Document

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 June 30, 2019

☐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 incorporation or organization)		(I.R.S Employer Identification No.)



35 East Wacker Drive, Suite 2400	Chicago,	Illinois	60601
(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 ý 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 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	ý	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 ý

As of August 1, 2019, Envestnet, Inc. had 52,182,228 shares of common stock outstanding.

TABLE OF CONTENTS



	Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	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	33
Overview	35
Results of Operations	41
Liquidity and Capital Resources	57

Item 3. Quantitative and Qualitative Disclosures About Market Risk	59

Item 4. Controls and Procedures	60

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	60

Item 1A. Risk Factors	60

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	61

Item 3. Defaults Upon Senior Securities	61

Item 4. Mine Safety Disclosures	61

Item 5. Other Information	61

Item 6. Exhibits	61

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share information)

(unaudited)



	June 30,			December 31,
	2019			2018
Assets:
Current assets:
Cash and cash equivalents	$	77,717		$	289,345
Fees receivable, net	71,632			68,004
Prepaid expenses and other current assets	40,046			23,557
Total current assets	189,395			380,906

Property and equipment, net	51,016			44,991
Internally developed software, net	48,059			38,209
Intangible assets, net	509,159			305,241
Goodwill	908,686			519,102
Operating lease right-of-use assets, net	72,191			—
Other non-current assets	33,834			25,298
Total assets	$	1,812,340		$	1,313,747

Liabilities and Equity:
Current liabilities:
Accrued expenses and other liabilities	$	118,608		$	133,298
Accounts payable	15,165			19,567
Operating lease liabilities	12,918			—
Convertible Notes due 2019	169,182			165,711
Contingent consideration	—			732
Deferred revenue	37,601			23,988
Total current liabilities	353,474			343,296

Convertible Notes due 2023	300,078			294,725
Revolving credit facility	145,000			—
Contingent consideration	16,423			—
Deferred revenue	6,659			6,910
Non-current operating lease liabilities	77,431			—
Deferred rent and lease incentive	—			17,569
Deferred tax liabilities, net	31,292			640
Other non-current liabilities	28,193			18,005
Total liabilities	958,550			681,145

Commitments and contingencies

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; 65,415,670 and 61,238,898 shares issued as of June 30, 2019 and December 31, 2018, respectively; 52,070,156 and 48,121,800 shares outstanding as of June 30, 2019 and December 31, 2018, respectively	327			306
Additional paid-in capital	1,015,578			761,128
Accumulated deficit	(76,174		)	(58,882		)
Treasury stock at cost, 13,345,514 and 13,117,098 shares as of June 30, 2019 and December 31, 2018, respectively	(83,820		)	(67,858		)
Accumulated other comprehensive loss	(660		)	(994		)
Total stockholders’ equity	855,251			633,700
Non-controlling interest	(1,461		)	(1,098		)
Total equity	853,790			632,602
Total liabilities and equity	$	1,812,340		$	1,313,747

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						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues:
Asset-based	$	120,070		$	118,111		$	229,004		$	239,264
Subscription-based	92,258			71,779			175,345			141,474
Total recurring revenues	212,328			189,890			404,349			380,738
Professional services and other revenues	12,117			11,226			19,762			18,389
Total revenues	224,445			201,116			424,111			399,127

Operating expenses:
Cost of revenues	72,080			67,627			133,725			130,561
Compensation and benefits	103,286			80,210			190,003			163,750
General and administration	42,421			34,089			82,945			66,818
Depreciation and amortization	26,915			19,185			46,432			38,731
Total operating expenses	244,702			201,111			453,105			399,860

Income (loss) from operations	(20,257		)	5			(28,994		)	(733		)
Other expense, net	(7,512		)	(5,430		)	(13,275		)	(10,684		)
Loss before income tax provision (benefit)	(27,769		)	(5,425		)	(42,269		)	(11,417		)

Income tax provision (benefit)	(28,382		)	566			(24,614		)	(13,428		)

Net income (loss)	613			(5,991		)	(17,655		)	2,011
Add: Net loss attributable to non-controlling interest	280			465			363			567
Net income (loss) attributable to Envestnet, Inc.	$	893		$	(5,526	)	$	(17,292	)	$	2,578

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	0.02		$	(0.12	)	$	(0.35	)	$	0.06
Diluted	$	0.02		$	(0.12	)	$	(0.35	)	$	0.05

Weighted average common shares outstanding:
Basic	50,870,296			45,247,331			49,526,774			44,963,735
Diluted	52,982,688			45,247,331			49,526,774			47,156,205

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)



	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2019		2018			2019			2018
Net income (loss) attributable to Envestnet, Inc.	$	893	$	(5,526	)	$	(17,292	)	$	2,578
Other comprehensive income (loss), net of taxes:
Foreign currency translation gain (loss)	112		(1,036		)	334			(1,363		)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	1,005	$	(6,562	)	$	(16,958	)	$	1,215

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements 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, 2018	61,238,898	$	306	(13,117,098	)	$	(67,858	)	$	761,128	$	(994	)	$	(58,882	)	$	(1,098	)	$	632,602
Exercise of stock options	200,326	1		—		—			3,162		—			—			—			3,163
Issuance of common stock - vesting of restricted stock units	479,479	2		—		—			—		—			—			—			2
Acquisition of business	15,755	—		—		—			772		—			—			—			772
Stock-based compensation expense	—	—		—		—			12,864		—			—			—			12,864
Purchase of treasury stock for stock-based tax withholdings	—	—		(160,456	)	(9,819		)	—		—			—			—			(9,819		)
Foreign currency translation gain (loss)	—	—		—		—			—		222			—			—			222
Net income (loss)	—	—		—		—			—		—			(18,185		)	(83		)	(18,268		)
Balance, March 31, 2019	61,934,458	309		(13,277,554	)	(77,677		)	777,926		(772		)	(77,067		)	(1,181		)	621,538
Exercise of stock options	114,109	1		—		—			1,750		—			—			—			1,751
Issuance of common stock - vesting of restricted stock units	182,390	1		—		—			—		—			—			—			1
Acquisition of business	3,184,713	16		—		—			222,468		—			—			—			222,484
Stock-based compensation expense	—	—		—		—			13,434		—			—			—			13,434
Purchase of treasury stock for stock-based tax withholdings	—	—		(67,960	)	(6,143		)	—		—			—			—			(6,143		)
Foreign currency translation gain (loss)	—	—		—		—			—		112			—			—			112
Net income (loss)	—	—		—		—			—		—			893			(280		)	613
Balance, June 30, 2019	65,415,670	$	327	(13,345,514	)	$	(83,820	)	$	1,015,578	$	(660	)	$	(76,174	)	$	(1,461	)	$	853,790

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Equity (continued)

(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, 2017	57,450,056	$	287	(12,749,415	)	$	(47,042	)	$	556,257	$	624		$	(73,854	)	$	398		$	436,670
Adoption of ASC 606	—	—		—		—			—		—			9,217			—			9,217
Exercise of stock options	162,857	1		—		—			2,403		—			—			—			2,404
Issuance of common stock - vesting of restricted stock units	503,668	2		—		—			—		—			—			—			2
Stock-based compensation expense	—	—		—		—			8,495		—			—			—			8,495
Purchase of treasury stock for stock-based tax withholdings	—	—		(166,217	)	(9,296		)	—		—			—			—			(9,296		)
Issuance of non-controlling units in private company	—	—		—		—			—		—			—			873			873
Foreign currency translation gain (loss)	—	—		—		—			—		(327		)	—			—			(327		)
Net income (loss)	—	—		—		—			—		—			8,104			(102		)	8,002
Balance, March 31, 2018	58,116,581	290		(12,915,632	)	(56,338		)	567,155		297			(56,533		)	1,169			456,040
Exercise of stock options	12,166	—		—		—			136		—			—			—			136
Issuance of common stock - vesting of restricted stock units	253,279	1		—		—			—		—			—			—			1
Stock-based compensation expense	—	—		—		—			10,476		—			—			—			10,476
Purchase of treasury stock for stock-based tax withholdings	—	—		(90,800	)	(5,099		)	—		—			—			—			(5,099		)
Issuance of Convertible Notes due 2023, net of offering costs	—	—		—		—			46,611		—			—			—			46,611
Foreign currency translation gain (loss)	—	—		—		—			—		(1,036		)	—			—			(1,036		)
Net income (loss)	—	—		—		—			—		—			(5,526		)	(465		)	(5,991		)
Balance, June 30, 2018	58,382,026	$	291	(13,006,432	)	$	(61,437	)	$	624,378	$	(739	)	$	(62,059	)	$	704		$	501,138

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	Six Months Ended
	June 30,
	2019			2018
OPERATING ACTIVITIES:
Net income (loss)	$	(17,655	)	$	2,011
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	46,432			38,731
Deferred rent and lease incentive amortization	—			1,069
Provision for doubtful accounts	713			924
Deferred income taxes	(28,991		)	(17,093		)
Non-cash based compensation expense	27,852			18,971
Non-cash interest expense	9,896			5,630
Accretion on contingent consideration and purchase liability	742			196
Payments of contingent consideration	(578		)	—
Loss allocation from equity method investment	550			811
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	(536		)	(8,204		)
Prepaid expenses and other current assets	(15,507		)	(3,426		)
Other non-current assets	(3,241		)	(2,450		)
Accrued expenses and other liabilities	(19,060		)	(5,438		)
Accounts payable	(4,768		)	4,166
Deferred revenue	3,940			3,478
Other non-current liabilities	2,602			1,578
Net cash provided by operating activities	2,391			40,954

INVESTING ACTIVITIES:
Purchases of property and equipment	(8,815		)	(9,569		)
Capitalization of internally developed software	(15,583		)	(10,622		)
Acquisitions of businesses, net of cash acquired	(321,571		)	(188,345		)
Other	(2,000		)	—
Net cash used in investing activities	(347,969		)	(208,536		)

FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2023	—			345,000
Convertible Notes due 2023 issuance costs	—			(9,488		)
Proceeds from borrowings on revolving credit facility	175,000			195,000
Payments on revolving credit facility	(30,000		)	(276,168		)
Payments of contingent consideration	(171		)	(2,193		)
Proceeds from exercise of stock options	4,914			2,540
Purchase of treasury stock for stock-based tax withholdings	(15,962		)	(14,395		)
Issuance of restricted stock units	3			3
Net cash provided by financing activities	133,784			240,299

EFFECT OF EXCHANGE RATE CHANGES ON CASH	166			(572		)

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(211,628		)	72,145

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	289,671			62,115

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	78,043		$	134,260

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	6,121		$	2,225
Supplemental disclosure of cash flow information - cash paid during the period for interest	5,952			4,271
Supplemental disclosure of non-cash operating, investing and financing activities:
Common stock issued in acquisition of business	222,484			—
Contingent consideration issued in acquisition of businesses	15,880			—
Purchase liabilities included in other non-current liabilities	5,468			—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,567			1,188
Membership interest liabilities included in other non-current liabilities	1,480			—
Common stock issued to settle purchase liability	772			—
Leasehold improvements funded by lease incentive	648			1,080
Purchase liabilities included in accrued expenses and other liabilities	—			1,422

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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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. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in “Note 18—Segment Information” to the condensed consolidated financial statements. The business segments are as follows:


•	Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and institutions.

Within Envestnet Wealth Solutions, the Company offers these solutions principally through the following products and 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 the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 19,900 investment products. Envestnet | Enterprise also offers data aggregation and reporting, data analytics and digital advice capabilities to customers.


•	Envestnet \| Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high‑end registered investment advisers (“RIAs”).


•	Envestnet \| MoneyGuide provides leading goals-based financial planning solutions to the financial services industry. The highly adaptable software helps financial advisors add significant value for their clients using best-in-class technology with enhanced integrations to generate financial plans.


•	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 and consulting services to assist advisors in creating investment solutions for their clients. These solutions include over 4,500 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as over 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.


•	Envestnet Data & Analytics – a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services, and includes product offerings from Envestnet \| Yodlee and Envestnet \| Analytics.

Envestnet operates four RIAs and a registered broker-dealer. The RIAs are registered with the Securities and Exchange Commission (“SEC”). The broker-dealer is registered with the SEC, all 50 states and the District of Columbia and is a member of the Financial Industry Regulatory Authority (“FINRA”).


2.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 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, 2018 and reflect all normal recurring adjustments which are,

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

in the opinion of management, necessary to present fairly the Company’s financial position as of June 30, 2019 and the 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 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 six months ended June 30, 2019 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 Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“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, 2018, filed with the SEC on March 1, 2019.

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

The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported within the condensed consolidated statements of cash flows:



	June 30,		December 31,
	2019		2018
Cash and cash equivalents	$	77,717	$	289,345
Restricted cash included in prepaid expenses and other current assets	158		158
Restricted cash included in other non-current assets	168		168
Total cash, cash equivalents and restricted cash	$	78,043	$	289,671

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements—In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases,” which amends the requirements for assets and liabilities recognized for all leases longer than twelve months. This standard is effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. These changes became effective for the Company’s fiscal year beginning January 1, 2019 and have been reflected in these condensed consolidated financial statements (See “Note 17—Leases”).

In June 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting.” This update clarifies the accounting for share-based payment transactions for acquiring goods and services from non-employees. Specifically, the update aligns the accounting for payments to non-employees to match the accounting for payments to employees, no longer accounting for these transactions differently. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2018. These changes became effective for the Company's fiscal year beginning January 1, 2019. This standard will be applied prospectively to all future non-employee share-based payments and is reflected in these condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force).” This update is intended to guide entities in evaluating the

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company early adopted this standard beginning January 1, 2019, noting that this standard will be applied prospectively. Adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

Not Yet Adopted—In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326).” This update significantly changes the way that entities will be required to measure credit losses. The new standard requires entities to estimate credit losses based upon an “expected credit loss” approach rather than the “incurred loss” approach, which is currently used. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. The change in approach is anticipated to impact the timing of recognition of credit losses. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” This update aims to improve the effectiveness of disclosure requirements on fair value measurement as part of the disclosure framework project. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.


3.	Business Acquisitions

Acquisition of private company

On January 2, 2019, pursuant to an agreement and plan of merger dated as of January 2, 2019 between Envestnet and a private company, the private company merged into Yodlee Inc., a wholly owned subsidiary of the Company (the “Private Company Acquisition”). The private company provides conversational artificial intelligence tools and applications to financial services firms, improves the way Financial Service Providers (“FSPs”) can interact with their customers, and supports these FSPs to better engage, support and assist their consumers leveraging this latest wave of customer-centric capabilities.

The technology and operations of the private company is included in the Company’s Envestnet Data & Analytics segment.

The seller of the private company is also entitled to an earn-out payment based on the private company's revenue and other retention targets for the twelve-month period beginning January 1, 2021. The discounted amount of the contingent consideration liability is estimated to be $7,580 and is included as a long-term liability on the condensed consolidated balance sheets.

The consideration transferred in the acquisition was as follows:



	Preliminary Estimate
Cash consideration	$	11,173
Purchase consideration liability	6,240
Contingent consideration liability	7,580
Working capital adjustment	70
Total	$	25,063

The estimated fair values of the deferred income taxes, identifiable intangible assets, contingent consideration liability, and goodwill balances are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies and are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than January 2, 2020.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



	Preliminary Estimate
Total tangible assets acquired	$	144
Total liabilities assumed	(629		)
Identifiable intangible assets	4,100
Goodwill	21,448
Total net assets acquired	$	25,063

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of potential cross selling opportunities. The goodwill is not deductible for income tax purposes.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:



	Preliminary Estimate		Estimated Useful Life in Years	Amortization Method
Proprietary technology	$	4,100	4	Straight-line

The results of the private company's operations are included in the condensed consolidated statements of operations beginning January 2, 2019 and were not considered material to the Company’s results of operations.

For the three and six months ended June 30, 2019, acquisition related costs for the Private Company Acquisition were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2019.

Acquisition of PortfolioCenter business

On April 1, 2019, pursuant to an asset purchase agreement, Tamarac, Inc. (“Tamarac”), a wholly owned subsidiary of Envestnet, acquired certain of the assets, primarily consisting of intangible assets, and the assumption of certain of the liabilities of the PortfolioCenter business from Performance Technologies, Inc. (the “PC Seller”), a wholly owned subsidiary of The Charles Schwab Corporation. The PortfolioCenter Business provides investment advisors and investment advisory service providers with desktop, hosted and outsourced multicustodial software solutions. These solutions provide data-management and performance-measurement tools, as well as customizable accounting, reporting, and billing functions delivered through the commercial software application products known as PortfolioCenter Desktop, PortfolioCenter Hosted, PortfolioServices and Service Bureau.

Tamarac acquired the PortfolioCenter Business to better serve small and mid-size RIA firms. The PortfolioCenter Business is included in the Company’s Envestnet Wealth Solutions segment.

In connection with the PortfolioCenter Acquisition, Tamarac paid $17,500 in cash. Tamarac funded the PortfolioCenter Acquisition with available cash resources. The PC Seller is also entitled to an earn-out payment based on the PortfolioCenter Business’ revenue for the twelve-month period beginning April 1, 2020. The discounted amount of the contingent consideration liability is estimated to be $8,300.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

The preliminary consideration transferred in the acquisition was as follows:



	Preliminary Estimate
Cash consideration	$	17,500
Contingent consideration liability	8,300
Total	$	25,800

The estimated fair values of the deferred income taxes, identifiable intangible assets, contingent consideration liability and goodwill balances are provisional and based on the information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies and are in progress and not yet at the point where there is sufficient infor