env-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 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 November 2, 2022, Envestnet, Inc. had 55,326,136 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021			3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021			5
Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2022 and 2021			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021			10
Notes to Unaudited Condensed Consolidated Financial Statements			12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			34
Overview			36
Results of Operations			43
Liquidity and Capital Resources			60

Item 3. Quantitative and Qualitative Disclosures About Market Risk			61

Item 4. Controls and Procedures			61

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			62

Item 1A. Risk Factors			62

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			62

Item 3. Defaults Upon Senior Securities			62

Item 4. Mine Safety Disclosures			62

Item 5. Other Information			62

Item 6. Exhibits			63

Index to Exhibits			64

Signatures			65

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	241,330	$	429,279
Fees receivable, net	96,098		95,291
Prepaid expenses and other current assets	55,078		42,706
Total current assets	392,506		567,276

Property and equipment, net	60,061		50,215
Internally developed software, net	173,285		133,659
Intangible assets, net	398,082		400,396
Goodwill	996,267		925,154
Operating lease right-of-use assets, net	83,472		90,714
Other non-current assets	99,548		73,768
Total assets	$	2,203,221	$	2,241,182

Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities	$	207,025	$	225,159
Accounts payable	19,447		19,092
Operating lease liabilities	12,133		10,999

Deferred revenue	34,082		33,473
Current portion of long-term debt	343,581		—
Total current liabilities	616,268		288,723

Long-term debt, net of current portion	509,006		848,862
Non-current operating lease liabilities	109,749		105,920
Deferred tax liabilities, net	14,976		21,021
Other non-current liabilities	12,938		17,114
Total liabilities	1,262,937		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 September 30, 2022 and December 31, 2021	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 69,866,788 and 68,879,152 shares issued as of September 30, 2022 and December 31, 2021, respectively; 55,323,222 and 54,793,088 shares outstanding as of September 30, 2022 and December 31, 2021, respectively	349		344
Additional paid-in capital	1,195,624		1,131,628
Accumulated deficit	(82,422)		(37,988)
Treasury stock at cost, 14,543,566 and 14,086,064 shares as of September 30, 2022 and December 31, 2021, respectively	(164,844)		(134,996)
Accumulated other comprehensive loss	(7,949)		(1,899)
Total stockholders’ equity	940,758		957,089
Non-controlling interest	(474)		2,453
Total equity	940,284		959,542
Total liabilities and equity	$	2,203,221	$	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				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Asset-based	$	177,131	$	184,008	$	571,820	$	513,458
Subscription-based	123,747		113,572		356,601		335,905
Total recurring revenues	300,878		297,580		928,421		849,363
Professional services and other revenues	5,817		5,473		18,489		17,533
Total revenues	306,695		303,053		946,910		866,896

Operating expenses:
Cost of revenues	110,108		109,836		361,872		303,199
Compensation and benefits	116,837		109,839		369,453		316,101
General and administration	47,388		39,393		157,867		117,463
Depreciation and amortization	33,408		29,850		97,208		88,252
Total operating expenses	307,741		288,918		986,400		825,015

Income (loss) from operations	(1,046)		14,135		(39,490)		41,881
Other expense, net	(5,346)		(3,551)		(9,691)		(14,803)
Income (loss) before income tax provision (benefit)	(6,392)		10,584		(49,181)		27,078

Income tax provision (benefit)	2,271		(854)		(1,542)		9,074

Net income (loss)	(8,663)		11,438		(47,639)		18,004
Add: Net loss attributable to non-controlling interest	1,373		302		3,205		401
Net income (loss) attributable to Envestnet, Inc.	$	(7,290)	$	11,740	$	(44,434)	$	18,405

Net income (loss) per share attributable to Envestnet, Inc.:
Basic	$	(0.13)	$	0.22	$	(0.81)	$	0.34
Diluted	$	(0.13)	$	0.21	$	(0.81)	$	0.33

Weighted average common shares outstanding:
Basic	55,226,777		54,547,858		55,109,387		54,400,247
Diluted	55,226,777		55,388,627		55,109,387		55,287,972

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income (loss) attributable to Envestnet, Inc.	$	(7,290)	$	11,740	$	(44,434)	$	18,405
Foreign currency translation gains (losses), net of taxes	(1,479)		270		(6,050)		(1,618)
Comprehensive income (loss) attributable to Envestnet, Inc.	$	(8,769)	$	12,010	$	(50,484)	$	16,787

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

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(in thousands, except share information)

(unaudited)


									Accumulated
	Common Stock			Treasury Stock			Additional		Other				Non-
				Common			Paid-in		Comprehensive		Accumulated		controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity



















Balance, June 30, 2022	69,666,983	$	348	(14,487,582)	$	(162,344)	$	1,176,763	$	(6,470)	$	(75,132)	$	827	$	933,992
Exercise of stock options	37,618	—		—	—		1,817		—		—		—		1,817
Issuance of common stock - vesting of restricted stock units	162,187	1		—	—		—		—		—		—		1
Stock-based compensation expense	—	—		—	—		17,265		—		—		—		17,265
Shares withheld to satisfy tax withholdings	—	—		(55,984)	(2,500)		—		—		—		—		(2,500)
Foreign currency translation loss, net of taxes	—	—		—	—		—		(1,479)		—		—		(1,479)
Other	—	—		—	—		(221)		—		—		72		(149)
Net loss	—	—		—	—		—		—		(7,290)		(1,373)		(8,663)
Balance, September 30, 2022	69,866,788	$	349	(14,543,566)	$	(164,844)	$	1,195,624	$	(7,949)	$	(82,422)	$	(474)	$	940,284

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

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity (continued)

(in thousands, except share information)

(unaudited)


									Accumulated
	Common Stock			Treasury Stock			Additional		Other				Non-
				Common			Paid-in		Comprehensive		Accumulated		controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity




















Balance, June 30, 2021	68,459,262	$	342	(13,963,399)	$	(125,583)	$	1,089,263	$	(2,286)	$	(44,619)	$	349	$	917,466
Exercise of stock options	12,954	—		—	—		347		—		—		—		347
Issuance of common stock - vesting of restricted stock units	163,999	1		—	—		—		—		—		—		1
Stock-based compensation expense	—	—		—	—		18,760		—		—		—		18,760
Shares withheld to satisfy tax withholdings	—	—		(54,912)	(4,294)		—		—		—		—		(4,294)
Capital contribution - non-controlling interest	—	—		—	—		661		—		—		2,517		3,178
Foreign currency translation gain, net of taxes	—	—		—	—		—		270		—		—		270
Other	—	—		—	—		(167)		—		—		76		(91)
Net income (loss)	—	—		—	—		—		—		11,740		(302)		11,438
Balance, September 30, 2021	68,636,215	$	343	(14,018,311)	$	(129,877)	$	1,108,864	$	(2,016)	$	(32,879)	$	2,640	$	947,075

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2022		2021
OPERATING ACTIVITIES:
Net income (loss)	$	(47,639)	$	18,004
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	97,208		88,252
Provision for doubtful accounts	(468)		2,051
Deferred income taxes	(4,380)		7,078
Release of uncertain tax positions	(3,095)		—
Non-cash compensation expense	62,583		50,307
Non-cash interest expense	5,436		4,889
Accretion on contingent consideration and purchase liability	—		656
Payments of contingent consideration	—		(2,360)
Fair market value adjustment to contingent consideration liability	—		(1,067)
Fair market value adjustment to investment in private company	—		(758)
Gain on settlement of liability	—		(1,206)
Loss allocations from equity method investments	5,332		5,553
Dilution gain on equity method investee share issuance	(6,934)		—
Lease related impairments, including right of use assets	14,050		1,537
Loss on property and equipment disposals - office closures	3,710		—
Other	319		249
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net	1,546		(38,030)
Prepaid expenses and other current assets	(8,610)		569
Other non-current assets	(3,914)		4,854
Accrued expenses and other liabilities	(23,168)		26,637
Accounts payable	(867)		4,122
Deferred revenue	(2,329)		(1,065)
Other non-current liabilities	(2,545)		(298)
Net cash provided by operating activities	86,235		169,974

INVESTING ACTIVITIES:
Purchases of property and equipment	(13,114)		(15,779)
Capitalization of internally developed software	(67,755)		(49,024)
Acquisition of proprietary technology	(15,000)		(25,517)
Acquisitions of businesses, net of cash acquired	(104,185)		(32,794)
Investments in private companies	(16,351)		(8,926)
Advance for technology solutions	(4,000)		(3,000)
Issuance of notes receivable to equity method investees	(6,350)		—
Net cash used in investing activities	(226,755)		(135,040)

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2022	2021
FINANCING ACTIVITIES:




Proceeds from exercise of stock options	2,559	920
Capital contributions - non-controlling shareholders	—	3,201
Taxes paid in lieu of shares issued for stock-based compensation	(20,613)	(17,314)
Finance lease payments	(14,544)