		1,389		4,237		4,258
Undrawn and other fees	320		312		951		936
Revolving Credit Facility interest	—		133		—		383
Total interest expense	$	7,404	$	6,202	$	19,590	$	19,053

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,
	2024		2023

Convertible Notes due 2025	1.3	%	1.3	%
Convertible Notes due 2027	3.2	%	3.2	%

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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:


	September 30, 2024
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	124,623	$	124,623	$	—	$	—

Assets to fund deferred compensation liability	11,984		—		—		11,984
Total assets	$	136,607	$	124,623	$	—	$	11,984
Liabilities:

Deferred compensation liability	$	9,152	$	9,152	$	—	$	—
Total liabilities	$	9,152	$	9,152	$	—	$	—


	December 31, 2023
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	51,653	$	51,653	$	—	$	—
Assets to fund deferred compensation liability	10,961		—		—		10,961
Total assets	$	62,614	$	51,653	$	—	$	10,961
Liabilities:

Deferred compensation liability	$	8,045	$	8,045	$	—	$	—
Total liabilities	$	8,045	$	8,045	$	—	$	—

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 nine months ended September 30, 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 fees	1,023
Balance as of September 30, 2024	$	11,984

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.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities as of September 30, 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 September 30, 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 September 30, 2024 and December 31, 2023, based upon the short-term nature of these assets and liabilities.

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 September 30,
	2024						2023
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Total		Envestnet Wealth Solutions		Envestnet Data & Analytics		Total

	(in thousands)
Revenue:
Asset-based	$	224,980	$	—	$	224,980	$	193,901	$	—	$	193,901
Subscription-based	82,717		32,685		115,402