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 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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018	5
Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2019 and 2018	6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 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	34
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

Index to Exhibits	62

Signatures	63

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.

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.

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.

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.

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.

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		)	(