Annual report pursuant to Section 13 and 15(d)

Revenue

v3.10.0.1
Revenue
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
 
On January 1, 2018, the Company adopted ASU 2014-09 and all subsequent ASUs that modified Topic 606 (“ASC 606” or “new revenue standard”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The Company recognized the cumulative effect of the initial application of the new revenue standard as an adjustment to the opening balance of accumulated deficit. The comparative information has not been restated and will continue to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to the results of operations on an ongoing basis.

The majority of our revenues continue to be recognized when services are provided. The adoption of the new revenue standard primarily impacts timing of revenue recognition for initial implementation services, deferral of incremental direct costs in obtaining contracts with customers and gross versus net presentation related to certain third party manager agreements.

The cumulative effect of the changes made to the Company’s consolidated balance sheets as of January 1, 2018 for the adoption of the new revenue standard was as follows:
 
 
 
 
Cumulative
 
 
 
 
Balance at
 
Catch-up
 
Balance at
 
 
December 31, 2017
 
Adjustments
 
January 1, 2018
Balance Sheets
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Other non-current assets
 
$
17,176

 
$
5,315

 
$
22,491

Liabilities:
 
 
 
 
 
 
Deferred revenue, current
 
21,246

 
(1,122
)
 
20,124

Deferred revenue, non-current
 
12,047

 
(2,780
)
 
9,267

Equity:
 
 
 
 
 
 
Accumulated deficit
 
(73,854
)
 
9,217

 
(64,637
)
 
In accordance with the new revenue standard requirements, the impact of adoption on the Company’s consolidated statements of operations and consolidated balance sheets was as follows:
 
 
Year Ended December 31, 2018
 
 
 
 
Without Adoption of
 
Effect of Change
 
 
As Reported
 
ASC 606
 
Higher/(Lower)
Statements of Operations
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
Asset-based
 
$
481,233

 
$
495,646

 
$
(14,413
)
Subscription-based
 
295,467

 
295,467

 

Total recurring revenues
 
776,700

 
791,113

 
(14,413
)
Professional services and other revenues
 
35,663

 
35,840

 
(177
)
Total revenues
 
812,363

 
826,953

 
(14,590
)
Operating expenses:
 
 
 
 
 
 
Cost of revenues
 
263,400

 
277,813

 
(14,413
)
Compensation and benefits
 
317,188

 
318,887

 
(1,699
)
Total operating expenses
 
798,198

 
814,310

 
(16,112
)
Income from operations
 
14,165

 
12,643

 
1,522

Net income
 
4,010

 
2,488

 
1,522

Net income attributable to Envestnet, Inc.
 
$
5,755

 
$
4,233

 
$
1,522


 
 
 
At December 31, 2018
 
 
 
 
Without Adoption of
 
Effect of Change
 
 
As Reported
 
ASC 606
 
Higher/(Lower)
Balance Sheets
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Fees receivable, net
 
$
68,004

 
$
67,085

 
$
919

Other non-current assets
 
25,298

 
18,284

 
7,014

Liabilities:
 
 
 
 
 
 
Accounts payable
 
19,567

 
18,648

 
919

Deferred revenue, current
 
23,988

 
24,577

 
(589
)
Deferred revenue, non-current
 
6,910

 
10,046

 
(3,136
)
Equity:
 
 
 
 
 
 
Accumulated deficit
 
(58,882
)
 
(69,621
)
 
10,739


 
The impact of adoption on the Company’s consolidated statements of cash flows is immaterial.
 
Disaggregation of revenue
 
The following table presents the Company’s revenues disaggregated by major source:
 
 
Year Ended December 31, 2018
 
 
Envestnet(1)
 
Envestnet | Yodlee(1)
 
Consolidated(1)
Revenues:
 
 
 
 
 
 
Asset-based
 
$
481,233

 
$

 
$
481,233

Subscription-based
 
138,372

 
157,095

 
295,467

Total recurring revenues
 
619,605

 
157,095

 
776,700

Professional services and other revenues
 
13,000

 
22,663

 
35,663

Total revenues
 
$
632,605

 
$
179,758

 
$
812,363


 
 
Year Ended December 31, 2017
 
 
Envestnet(1)
 
Envestnet | Yodlee(1)
 
Consolidated(1)
Revenues:
 
 
 
 
 
 
Asset-based
 
$
410,016

 
$

 
$
410,016

Subscription-based
 
106,048

 
139,819

 
245,867

Total recurring revenues
 
516,064

 
139,819

 
655,883

Professional services and other revenues
 
11,841

 
15,955

 
27,796

Total revenues
 
$
527,905

 
$
155,774

 
$
683,679


 
 
Year Ended December 31, 2016
 
 
Envestnet(1)
 
Envestnet | Yodlee(1)
 
Consolidated(1)
Revenues:
 
 
 
 
 
 
Asset-based
 
$
352,498

 
$

 
$
352,498

Subscription-based
 
84,340

 
113,785

 
198,125

Total recurring revenues
 
436,838

 
113,785

 
550,623

Professional services and other revenues
 
10,794

 
16,747

 
27,541

Total revenues
 
$
447,632

 
$
130,532

 
$
578,164

(1)
As noted above, prior period amounts have not been adjusted under the modified retrospective method.
 
The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:
 
 
Year Ended December 31,
 
 
2018
 
2017 (1)
 
2016 (1)
United States
 
$
778,565

 
$
617,835

 
$
519,998

International (2), (3)
 
33,798

 
65,844

 
58,166

Total
 
$
812,363

 
$
683,679

 
$
578,164

(1)
As noted above, prior period amounts have not been adjusted under the modified retrospective method.
(2)
No foreign country accounted for more than 10% of total revenues.
(3)
Upon adoption of ASU 2014-09, gross revenue recognition changed to net revenue recognition for one customer.

One customer accounted for more than 10% of the Company’s total revenues:
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
Fidelity
 
17
%
 
17
%
 
15
%

 
Remaining performance obligations
 
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of December 31, 2018:
 
Years ending December 31,
 

2019
$
195,913

2020
127,516

2021
76,828

2022
56,378

2023
22,496

Thereafter
36,322

Total
$
515,453



Only fixed consideration from significant contracts with customers is included in the amounts presented above.

The Company has applied the practical expedients and exemption and does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligations or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.

Contract balances

The opening and closing balances of the Company’s billed receivables, unbilled receivables, and deferred revenues are as follows:
 
 
Receivables,
 
Unbilled receivables,
 
 
 
 
 
 
which are included in
 
which are included in
 
Deferred Revenue
 
Deferred Revenue
 
 
Fees receivable, net
 
Fees receivable, net
 
(current)
 
(non-current)
Opening balance as of January 1, 2018
 
$
36,605

 
$
13,229

 
$
20,124

 
$
9,267

Increase/(decrease), net
 
14,882

 
3,288

 
3,864

 
(2,357
)
Ending balance as of December 31, 2018
 
$
51,487

 
$
16,517

 
$
23,988

 
$
6,910



The increase in receivables is primarily a result of timing of payments for asset-based and subscription-based revenues relative to the year ended December 31, 2018 and the acquisition of FolioDynamix.  

The increase in unbilled receivables is primarily driven by revenue recognized in excess of billings related to asset-based services during the year ended December 31, 2018.

The increase in deferred revenue is primarily the result of an increase in deferred revenue related to subscription-based services during the year ended December 31, 2018, most of which will be recognized over the course of the next twelve months.

The amount of revenue recognized that was included in the opening deferred revenue balance was $18,620 for the year ended December 31, 2018. The majority of this revenue consists of subscription-based revenue and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred sales incentive compensation

Deferred sales incentive compensation was $7,014 as of December 31, 2018. Amortization expense for the deferred sales incentive compensation was $2,132 for the year ended December 31, 2018. No significant impairment loss for capitalized costs was recorded during the period.

The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period would have been one year or less. These costs are included in compensation and benefits on the consolidated statements of operations.