Quarterly report pursuant to Section 13 or 15(d)

Business Acquisitions

v3.10.0.1
Business Acquisitions
 9 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions
 
FolioDynamix
 
On January 2, 2018, the Company acquired (the “Acquisition”) all of the issued and outstanding membership interests of FolioDynamics Holdings, Inc. (“FolioDynamix”) through a merger of FolioDynamix with and into a wholly owned subsidiary of Envestnet.
 
FolioDynamix provides financial institutions, RIAs, and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios, research, and overlay management services. FolioDynamix is included in the Envestnet segment.
 
The Company acquired FolioDynamix to add complementary trading tools as well as commission and brokerage support to Envestnet’s existing suite of offerings. Envestnet expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management channel, enabling the Company to further leverage its operating scale and data analytics capabilities.
 
The Company funded the transaction with a combination of cash on the Company’s balance sheet, purchase consideration liabilities and borrowings under its revolving credit facility.
 
The estimated consideration transferred in the acquisition was as follows:
 
 
 
 
Measurement
 
 
 
 
Preliminary
 
Period
 
Revised
 
 
Estimate
 
Adjustments
 
Estimate
Cash consideration
 
$
187,580

 
$
12,297

 
$
199,877

Purchase consideration liability
 
12,297

 
(12,297
)
 
—

Working capital and other adjustments
 
(3,893
)
 
(2,500
)
 
(6,393
)
Total
 
$
195,984

 
$
(2,500
)
 
$
193,484



The estimated fair values of working capital balances, property and equipment, deferred revenue, deferred income taxes, unrecognized tax benefits, identifiable intangible assets and goodwill are provisional and are based on the information that was available as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies and 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 are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets and liabilities, identifiable intangible assets and goodwill, and complete the acquisition accounting as soon as practicable but no later than January 2, 2019.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
 
 
 
 
Measurement
 
 
 
 
Preliminary
 
Period
 
Revised
 
 
Estimate
 
Adjustments
 
Estimate
Cash and cash equivalents
 
$
4,876

 
$
—

 
$
4,876

Accounts receivable
 
4,962

 
—

 
4,962

Prepaid expenses and other current assets
 
1,600

 
—

 
1,600

Property and equipment, net
 
927

 
—

 
927

Other non-current assets
 
441

 
—

 
441

Identifiable intangible assets
 
117,700

 
18,000

 
135,700

Goodwill
 
97,248

 
(16,041
)
 
81,207

Total assets acquired
 
227,754

 
1,959

 
229,713

Accounts payable
 
(5,358
)
 
—

 
(5,358
)
Accrued expenses
 
(7,173
)
 
—

 
(7,173
)
Deferred tax liability
 
(18,245
)
 
(4,583
)
 
(22,828
)
Deferred revenue
 
(930
)
 
124

 
(806
)
Other non-current liabilities
 
(64
)
 
—

 
(64
)
Total liabilities assumed
 
(31,770
)

(4,459
)

(36,229
)
Total net assets acquired
 
$
195,984


$
(2,500
)

$
193,484


 
The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to lower future operating expenses and the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes. During the third quarter the estimated fair value of the customer list intangible was revised due to a change in the assumed attrition rate of the customer base acquired.
 
A summary of preliminary estimated identifiable intangible assets acquired, preliminary estimated useful lives and amortization method is as follows: 
 
 
 
 
Measurement
 
 
 
 
 
 
 
 
Preliminary
 
Period
 
Revised
 
Useful Life 
 
Amortization
 
 
Estimate
 
Adjustments
 
Estimate
 
in Years
 
Method
Customer list
 
$
95,000

 
$
18,500

 
$
113,500

 
13
 
Accelerated
Proprietary technology
 
18,000

 
(500
)
 
17,500

 
5
 
Straight-line
Trade names and domains
 
4,700

 
—

 
4,700

 
6
 
Straight-line
Total
 
$
117,700

 
$
18,000

 
$
135,700

 
 
 
 


The results of FolioDynamix’s operations are included in the condensed consolidated statements of operations beginning January 2, 2018. FolioDynamix’s revenues for the three and nine month periods ended September 30, 2018 totaled $16,404 and $51,204, respectively. FolioDynamix’s pre-tax loss for the three and nine month periods ended September 30, 2018 totaled $4,247 and $12,228, respectively. The pre-tax loss includes estimated acquired intangible asset amortization of $4,706 and $13,407 for the three and nine month periods ended September 30, 2018.

For the three and nine month periods ended September 30, 2018, acquisition related costs for FolioDynamix totaled $260 and $854, respectively, and are included in general and administration expenses. The Company may incur additional acquisition related costs during the remainder of 2018.

Acquisition of private company
 
In August 2018, the Company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics. The private company is included in the Envestnet | Yodlee segment. In connection with this acquisition, the Company paid estimated net consideration of $6,585, subject to certain closing and post-closing adjustments.
The preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition are not material. As a result the remaining balance was allocated to goodwill in the amount of $6,885. The goodwill is not deductible for income tax purposes.
Pro forma results for Envestnet, Inc. giving effect to the FolioDynamix acquisition

The following pro forma financial information presents the combined results of operations of Envestnet and FolioDynamix for the three and nine month periods ended September 30, 2017. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of 2017. The results of the private company acquisition are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented include amortization charges for acquired intangible assets, interest expense and stock-based compensation expense.

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2017.
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30, 2017
 
September 30, 2017
Revenues
 
$
185,717

 
$
530,231

Net loss
 
(12,290
)
 
(37,112
)
Net loss per share:
 
 
 
 
Basic
 
(0.28
)
 
(0.85
)
Diluted
 
(0.28
)
 
(0.85
)