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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended 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 | ý | | Accelerated filer | ☐ |
| | | | |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | | |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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
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.
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.
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.
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 | | | 5 | | 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.
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.
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 | |
Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
7.Goodwill and Intangible Assets, Net