3
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, 2017
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-34835
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
20-1409613 |
(State or other jurisdiction of |
|
(I.R.S Employer |
35 East Wacker Drive, Suite 2400, Chicago, IL |
|
60601 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrant’s telephone number, including area code:
(312) 827-2800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ 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. (Check one):
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. ☐
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 5, 2017, 44,305,791 shares of the common stock with a par value of $0.005 per share were outstanding.
2
Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share information)
(unaudited)
|
|
September 30, |
|
December 31, |
||
|
|
2017 |
|
2016 |
||
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
48,704 |
|
$ |
52,592 |
Fees and other receivables, net |
|
|
49,726 |
|
|
44,268 |
Prepaid expenses and other current assets |
|
|
23,999 |
|
|
16,224 |
Total current assets |
|
|
122,429 |
|
|
113,084 |
|
|
|
|
|
|
|
Property and equipment, net |
|
|
35,274 |
|
|
33,000 |
Internally developed software, net |
|
|
20,279 |
|
|
14,860 |
Intangible assets, net |
|
|
233,525 |
|
|
265,558 |
Goodwill |
|
|
432,746 |
|
|
431,936 |
Other non-current assets |
|
|
17,969 |
|
|
13,963 |
Total assets |
|
$ |
862,222 |
|
$ |
872,401 |
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accrued expenses and other liabilities |
|
$ |
102,877 |
|
$ |
87,763 |
Accounts payable |
|
|
13,215 |
|
|
11,480 |
Current portion of debt |
|
|
— |
|
|
37,926 |
Contingent consideration |
|
|
2,055 |
|
|
2,286 |
Deferred revenue |
|
|
18,388 |
|
|
16,499 |
Total current liabilities |
|
|
136,535 |
|
|
155,954 |
|
|
|
|
|
|
|
Convertible Notes |
|
|
157,353 |
|
|
152,575 |
Revolving credit facility |
|
|
101,168 |
|
|
— |
Term Notes |
|
|
— |
|
|
100,409 |
Contingent consideration |
|
|
641 |
|
|
2,582 |
Deferred revenue |
|
|
14,454 |
|
|
15,643 |
Deferred rent and lease incentive |
|
|
14,867 |
|
|
12,060 |
Deferred tax liabilities, net |
|
|
12,216 |
|
|
5,555 |
Other non-current liabilities |
|
|
14,527 |
|
|
13,436 |
Total liabilities |
|
|
451,761 |
|
|
458,214 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable units in ERS |
|
|
900 |
|
|
900 |
Equity: |
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock, par value $0.005, 50,000,000 shares authorized |
|
|
— |
|
|
— |
Common stock, par value $0.005, 500,000,000 shares authorized; 56,918,043 and 55,642,686 shares issued as of September 30, 2017 and December 31, 2016, respectively; 44,213,751 and 43,240,567 shares outstanding as of September 30, 2017 and December 31, 2016, respectively |
|
|
284 |
|
|
278 |
Additional paid-in capital |
|
|
544,895 |
|
|
516,675 |
Accumulated deficit |
|
|
(91,499) |
|
|
(70,574) |
Treasury stock at cost, 12,704,292 and 12,402,119 shares as of September 30, 2017 and December 31, 2016, respectively |
|
|
(44,687) |
|
|
(33,068) |
Accumulated other comprehensive income (loss) |
|
|
170 |
|
|
(422) |
Total stockholders’ equity |
|
|
409,163 |
|
|
412,889 |
Non-controlling interest |
|
|
398 |
|
|
398 |
Total equity |
|
|
409,561 |
|
|
413,287 |
Total liabilities and equity |
|
$ |
862,222 |
|
$ |
872,401 |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
3
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, |
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management or administration |
|
$ |
106,147 |
|
$ |
90,042 |
|
$ |
299,268 |
|
$ |
258,969 |
Subscription and licensing |
|
|
62,963 |
|
|
51,959 |
|
|
180,675 |
|
|
142,303 |
Professional services and other |
|
|
6,504 |
|
|
7,154 |
|
|
20,874 |
|
|
21,412 |
Total revenues |
|
|
175,614 |
|
|
149,155 |
|
|
500,817 |
|
|
422,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
56,070 |
|
|
47,259 |
|
|
161,031 |
|
|
132,319 |
Compensation and benefits |
|
|
68,551 |
|
|
60,345 |
|
|
199,079 |
|
|
180,625 |
General and administration |
|
|
31,153 |
|
|
26,150 |
|
|
90,178 |
|
|
80,249 |
Depreciation and amortization |
|
|
15,492 |
|
|
16,692 |
|
|
46,792 |
|
|
49,872 |
Total operating expenses |
|
|
171,266 |
|
|
150,446 |
|
|
497,080 |
|
|
443,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
4,348 |
|
|
(1,291) |
|
|
3,737 |
|
|
(20,381) |
Other expense, net |
|
|
(3,986) |
|
|
(4,434) |
|
|
(13,838) |
|
|
(13,214) |
Income (loss) before income tax provision (benefit) |
|
|
362 |
|
|
(5,725) |
|
|
(10,101) |
|
|
(33,595) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision (benefit) |
|
|
1,682 |
|
|
(1,668) |
|
|
10,824 |
|
|
(10,602) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(1,320) |
|
|
(4,057) |
|
|
(20,925) |
|
|
(22,993) |
Add: Net loss attributable to non-controlling interest |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Net loss attributable to Envestnet, Inc. |
|
$ |
(1,320) |
|
$ |
(4,057) |
|
$ |
(20,925) |
|
$ |
(22,993) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Envestnet, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.03) |
|
$ |
(0.09) |
|
$ |
(0.48) |
|
$ |
(0.54) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
(0.03) |
|
$ |
(0.09) |
|
$ |
(0.48) |
|
$ |
(0.54) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
44,044,527 |
|
|
42,843,103 |
|
|
43,604,869 |
|
|
42,704,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
44,044,527 |
|
|
42,843,103 |
|
|
43,604,869 |
|
|
42,704,383 |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
4
Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
Net loss attributable to Envestnet, Inc. |
|
$ |
(1,320) |
|
$ |
(4,057) |
|
$ |
(20,925) |
|
$ |
(22,993) |
Other comprehensive income (loss), net of taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss) |
|
|
(217) |
|
|
192 |
|
|
592 |
|
|
(122) |
Gains on foreign currency contracts designated as cash flow hedges reclassified to earnings |
|
|
— |
|
|
(556) |
|
|
— |
|
|
(204) |
Total other comprehensive income (loss), net of taxes |
|
|
(217) |
|
|
(364) |
|
|
592 |
|
|
(326) |
Comprehensive loss, net of taxes |
|
$ |
(1,537) |
|
$ |
(4,421) |
|
$ |
(20,333) |
|
$ |
(23,319) |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
5
Envestnet, Inc.
Condensed Consolidated Statement of Equity
(in thousands, except share information)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
Treasury Stock |
|
Additional |
|
Other |
|
|
|
|
Non- |
|
|
||||||||||
|
|
|
|
|
|
|
Common |
|
|
|
|
Paid-in |
|
Comprehensive |
|
Accumulated |
|
controlling |
|
Total |
|||||
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
Capital |
|
Income (Loss) |
|
Deficit |
|
Interest |
|
Equity |
|||||||
Balance, December 31, 2016 |
|
55,642,686 |
|
$ |
278 |
|
(12,402,119) |
|
$ |
(33,068) |
|
$ |
516,675 |
|
$ |
(422) |
|
$ |
(70,574) |
|
$ |
398 |
|
$ |
413,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
428,173 |
|
|
2 |
|
— |
|
|
— |
|
|
4,466 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,468 |
Issuance of common stock - vesting of restricted stock units |
|
847,184 |
|
|
4 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4 |
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
23,754 |
|
|
— |
|
|
— |
|
|
— |
|
|
23,754 |
Purchase of treasury stock for stock-based tax withholdings |
|
— |
|
|
— |
|
(302,173) |
|
|
(11,619) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(11,619) |
Foreign currency translation gain |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
592 |
|
|
— |
|
|
— |
|
|
592 |
Net loss |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(20,925) |
|
|
— |
|
|
(20,925) |
Balance, September 30, 2017 |
|
56,918,043 |
|
$ |
284 |
|
(12,704,292) |
|
$ |
(44,687) |
|
$ |
544,895 |
|
$ |
170 |
|
$ |
(91,499) |
|
$ |
398 |
|
$ |
409,561 |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
6
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
Nine Months Ended |
||||
|
|
September 30, |
||||
|
|
2017 |
|
2016 |
||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net loss |
|
$ |
(20,925) |
|
$ |
(22,993) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
46,792 |
|
|
49,872 |
Deferred rent and lease incentive amortization |
|
|
709 |
|
|
(324) |
Provision for doubtful accounts |
|
|
828 |
|
|
369 |
Deferred income taxes |
|
|
6,646 |
|
|
(10,273) |
Stock-based compensation expense |
|
|
23,451 |
|
|
25,872 |
Non-cash interest expense |
|
|
8,711 |
|
|
6,955 |
Accretion on contingent consideration and purchase liability |
|
|
408 |
|
|
143 |
Fair market value adjustment on contingent consideration |
|
|
— |
|
|
838 |
Loss on disposal of fixed assets |
|
|
69 |
|
|
220 |
Loss allocation from equity method investment |
|
|
984 |
|
|
1,130 |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
Fees and other receivables |
|
|
(6,286) |
|
|
4,077 |
Prepaid expenses and other current assets |
|
|
(5,316) |
|
|
(4,960) |
Other non-current assets |
|
|
(1,784) |
|
|
(4,271) |
Accrued expenses and other liabilities |
|
|
13,289 |
|
|
275 |
Accounts payable |
|
|
1,435 |
|
|
124 |
Deferred revenue |
|
|
740 |
|
|
1,959 |
Other non-current liabilities |
|
|
1,852 |
|
|
4,337 |
Net cash provided by operating activities |
|
|
71,603 |
|
|
53,350 |
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(11,432) |
|
|
(10,839) |
Capitalization of internally developed software |
|
|
(9,210) |
|
|
(6,217) |
Investment in private company |
|
|
(1,450) |
|
|
(738) |
Purchase of ERS units |
|
|
— |
|
|
(1,500) |
Acquisition of businesses, net of cash acquired |
|
|
— |
|
|
(18,394) |
Net cash used in investing activities |
|
|
(22,092) |
|
|
(37,688) |
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
Payment of Term Notes |
|
|
(35,862) |
|
|
(6,000) |
Proceeds from borrowings on revolving credit facility |
|
|
35,000 |
|
|
25,000 |
Payments on revolving credit facility |
|
|
(42,500) |
|
|
(25,000) |
Debt issuance costs |
|
|
(94) |
|
|
— |
Payments of contingent consideration |
|
|
(2,286) |
|
|
(2,924) |
Payments of definite consideration |
|
|
(445) |
|
|
— |
Payments of purchase consideration liabilities |
|
|
(235) |
|
|
— |
Proceeds from exercise of stock options |
|
|
4,468 |
|
|
3,166 |
Purchase of treasury stock for stock-based tax withholdings |
|
|
(11,619) |
|
|
(9,517) |
Common stock acquired under the share repurchase program |
|
|
— |
|
|
(1,448) |
Issuance of restricted stock units |
|
|
4 |
|
|
5 |
Net cash used in financing activities |
|
|
(53,569) |
|
|
(16,718) |
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
|
170 |
|
|
— |
|
|
|
|
|
|
|
DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(3,888) |
|
|
(1,056) |
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
52,592 |
|
|
51,718 |
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
48,704 |
|
$ |
50,662 |
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information - net cash refunded (paid) during the period for income taxes |
|
$ |
1,449 |
|
$ |
(175) |
Supplemental disclosure of cash flow information - cash paid during the period for interest |
|
|
4,887 |
|
|
5,390 |
Supplemental disclosure of non-cash operating, investing and financing activities: |
|
|
|
|
|
|
Leasehold improvements funded by lease incentive |
|
|
2,098 |
|
|
1,522 |
Non-cash debt issuance costs |
|
|
2,230 |
|
|
— |
Purchase liabilities included in accrued expenses and other liabilities |
|
|
837 |
|
|
— |
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities |
|
|
505 |
|
|
— |
Contingent consideration issued in a business acquisition |
|
|
— |
|
|
1,929 |
7
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
1.Organization and Description of Business
Envestnet, Inc. (“Envestnet”) and its subsidiaries (collectively, the “Company”) provide intelligent systems for wealth management and financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management process, delivering unparalleled flexibility, accuracy, performance, and value. Envestnet enables a transparent, independent, objective, and fiduciary standard of care, and empowers enterprises and advisors to more fully understand their clients. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a financial network connecting software, services and data, delivering better intelligence and enabling its customers to drive better outcomes.
The Company offers these solutions principally through the following product/services suites:
· |
Envestnet | Enterprise provides an end-to-end open architecture wealth management platform, through which advisors can construct portfolios for clients. It begins with aggregated household data which then leads to a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 17,000 investment products. Envestnet | Enterprise also sells data aggregation and reporting, data analytics, and digital advice capabilities to customers. |
· |
Envestnet | TamaracTM provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management (“CRM”) software, principally to high‑end registered investment advisers (“RIA”). |
· |
Envestnet | Retirement Solutions (“ERS”) offers a comprehensive suite of services for advisor-sold retirement plans. Leveraging integrated technology, ERS addresses the regulatory, data, and investment needs of retirement plans and delivers the information holistically. |
· |
Envestnet | PMC® or Portfolio Management Consultants (“PMC”) provides research due diligence and consulting services to assist advisors in creating investment solutions for their clients. These solutions include more than 4,000 vetted managed account products, multi-manager portfolios, fund strategist portfolios, as well as proprietary products, such as Quantitative Portfolios. PMC also offers an Overlay Service, which includes patented portfolio overlay and tax optimization services. |
· |
Envestnet | Yodlee is a leading data aggregation and data intelligence platform. As a “big data” specialist, Yodlee gathers, refines and aggregates a massive set of end-user permissioned transaction level data, which it then provides to customers as data analytics solutions and market research services. |
Envestnet operates three RIAs and a registered broker-dealer. The RIAs are registered with the Securities and Exchange Commission (“SEC”). The broker-dealer is registered with the SEC, all 50 states and the District of Columbia and is a member of the Financial Industry Regulatory Authority (“FINRA”).
2.Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2017 and for the three and nine months ended September 30, 2017 and 2016 have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2016 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, 2017 and the results of operations, equity, comprehensive loss and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of Envestnet and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet 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 | Yodlee segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a foreign currency functional currency are translated at
8
exchange rates in effect at the balance sheet date, and revenues 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 results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 24, 2017.
The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions related to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements in conformity with GAAP. Areas requiring the use of management estimates relate to estimating uncollectible receivables, revenue recognition, valuations and assumptions used for impairment testing of goodwill, intangible and other long-lived assets, fair value of restricted stock and stock options issued, fair value of contingent consideration, realization of deferred tax assets, uncertain tax positions, sales tax liabilities, fair value of the liability portion of the convertible debt and assumptions used to allocate purchase prices in business combinations. Actual results could differ materially from these estimates under different assumptions or conditions.
Share repurchase program – On February 25, 2016, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company may repurchase up to 2,000,000 shares of its common stock. The timing and volume of share repurchases will be determined by the Company’s management based on its ongoing assessments of the capital needs of the business, the market price of its common stock and general market conditions. No time limit has been set for the completion of the repurchase program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other transactions or otherwise, all in compliance with applicable laws and other restrictions. As of September 30, 2017, 1,956,390 shares could still be purchased under this program. For the nine month period ended September 30, 2017, the Company purchased no shares under this program.
Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers.
The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its first quarter of 2017. However, in July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company will adopt the standard in its first quarter of 2018.
In 2016, the Company began evaluating the impact of the adoption of the new revenue standard on its consolidated financial statements, including enhanced disclosures, as well as assessing the impact on systems, processes and controls. The Company expects the new revenue standard to have an impact on the estimation of variable transaction considerations, the allocation of variable considerations across distinct services, and the tracking and amortization of contract costs. The new revenue standard may have an impact on the Company’s principal versus agent considerations. We expect to begin capitalizing certain costs to obtain a contract upon adoption of the new standard and are currently in the process of evaluating the period over which to amortize these capitalized costs. The Company has made progress on its contract and business process reviews but has not yet quantified these amounts.
The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company plans to adopt the standard using the modified retrospective approach with the cumulative effect recognized as of the date of adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases.” This update amends the requirements for assets and liabilities recognized for all leases longer than twelve months. Lessees will be required to recognize a lease liability measured on a discounted basis, which is the lessee’s obligation to make lease payments arising from the lease, and a right-of-use asset, which is an asset that
9
represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on our consolidated financial statements.
In March 2016, The FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” This update is intended to reduce the cost and complexity of accounting for share-based payments; however, some changes may also increase volatility in reported earnings. Under the new guidance, all excess tax benefits and deficiencies will be recorded as an income tax benefit or expense in the income statement and excess tax benefits will be recorded as an operating activity in the statements of cash flows. Upon adoption, we determined that we did not have previously unrecognized excess tax benefits to be recognized on a modified retrospective transition method as an adjustment to retained earnings. The new guidance also allows withholding up to the maximum individual statutory tax rate without classifying the awards as a liability. We did not elect an accounting policy change to withhold at the maximum individual statutory tax rate. The cash paid to satisfy the statutory income tax withholding obligation will continue to be classified as a financing activity in the statements of cash flows. Lastly, the update allows forfeitures to be estimated or recognized when they occur. The requirements for the excess tax effects related to share-based payments at settlement must be applied on a prospective basis, and the other requirements under this standard are to be applied on a retrospective basis. We did not elect an accounting policy change to record forfeitures as they occur and will continue to estimate forfeitures at each period. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2016. These changes became effective for the Company’s fiscal year beginning January 1, 2017 and have been reflected in these condensed consolidated financial statements. As a result of the retrospective adoption of ASU 2016-09, for the nine months ended September 30, 2016, net cash provided by operating activities increased by $1,470 with a corresponding offset to net cash used for financing activities.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statement of cash flows. This ASU is effective for the Company January 1, 2018 with early adoption permitted. The ASU requires a retrospective application unless it is determined that it is impractical to do so for which it must be retrospectively applied at the earliest date practical. Upon adoption, the Company does not anticipate significant changes to the Company’s existing accounting policies or presentation of the consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350),” which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. This standard will be effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company has adopted this standard as of April 1, 2017, however it did not have a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business (Topic 805), which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard will be effective for public companies for annual and interim periods beginning after December 15, 2017. Early adoption is permitted effective for transactions not yet reported in financial statements issued or made available for issuance. The Company is currently evaluating the potential impact of this guidance on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update clarifies which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. Specifically, an entity would not apply modification account if the fair value, vesting conditions, and classification as an equity or liability instrument are the same before and after the modification. The ASU is effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2017. Early adoption of the standard is permitted. The standard will be applied prospectively to awards modified on or after the adoption date. The Company is currently evaluating the potential impact of our adoption of this guidance on our consolidated financial statements.
3.Business Acquisitions
FolioDynamix
On September 25, 2017, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Folio Dynamics Holdings, Inc., a Delaware corporation (“FolioDynamix”), FCD Merger Sub, Inc., a Delaware corporation and a wholly
10
owned subsidiary of the Company (“Merger Sub”), and Actua USA Corporation, a Delaware corporation, solely in its capacity as the representative of the stockholders of FolioDynamix. Pursuant to the Merger Agreement, Merger Sub will merge with and into FolioDynamix, with FolioDynamix continuing as the surviving corporation (the “Acquisition”) and a wholly owned subsidiary of the Company. FolioDynamix will be included in the Envestnet segment.
FolioDynamix provides financial institutions, registered investment advisors, and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios, research, and overlay management services.
The Company plans to acquire FolioDynamix to add complementary trading tools as well as commission and brokerage support to Envestnet’s existing suite of offerings. The Company expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management channel, enabling the Company to further leverage its operating scale and data analytics capabilities.
Subject to the terms and conditions of the Merger Agreement, the Company will pay $195,000 in cash for all the outstanding shares of FolioDynamix, subject to certain post-closing adjustments. The Company will fund the Acquisition price with a combination of cash on the Company’s balance sheet and borrowings under its revolving credit facility. Either the Company or FolioDynamix may terminate the Agreement if the closing does not occur by March 31, 2018.
The applicable antitrust pre-clearance filings were made by the parties on October 10, 2017 and October 11, 2017. The Company is withdrawing its filing and plans to refile it immediately thereafter to allow the Department of Justice additional time to review the filing without having to issue a second request. The Company continues to expect the transaction to close in the first quarter of 2018, subject to satisfaction of the closing conditions. The Company and FolioDynamix will continue to operate separately until the transaction closes.
Wheelhouse Analytics LLC
On October 3, 2016, the Company acquired all of the issued and outstanding membership interests of Wheelhouse Analytics LLC (“Wheelhouse”). Wheelhouse is a technology company that provides data analytics, mobile sales solutions, and online education tools to financial advisors, asset managers and enterprises. Wheelhouse is included in the Envestnet | Yodlee segment.
The Company acquired Wheelhouse to be integrated with Yodlee’s industry-leading data and analytics solutions to strengthen Envestnet’s data-driven insights to financial advisors, asset managers and enterprises enabling them to better manage their businesses and client relationships and deliver better outcomes to their clients. Envestnet expects to deeply integrate Wheelhouse’s tools, delivering robust online dashboards and reporting that provides actionable intelligence.
In connection with the acquisition of Wheelhouse, the Company paid cash consideration of $13,299 and is required to pay contingent consideration with the aggregate amount not to exceed $4,000 and certain holdbacks upon release. Changes to the estimated fair value of the contingent consideration are recognized in earnings of the Company.
The estimated consideration transferred in the acquisition was as follows:
|
|
|
|
|
Measurement |
|
|
|
|
|
|
Preliminary |
|
Period |
|
As of |
|||
|
|
Estimate |
|
Adjustments |
|
September 30, 2017 |
|||
Cash consideration |
|
$ |
13,299 |
|
$ |
— |
|
$ |
13,299 |
Contingent consideration liability |
|
|
2,582 |
|
|
(218) |
|
|
2,364 |
Purchase consideration liability |
|
|
887 |
|
|
— |
|
|
887 |
Working capital adjustment |
|
|
110 |
|
|
— |
|
|
110 |
Cash acquired |
|
|
(80) |
|
|
— |
|
|
(80) |
Total |
|
$ |
16,798 |
|
$ |
(218) |
|
$ |
16,580 |
11
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
Measurement |
|
|
||
|
|
Preliminary |
|
Period |
|
As of |
|||
|
|
Estimate |
|
Adjustments |
|
September 30, 2017 |
|||
Total tangible assets acquired |
|
$ |
399 |
|
$ |
(14) |
|
$ |
385 |
Total liabilities assumed |
|
|
(1,459) |
|
|
39 |
|
|
(1,420) |
Identifiable intangible assets |
|
|
7,300 |
|
|
(700) |
|
|
6,600 |
Goodwill |
|
|
10,558 |
|
|
457 |
|
|
11,015 |
Total net assets acquired |
|
$ |
16,798 |
|
$ |
(218) |
|
$ |
16,580 |
A summary of estimated identifiable intangible assets acquired, estimated useful lives and amortization method is as follows:
|
|
|
|
|
Measurement |
|
|
|
|
|
|
|
|
|
|
Preliminary |
|
Period |
|
As of |
|
Estimated |
|
Amortization |
|||
|
|
Estimate |
|
Adjustments |
|
September 30, 2017 |
|
Useful Life in Years |
|
Method |
|||
Customer list |
|
$ |
4,100 |
|
$ |
(100) |
|
$ |
4,000 |
|
15 |
|
Accelerated |
Proprietary technology |
|
|
3,000 |
|
|
(500) |
|
|
2,500 |
|
6 |
|
Straight-line |
Trade names and domains |
|
|
200 |
|
|
(100) |
|
|
100 |
|
2 |
|
Straight-line |
Total |
|
$ |
7,300 |
|
$ |
(700) |
|
$ |
6,600 |
|
|
|
|
The results of Wheelhouse’s operations are included in the condensed consolidated statements of operations beginning October 3, 2016, and are not considered material to the Company’s results of operations. As such, no pro forma information is presented for the three and nine months ended September 30, 2016.
12
4. Cost of Revenues
The following table summarizes cost of revenues by revenue category for the periods presented herein:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
Assets under management or administration |
|
$ |
50,597 |
|
$ |
41,960 |
|
$ |
142,097 |
|
$ |
117,369 |
Subscription and licensing |
|
|
5,076 |
|
|
5,110 |
|
|
14,832 |
|
|
11,934 |
Professional services and other |
|
|
397 |
|
|
189 |
|
|
4,102 |
|
|
3,016 |
Total |
|
$ |
56,070 |
|
$ |
47,259 |
|
$ |
161,031 |
|
$ |
132,319 |
5. Property and Equipment, Net
Property and equipment, net consists of the following:
|
|
|
|
September 30, |
|
December 31, |
||
|
|
Estimated Useful Life |
|
2017 |
|
2016 |
||
Cost: |
|
|
|
|
|
|
|
|
Computer equipment and software |
|
3 years |
|
$ |
60,073 |
|
$ |
52,921 |
Leasehold improvements |
|
Shorter of the lease term or useful life of the asset |
|
|
22,580 |
|
|
17,286 |
Office furniture and fixtures |
|
3-7 years |
|
|
8,048 |
|
|
6,911 |
Other office equipment |
|
3-5 years |
|
|
1,883 |
|
|
1,367 |
|
|
|
|
|
92,584 |
|
|
78,485 |
Less: accumulated depreciation and amortization |
|
|
|
|
(57,310) |
|
|
(45,485) |
Property and equipment, net |
|
|
|
$ |
35,274 |
|
$ |
33,000 |
Depreciation and amortization expense was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
Depreciation and amortization expense |
|
$ |
3,724 |
|
$ |
3,740 |
|
$ |
11,668 |
|
$ |
11,147 |
6. Internally Developed Software, Net
Internally developed software, net consists of the following:
|
|
|
|
September 30, |
|
December 31, |
||
|
|
Estimated Useful Life |
|
2017 |
|
2016 |
||
Internally developed software |
|
5 years |
|
$ |
42,928 |
|
$ |
33,718 |
Less: accumulated amortization |
|
|
|
|
(22,649) |
|
|
(18,858) |
Internally developed software, net |
|
|
|
$ |
20,279 |
|
$ |
14,860 |
Amortization expense was as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
||||||||
|
|
September 30, |
|
September 30, |
||||||||
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
||||
Amortization expense |
|
$ |
1,391 |
|
$ |
917 |
|
$ |
3,791 |
|
$ |
2,569 |
13
7.Goodwill & Intangible Assets, Net
Changes in the carrying amount of goodwill were as follows:
|
|
Envestnet |
|
Envestnet | Yodlee |
|
Total |
|||
Balance at December 31, 2016 |
|
$ |
163,751 |
|
$ |
268,185 |
|
$ |
431,936 |
Purchase accounting adjustments - Wheelhouse |
|
|
— |
|
|
457 |
|
|
457 |
Foreign currency translation |
|
|
— |
|
|
353 |
|
|
353 |
Balance at September 30, 2017 |
|
$ |
163,751 |
|
$ |
268,995 |
|
$ |
432,746 |
Intangible assets, net consist of the following:
|
|
|
|
|
|
|
September 30, 2017 |
|
December 31, 2016 |
||||||||||||||
|
|
|
|
|
|
|
|