env-20200630

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, 2020

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

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 every Interactive Data File required to be submitted 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 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

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 July 31, 2020, Envestnet, Inc. had 53,772,483 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 3 0 , 2020 and December 31, 2019			3
Condensed Consolidated Statements of Operations for the three and six months ended June 3 0 , 2020 and 2019			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019			5
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30 , 2020 and 2019			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 3 0 , 2020 and 2019			8
Notes to Unaudited Condensed Consolidated Financial Statements			10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			28
Overview			30
Results of Operations			36
Liquidity and Capital Resources			53

Item 3. Quantitative and Qualitative Disclosures About Market Risk			54

Item 4. Controls and Procedures			55

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			55

Item 1A. Risk Factors			55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			56

Item 3. Defaults Upon Senior Securities			56

Item 4. Mine Safety Disclosures			56

Item 5. Other Information			56

Item 6. Exhibits			56

Index to Exhibits			57

Signatures			58

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	June 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	92,244	$	82,505
Fees receivable, net	74,871		67,815
Prepaid expenses and other current assets	38,665		32,183
Total current assets	205,780		182,503

Property and equipment, net	49,752		53,756
Internally developed software, net	78,024		60,263
Intangible assets, net	471,091		505,589
Goodwill	906,499		879,850
Operating lease right-of-use assets, net	73,537		82,796
Other non-current assets	46,722		37,127
Total assets	$	1,831,405	$	1,801,884

Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	134,763	$	137,944
Accounts payable	16,132		17,277
Operating lease liabilities	13,926		13,816
Contingent consideration	1,603		—
Deferred revenue	42,861		34,753
Total current liabilities	209,285		203,790

Convertible Notes due 2023	311,031		305,513
Revolving credit facility	275,000		260,000
Contingent consideration	11,422		9,045
Deferred revenue	5,231		5,754
Non-current operating lease liabilities	81,600		88,365
Deferred tax liabilities, net	27,106		29,481
Other non-current liabilities	36,993		32,360
Total liabilities	957,668		934,308

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; 67,396,243 and 66,320,706 shares issued as of June 30, 2020 and December 31, 2019, respectively; 53,743,382 and 52,841,706 shares outstanding as of June 30, 2020 and December 31, 2019, respectively	337		331
Additional paid-in capital	1,071,502		1,037,141
Accumulated deficit	(89,065)		(75,664)
Treasury stock at cost, 13,652,861 and 13,479,000 shares as of June 30, 2020 and December 31, 2019, respectively	(103,781)		(90,965)
Accumulated other comprehensive loss	(3,198)		(1,749)
Total stockholders’ equity	875,795		869,094
Non-controlling interest	(2,058)		(1,518)
Total equity	873,737		867,576
Total liabilities and equity	$	1,831,405	$	1,801,884

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,
	2020		2019		2020		2019
Revenues:
Asset-based	$	122,246	$	120,070	$	257,057	$	229,004
Subscription-based	104,979		92,258		209,530		175,345
Total recurring revenues	227,225		212,328		466,587		404,349
Professional services and other revenues	8,088		12,117		15,265		19,762
Total revenues	235,313		224,445		481,852		424,111

Operating expenses:
Cost of revenues	68,849		72,080		143,782		133,725
Compensation and benefits	95,565		103,286		205,995		190,003
General and administration	38,448		42,421		79,558		82,945
Depreciation and amortization	28,443		26,915		56,126		46,432
Total operating expenses	231,305		244,702		485,461		453,105

Income (loss) from operations	4,008		(20,257)		(3,609)		(28,994)
Other expense, net	(8,173)		(7,512)		(9,710)		(13,275)
Loss before income tax provision (benefit)	(4,165)		(27,769)		(13,319)		(42,269)

Income tax provision (benefit)	1,306		(28,382)		(658)		(24,614)

Net income (loss)	(5,471)		613		(12,661)		(17,655)
Add: Net loss attributable to non-controlling interest	547		280		401		363
Net income (loss) attributable to Envestnet, Inc.	$	(4,924)	$	893	$	(12,260)	$	(17,292)

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	(0.09)	$	0.02	$	(0.23)	$	(0.35)
Diluted	$	(0.09)	$	0.02	$	(0.23)	$	(0.35)

Weighted average common shares outstanding:
Basic	53,562,850		50,870,296		53,288,741		49,526,774
Diluted	53,562,850		52,982,688		53,288,741		49,526,774

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,
	2020		2019		2020		2019
Net income (loss) attributable to Envestnet, Inc.	$	(4,924)	$	893	$	(12,260)	$	(17,292)
Foreign currency translation gains (losses), net of taxes	1,575		112		(1,449)		334
Comprehensive income (loss) attributable to Envestnet, Inc.	$	(3,349)	$	1,005	$	(13,709)	$	(16,958)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' 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, 2019	66,320,706	$	331	(13,479,000)	$	(90,965)	$	1,037,141	$	(1,749)	$	(75,664)	$	(1,518)	$	867,576
Adoption of ASC 326	—	—		—	—		—		—		(1,141)		—		$	(1,141)
Exercise of stock options	357,974	2		—	—		3,406		—		—		—		3,408
Issuance of common stock - vesting of restricted stock units	398,881	2		—	—		—		—		—		—		2
Stock-based compensation expense	—	—		—	—		13,765		—		—		—		13,765
Purchase of treasury stock for stock-based tax withholdings	—	—		(130,164)	(9,199)		—		—		—		—		(9,199)
Foreign currency translation gain (loss)	—	—		—	—		—		(3,024)		—		—		(3,024)
Net income (loss)	—	—		—	—		—		—		(7,336)		146		(7,190)
Balance, March 31, 2020	67,077,561	$	335	(13,609,164)	$	(100,164)	$	1,054,312	$	(4,773)	$	(84,141)	$	(1,372)	$	864,197
Exercise of stock options	184,475	1		—	—		3,274		—		—		—		3,275
Issuance of common stock - vesting of restricted stock units	134,207	1		—	—		—		—		—		—		1
Stock-based compensation expense	—	—		—	—		13,006		—		—		—		13,006
Purchase of treasury stock for stock-based tax withholdings	—	—		(43,697)	(3,617)		—		—		—		—		(3,617)
Transfer of non-controlling units	—	—		—	—		910		—		—		(139)		771
Foreign currency translation gain (loss)	—	—		—	—		—		1,575		—		—		1,575
Net income (loss)	—	—		—	—		—		—		(4,924)		(547)		(5,471)
Balance, June 30, 2020	67,396,243	$	337	(13,652,861)	$	(103,781)	$	1,071,502	$	(3,198)	$	(89,065)	$	(2,058)	$	873,737

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' 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, 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 Cash Flows

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2020		2019
OPERATING ACTIVITIES:
Net loss	$	(12,661)	$	(17,655)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	56,126		46,432
Provision for doubtful accounts	1,515		713
Deferred income taxes	(1,598)		(28,991)
Non-cash compensation expense	29,869		27,852
Non-cash interest expense	5,907		9,896
Accretion on contingent consideration and purchase liability	910		742
Payments of contingent consideration	—		(578)
Fair market value adjustment to contingent consideration liability	(1,982)		—
Gain on acquisition of equity method investment	(4,230)		—
Loss allocation from equity method investments	3,286		550
Impairment of right of use assets	1,426		—
Other	556		—
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	(8,560)		(536)
Prepaid expenses and other current assets	(7,756)		(15,507)
Other non-current assets	(353)		(3,241)
Accrued expenses and other liabilities	(4,484)		(19,060)
Accounts payable	(2,130)		(4,768)
Deferred revenue	7,236		3,940
Other non-current liabilities	1,946		2,602
Net cash provided by operating activities	65,023		2,391

INVESTING ACTIVITIES:
Purchases of property and equipment	(4,329)		(8,815)
Capitalization of internally developed software	(25,703)		(15,583)
Investments in private companies	(12,625)		(2,000)
Acquisitions of businesses, net of cash acquired	(20,257)		(321,571)

Net cash used in investing activities	(62,914)		(347,969)

FINANCING ACTIVITIES:
Proceeds from borrowings on revolving credit facility	45,000		175,000
Payments on revolving credit facility	(30,000)		(30,000)

Payments of contingent consideration	—		(171)
Proceeds from exercise of stock options	6,683		4,914
Purchase of treasury stock for stock-based tax withholdings	(12,816)		(15,962)
Issuance of restricted stock units	3		3
Net cash provided by financing activities	8,870		133,784

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(1,342)		166

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	9,637		(211,628)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	82,755		289,671

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	92,392	$	78,043

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2020		2019
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	2,136	$	6,121
Supplemental disclosure of cash flow information - cash paid during the period for interest	7,861		5,952
Supplemental disclosure of non-cash operating, investing and financing activities: