env-20210930

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

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


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020			5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2021 and 2020			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020			9
Notes to Unaudited Condensed Consolidated Financial Statements			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			32
Overview			34
Results of Operations			39
Liquidity and Capital Resources			56

Item 3. Quantitative and Qualitative Disclosures About Market Risk			57

Item 4. Controls and Procedures			57

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			58

Item 1A. Risk Factors			58

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			58

Item 3. Defaults Upon Senior Securities			58

Item 4. Mine Safety Disclosures			58

Item 5. Other Information			58

Item 6. Exhibits			58

Index to Exhibits			59

Signatures			60

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.

Table of Contents

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.

Table of Contents

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.

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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. &