env-20200930

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, 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 October 30, 2020, Envestnet, Inc. had 53,949,796 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, 2020 and December 31, 2019			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019			5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2020 and 2019			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 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			29
Overview			31
Results of Operations			38
Liquidity and Capital Resources			54

Item 3. Quantitative and Qualitative Disclosures About Market Risk			55

Item 4. Controls and Procedures			56

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			56

Item 1A. Risk Factors			56

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57

Item 3. Defaults Upon Senior Securities			57

Item 4. Mine Safety Disclosures			57

Item 5. Other Information			57

Item 6. Exhibits			57

Index to Exhibits			58

Signatures			59

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	362,918	$	82,505
Fees receivable, net	76,328		67,815
Prepaid expenses and other current assets	41,966		32,183
Total current assets	481,212		182,503

Property and equipment, net	48,983		53,756
Internally developed software, net	87,478		60,263
Intangible assets, net	452,583		505,589
Goodwill	906,697		879,850
Operating lease right-of-use assets, net	76,090		82,796
Other non-current assets	48,218		37,127
Total assets	$	2,101,261	$	1,801,884

Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	141,290	$	137,944
Accounts payable	29,609		17,277
Operating lease liabilities	13,835		13,816
Contingent consideration	1,549		—
Deferred revenue	40,037		34,753
Total current liabilities	226,320		203,790

Convertible Notes	749,918		305,513
Revolving credit facility	—		260,000
Contingent consideration	11,741		9,045
Deferred revenue	2,307		5,754
Non-current operating lease liabilities	83,820		88,365
Deferred tax liabilities, net	36,088		29,481
Other non-current liabilities	37,700		32,360
Total liabilities	1,147,894		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; 67,584,956 and 66,320,706 shares issued as of September 30, 2020 and December 31, 2019, respectively; 53,884,899 and 52,841,706 shares outstanding as of September 30, 2020 and December 31, 2019, respectively	337		331
Additional paid-in capital	1,150,198		1,037,141
Accumulated deficit	(87,155)		(75,664)
Treasury stock at cost, 13,700,057 and 13,479,000 shares as of September 30, 2020 and December 31, 2019, respectively	(107,248)		(90,965)
Accumulated other comprehensive loss	(1,459)		(1,749)
Total stockholders’ equity	954,673		869,094
Non-controlling interest	(1,306)		(1,518)
Total equity	953,367		867,576
Total liabilities and equity	$	2,101,261	$	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				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Revenues:
Asset-based	$	137,744	$	126,591	$	394,801	$	355,595
Subscription-based	107,897		100,583		317,427		275,928
Total recurring revenues	245,641		227,174		712,228		631,523
Professional services and other revenues	6,918		8,906		22,183		28,668
Total revenues	252,559		236,080		734,411		660,191

Operating expenses:
Cost of revenues	78,545		71,870		222,327		205,595
Compensation and benefits	94,428		95,587		300,423		285,590
General and administration	38,979		42,016		118,537		124,961
Depreciation and amortization	28,951		26,735		85,077		73,167
Total operating expenses	240,903		236,208		726,364		689,313

Income (loss) from operations	11,656		(128)		8,047		(29,122)
Other expense, net	(8,836)		(9,813)		(18,546)		(23,088)
Income (loss) before income tax provision (benefit)	2,820		(9,941)		(10,499)		(52,210)

Income tax provision (benefit)	497		(6,977)		(161)		(31,591)

Net income (loss)	2,323		(2,964)		(10,338)		(20,619)
Add: Net (income) loss attributable to non-controlling interest	(413)		(116)		(12)		247
Net income (loss) attributable to Envestnet, Inc.	$	1,910	$	(3,080)	$	(10,350)	$	(20,372)

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	0.04	$	(0.06)	$	(0.19)	$	(0.40)
Diluted	$	0.03	$	(0.06)	$	(0.19)	$	(0.40)

Weighted average common shares outstanding:
Basic	53,800,048		52,215,469		53,464,101		50,414,427
Diluted	55,558,983		52,215,469		53,464,101		50,414,427

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,
	2020		2019		2020		2019
Net income (loss) attributable to Envestnet, Inc.	$	1,910	$	(3,080)	$	(10,350)	$	(20,372)
Foreign currency translation gains (losses), net of taxes	1,739		(1,458)		290		(1,124)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	3,649	$	(4,538)	$	(10,060)	$	(21,496)

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
Shares withheld to satisfy tax withholdings	—	—		(130,164)	(9,199)		—		—		—		—		(9,199)
Foreign currency translation gain (loss), net of taxes	—	—		—	—		—		(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
Shares withheld to satisfy tax withholdings	—	—		(43,697)	(3,617)		—		—		—		—		(3,617)
Transfer of non-controlling units	—	—		—	—		910		—		—		(139)		771
Foreign currency translation gain (loss), net of taxes	—	—		—	—		—		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
Exercise of stock options	44,672	—		—	—		1,370		—		—		—		1,370
Issuance of common stock - vesting of restricted stock units	144,041	—		—	—		—		—		—		—		—
Stock-based compensation expense	—	—		—	—		15,729		—		—		—		15,729
Shares withheld to satisfy tax withholdings	—	—		(47,196)	(3,467)		—		—		—		—		(3,467)
Capital contribution - non-controlling interest	—	—		—	—		(339)		—		—		339		—
Issuance of Convertible Notes due 2025, net of offering costs and taxes of $8,617	—	—		—	—		61,936		—		—		—		61,936
Foreign currency translation gain (loss), net of taxes	—	—		—	—		—		1,739		—		—		1,739
Net income (loss)	—	—		—	—		—		—		1,910		413		2,323
Balance, September 30, 2020	67,584,956	$	337	(13,700,057)	$	(107,248)	$	1,150,198	$	(1,459)	$	(87,155)	$	(1,306)	$	953,367

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
Shares withheld to satisfy 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
Shares withheld to satisfy 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
Shares withheld to satisfy tax withholdings	—	—		(84,538)	(3,735)		—		—		—		—		(3,735)
Foreign currency translation gain (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 Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2020		2019
OPERATING ACTIVITIES:
Net loss	$	(10,338)	$	(20,619)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	85,077		73,167
Provision for doubtful accounts	2,323		1,243
Deferred income taxes	79		(37,626)
Non-cash compensation expense	45,721		43,167
Non-cash interest expense	12,255		17,195
Accretion on contingent consideration and purchase liability	1,308		1,240
Payments of contingent consideration	—		(578)
Fair market value adjustment to contingent consideration liability	(2,056)		—
Gain on acquisition of equity method investment	(4,230)		—
Loss allocation from equity method investments	4,280		1,507
Impairment of right of use assets	1,426		—
Other	556		—
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	(10,825)		6,164
Prepaid expenses and other current assets	(11,139)		(4,784)
Other non-current assets	(1,807)		(6,113)
Accrued expenses and other liabilities	3,393		(9,732)
Accounts payable	12,084		(6,859)
Deferred revenue	1,488		1,231
Other non-current liabilities	2,084		3,242
Net cash provided by operating activities	131,679		61,845

INVESTING ACTIVITIES:
Purchases of property and equipment	(8,824)		(16,098)
Capitalization of internally developed software	(40,257)		(23,649)
Investments in private companies	(13,875)		(3,200)
Acquisitions of businesses, net of cash acquired	(20,257)		(321,571)

Net cash used in investing activities	(83,213)		(364,518)

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2020		2019
FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2025	517,500		—
Convertible Notes due 2025 issuance costs	(14,540)		—
Proceeds from borrowings on revolving credit facility	45,000		175,000
Payments on revolving credit facility	(305,000)		(75,000)
Revolving credit facility issuance costs	—		(2,103)
Payments of deferred consideration on prior acquisitions	(1,879)		—
Payments of contingent consideration	—		(171)
Proceeds from exercise of stock options	8,053		7,029
Taxes paid in lieu of shares issued for stock-based compensation	(16,283)		(19,697)
Issuance of restricted stock units	3		4
Net cash provided by financing activities	232,854		85,062

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(1,009)		(178)

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	280,311		(217,789)

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)	$	363,066	$	71,882

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	5,349	$	7,826
Supplemental disclosure of cash flow information - cash paid during the period for interest	9,652		7,813
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	5,239		15,880
Accrued payment to fund deferred compensation liability included in accounts payable	—		—
Purchase liabilities included in other non-current liabilities	—		5,468
Purchase liabilities included in accrued expenses and other liabilities	632		—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,104		2,262
Membership interest liabilities included in other non-current liabilities	3,221		3,700
Common stock issued to settle purchase liability	—		772
Leasehold improvements funded by lease incentive	1,766		—
Transfer of non-controlling units	771		—

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Table of Contents

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 15—Segment Information” to the condensed consolidated financial statements.

2.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2020 and for the three and nine months ended September 30, 2020 and 2019 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, 2019 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of September 30, 2020 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 Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three and nine months ended September 30, 2020 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 U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™, sometimes referred to as the codification or “ASC.” 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, 2019, filed with the SEC on February 28, 2020.

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:


	September 30,		September 30,
	2020		2019
Cash and cash equivalents	$	362,918	$	71,632
Restricted cash included in prepaid expenses and other current assets	—		82
Restricted cash included in other non-current assets	148		168
Total cash, cash equivalents and restricted cash	$	363,066	$	71,882

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Financial Impacts Related To COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The extent of the effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the overall financial effect of the pandemic at this time, if the pandemic continues, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. As of September 30, 2020, these condensed consolidated financial statements do not reflect any adjustments as a result of the pandemic.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements—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. This standard requires that entities 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. These changes became effective for the Company's fiscal year beginning January 1, 2020. The Company recognized the cumulative effect of the initial application of ASU 2016-13 as an adjustment of $1,141, net of tax, to the opening balance of accumulated deficit. The Company does not expect the adoption of ASU 2016-13 to have a material impact to the results of its operations on an ongoing basis.

Not Yet Adopted Accounting Pronouncements—In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update aims to reduce complexity within the accounting for income taxes as part of the simplification initiative. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2020. 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 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.” This update simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2021. Early adoption of the standard is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.

3. Business Acquisitions

Investment in Private Services Company

On January 8, 2020, the Company acquired a 4.25% membership interest in a private services company for cash consideration of $11,000. The private services company partners with independent network advisory firms to help them grow, become more profitable and run more efficiently. The Company will use the equity method of accounting to record its portion of the private services company’s net income or loss on a one quarter lag from the actual results of operations. The Company uses the equity method of accounting because of its less than 50% ownership and lack of control and does not otherwise exercise control over the significant economic decisions of the private services company.

The private services company is and remains a client of the Company and has thus been determined to be a related party. Revenues from the private services company totaled $2,883 and $7,956 in the three and nine months ended September 30, 2020. As of September 30, 2020, the Company had recorded a net receivable of $1,803 from the private services company.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

Acquisition of Private Technology Company

On February 18, 2020, the Company, through it's wholly owned subsidiary Yodlee, Inc. (“Yodlee”), acquired a private technology company (the “Private Technology Company Acquisition”). The private technology company enables the consent generation and data flow between financial information providers, such as banks and financial institutions, and financial information users, such as financial technology lenders and other financial services agencies, through a network of cloud-based interoperable interfaces or application programming interfaces. The technology and operations of the private technology company have been integrated into the Envestnet Data & Analytics segment.

In connection with the Private Technology Company Acquisition, the Company acquired all of the outstanding shares and paid cash consideration of $2,343, net of cash acquired, subject to certain closing and post-closing adjustments, plus up to an additional $6,750 in contingent consideration, based upon achieving certain performance targets. The Company recorded a liability as of the date of acquisition of $5,239, which represented the estimated fair value of contingent consideration on the date of acquisition.

In June 2020, the Company determined that certain performance targets for this acquisition would not be met. As a result, the Company reduced the contingent consideration liability plus accrued interest associated with this acquisition by $1,982 and recorded this as a reduction to general and administration expenses. In September 2020, the Company further reduced the contingent consideration liability associated with this acquisition by an immaterial amount. Future changes to the estimated fair value of the contingent consideration, if any, will be recognized in earnings of the Company.

The Company recorded estimated goodwill of $7,017, which is not deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible assets acquired and liabilities assumed were not material.

The results of the private technology company's operations are included in the condensed consolidated statements of operations beginning February 18, 2020 and were not considered material to the Company’s results of operations.

Acquisition of Private Cloud Technology Company

On March 2, 2020, the Company acquired certain assets of a private cloud technology company (the “Private Cloud Technology Company Acquisition”). The private cloud technology company enables enterprises to design and implement the digital transition from legacy systems and applications to a modern cloud computing platform. The technology and operations of the private cloud technology company have been integrated into our Envestnet Wealth Solutions segment.

In connection with the Private Cloud Technology Company Acquisition, the Company paid estimated consideration of $11,968, net of cash acquired. In connection with the acquisition, the Company recorded estimated goodwill of $10,932, which is deductible for income tax purposes. The tangible assets acquired and liabilities assumed were not material.

The results of the private cloud technology company's operations are included in the condensed consolidated statements of operations beginning March 2, 2020 and were not considered material to the Company’s results of operations.

Acquisition of Private Financial Technology Design Company

On March 3, 2020, the Company acquired the outstanding units of a private financial technology design company that were not owned by the Company and merged the acquired company into a wholly owned subsidiary of the Company (the “Private Financial Technology Design Company Acquisition”). The private financial technology design company designs integrated, intuitive digital technology applications for institutional financial services firms, bank wealth management organizations, independent advisor networks, and broker-dealers. The technology and operations of the private financial technology design company have been integrated into the Envestnet Wealth Solutions segment.

The Company previously owned approximately 45% of the outstanding units in this private financial technology design company, and accounted for it as an equity method investment. Based upon the estimated value of the private financial technology design company of $11,026, the Company paid estimated consideration of $5,946, net of cash acquired, for the remaining outstanding units. As a result of the acquisition, the Company recognized a gain of $4,230 in the first quarter of 2020

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

on the re-measurement to fair value of its previously held interest, which is included in other expense, net in the condensed consolidated statements of operations

In connection with the Private Financial Technology Design Company Acquisition, the Company recorded estimated total goodwill of $9,241, of which approximately $6,658 is deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $2,000. The tangible assets acquired and liabilities assumed were not material.

The results of the private financial technology design company's operations are included in the condensed consolidated statements of operations beginning March 3, 2020 and were not considered material to the Company’s results of operations.

For the three and nine months ended September 30, 2020, acquisition related costs for the Company's 2020 acquisitions were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2020.

The goodwill arising from these acquisitions represents the expected synergistic benefits of these transactions, primarily related to an increase in future revenues as a result of potential new business and cross selling opportunities, as well as enhancements to our existing technologies.

For the Company's 2020 acquisitions, the estimated fair values of certain of the assets and liabilities acquired 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 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 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 these estimated assets and liabilities as soon as reasonably practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

On April 1, 2019, the Company acquired certain of the assets, primarily consisting of intangible assets, and the assumption of certain liabilities of the PortfolioCenter business (“PortfolioCenter”) from Performance Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation. On May 1, 2019, the Company acquired all of the outstanding shares of capital stock of PIEtech, Inc. (“PIEtech”). The following pro forma financial information presents the combined results of operations of Envestnet, PortfolioCenter and PIEtech for the nine months ended September 30, 2019 and assumes the acquisitions of PortfolioCenter and PIEtech had occurred as of the beginning of 2018. The results of the Company's other acquisitions since January 1, 2019 are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented below include amortization charges for acquired intangible assets, interest expense, stock-based compensation expense and income tax. The Company's pro forma information below includes the reversal of a valuation allowance on its deferred tax assets as of January 1, 2018 and the reversal of transaction costs that were incurred in 2019 as a result of these acquisitions and reverses these amounts from the appropriate periods in 2019. All intercompany revenues have been eliminated within this pro forma information.

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2018.


	Nine Months Ended September 30,
	2019
Revenues	$	679,355
Net loss attributable to Envestnet, Inc.	$	(22,754)
Net loss per share attributable to Envestnet, Inc.:
Basic	$	(0.44)
Diluted	$	(0.44)

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(in thousands, except share and per share amounts)

4.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	September 30,		December 31,
	2020		2019
Prepaid technology	$	9,882	$	8,178
Income tax prepayments and receivables	7,917		—
Advance payroll taxes and benefits	5,967		5,446
Non-income tax receivables	5,142		5,555
Prepaid insurance	2,179		1,919
Prepaid outside information services	2,121		2,209
Other	8,758		8,876
Total prepaid expenses and other current assets	$	41,966	$	32,183

5.Property and Equipment, Net

Property and equipment, net consists of the following: