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

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

On June 22, 2010, the Board of Directors approved the 2010 Long-Term Incentive Plan (“2010 Plan”), effective upon the closing of the Company’s initial public offering. The 2010 Plan provides for the grant of options, stock appreciation rights, Full Value Awards (as defined in the 2010 Plan agreement) and cash incentive awards to employees, consultants and non-employee directors to purchase common stock, which vest over time and have a ten-year contractual term. As approved by the Company’s shareholders, the 2010 Plan has since been amended whereby the maximum number of shares of common stock that may be delivered under the 2010 Plan is 8,925,000. Stock options and stock appreciation rights are granted with an exercise price no less than the fair-market-value price of the common stock at the date of the grant.

As a result of the PIEtech acquisition, described in “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 December 31, 2020, the maximum number of options and restricted stock available for future issuance under the Company’s plans is 1,375,747.

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


	Year Ended December 31,
	2020		2019		2018
Stock-based compensation expense	$	56,292	$	54,436	$	40,245
Tax effect on stock-based compensation expense	(14,354)		(13,734)		(10,093)
Net effect on income	$	41,938	$	40,702	$	30,152

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5%, 25.2%, and 25.1% for the years ended December 31, 2020, 2019 and 2018, respectively. However, due to the valuation allowance recorded on the Company's domestic deferred tax assets, there was no tax effect related to stock-based compensation expense for the year ended December 31, 2018.

Stock Options

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


	December 31,
	2020			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)	0.0			6.5			0.0

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, 2017	2,254,565	$	19.23	4.3	$	69,939
Granted	—	—
Exercised	(359,345)	14.76
Forfeited	(7,251)	27.51
Outstanding as of December 31, 2018	1,887,969	20.05		3.4	56,046
Granted	81,807	49.02
Exercised	(783,216)	13.52
Forfeited	(35,974)	48.33
Outstanding as of December 31, 2019	1,150,586	25.66		3.4	50,590
Granted	—	—
Exercised	(705,333)	18.83
Forfeited	(7,213)	48.70
Outstanding as of December 31, 2020	438,040	36.28		4.1	20,156
Options exercisable	397,861	34.99		3.7	18,817

The aggregate intrinsic values in the table below represent the total pre-tax intrinsic value (the aggregate difference between the fair value of the Company’s common stock on December 31, 2020, 2019 and 2018 of $82.29, $69.63 and $49.19, respectively, and the exercise price of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of that date.

Other information is as follows:


	Year Ended December 31,
	2020		2019		2018
Total intrinsic value of options exercised	$	35,687	$	40,893	$	15,667
Cash received from exercises of stock options	10,760		10,592		5,305

Exercise prices of stock options outstanding as of December 31, 2020 range from $10.40 to $55.29. At December 31, 2020, there was an immaterial amount of unrecognized compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 1.1 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. Restricted stock units awards vest one-third on the first anniversary of the grant date and quarterly thereafter. Performance-based restricted units and 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% of the original grant number. 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 awards granted under the Company’s plans:


	RSUs			PSUs
		Weighted-			Weighted-
		Average Grant			Average Grant
	Number of	Date Fair Value		Number of	Date Fair Value
	Shares	per Share		Shares	per Share
Outstanding as of December 31, 2017	1,629,971	$	32.60	136,668	$	31.03
Granted	940,113	55.24		55,986	61.25
Vested	(1,005,347)	32.73		(68,334)	31.03
Forfeited	(103,269)	40.37		—	—
Outstanding as of December 31, 2018	1,461,468	46.59		124,320	44.64
Granted	997,971	61.91		202,168	69.68
Vested	(1,029,790)	45.11		(68,334)	31.03
Forfeited	(110,779)	53.16		(4,036)	61.27
Outstanding as of December 31, 2019	1,318,870	58.88		254,118	67.96
Granted	970,390	74.61		81,689	83.47
Vested	(804,982)	57.77		—	—
Forfeited	(138,931)	62.14		(33,010)	64.70
Outstanding as of December 31, 2020	1,345,347	70.56		302,797	72.50

At December 31, 2020, there was $72,238 of unrecognized compensation expense related to unvested restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 1.9 years. At December 31, 2020, there was $8,201 of unrecognized compensation expense related to unvested performance-based restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 1.8 years.

In connection with the unexpected death of our former CEO, the Company modified certain of his outstanding equity awards. The modifications included the extension of exercise periods for his outstanding stock options and the immediate vesting of his outstanding RSUs. All unvested PSUs were forfeited. As a result of these modifications, the Company recorded additional non-cash compensation expense of $4,286 in 2019. In 2020, the Company recognized a gain of $2,524 in other income (expense), net as a result of a fair value adjustment upon settlement of the former CEO’s stock options.