env-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 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 July 29, 2022, Envestnet, Inc. had 55,196,880 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021			3
Condensed Consolidated Statements of Operations for the three and six months ended June 30 , 2022 and 2021			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30 , 2022 and 2021			5
Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30 , 2022 and 2021			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30 , 2022 and 2021			8
Notes to Unaudited Condensed Consolidated Financial Statements			10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			29
Overview			31
Results of Operations			38
Liquidity and Capital Resources			55

Item 3. Quantitative and Qualitative Disclosures About Market Risk			56

Item 4. Controls and Procedures			56

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			57

Item 1A. Risk Factors			57

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

Item 3. Defaults Upon Senior Securities			57

Item 4. Mine Safety Disclosures			57

Item 5. Other Information			57

Item 6. Exhibits			57

Index to Exhibits			58

Signatures			59

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	June 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	338,115	$	429,279
Fees receivable, net	82,878		95,291
Prepaid expenses and other current assets	46,627		42,706
Total current assets	467,620		567,276

Property and equipment, net	61,392		50,215
Internally developed software, net	159,751		133,659
Intangible assets, net	386,231		400,396
Goodwill	936,054		925,154
Operating lease right-of-use assets, net	83,494		90,714
Other non-current assets	92,858		73,768
Total assets	$	2,187,400	$	2,241,182

Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	198,230	$	225,159
Accounts payable	20,444		19,092
Operating lease liabilities	10,852		10,999

Deferred revenue	37,453		33,473
Current portion of long-term debt	343,057		—
Total current liabilities	610,036		288,723

Long-term debt, net of current portion	508,282		848,862
Non-current operating lease liabilities	110,623		105,920
Deferred tax liabilities, net	12,912		21,021
Other non-current liabilities	11,555		17,114
Total liabilities	1,253,408		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 June 30, 2022 and December 31, 2021	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 69,666,983 and 68,879,152 shares issued as of June 30, 2022 and December 31, 2021, respectively; 55,179,401 and 54,793,088 shares outstanding as of June 30, 2022 and December 31, 2021, respectively	348		344
Additional paid-in capital	1,176,763		1,131,628
Accumulated deficit	(75,132)		(37,988)
Treasury stock at cost, 14,487,582 and 14,086,064 shares as of June 30, 2022 and December 31, 2021, respectively	(162,344)		(134,996)
Accumulated other comprehensive loss	(6,470)		(1,899)
Total stockholders’ equity	933,165		957,089
Non-controlling interest	827		2,453
Total equity	933,992		959,542
Total liabilities and equity	$	2,187,400	$	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				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues:
Asset-based	$	191,972	$	170,075	$	394,689	$	329,450
Subscription-based	118,120		112,504		232,854		222,333
Total recurring revenues	310,092		282,579		627,543		551,783
Professional services and other revenues	8,760		6,159		12,672		12,060
Total revenues	318,852		288,738		640,215		563,843

Operating expenses:
Cost of revenues	126,482		100,494		251,764		193,363
Compensation and benefits	125,767		105,548		252,616		206,262
General and administration	66,144		41,755		110,479		78,070
Depreciation and amortization	32,182		30,010		63,800		58,402
Total operating expenses	350,575		277,807		678,659		536,097

Income (loss) from operations	(31,723)		10,931		(38,444)		27,746
Other income (expense), net	1,622		(3,784)		(4,345)		(11,252)
Income (loss) before income tax provision (benefit)	(30,101)		7,147		(42,789)		16,494

Income tax provision (benefit)	(5,833)		15,516		(3,813)		9,928

Net income (loss)	(24,268)		(8,369)		(38,976)		6,566
Add: Net loss attributable to non-controlling interest	983		88		1,832		99
Net income (loss) attributable to Envestnet, Inc.	$	(23,285)	$	(8,281)	$	(37,144)	$	6,665

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	(0.42)	$	(0.15)	$	(0.67)	$	0.12
Diluted	$	(0.42)	$	(0.15)	$	(0.67)	$	0.12

Weighted average common shares outstanding:
Basic	55,203,120		54,440,388		55,054,272		54,325,353
Diluted	55,203,120		54,440,388		55,054,272		55,136,946

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income (loss) attributable to Envestnet, Inc.	$	(23,285)	$	(8,281)	$	(37,144)	$	6,665
Foreign currency translation losses, net of taxes	(3,093)		(1,264)		(4,571)		(1,888)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	(26,378)	$	(9,545)	$	(41,715)	$	4,777

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
Exercise of stock options	2,503	—		—	—		84		—		—		—		84
Issuance of common stock - vesting of restricted stock units	232,328	1		—	—		—		—		—		—		1
Stock-based compensation expense	—	—		—	—		22,876		—		—		—		22,876
Shares withheld to satisfy tax withholdings	—	—		(78,506)	(5,543)		—		—		—		—		(5,543)
Share repurchases	—	—		(152,020)	(9,235)		—		—		—		—		(9,235)

Foreign currency translation loss, net of taxes	—	—		—	—		—		(3,093)		—		—		(3,093)
Other	—	—		—	—		(89)		—		—		104		15
Net loss	—	—		—	—		—		—		(23,285)		(983)		(24,268)
Balance, June 30, 2022	69,666,983	$	348	(14,487,582)	$	(162,344)	$	1,176,763	$	(6,470)	$	(75,132)	$	827	$	933,992

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, 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
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

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2022		2021
OPERATING ACTIVITIES:
Net income (loss)	$	(38,976)	$	6,566
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	63,800		58,402
Provision for doubtful accounts	(1,230)		455
Deferred income taxes	(8,222)		8,137
Release of uncertain tax positions	(3,095)		—
Non-cash compensation expense	45,318		31,422
Non-cash interest expense	3,474		2,906
Accretion on contingent consideration and purchase liability	—		575
Payments of contingent consideration	—		(2,360)
Fair market value adjustment to contingent consideration liability	—		(140)
Fair market value adjustment to investment in private company	—		(758)

Loss allocations from equity method investments	2,945		4,045
Dilution gain on equity method investee share issuance	(6,934)		—
Impairment of right of use assets	12,961		1,110
Loss on property and equipment disposals - office closures	3,710		—
Other	167		282
Changes in operating assets and liabilities:
Fees receivable, net	13,694		(1,334)
Prepaid expenses and other current assets	(2,721)		(155)
Other non-current assets	(3,638)		3,665
Accrued expenses and other liabilities	(31,962)		527
Accounts payable	1,368		2,333
Deferred revenue	4,277		2,789
Other non-current liabilities	(2,294)		692
Net cash provided by operating activities	52,642		119,159

INVESTING ACTIVITIES:
Purchases of property and equipment	(9,141)		(11,357)
Capitalization of internally developed software	(43,045)		(31,802)
Acquisition of proprietary technology	(15,000)		(25,517)
Acquisitions of businesses, net of cash acquired	(14,472)		(33,143)
Investments in private companies	(8,000)		(4,549)
Advance for technology solutions	(4,000)		(3,000)
Issuance of notes receivable to equity method investees	(4,350)		—
Net cash used in investing activities	(98,008)		(109,368)

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2022		2021
FINANCING ACTIVITIES:




Proceeds from exercise of stock options	742		573
Capital contributions - non-controlling shareholders	—		23
Taxes paid in lieu of shares issued for stock-based compensation	(18,113)		(13,020)
Finance lease payments	(14,517)		—
Share repurchases	(9,235)		(2,097)
Revolving credit facility issuance costs	(1,872)		—
Payments of contingent consideration	(750)		(9,200)
Other	4		(587)
Net cash used in financing activities	(43,741)		(24,308)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	(2,057)		(524)

DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(91,164)		(15,041)

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)	$	338,264	$	369,673

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	5,460	$	3,077
Supplemental disclosure of cash flow information - cash paid during the period for interest	5,591		5,533

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



Purchase liabilities included in other non-current liabilities	—		3,300
Fixed assets acquired through finance lease	14,517		—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	2,308		832
Internally developed software costs included in accrued expenses and other liabilities	628		—
Membership interest liabilities included in other non-current liabilities	752		248

Leasehold improvements funded by lease incentive	—		164
Assets obtained in exchange for lease liabilities, net	9,604		999
Conversion of equity method investee loan to shares	2,623		—

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 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 June 30, 2022 and for the three and six months ended June 30, 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 June 30, 2022 and 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 income (expense), net in the condensed consolidated statements of operations.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations 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:


	June 30,		June 30,
	2022		2021

	(in thousands)
Cash and cash equivalents	$	338,115	$	369,524
Restricted cash included in prepaid expenses and other current assets	149		149

Total cash, cash equivalents and restricted cash	$	338,264	$	369,673

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 June 30, 2022, these condensed consolidated financial statements do not reflect any adjustments as a result of the conflict.

Related Party Transactions

The Company has an approximate 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 $4.3 million and $3.9 million in the three months ended June 30, 2022 and 2021, respectively. Revenues from the private services company totaled $9.0 million and $7.7 million in the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and December 31, 2021, the Company recorded a net receivable of $2.5 million and $3.0 million, respectively, from the private services company.

Dilution gain on equity method investee share issuance

The Company has an ownership interest in a privately held company that is accounted for under the equity method. During the six months ended June 30, 2022, the Company funded a $2.5 million convertible loan to this privately held company. During the three months ended June 30, 2022, this privately held company raised additional preferred equity which reduced the Company's ownership to 41.0% and the Company's convertible loan was converted. As a result of this transaction, the Company recorded a $6.9 million dilution gain during the three months ended June 30, 2022, which is included in other income (expense), net in the condensed consolidated statements of operations.

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.Acquisitions and Other Investments

Investment in Privately Held Company

On May 20, 2022, the Company acquired a 25.0% interest in a privately held company for cash consideration of $5.0 million. Subject to the occurrence of certain conditions, the Company agreed to invest up to an additional $10.0 million for additional units in the future. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. The Company uses the equity method of accounting because of its less than 50% ownership interest and lack of control and does not otherwise exercise control over the significant economic and operating decisions of the privately held company.

Acquisition of 401kplans.com

On May 31, 2022, Envestnet Retirement Solutions, LLC, a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding membership interests of 401kplans.com LLC (“401kplans.com”). 401kplans.com has been integrated into the Envestnet Wealth Solutions segment.

401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. The acquisition demonstrates Envestnet's commitment to the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping them shop, compare and select the best-fitting 401(k) plan for their client.

In connection with the 401kplans.com acquisition, the Company paid estimated consideration of $14.5 million, net of cash acquired, subject to certain post-closing adjustments. The Company funded the acquisition with cash on hand.

The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:


	Preliminary Estimate
	(in thousands)
Tangible assets acquired, net of acquired cash	$	94
Identifiable intangible assets	3,000
Goodwill	11,378
Total net assets acquired	$	14,472

The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling opportunities. The estimated goodwill is deductible for income tax purposes.

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:

Preliminary Estimate
(in thousands)

Estimated Useful Life in Years

Amortization Method

Proprietary technology

3,000

Straight-line

The estimated fair values of certain of the assets acquired are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation procedures that are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than May 31, 2023.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The results of 401kplans.com's operations are included in the condensed consolidated statements of operations beginning May 31, 2022 and were not considered material to the Company’s results of operations.

For the three and six months ended June 30, 2022, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2022.

4.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	June 30,		December 31,
	2022		2021

	(in thousands)
Prepaid technology	$	20,928	$	15,415
Non-income tax receivables	5,703		7,013
Prepaid insurance	5,004		2,234
Escrow for acquisition	2,951		2,951
Other	12,041		15,093
Total prepaid expenses and other current assets	$	46,627	$	42,706

5.Property and Equipment, Net

Property and equipment, net consisted of the following:


		June 30,		December 31,
	Estimated Useful Life	2022		2021

		(in thousands)
Cost:
Computer equipment and software	3 years	$	72,638	$	72,289
Leasehold improvements	Shorter of the lease term or useful life of the asset	36,707		43,544
Leased data servers	3 years	15,108		590
Office furniture and fixtures	3-7 years	10,789		12,214
Office equipment and other	3-5 years	9,027		7,973
Building and building improvements	7-39 years	2,729		2,729
Land	Not applicable	940		940
		147,938		140,279
Less: accumulated depreciation and amortization		(86,546)		(90,064)
Total property and equipment, net		$	61,392	$	50,215

During the six months ended June 30, 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 June 30, 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 June 30, 2022 was $15.1 million with accumulated depreciation of $2.3 million. Finance lease activity as of and for the year ended December 31, 2021 was not material.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Office Closures

In April 2022, in response to changing needs and an increase in employees working remotely, the Company closed three offices in the United States. The Company is currently exploring alternative uses for these properties, including sublease options.

During the three and six months ended June 30, 2022, including the office closures, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $13.6 million and $16.5 million, respectively. Including the office closures, gains and losses on asset retirements were $3.7 million in the three and six months ended June 30, 2022 for the Envestnet Wealth Solutions segment. The Company also recognized $13.0 million of lease restructuring costs in the three and six months ended June 30, 2022 which are included in general and administration expense in the condensed consolidated statements of operations. Gains and losses on asset retirements during the three and six months ended June 30, 2022 were not material for the Envestnet Data & Analytics segment.

During the three and six months ended June 30, 2021, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $5.1 million and $7.8 million, respectively. During the three and six months ended June 30, 2021, the Company retired an immaterial amount of property and equipment that was no longer in service for the Envestnet Data & Analytics segment. Gains and losses on asset retirements during the three and six months ended June 30, 2021 were not material.

Depreciation and amortization expense was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(in thousands)
Depreciation and amortization expense	$	5,450	$	5,246	$	11,054	$	10,889

6.Internally Developed Software

Internally developed software, net consisted of the following:


		June 30,		December 31,
	Estimated Useful Life	2022		2021

		(in thousands)
Internally developed software	5 years	$	269,053	$	225,380
Less: accumulated amortization		(109,302)		(91,721)
Internally developed software, net		$	159,751	$	133,659

Amortization expense was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021

	(in thousands)
Amortization expense	$	9,087	$	7,262	$	17,581	$	13,533

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

7.Goodwill and Intangible Assets, Net