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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 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   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 
 
As of October 31, 2019, Envestnet, Inc. had 52,473,204 shares of common stock outstanding.
 
 




TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2





Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share information)
(unaudited)
 
 
September 30,
 
December 31,
 
 
2019
 
2018
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
71,632

 
$
289,345

Fees receivable, net
 
64,402

 
68,004

Prepaid expenses and other current assets
 
30,976

 
23,557

Total current assets
 
167,010


380,906

 
 
 
 
 
Property and equipment, net
 
53,565

 
44,991

Internally developed software, net
 
53,325

 
38,209

Intangible assets, net
 
489,918

 
305,241

Goodwill
 
907,995

 
519,102

Operating lease right-of-use assets, net
 
78,515

 

Other non-current assets
 
36,808

 
25,298

Total assets
 
$
1,787,136


$
1,313,747

 
 
 
 
 
Liabilities and Equity:
 
 
 
 
Current liabilities:
 
 
 
 
Accrued expenses and other liabilities
 
$
133,170

 
$
133,298

Accounts payable
 
13,231

 
19,567

Operating lease liabilities
 
12,961

 

Convertible Notes due 2019
 
170,966

 
165,711

Contingent consideration
 

 
732

Deferred revenue
 
35,989

 
23,988

Total current liabilities
 
366,317


343,296

 
 
 
 
 
Convertible Notes due 2023
 
302,785

 
294,725

Revolving credit facility
 
100,000

 

Contingent consideration
 
16,830

 

Deferred revenue
 
5,562

 
6,910

Non-current operating lease liabilities
 
83,319

 

Deferred rent and lease incentive
 

 
17,569

Deferred tax liabilities, net
 
22,657

 
640

Other non-current liabilities
 
28,748

 
18,005

Total liabilities
 
926,218

 
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; 65,883,873 and 61,238,898 shares issued as of September 30, 2019 and December 31, 2018, respectively; 52,453,821 and 48,121,800 shares outstanding as of September 30, 2019 and December 31, 2018, respectively
 
329

 
306

Additional paid-in capital
 
1,030,861

 
761,128

Accumulated deficit
 
(79,254
)
 
(58,882
)
Treasury stock at cost, 13,430,052 and 13,117,098 shares as of September 30, 2019 and December 31, 2018, respectively
 
(87,555
)
 
(67,858
)
Accumulated other comprehensive loss
 
(2,118
)
 
(994
)
Total stockholders’ equity
 
862,263

 
633,700

Non-controlling interest
 
(1,345
)
 
(1,098
)
Total equity
 
860,918

 
632,602

Total liabilities and equity
 
$
1,787,136


$
1,313,747

 
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,
 
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
 
Asset-based
 
$
126,591

 
$
119,097

 
$
355,595

 
$
358,361

Subscription-based
 
100,583

 
76,194

 
275,928

 
217,668

Total recurring revenues
 
227,174


195,291


631,523


576,029

Professional services and other revenues
 
8,906

 
7,865

 
28,668

 
26,254

Total revenues
 
236,080

 
203,156

 
660,191


602,283

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenues
 
71,870

 
64,964

 
205,595

 
195,525

Compensation and benefits
 
95,587

 
80,424

 
285,590

 
244,174

General and administration
 
42,016

 
34,810

 
124,961

 
101,628

Depreciation and amortization
 
26,735

 
19,563

 
73,167

 
58,294

Total operating expenses
 
236,208


199,761


689,313


599,621

 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
(128
)
 
3,395

 
(29,122
)
 
2,662

Other expense, net
 
(9,813
)
 
(6,118
)
 
(23,088
)

(16,802
)
Loss before income tax benefit
 
(9,941
)

(2,723
)

(52,210
)

(14,140
)
 
 
 
 
 
 
 
 
 
Income tax benefit
 
(6,977
)
 
(5,234
)
 
(31,591
)
 
(18,662
)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
(2,964
)
 
2,511

 
(20,619
)

4,522

Add: Net (income) loss attributable to non-controlling interest
 
(116
)
 
443

 
247

 
1,010

Net income (loss) attributable to Envestnet, Inc.
 
$
(3,080
)

$
2,954


$
(20,372
)

$
5,532

 
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to Envestnet, Inc.:
 
 
 
 
 
 
 
 
Basic
 
$
(0.06
)
 
$
0.06

 
$
(0.40
)
 
$
0.12

Diluted
 
$
(0.06
)
 
$
0.06

 
$
(0.40
)
 
$
0.12

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
52,215,469

 
45,475,884

 
50,414,427

 
45,087,932

Diluted
 
52,215,469

 
47,519,160

 
50,414,427

 
47,269,479


See accompanying notes to unaudited Condensed Consolidated Financial Statements.

4



Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss) attributable to Envestnet, Inc.
 
$
(3,080
)
 
$
2,954

 
$
(20,372
)
 
$
5,532

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
 
Foreign currency translation gains (losses), net
 
(1,458
)
 
(1,108
)
 
(1,124
)
 
(2,471
)
Comprehensive income (loss) attributable to Envestnet, Inc.
 
$
(4,538
)

$
1,846


$
(21,496
)

$
3,061


See accompanying notes to unaudited Condensed Consolidated Financial Statements.


5



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

Exercise of stock options
 
225,414

 
1

 

 

 
2,114

 

 

 

 
2,115

Issuance of common stock - vesting of restricted stock units
 
242,789

 
1

 

 

 

 

 

 

 
1

Stock-based compensation expense
 

 

 

 

 
13,169

 

 

 

 
13,169

Purchase of treasury stock for stock-based tax withholdings
 

 

 
(84,538
)
 
(3,735
)
 

 

 

 

 
(3,735
)
Foreign currency translation loss
 

 

 

 

 

 
(1,458
)
 

 

 
(1,458
)
Net income (loss)
 

 

 

 

 

 

 
(3,080
)
 
116

 
(2,964
)
Balance, September 30, 2019
 
65,883,873

 
$
329

 
(13,430,052
)
 
$
(87,555
)
 
$
1,030,861

 
$
(2,118
)
 
$
(79,254
)
 
$
(1,345
)
 
$
860,918


See accompanying notes to unaudited Condensed Consolidated Financial Statements.

6



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

Exercise of stock options
 
174,445

 
1

 

 

 
2,658

 

 

 

 
2,659

Issuance of common stock - vesting of restricted stock units
 
159,783

 
1

 

 

 

 

 

 

 
1

Stock-based compensation expense
 

 

 

 

 
10,603

 

 

 

 
10,603

Purchase of treasury stock for stock-based tax withholdings
 

 

 
(32,687
)
 
(3,489
)
 

 

 

 

 
(3,489
)
Issuance of non-controlling units in private company
 

 

 

 

 

 

 

 
(400
)
 
(400
)
Foreign currency translation loss
 

 

 

 

 

 
(1,108
)
 

 

 
(1,108
)
Net income (loss)
 

 

 

 

 

 

 
2,954

 
(443
)
 
2,511

Balance, September 30, 2018
 
58,716,254

 
$
293

 
(13,039,119
)
 
$
(64,926
)
 
$
637,639

 
$
(1,847
)
 
$
(59,105
)
 
$
(139
)
 
$
511,915

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

7



Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Nine Months Ended
 
 
September 30,
 
 
2019
 
2018
OPERATING ACTIVITIES:
 
 
 
 
Net income (loss)
 
$
(20,619
)
 
$
4,522

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
73,167

 
58,294

Deferred rent and lease incentive amortization
 

 
408

Provision for doubtful accounts
 
1,243

 
1,228

Deferred income taxes
 
(37,626
)
 
(21,854
)
Non-cash compensation expense
 
43,167

 
29,574

Non-cash interest expense
 
17,195

 
12,337

Accretion on contingent consideration and purchase liability
 
1,240

 
209

Payments of contingent consideration
 
(578
)
 

Loss allocation from equity method investment
 
1,507

 
1,069

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
Fees receivable, net
 
6,164

 
(9,131
)
Prepaid expenses and other current assets
 
(4,784
)
 
(4,739
)
Other non-current assets
 
(6,113
)
 
(2,888
)
Accrued expenses and other liabilities
 
(9,732
)
 
6,710

Accounts payable
 
(6,859
)
 
4,100

Deferred revenue
 
1,231

 
1,147

Other non-current liabilities
 
3,242

 
2,328

Net cash provided by operating activities
 
61,845

 
83,314

 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 
Purchases of property and equipment
 
(16,098
)
 
(17,088
)
Capitalization of internally developed software
 
(23,649
)
 
(17,611
)
Acquisitions of businesses, net of cash acquired
 
(321,571
)
 
(194,959
)
Other
 
(3,200
)
 

Net cash used in investing activities
 
(364,518
)
 
(229,658
)
 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
Proceeds from issuance of Convertible Notes due 2023
 

 
345,000

Convertible Notes due 2023 issuance costs
 

 
(9,982
)
Proceeds from borrowings on revolving credit facility
 
175,000

 
195,000

Payments on revolving credit facility
 
(75,000
)
 
(276,168
)
Revolving credit facility issuance costs
 
(2,103
)
 

Payments of contingent consideration
 
(171
)
 
(2,193
)
Proceeds from exercise of stock options
 
7,029

 
5,199

Purchase of treasury stock for stock-based tax withholdings
 
(19,697
)
 
(17,884
)
Issuance of restricted stock units
 
4

 
4

Net cash provided by financing activities
 
85,062

 
238,976

 
 
 
 
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
 
(178
)
 
(