Envestnet, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

The Company has stock options and restricted stock units outstanding under the 2004 Stock Incentive Plan (the “2004 Plan”), the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the 2019 Equity Plan.

As a result of the PIEtech Acquisition (See “Note 3—Business Acquisitions”), the Company adopted the 2019 Equity Plan in order to make inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. Envestnet agreed to grant at future dates, not earlier than the sixty day anniversary of the PIEtech Acquisition, up to 301,469 shares of Envestnet common stock in the form of RSUs and PSUs pursuant to the 2019 Equity Plan. The RSUs vest over time and the PSUs vest upon the achievement of meeting certain performance conditions as well as a subsequent service condition. The Company is recognizing the estimated expense on a graded-vesting method over a requisite service period of three to five years, which is the estimated vesting period. The Company estimates the expected vesting amount and recognizes compensation expense only for those awards expected to vest. This estimate is reassessed by management each reporting period and may change based upon new facts and circumstances. Changes in assumptions impact the total amount of expense and are recognized over the vesting period.

As of September 30, 2019, the maximum number of common shares available for future issuance under the Company’s plans is 2,227,462.

Stock-based compensation expense under the Company’s plans was as follows:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Stock-based compensation expense	$	13,169		$	10,603		$	39,467		$	29,574
Tax effect on stock-based compensation expense	(3,438		)	(2,682		)	(10,305		)	(7,482		)
Net effect on income	$	9,731		$	7,921		$	29,162		$	22,092

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 26.1% for the three and nine months ended September 30, 2019. The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.3% for the three and nine months ended September 30, 2018.

Stock Options

The following weighted average assumptions were used to value options granted during the periods indicated:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Grant date fair value of options	$	—		$	—		$	21.55		$	—
Volatility	—		%	—		%	40.0		%	—		%
Risk-free interest rate	—		%	—		%	2.5		%	—		%
Dividend yield	—		%	—		%	—		%	—		%
Expected term (in years)	—			—			6.5			—

The following table summarizes option activity under the Company’s plans:



					Weighted-Average
			Weighted-		Remaining
			Average		Contractual Life	Aggregate
	Options		Exercise Price		(Years)	Intrinsic Value
Outstanding as of December 31, 2018	1,887,969		$	20.05	3.4	$	56,046
Granted	81,807		49.02
Exercised	(200,326	)	16.91
Forfeited	(1,100	)	31.70
Outstanding as of March 31, 2019	1,768,350		21.74		3.5	77,197
Exercised	(114,109	)	13.36
Outstanding as of June 30, 2019	1,654,241		22.31		3.4	76,187
Exercised	(225,414	)	9.41
Forfeited	(34,818	)	48.86
Outstanding as of September 30, 2019	1,394,009		23.74		3.3	45,949
Options exercisable	1,332,602		$	22.77	3.0	$	45,209

Exercise prices of stock options outstanding as of September 30, 2019 range from $7.15 to $55.29. At September 30, 2019, there was $987 of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 2 years.

Restricted Stock Units and Restricted Stock Awards

Periodically, the Company grants restricted stock units and awards and performance stock units and awards to employees. Performance-based restricted unit awards vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based restricted stock unit awards provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 50% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.

The following is a summary of the activity for unvested restricted stock units and performance stock units granted under the Company’s plans:



	RSUs				PSUs
	Number of Shares		Weighted- Average Grant Date Fair Value per Share		Number of Shares		Weighted- Average Grant Date Fair Value per Share
Outstanding as of December 31, 2018	1,461,468		$	46.59	124,320		$	44.64
Granted	872,104		60.94		68,510		64.32
Vested	(479,479	)	45.98		—		—
Forfeited	(20,830	)	48.31		(4,036	)	61.27
Outstanding as of March 31, 2019	1,833,263		53.67		188,794		51.42
Granted	48,032		68.50		123,812		73.60
Vested	(114,056	)	47.94		(68,334	)	31.03
Forfeited	(22,074	)	56.55		—		—
Outstanding as of June 30, 2019	1,745,165		54.40		244,272		$	67.78
Granted	77,199		71.49		3,495		77.68
Vested	(242,789	)	42.80		—		—
Forfeited	(39,734	)	54.61		—		—
Outstanding as of September 30, 2019	1,539,841		57.37		247,767		67.98

At September 30, 2019, there was $74,375 of unrecognized stock-based compensation expense related to unvested restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 2.0 years. At September 30, 2019, there was $16,722 of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 2.5 years.