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

Annual report pursuant to Section 13 and 15(d)

Business Acquisitions

Business Acquisitions

12 Months Ended

Dec. 31, 2018

The following acquisitions are included within the Envestnet segment, except for Wheelhouse Analytics LLC (“Wheelhouse”) and the private company, which are included within the Envestnet | Yodlee segment.

FinaConnect, Inc.

On February 1, 2016, Envestnet acquired all of the outstanding shares of capital stock of FinaConnect. FinaConnect is a software as a service (SaaS) platform that provides reporting and practice management capabilities to financial professionals servicing the retirement plan market and is the technology platform supporting the ERS service offering. FinaConnect is included in the Envestnet segment.

On May 1, 2016, the Company combined the assets of FinaConnect with ERS. In addition to adding the client list serviced directly by FinaConnect, the goodwill arising from the acquisition represents the advantage of ownership of the technology powering the ERS solution, removal of ongoing licensing payments made to FinaConnect and the full integration of the knowledge and experience of the FinaConnect workforce. The goodwill is deductible for income tax purposes.

In connection with the acquisition of FinaConnect, the Company paid upfront cash consideration of $6,425 and Company is required to pay contingent consideration of four times the incremental revenue on a certain book of business for the two years subsequent to the acquisition date, not to exceed a total amount of $3,500.

As of December 31, 2016, the estimated fair market value of contingent consideration liability for FinaConnect increased from $1,929 to $2,286. As a result, the Company recorded a fair market value adjustment of $357 which is recognized in general and administration in the consolidated statements of operations. During 2017, the Company paid contingent consideration in the amount of $2,286 for the first year earnout. During 2018, the Company did not pay any contingent consideration for the second year earnout.

The consideration transferred in the acquisition was as follows:



Cash consideration	$	6,425
Contingent consideration liability	1,929
Working capital adjustment	269
Cash acquired	(1		)
Total	$	8,622

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



Total tangible assets acquired	$	430
Total liabilities assumed	(400		)
Identifiable intangible assets	3,800
Goodwill	4,792
Total net assets acquired	$	8,622

A summary of estimated intangible assets acquired, estimated useful lives and amortization methods is as follows:



			Estimated	Amortization
	Amount		Useful Life in Years	Method
Customer list	$	2,800	12	Accelerated
Proprietary technology	900		5	Straight-line
Trade names and domains	100		2	Straight-line
Total	$	3,800

The results of FinaConnect’s operations are included in the consolidated statements of operations beginning February 1, 2016, and are not considered material to the Company’s results of operations.

For the years ended December 31, 2018, 2017 and 2016, acquisition related costs for FinaConnect totaled $0, $135 and $116, respectively, and are included in general and administration in the consolidated statements of operations.

Wheelhouse Analytics LLC

On October 3, 2016, the Company acquired all of the issued and outstanding membership interests of Wheelhouse. Wheelhouse is a technology company that provides data analytics, mobile sales solutions and online education tools to financial advisors, asset managers and enterprises. Wheelhouse is included in the Envestnet | Yodlee segment.

The Company acquired Wheelhouse to be integrated with Yodlee’s industry-leading data and analytics solutions to strengthen Envestnet’s data-driven insights to financial advisors, asset managers and enterprises enabling them to better manage their businesses and client relationships and deliver better outcomes to their clients. Envestnet expects to deeply integrate Wheelhouse’s tools, delivering robust online dashboards and reporting that provides actionable intelligence.

In connection with the acquisition of Wheelhouse, the Company paid cash consideration of $13,299 and is required to pay contingent consideration, with the aggregate amount not to exceed $4,000, and certain holdbacks upon release. Changes to the estimated fair value of the contingent consideration, if any, will be recognized in earnings of the Company. During 2018, Company paid contingent consideration in the amount of $2,193.

The consideration transferred in the acquisition was as follows:



Cash consideration	$	13,299
Contingent consideration liability	2,364
Purchase consideration liability	887
Working capital adjustment	110
Cash acquired	(80		)
Total	$	16,580

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



Total tangible assets acquired	$	385
Total liabilities assumed	(1,420		)
Identifiable intangible assets	6,600
Goodwill	11,015
Total net assets acquired	$	16,580

A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:



			Estimated	Amortization
	Amount		Useful Life in Years	Method
Customer list	$	4,000	15	Accelerated
Proprietary technology	2,500		6	Straight-line
Trade names and domains	100		2	Straight-line
Total	$	6,600

The results of Wheelhouse’s operations are included in the consolidated statements of operations beginning October 3, 2016, and are not considered material to the Company’s results of operations.

For the years ended December 31, 2018, 2017 and 2016, acquisition related costs for Wheelhouse totaled $1,763, $874 and $383, respectively, and are included in general and administration in the consolidated statements of operations.

FolioDynamix

On January 2, 2018, the Company acquired all of the issued and outstanding membership interests of FolioDynamics Holdings, Inc. (“FolioDynamix”) through a merger of FolioDynamix with and into a wholly owned subsidiary of Envestnet.

FolioDynamix provides financial institutions, RIAs, and other wealth management clients with an end-to-end technology solution paired with a suite of advisory tools including model portfolios, research and overlay management services. FolioDynamix is included in the Envestnet segment.

The Company acquired FolioDynamix to add complementary trading tools as well as commission and brokerage support to Envestnet’s existing suite of offerings. Envestnet expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management channel, enabling the Company to further leverage its operating scale and data analytics capabilities.

The Company funded the acquisition with a combination of cash on the Company’s balance sheet, purchase consideration liabilities and borrowings under its revolving credit facility.

The consideration transferred in the acquisition was as follows:



				Measurement
	Preliminary			Period			Revised
	Estimate			Adjustments			Estimate
Cash consideration	$	187,580		$	12,297		$	199,877
Purchase consideration liability	12,297			(12,297		)	—
Working capital and other adjustments	(3,893		)	(2,849		)	(6,742		)
Total	$	195,984		$	(2,849	)	$	193,135

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:



				Measurement
	Preliminary			Period			Revised
	Estimate			Adjustments			Estimate
Cash and cash equivalents	$	4,876		$	—		$	4,876
Accounts receivable	4,962			—			4,962
Prepaid expenses and other current assets	1,600			2,173			3,773
Property and equipment, net	927			—			927
Other non-current assets	441			—			441
Identifiable intangible assets	117,700			18,000			135,700
Goodwill	97,248			(17,357		)	79,891
Total assets acquired	227,754			2,816			230,570
Accounts payable	(5,358		)	—			(5,358		)
Accrued expenses	(7,173		)	(734		)	(7,907		)
Deferred tax liability	(18,245		)	(5,055		)	(23,300		)
Deferred revenue	(930		)	124			(806		)
Other non-current liabilities	(64		)	—			(64		)
Total liabilities assumed	(31,770		)	(5,665		)	(37,435		)
Total net assets acquired	$	195,984		$	(2,849	)	$	193,135

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to lower future operating expenses and the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes. During 2018, after obtaining additional information, the estimated fair value of the customer list intangible was revised due to a change in the assumed attrition rate of the customer base acquired.

A summary of estimated identifiable intangible assets acquired, estimated useful lives and amortization method is as follows:



			Measurement
	Preliminary		Period			Revised		Estimated	Amortization
	Estimate		Adjustments			Estimate		Useful Life in Years	Method
Customer list	$	95,000	$	18,500		$	113,500	13	Accelerated
Proprietary technology	18,000		(500		)	17,500		5	Straight-line
Trade names and domains	4,700		—			4,700		6	Straight-line
Total	$	117,700	$	18,000		$	135,700

The results of FolioDynamix’s operations are included in the consolidated statements of operations beginning January 2, 2018. FolioDynamix’s revenues for the year ended December 31, 2018 totaled $68,122. FolioDynamix’s pre-tax loss for the year ended December 31, 2018 totaled $13,777. The pre-tax loss includes estimated acquired intangible asset amortization of $17,908 for the year ended December 31, 2018.

For the year ended December 31, 2018, acquisition related costs for FolioDynamix totaled $1,557, and are included in general and administration expenses. The Company may incur additional acquisition related costs in 2019.

Acquisition of private company

In August 2018, the Company acquired all of the issued and outstanding membership interests of a private technology company that provides market research analytics. In connection with this acquisition, the Company paid estimated net consideration of $6,585, subject to certain closing and post-closing adjustments.

The preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition are not material. As a result the remaining balance was allocated to goodwill in the amount of $6,885. The goodwill is not deductible for income tax purposes.

Unaudited pro forma results for Envestnet, Inc. giving effect to the FolioDynamix acquisition

The following pro forma financial information presents the combined results of operations of Envestnet and FolioDynamix for the year ended December 31, 2017. The pro forma financial information presents the results as if the acquisition had occurred as of the beginning of 2017. The results of the private company acquisition are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented primarily include adjustments for amortization charges for acquired intangible assets, stock-based compensation expense, transaction related expenses and interest expense.

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2017.



	Year Ended
	December 31, 2017
Revenues	$	724,618
Net loss	(21,194		)
Net loss per share:
Basic	$	(0.48	)
Diluted	$	(0.48	)