Envestnet, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Revenue

Revenue

12 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

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.