env-20220331

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 March 31, 2022

☐ 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.)

1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania

19312

(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. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of April 29, 2022, Envestnet, Inc. had 55,187,306 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021			5
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021			6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021			7
Notes to Unaudited Condensed Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			25
Overview			27
Results of Operations			32
Liquidity and Capital Resources			43

Item 3. Quantitative and Qualitative Disclosures About Market Risk			44

Item 4. Controls and Procedures			44

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			45

Item 1A. Risk Factors			45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45

Item 3. Defaults Upon Senior Securities			45

Item 4. Mine Safety Disclosures			45

Item 5. Other Information			45

Item 6. Exhibits			45

Index to Exhibits			46

Signatures			47

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	359,614	$	429,279
Fees receivable, net	88,377		95,291
Prepaid expenses and other current assets	53,488		42,706
Total current assets	501,479		567,276

Property and equipment, net	62,848		50,215
Internally developed software, net	147,014		133,659
Intangible assets, net	400,876		400,396
Goodwill	925,003		925,154
Operating lease right-of-use assets, net	88,011		90,714
Other non-current assets	74,539		73,768
Total assets	$	2,199,770	$	2,241,182

Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	201,087	$	225,159
Accounts payable	18,854		19,092
Operating lease liabilities	10,439		10,999

Deferred revenue	44,427		33,473
Total current liabilities	274,807		288,723

Long-term debt	850,097		848,862
Non-current operating lease liabilities	103,332		105,920
Deferred tax liabilities, net	2,108		21,021
Other non-current liabilities	16,271		17,114
Total liabilities	1,246,615		1,281,640

Commitments and contingencies

Equity:
Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 69,432,152 and 68,879,152 shares issued as of March 31, 2022 and December 31, 2021, respectively; 55,175,096 and 54,793,088 shares outstanding as of March 31, 2022 and December 31, 2021, respectively	347		344
Additional paid-in capital	1,153,892		1,131,628
Accumulated deficit	(51,847)		(37,988)
Treasury stock at cost, 14,257,056 and 14,086,064 shares as of March 31, 2022 and December 31, 2021, respectively	(147,566)		(134,996)
Accumulated other comprehensive loss	(3,377)		(1,899)
Total stockholders’ equity	951,449		957,089
Non-controlling interest	1,706		2,453
Total equity	953,155		959,542
Total liabilities and equity	$	2,199,770	$	2,241,182

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
	March 31,
		2022		2021
Revenues:
Asset-based		$	202,717	$	159,375
Subscription-based		114,734		109,829
Total recurring revenues		317,451		269,204
Professional services and other revenues		3,912		5,901
Total revenues		321,363		275,105

Operating expenses:
Cost of revenues		125,282		92,869
Compensation and benefits		126,849		100,714
General and administration		44,335		36,315
Depreciation and amortization		31,618		28,392
Total operating expenses		328,084		258,290

Income (loss) from operations		(6,721)		16,815
Other expense, net		(5,967)		(7,468)
Income (loss) before income tax provision (benefit)		(12,688)		9,347

Income tax provision (benefit)		2,020		(5,588)

Net income (loss)		(14,708)		14,935
Add: Net loss attributable to non-controlling interest		849		11
Net income (loss) attributable to Envestnet, Inc.		$	(13,859)	$	14,946

Net income (loss) per share attributable to Envestnet, Inc.:
Basic		$	(0.25)	$	0.28
Diluted		$	(0.25)	$	0.27

Weighted average common shares outstanding:
Basic		54,903,677		54,208,469
Diluted		54,903,677		59,917,648

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
		2022		2021
Net income (loss) attributable to Envestnet, Inc.		$	(13,859)	$	14,946
Foreign currency translation losses, net of taxes		(1,478)		(624)
Comprehensive income (loss) attributable to Envestnet, Inc.		$	(15,337)	$	14,322

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, 2021	68,879,152	$	344	(14,086,064)	$	(134,996)	$	1,131,628	$	(1,899)	$	(37,988)	$	2,453	$	959,542
Exercise of stock options	38,681	—		—	—		658		—		—		—		658
Issuance of common stock - vesting of restricted stock units	514,319	3		—	—		—		—		—		—		3
Stock-based compensation expense	—	—		—	—		21,690		—		—		—		21,690
Shares withheld to satisfy tax withholdings	—	—		(170,992)	(12,570)		—		—		—		—		(12,570)

Foreign currency translation loss, net of taxes	—	—		—	—		—		(1,478)		—		—		(1,478)
Other	—	—		—	—		(84)		—		—		102		18
Net loss	—	—		—	—		—		—		(13,859)		(849)		(14,708)
Balance, March 31, 2022	69,432,152	$	347	(14,257,056)	$	(147,566)	$	1,153,892	$	(3,377)	$	(51,847)	$	1,706	$	953,155






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	—	—		—	—		(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

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2022		2021
OPERATING ACTIVITIES:
Net income (loss)	$	(14,708)	$	14,935
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	31,618		28,392
Provision for doubtful accounts	(1,747)		298
Deferred income taxes	(18,955)		(3,581)
Non-cash compensation expense	21,814		14,137
Non-cash interest expense	2,599		2,015
Accretion on contingent consideration and purchase liability	—		388

Fair market value adjustment to contingent consideration liability	—		(140)



Loss allocations from equity method investments	1,545		3,288

Other	(59)		165
Changes in operating assets and liabilities:
Fees receivable, net	8,661		473
Prepaid expenses and other current assets	(8,377)		1,756
Other non-current assets	(1,114)		3,093
Accrued expenses and other liabilities	(27,320)		(28,668)
Accounts payable	(432)		6,444
Deferred revenue	11,097		7,882
Other non-current liabilities	(1,361)		(1,068)
Net cash provided by operating activities	3,261		49,809

INVESTING ACTIVITIES:
Purchases of property and equipment	(3,896)		(7,062)
Capitalization of internally developed software	(21,671)		(15,058)
Acquisition of proprietary technology	(15,000)		(25,517)
Investments in private companies	(3,000)		(2,538)

Other	(2,500)		—
Net cash used in investing activities	(46,067)		(50,175)

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2022		2021
FINANCING ACTIVITIES:





Proceeds from exercise of stock options	658		522
Taxes paid in lieu of shares issued for stock-based compensation	(12,570)		(9,541)
Finance lease payments	(12,454)		—
Revolving credit facility issuance costs	(1,869)		—
Share repurchases	—		(1,672)
Payments of contingent consideration	—		(1,000)
Other	3		(479)
Net cash used in financing activities	(26,232)		(12,170)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(627)		(52)

DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(69,665)		(12,588)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	429,428		384,714

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	359,763	$	372,126

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	716	$	1,879
Supplemental disclosure of cash flow information - cash paid during the period for interest	2,254		2,200

Supplemental disclosure of non-cash operating, investing and financing activities:




Fixed assets acquired through finance lease	12,454		—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,883		1,129
Internally developed software costs included in accrued expenses and other liabilities	178		—
Membership interest liabilities included in other non-current liabilities	124		124

Leasehold improvements funded by lease incentive	—		127

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 insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients.

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in “Note 14—Segment Information” to the condensed consolidated financial statements.

2.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 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, 2021 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of March 31, 2022 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 months ended March 31, 2022 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, 2021, filed with the SEC on February 25, 2022.

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.

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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:


	March 31,		March 31,
	2022		2021

	(in thousands)
Cash and cash equivalents	$	359,614	$	371,977
Restricted cash included in prepaid expenses and other current assets	149		—
Restricted cash included in other non-current assets	—		149
Total cash, cash equivalents and restricted cash	$	359,763	$	372,126

Russia and Ukraine Conflict

In February 2022, military conflict escalated between Russia and Ukraine which continues as of the date of this quarterly report. The uncertainty over the extent and duration of the ongoing conflict continues to cause disruptions to businesses and markets worldwide. The extent of the effect on the Company’s financial performance will continue to depend on future developments, including the extent and duration of the conflict, economic sanctions imposed, further governmental and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the overall financial effect of the conflict at this time, as the conflict continues, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. As of March 31, 2022, these condensed consolidated financial statements do not reflect any adjustments as a result of the conflict.

Related Party Transactions

The Company has a 4.4% 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 $4.7 million and $3.8 million in the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company recorded a net receivable of $2.9 million and $3.0 million, respectively, from the private services company.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements— In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805).” This update amends Topic 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2022. Early adoption of the standard is permitted. The amendment is to be applied prospectively to business combinations occurring on or after the effective date of the amendment. The Company adopted this standard as of January 1, 2022. Adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

3.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	March 31,		December 31,
	2022		2021

	(in thousands)
Prepaid technology	$	22,227	$	15,415
Non-income tax receivables	5,986		7,013
Advisor Summit prepayments and deposits	4,856		1,057
Escrow for acquisition	2,951		2,951
Prepaid insurance	2,584		2,234
Loan to equity method investee	2,560		—
Other	12,324		14,036
Total prepaid expenses and other current assets	$	53,488	$	42,706

4.Property and Equipment, Net

Property and equipment, net consisted of the following:


		March 31,		December 31,
	Estimated Useful Life	2022		2021

		(in thousands)
Cost:
Computer equipment and software	3 years	$	73,142	$	72,289
Leasehold improvements	Shorter of the lease term or useful life of the asset	43,970		43,544
Leased data servers	3 years	13,044		590
Office furniture and fixtures	3-7 years	12,286		12,214
Office equipment and other	3-5 years	8,193		7,973
Building and building improvements	7-39 years	2,729		2,729
Land	Not applicable	940		940
		154,304		140,279
Less: accumulated depreciation and amortization		(91,456)		(90,064)
Total property and equipment, net		$	62,848	$	50,215

During the three months ended March 31, 2022, the Company entered into an arrangement with a third party cloud service provider for the use of dedicated servers to migrate its infrastructure to the cloud. As the terms of the arrangement convey a finance lease under FASB Topic 842 - Leases (“ASC 842”), the Company accounts for those dedicated servers as leased assets when the lease term commences. The Company accounts for each lease and any non-lease components associated with that lease as a single lease component for all asset classes. The leased dedicated servers are presented as a component of property and equipment, net in the condensed consolidated balance sheets as of March 31, 2022. To take advantage of the favorable savings programs offered by the cloud service provider, the Company prepaid the lease payments and therefore does not have a lease liability recorded for the leased assets. Gross property and equipment under finance leases as of March 31, 2022 was $13.0 million with accumulated depreciation of $1.1 million. Finance lease activity as of and for the year ended December 31, 2021 was not material.

During the three months ended March 31, 2022 and 2021, the Company retired property and equipment that was no longer in service with historical costs of $4.0 million and $3.1 million, respectively. Retirements within each segment were immaterial.

Gains and losses on asset retirements during the three months ended March 31, 2022 and 2021 were not material.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Depreciation and amortization expense was as follows:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Depreciation and amortization expense			$	5,604	$	5,643

5.Internally Developed Software

Internally developed software, net consisted of the following:


		March 31,		December 31,
	Estimated Useful Life	2022		2021

		(in thousands)
Internally developed software	5 years	$	247,229	$	225,380
Less: accumulated amortization		(100,215)		(91,721)
Internally developed software, net		$	147,014	$	133,659

Amortization expense was as follows:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Amortization expense			$	8,494	$	6,271

6.Intangible Assets, Net

Procurement of Technology Solutions

On June 21, 2021, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $18.0 million, including an advance of $3.0 million. The Company closed the transaction and paid the remaining $15.0 million in February 2022. This proprietary technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an estimated useful life of five years. In addition, the agreement includes an earn-out payment of $10.0 million based upon the achievement of certain target metrics within five years after the date of the Company’s launch of the technology solutions. The parties have agreed to renegotiate the terms of the earn-out payment.

Intangible assets, net consisted of the following:


			March 31, 2022						December 31, 2021
			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
			Amount		Amortization		Amount		Amount		Amortization		Amount

			(in thousands)
Customer lists			$	590,080	$	(252,313)	$	337,767	$	590,080	$	(241,189)	$	348,891
Proprietary technologies			103,324		(48,168)		55,156		85,324		(43,004)		42,320
Trade names			33,700		(25,747)		7,953		33,700		(24,515)		9,185
Total intangible assets	$	727,104	$	(326,228)	$	400,876	$	709,104	$	(308,708)	$	400,396

There were no material retirements of intangible assets during the three months ended March 31, 2022 and 2021.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Amortization expense was as follows:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Amortization expense			$	17,520	$	16,478

7.Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:


	March 31,		December 31,
	2022		2021

	(in thousands)
Accrued investment manager fees	$	100,566	$	95,858
Accrued compensation and related taxes	51,898		97,523
Income tax payables	19,147		—
Accrued professional services	5,620		7,746
Accrued technology	7,483		8,951
Non-income tax payables	4,154		4,907

Other accrued expenses	12,219		10,174
Total accrued expenses and other liabilities	$	201,087	$	225,159

8.Debt

The Company’s outstanding debt obligations as of March 31, 2022 and December 31, 2021 were as follows:


	March 31,		December 31,
	2022		2021

	(in thousands)
Revolving credit facility balance	$	—	$	—

Convertible Notes due 2023	$	345,000	$	345,000
Unamortized issuance costs on Convertible Notes due 2023	(2,463)		(2,979)

Convertible Notes due 2023 carrying value	$	342,537	$	342,021

Convertible Notes due 2025	$	517,500	$	517,500
Unamortized issuance costs on Convertible Notes due 2025	(9,940)		(10,659)

Convertible Notes due 2025 carrying value	$	507,560	$	506,841

Third Credit Agreement

On February 4, 2022, the Company entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”) with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The Third Credit Agreement amends and restates, in its entirety, the Company's prior credit agreement. In connection with entering into the Third Credit Agreement, the Company capitalized an additional $1.9 million of deferred financing charges to Other non-current assets on the condensed consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges to Other expense, net on the condensed consolidated statements of operations.

Pursuant to the Third Credit Agreement, the Banks have agreed to provide the Company with a revolving credit facility of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-facility for the issuances of letters of credit. As of March 31, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions. Obligations under the Third Credit Agreement are secured by substantially all of the Company’s domestic assets and the Company’s pledge of 66% of the voting equity and 100% of the non-voting equity of certain of its first-tier foreign subsidiaries. Proceeds under the Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions and for working capital and general corporate purposes.

In the event the Company has borrowings under the Third Credit Agreement, at the Company's option, it will pay interest on these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin ranging from 1.25% to 2.75% per annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Credit Agreement. Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.

As of March 31, 2022, debt issuance costs related to the Third Credit Agreement are presented in prepaid expenses and other non-current assets in the condensed consolidated balance sheets which have outstanding amounts of $0.7 million and $2.7 million, respectively.

The Third Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio, a minimum interest coverage ratio and a minimum liquidity covenant. The Company was in compliance with these financial covenants as of March 31, 2022.

As of March 31, 2022, the Company had all $500.0 million available to borrow under the revolving Credit Facility, subject to covenant compliance.

Convertible Notes due 2023

In May 2018, the Company issued $345.0 million of Convertible Notes due 2023 that mature on June 1, 2023. The Convertible Notes due 2023 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 1 and December 1 of each year. The Convertible Notes due 2023 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2023 was approximately 2.4% for the three months ended March 31, 2022 and 2021. The effective interest rate of the Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance costs.

Convertible Notes due 2025

In August 2020, the Company issued $517.5 million of Convertible Notes due 2025 that mature on August 15, 2025. The Convertible Notes due 2025 bear interest at a rate of 0.75% per annum payable semiannually in arrears on February 15 and August 15 of each year. The Convertible Notes due 2025 are general unsecured obligations, subordinated in right of payment to the Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2025 was approximately 1.3% for the three months ended March 31, 2022 and 2021. The effective interest rate of the Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance costs.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Interest Expense

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Coupon interest			$	2,480	$	2,479
Amortization of issuance costs			2,060		1,423
Undrawn and other fees			313		313


Total interest expense			$	4,853	$	4,215

For each of the three months ended March 31, 2022 and 2021, total interest expense related to the Convertible Notes due 2023 and the Convertible Notes due 2025 (collectively, the "Convertible Notes") was $3.7 million with coupon interest expense of $2.5 million and amortization of debt discount and issuance costs of $1.2 million.

9.Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, based on the three-tier fair value hierarchy, as defined in ASC 820, “Fair Value Measurements and Disclosures”:


	March 31, 2022
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	2,946	$	2,946	$	—	$	—

Assets to fund deferred compensation liability	11,201		—		—		11,201
Total assets	$	14,147	$	2,946	$	—	$	11,201
Liabilities:
Contingent consideration	$	750	$	—	$	—	$	750
Deferred compensation liability	9,515		9,515		—		—
Total liabilities	$	10,265	$	9,515	$	—	$	750


	December 31, 2021
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	2,684	$	2,684	$	—	$	—
Assets to fund deferred compensation liability	11,140		—		—		11,140
Total assets	$	13,824	$	2,684	$	—	$	11,140
Liabilities:
Contingent consideration	$	743	$	—	$	—	$	743
Deferred compensation liability	10,418		10,418		—		—
Total liabilities	$	11,161	$	10,418	$	—	$	743

The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or when changes in circumstances caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the three months ended March 31, 2022.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Contingent Consideration Liabilities

The fair value of the contingent consideration liabilities related to certain of the Company's acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level III fair value measurement. The significant inputs in the Company's Level III fair value measurement not supported by market activity included its assessments of expected future cash flows related to these acquisitions and their ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in accordance with the terms of their respective agreements.

The Company will continue to reassess the fair values of the contingent consideration liabilities at each reporting date until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations. The Company had contingent consideration liabilities of $0.8 million and $0.7 million as of March 31, 2022 and December 31, 2021, respectively, which are recorded as a component of Accrued expenses and other liabilities on the condensed consolidated balance sheets.

Fair Value of Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2021 to March 31, 2022:


	Fair Value of Assets to Fund Deferred Compensation Liability
	(in thousands)
Balance at December 31, 2021	$	11,140
Contributions	649
Fair value adjustments	(588)
Balance at March 31, 2022	$	11,201

The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which are included in other non-current assets in the condensed consolidated balance sheets, increased due to funding of the plan despite net losses on the underlying investment vehicles. These losses are recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations.

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities at March 31, 2022 and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on March 31, 2022 (See “Note 8—Debt”).

As of March 31, 2022, the carrying value of the Convertible Notes due 2023 equaled $342.5 million and represented the aggregate principal amount outstanding less the unamortized debt issuance costs. As of December 31, 2021, the carrying value of the Convertible Notes due 2023 equaled $342.0 million and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of March 31, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2023 was $418.3 million and $439.9 million, respectively.

As of March 31, 2022, the carrying value of the Convertible Notes due 2025 equaled $507.6 million and represented the aggregate principal amount outstanding less the unamortized debt issuance costs. As of December 31, 2021, the carrying value of the Convertible Notes due 2025 equaled $506.8 million and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of March 31, 2022 and December 31, 2021, the estimated fair value of the Convertible Notes due 2025 was $505.9 million and $526.1 million, respectively.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Other Financial Assets and Liabilities

The Company considered the recorded value of its other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at March 31, 2022 and December 31, 2021 based upon the short-term nature of these assets and liabilities.

10.Revenues and Cost of Revenues

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by major source:


	Three Months Ended March 31,
	2022						2021
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated

	(in thousands)
Revenues:
Asset-based	$	202,717	$	—	$	202,717	$	159,375	$	—	$	159,375
Subscription-based	68,537		46,197		114,734		64,012		45,817		109,829
Total recurring revenues	271,254		46,197		317,451		223,387		45,817		269,204
Professional services and other revenues	2,314		1,598		3,912		3,023		2,878		5,901
Total revenues	$	273,568	$	47,795	$	321,363	$