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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
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 | ) | | ( |