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, 2019

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”) 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 ASC 606 as an adjustment of $9,217 to the opening balance of accumulated deficit.

In accordance with ASC 606 requirements, the impact of adoption on the Company’s consolidated statements of operations was as follows:



	Year Ended December 31, 2018
	As Reported		Without Adoption of ASC 606		Effect of Change 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

The comparative information was not restated and will continue to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of ASC 606 to have a material impact to the results of operations on an ongoing basis.

The majority of the Company's revenues continue to be recognized when services are provided. The adoption of ASC 606 primarily impacted 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.

Disaggregation of revenue

The following table presents the Company’s revenues disaggregated by major source:



	Year Ended December 31, 2019
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated
Revenues:
Asset-based	$	484,312	$	—	$	484,312
Subscription-based	207,606		171,207		378,813
Total recurring revenues	691,918		171,207		863,125
Professional services and other revenues	17,540		19,462		37,002
Total revenues	$	709,458	$	190,669	$	900,127



	Year Ended December 31, 2018
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated
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 Wealth Solutions⁽¹⁾		Envestnet Data & Analytics⁽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


(1)	As noted above, prior period amounts have not been adjusted under the modified retrospective method.

One customer accounted for more than 10% of the Company’s total revenues:



	Year Ended December 31,
	2019		2018		2017
Fidelity	15	%	17	%	17	%

Fidelity accounted for 19%, 21% and 22% of the Envestnet Wealth Solutions segment's revenues for the years ended December 31, 2019, 2018 and 2017, respectively.

No single customer revenue amounts for Envestnet Data & Analytics exceeded 10% of the segment revenue total.

The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:



	Year Ended December 31,
	2019		2018		2017⁽¹⁾
United States	$	871,456	$	778,565	$	617,835
International ^{(2), (3)}	28,671		33,798		65,844
Total revenues	$	900,127	$	812,363	$	683,679


(1)	As previously noted, 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)	In 2018, upon adoption of ASU 2014-09, gross revenue recognition changed to net revenue recognition for one customer.

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, 2019:



Years ending December 31,
2020	$	203,814
2021	131,567
2022	90,416
2023	41,141
2024	22,867
Thereafter	26,454
Total	$	516,259

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

Total deferred revenue as of December 31, 2019 increased by $9,609, primarily the result of the PIEtech and PortfolioCenter acquisitions and an increase in deferred revenue related to subscription-based services during the year ended December 31, 2019. Total deferred revenue as of December 31, 2018 increased by $1,507, primarily the result of an increase in deferred revenue related to subscription-based services during the year ended December 31, 2018. The majority of the Company's deferred revenue 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 $23,714 and $18,620 for the years ended December 31, 2019 and 2018, respectively. The majority of this revenue consists of subscription-based services 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 $9,387 and $7,014 as of December 31, 2019 and 2018, respectively. Amortization expense for the deferred sales incentive compensation was $3,452 and $2,132 for the years ended December 31, 2019 and 2018, respectively. No significant impairment loss for capitalized costs was recorded during the periods.

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 in the consolidated statements of operations.