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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, 2021
☐ 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 | 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 November 1, 2021, Envestnet, Inc. had 54,644,263 shares of common stock outstanding.
TABLE OF CONTENTS
Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2021 | | 2020 |
Assets | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 393,799 | | | $ | 384,565 | |
Fees receivable, net | | 116,137 | | | 80,064 | |
Prepaid expenses and other current assets | | 39,585 | | | 40,570 | |
Total current assets | | 549,521 | | | 505,199 | |
| | | | |
Property and equipment, net | | 48,158 | | | 47,969 | |
Internally developed software, net | | 125,590 | | | 96,501 | |
Intangible assets, net | | 417,644 | | | 435,041 | |
Goodwill | | 924,504 | | | 906,773 | |
Operating lease right-of-use assets, net | | 93,204 | | | 105,249 | |
Other non-current assets | | 58,724 | | | 47,558 | |
Total assets | | $ | 2,217,345 | | | $ | 2,144,290 | |
| | | | |
Liabilities and Equity | | | | |
Current liabilities: | | | | |
Accrued expenses and other liabilities | | $ | 200,206 | | | $ | 158,548 | |
Accounts payable | | 21,763 | | | 18,003 | |
Operating lease liabilities | | 12,021 | | | 13,649 | |
Contingent consideration | | 806 | | | 11,251 | |
Deferred revenue | | 34,609 | | | 34,918 | |
Total current liabilities | | 269,405 | | | 236,369 | |
| | | | |
Long-term debt | | 847,633 | | | 756,503 | |
Non-current operating lease liabilities | | 107,852 | | | 112,182 | |
Deferred tax liabilities, net | | 27,754 | | | 34,740 | |
Other non-current liabilities | | 17,626 | | | 28,678 | |
Total liabilities | | 1,270,270 | | | 1,168,472 | |
| | | | |
Commitments and contingencies | | | | |
| | | | |
Equity: | | | | |
Stockholders’ equity: | | | | |
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020 | | — | | | — | |
Common stock, par value $0.005, 500,000,000 shares authorized; 68,636,215 and 67,832,706 shares issued as of September 30, 2021 and December 31, 2020, respectively; 54,617,904 and 54,093,535 shares outstanding as of September 30, 2021 and December 31, 2020, respectively | | 343 | | | 339 | |
Additional paid-in capital | | 1,108,864 | | | 1,166,774 | |
Accumulated deficit | | (32,879) | | | (79,912) | |
Treasury stock at cost, 14,018,311 and 13,739,171 shares as of September 30, 2021 and December 31, 2020, respectively | | (129,877) | | | (110,466) | |
Accumulated other comprehensive loss | | (2,016) | | | (398) | |
Total stockholders’ equity | | 944,435 | | | 976,337 | |
Non-controlling interest | | 2,640 | | | (519) | |
Total equity | | 947,075 | | | 975,818 | |
Total liabilities and equity | | $ | 2,217,345 | | | $ | 2,144,290 | |
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, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | | |
Asset-based | | $ | 184,008 | | | $ | 137,744 | | | $ | 513,458 | | | $ | 394,801 | |
Subscription-based | | 113,572 | | | 107,897 | | | 335,905 | | | 317,427 | |
Total recurring revenues | | 297,580 | | | 245,641 | | | 849,363 | | | 712,228 | |
Professional services and other revenues | | 5,473 | | | 6,918 | | | 17,533 | | | 22,183 | |
Total revenues | | 303,053 | | | 252,559 | | | 866,896 | | | 734,411 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Cost of revenues | | 109,836 | | | 78,545 | | | 303,199 | | | 222,327 | |
Compensation and benefits | | 109,839 | | | 94,428 | | | 316,101 | | | 300,423 | |
General and administration | | 39,393 | | | 38,979 | | | 117,463 | | | 118,537 | |
Depreciation and amortization | | 29,850 | | | 28,951 | | | 88,252 | | | 85,077 | |
Total operating expenses | | 288,918 | | | 240,903 | | | 825,015 | | | 726,364 | |
| | | | | | | | |
Income from operations | | 14,135 | | | 11,656 | | | 41,881 | | | 8,047 | |
Other expense, net | | (3,551) | | | (8,836) | | | (14,803) | | | (18,546) | |
Income (loss) before income tax provision (benefit) | | 10,584 | | | 2,820 | | | 27,078 | | | (10,499) | |
| | | | | | | | |
Income tax provision (benefit) | | (854) | | | 497 | | | 9,074 | | | (161) | |
| | | | | | | | |
Net income (loss) | | 11,438 | | | 2,323 | | | 18,004 | | | (10,338) | |
Add: Net (income) loss attributable to non-controlling interest | | 302 | | | (413) | | | 401 | | | (12) | |
Net income (loss) attributable to Envestnet, Inc. | | $ | 11,740 | | | $ | 1,910 | | | $ | 18,405 | | | $ | (10,350) | |
| | | | | | | | |
Net income (loss) per share attributable to Envestnet, Inc.: | | | | | | | | |
Basic | | $ | 0.22 | | | $ | 0.04 | | | $ | 0.34 | | | $ | (0.19) | |
Diluted | | $ | 0.21 | | | $ | 0.03 | | | $ | 0.33 | | | $ | (0.19) | |
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | |
Basic | | 54,547,858 | | | 53,800,048 | | | 54,400,247 | | | 53,464,101 | |
Diluted | | 55,388,627 | | | 55,558,983 | | | 55,287,972 | | | 53,464,101 | |
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, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Net income (loss) attributable to Envestnet, Inc. | | $ | 11,740 | | | $ | 1,910 | | | $ | 18,405 | | | $ | (10,350) | |
Foreign currency translation gains (losses), net of taxes | | 270 | | | 1,739 | | | (1,618) | | | 290 | |
Comprehensive income (loss) attributable to Envestnet, Inc. | | $ | 12,010 | | | $ | 3,649 | | | $ | 16,787 | | | $ | (10,060) | |
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 | | Loss | | Deficit | | Interest | | Equity |
Balance, December 31, 2020 | | 67,832,706 | | | $ | 339 | | | (13,739,171) | | | $ | (110,466) | | | $ | 1,166,774 | | | $ | (398) | | | $ | (79,912) | | | $ | (519) | | | $ | 975,818 | |
Adoption of ASU 2020-06, net of taxes of $7,641 (See Note 2) | | — | | | — | | | — | | | — | | | (108,470) | | | — | | | 28,628 | | | — | | | (79,842) | |
Exercise of stock options | | 27,043 | | | — | | | — | | | — | | | 522 | | | — | | | — | | | — | | | 522 | |
Issuance of common stock - vesting of restricted stock units | | 455,349 | | | 2 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 14,013 | | | — | | | — | | | — | | | 14,013 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (147,041) | | | (9,541) | | | — | | | — | | | — | | | — | | | (9,541) | |
Share repurchase | | — | | | — | | | (24,227) | | | (1,672) | | | — | | | — | | | — | | | — | | | (1,672) | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (624) | | | — | | | — | | | (624) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 118 | | | 118 | |
Net income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 14,946 | | | (11) | | | 14,935 | |
Balance, March 31, 2021 | | 68,315,098 | | | $ | 341 | | | (13,910,439) | | | $ | (121,679) | | | $ | 1,072,839 | | | $ | (1,022) | | | $ | (36,338) | | | $ | (412) | | | $ | 913,729 | |
Exercise of stock options | | 4,082 | | | — | | | — | | | — | | | 51 | | | — | | | — | | | — | | | 51 | |
Issuance of common stock - vesting of restricted stock units | | 140,082 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 17,161 | | | — | | | — | | | — | | | 17,161 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (46,699) | | | (3,479) | | | — | | | — | | | — | | | — | | | (3,479) | |
Share repurchase | | — | | | — | | | (6,261) | | | (425) | | | — | | | — | | | — | | | — | | | (425) | |
Capital contribution - non-controlling interest | | — | | | — | | | — | | | — | | | (788) | | | — | | | — | | | 811 | | | 23 | |
Foreign currency translation loss, net of taxes | | — | | | — | | | — | | | — | | | — | | | (1,264) | | | — | | | — | | | (1,264) | |
Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 38 | | | 38 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (8,281) | | | (88) | | | (8,369) | |
Balance, June 30, 2021 | | 68,459,262 | | | $ | 342 | | | (13,963,399) | | | $ | (125,583) | | | $ | 1,089,263 | | | $ | (2,286) | | | $ | (44,619) | | | $ | 349 | | | $ | 917,466 | |
-continued-
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 | | Loss | | Deficit | | Interest | | Equity |
Balance, June 30, 2021 | | 68,459,262 | | | $ | 342 | | | (13,963,399) | | | $ | (125,583) | | | $ | 1,089,263 | | | $ | (2,286) | | | $ | (44,619) | | | $ | 349 | | | $ | 917,466 | |
Exercise of stock options | | 12,954 | | — | | | — | | | — | | | 347 | | | — | | | — | | | — | | | 347 | |
Issuance of common stock - vesting of restricted stock units | | 163,999 | | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | |
Stock-based compensation expense | | — | | | — | | | — | | | — | | | 18,760 | | | — | | | — | | | — | | | 18,760 | |
Shares withheld to satisfy tax withholdings | | — | | | — | | | (54,912) | | | (4,294) | | | — | | | — | | | — | | | — | | | (4,294) | |
Capital contribution - non-controlling interest | | — | | | — | | | — | | | — | | | 661 | | | — | | | — | | | 2,517 | | | 3,178 | |
Foreign currency translation gain, net of taxes | | — | | | — | | | — | | | — | | | — | | | 270 | | | — | | | — | | | 270 | |
Other | | — | | | — | | | — | | | — | | | (167) | | | — | | | — | | | 76 | | | (91) | |
Net income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 11,740 | | | (302) | | | 11,438 | |
Balance, September 30, 2021 | | 68,636,215 | | | $ | 343 | | | (14,018,311) | | | $ | (129,877) | | | $ | 1,108,864 | | | $ | (2,016) | | | $ | (32,879) | | | $ | 2,640 | | | $ | 947,075 | |
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 | | 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, net of taxes | | — | | | — | | | — | | | — | | | — | | | — | | | (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 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) | | — | | | — | | | — | | | — | | | — | | | 1,575 | | | — | | | — | | | 1,575 | |
Net 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 Cash Flows
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2021 | | 2020 |
OPERATING ACTIVITIES: | | | | |
Net income (loss) | | $ | 18,004 | | | $ | (10,338) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 88,252 | | | 85,077 | |
Provision for doubtful accounts | | 2,051 | | | 2,323 | |
Deferred income taxes | | 7,078 | | | 79 | |
Non-cash compensation expense | | 50,307 | | | 45,721 | |
Non-cash interest expense | | 4,889 | | | 12,255 | |
Accretion on contingent consideration and purchase liability | | 656 | | | 1,308 | |
Payments of contingent consideration | | (2,360) | | | — | |
Fair market value adjustment to contingent consideration liability | | (1,067) | | | (2,056) | |
Fair market value adjustment to investment in private company | | (758) | | | — | |
Gain on settlement of liability | | (1,206) | | | — | |
Gain on acquisition of equity method investment | | — | | | (4,230) | |
Loss allocation from equity method investments | | 5,553 | | | 4,280 | |
Impairment of right of use assets | | 1,537 | | | 1,426 | |
Other | | 249 | | | 556 | |
Changes in operating assets and liabilities, net of acquisitions: | | | | |
Fees receivable, net | | (38,030) | | | (10,825) | |
Prepaid expenses and other current assets | | 569 | | | (11,139) | |
Other non-current assets | | 4,854 | | | (1,807) | |
Accrued expenses and other liabilities | | 26,637 | | | 3,393 | |
Accounts payable | | 4,122 | | | 12,084 | |
Deferred revenue | | (1,065) | | | 1,488 | |
Other non-current liabilities | | (298) | | | 2,084 | |
Net cash provided by operating activities | | 169,974 | | | 131,679 | |
| | | | |
INVESTING ACTIVITIES: | | | | |
Purchases of property and equipment | | (15,779) | | | (8,824) | |
Capitalization of internally developed software | | (49,024) | | | (40,257) | |
Investments in private companies | | (8,926) | | | (13,875) | |
Acquisition of proprietary technology | | (25,517) | | | — | |
Acquisitions of businesses, net of cash acquired | | (32,794) | | | (20,257) | |
| | | | |
Advance for technology solutions | | (3,000) | | | — | |
Net cash used in investing activities | | (135,040) | | | (83,213) | |
| | | | |
-continued-
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2021 | | 2020 |
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 | |
Payments on revolving credit facility | | — | | | (305,000) | |
Capital contributions - non-controlling shareholders | | 3,201 | | | — | |
Payments of deferred consideration on prior acquisitions | | — | | | (1,879) | |
Payments of contingent consideration | | (9,200) | | | — | |
Proceeds from exercise of stock options | | 920 | | | 8,053 | |
Taxes paid in lieu of shares issued for stock-based compensation | | (17,314) | | | (16,283) | |
Share repurchases | | (2,097) | | | — | |
Other | | (666) | | | 3 | |
Net cash provided by (used in) financing activities | | (25,156) | | | 232,854 | |
| | | | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | | (544) | | | (1,009) | |
| | | | |
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | 9,234 | | | 280,311 | |
| | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | | 384,714 | | | 82,755 | |
| | | | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2) | | $ | 393,948 | | | $ | 363,066 | |
| | | | |
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes | | $ | 5,895 | | | $ | 5,349 | |
Supplemental disclosure of cash flow information - cash paid during the period for interest | | 7,794 | | | 9,652 | |
| | | | |
Supplemental disclosure of non-cash operating, investing and financing activities: | | | | |
| | | | |
Contingent consideration issued in acquisition of businesses | | — | | | 5,239 | |
Purchase liabilities included in accrued expenses and other liabilities | | — | | | 632 | |
Purchase liabilities included in other non-current liabilities | | 2,951 | | | — | |
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities | | 449 | | | 1,104 | |
Internally developed software costs included in accrued expenses and other liabilities | | 1,060 | | | — | |
Membership interest liabilities included in other non-current liabilities | | 373 | | | 3,221 | |
| | | | |
Leasehold improvements funded by lease incentive | | 164 | | | 1,766 | |
Assets obtained in exchange for lease liabilities | | 4,387 | | | — | |
Transfer of non-controlling units | | — | | | 771 | |
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1.Organization and Description of Business
Envestnet, Inc. (“Envestnet”) through its subsidiaries (collectively, the “Company”) is transforming the way financial advice and wellness are delivered. Its mission is to empower advisors and financial service providers with innovative technology, solutions and intelligence to make financial wellness a reality for everyone. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet provides a unique financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive 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, 2021 and for the three and nine months ended September 30, 2021 and 2020 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, 2020 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, 2021 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, 2021 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, 2020, filed with the SEC on February 26, 2021.
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.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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, |
| | 2021 | | 2020 |
| | | | |
| | (in thousands) |
Cash and cash equivalents | | $ | 393,799 | | | $ | 362,918 | |
Restricted cash included in prepaid expenses and other current assets | | 149 | | | — | |
Restricted cash included in other non-current assets | | — | | | 148 | |
Total cash, cash equivalents and restricted cash | | $ | 393,948 | | | $ | 363,066 | |
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 continues to cause disruptions to businesses and markets worldwide as the virus spreads. The extent of the effect on the Company’s operational and financial performance will continue to 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, as 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, 2021, these condensed consolidated financial statements do not reflect any adjustments as a result of the pandemic.
Related Party Transactions
The Company has a 4.3% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. Revenues from the private services company totaled $4.2 million and $2.9 million in the three months ended September 30, 2021 and 2020, respectively. Revenues from the private services company totaled $11.9 million and $8.0 million in the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and December 31, 2020, the Company had recorded a net receivable of $3.3 million and $2.1 million, respectively, from the private services company.
Recent Accounting Pronouncements
Recently 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. These changes became effective for the Company's fiscal year beginning January 1, 2021. This standard will be applied prospectively. Adoption of this standard did not have a material impact on the Company's 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 by reducing the number of accounting models available for convertible debt instruments and revises Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. Under the new guidance, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. In addition, the new guidance requires the if-converted method to be applied for all convertible instruments. 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. Adoption of the standard requires using either a modified retrospective or a full retrospective approach.
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The Company has early adopted this standard as of January 1, 2021 using the modified retrospective approach. Adoption of this standard resulted in a decrease to accumulated deficit of $28.6 million (net of $0.9 million in taxes), a decrease to paid-in capital of $108.5 million (net of $6.7 million in taxes) and an increase to Convertible Notes of $87.5 million. Interest expense recognized in future periods is expected to be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost, with an expected decrease of approximately $22.1 million in 2021 as a result of the adoption. The adoption of ASU 2020-06 had no impact on the Company's consolidated statements of cash flows. &