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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | Debt The Company’s outstanding debt obligations as of December 31, 2022 and 2021 were as follows:
Credit Agreement
On February 4, 2022, the the Company entered into a Third Amended and Restated Credit Agreement (the "Third Credit Agreement") with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The Third Credit Agreement amended and restated, in its entirety, the Company's prior credit agreement. In connection with entering into the Third Credit Agreement, the Company capitalized an additional $1.9 million of deferred financing charges to Other non-current assets on the consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges to other expense, net on the consolidated statements of operations.
Pursuant to the Third Credit Agreement, the Banks have agreed to provide the Company with a revolving credit
facility of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-facility for the issuances of letters of credit. As of December 31, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.
Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions. Proceeds under the Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions and for working capital and general corporate purposes.
In the event the Company has borrowings under the Third Credit Agreement, at the Company's option, it will pay interest on these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin ranging from 1.25% to 2.75% per annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement. Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.
As of December 31, 2022, debt issuance costs related to the Third Credit Agreement of $0.7 million and $2.2 million are presented in prepaid expenses and other non-current assets in the consolidated balance sheets, respectively.
The Third Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio, a minimum interest coverage ratio and a minimum liquidity covenant. The Company was in compliance with these financial covenants as of December 31, 2022. On November 14, 2022, the Company entered into a First Amendment to the Third Credit Agreement, which amended certain provisions under the Third Credit Agreement, including elimination of required testing of the liquidity covenant beginning March 31, 2023. The borrowing base and rate were not amended by this First Amendment to the Third Credit Agreement.
As of December 31, 2022, the Company had all $500.0 million available to borrow under the Revolving Credit Facility, subject to covenant compliance.
Convertible Notes due 2023
In May 2018, the Company issued $345.0 million of convertible notes maturing June 1, 2023 (the “Convertible Notes due 2023”). Net proceeds from the offering were $335.0 million. The Convertible Notes due 2023 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 1 and December 1 of each year.
The Convertible Notes due 2023 are general unsecured senior obligations, subordinated in right of payment to the Company’s obligations under its Credit Agreement. The Convertible Notes due 2023 rank equally in right of payment with all of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s future subordinated obligations. The Convertible Notes due 2023 will be structurally subordinated to the indebtedness and other liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc., which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible Notes due 2023 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change”, as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Convertible Notes due 2023 for cash at 100% of the principal amount of the Convertible Notes due 2023 being purchased, plus any accrued and unpaid interest.
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after June 5, 2021 if the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any of the trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2023 are convertible into shares of Envestnet’s common stock under certain circumstances prior to maturity at an initial conversion rate of 14.6381 shares per one thousand principal amount of the Convertible Notes due 2023, which represents a conversion price of $68.31 per share, subject to adjustment under certain conditions. The initial conversion rate is subject to adjustment upon a "fundamental change", as defined in the indenture, if the Company calls all or any portion of the notes for optional redemption, or subject to anti-dilution provisions provided in the indenture. On or after December 15, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and stock, as determined by the Company in its discretion.
Upon issuance, the Company separately accounted for the liability and equity components of the Convertible Notes due 2023 by allocating the proceeds from issuance of the Convertible Notes due 2023 between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include an embedded conversion option. The Company allocated $46.6 million to the equity component, presented within additional paid-in capital, net of offering costs of $1.4 million. The Company recorded a discount on the Convertible Notes due 2023 of $48.0 million which was accreted and recorded as additional interest expense.
Upon the adoption of ASU 2020-06 on January 1, 2021, the equity component is no longer separated from the host contract and is now accounted for as a single liability measured at amortized cost within long-term debt in the consolidated balance sheets. Accordingly, no future accretion of the original issue discount necessary. During the years ended December 31, 2022, 2021 and 2020, the Company recognized $0.0 million, $0.0 million and $9.4 million, respectively, in accretion related to the discount.
In connection with the issuance of the Convertible Notes due 2023, the Company incurred $10.0 million of issuance costs in 2018, of which $8.6 million was originally allocated to the debt component and presented net in long-term debt and $1.4 million was originally allocated to the equity component and presented within additional paid-in capital in the consolidated balance sheets. Upon the adoption of ASU 2020-06, the costs originally allocated to the equity component are reflected within long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due 2023.
In November 2022, the Company repurchased $300.0 million aggregate principal of the outstanding Convertible Notes due 2023 for cash consideration of approximately $312.4 million and recognized a loss on extinguishment of approximately $13.4 million recognized in interest expense on the consolidated statements of operations. As of December 31, 2022, aggregate principal of $45.0 million less unamortized debt issuance costs of $0.1 million remain outstanding after this repurchase which may result in approximately 0.7 million shares issuable upon conversion, subject to adjustment under certain conditions.
Convertible Notes due 2025
In August 2020, the Company issued $517.5 million of convertible notes that mature on August 15, 2025 (the “Convertible Notes due 2025”). Net proceeds from the offering were $503.0 million. The Convertible Notes due 2025 bear interest at a rate of 0.75% per annum payable semiannually in arrears in cash on February 15 and August 15 of each year.
The Convertible Notes due 2025 are general unsecured senior obligations, subordinated in right of payment to the Company’s obligations under its Credit Agreement. The Convertible Notes due 2025 rank equally in right of payment with all of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s future subordinated obligations. The Convertible Notes due 2025 will be structurally subordinated to the indebtedness and other liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc., which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible Notes due 2025 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Convertible Notes due 2025 for cash at 100% of the principal amount of the Convertible Notes due 2025 being purchased, plus any accrued and unpaid interest.
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after August 15, 2023 if the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any of the trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2025 are convertible into shares of Envestnet’s common stock under certain circumstances prior to maturity at a an initial conversion rate of 9.3682 shares per one thousand principal amount of the Convertible Notes due 2025, which represents a conversion price of $106.74 per share, subject to adjustment under certain conditions. The initial conversion rate is subject to adjustment upon a "fundamental change", as defined in the indenture, if the Company calls all or any portion of the notes for optional redemption, or subject to anti-dilution provisions provided in the indenture. Holders may convert their Convertible Notes due 2025 at their option at any time prior to the close of business on the business day immediately preceding February 15, 2025, only under the following circumstances: (a) during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last reported sale price of Envestnet’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Notes in effect on each applicable trading day; (b) during the consecutive business-day period following any consecutive trading-day period in which the trading price for the notes for each such trading day is less than 98% of the last reported sale price of Envestnet’s common stock on such date
multiplied by the then-current conversion rate; (c) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (d) upon the occurrence of specified corporate events described in the Indenture. On or after February 15, 2025, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and stock, as determined by the Company in its discretion.
Upon issuance, the Company separately accounted for the liability and equity components of the Convertible Notes due 2025 by allocating the proceeds from issuance of the Convertible Notes due 2025 between the liability component and the embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuance for similar notes that do not include the embedded conversion option. The Company allocated $61.9 million to the equity component presented within additional paid-in capital, net of offering costs of $1.9 million and taxes of $6.7 million. The Company recorded a discount on the Convertible Notes due 2025 of $70.6 million which was accreted and recorded as additional interest expense.
Upon the adoption of ASU 2020-06 on January 1, 2021, the equity component is no longer separated from the host contract and is now accounted for as a single liability measured at amortized cost within long-term debt in the consolidated balance sheets. Accordingly, no future accretion of the original issue discount necessary. During the years ended December 31, 2022, 2021 and 2020, the Company recognized $0.0 million, $0.0 million and $4.7 million, respectively in accretion related to the discount.
In connection with the issuance of the Convertible Notes due 2025, the Company incurred $14.5 million of issuance costs in 2020, of which $12.6 million was originally allocated to the debt component and presented net in long-term debt and $1.9 million was originally allocated to the equity component and presented within additional paid-in capital in the consolidated balance sheets. Upon the adoption of ASU 2020-06, the costs originally allocated to the equity component are reflected within long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due 2025.
In November 2022, the Company repurchased $200.0 million aggregate principal of the outstanding Convertible Notes due 2025 for cash consideration of approximately $181.8 million and recognized a gain on extinguishment of approximately $15.1 million recognized in interest expense on the consolidated statements of operations. As of December 31, 2022, aggregate principal of $317.5 million less unamortized debt issuance costs of $4.8 million remain outstanding after this repurchase which may result in approximately 3.0 million shares issuable upon conversion, subject to adjustment under certain conditions.
Convertible Notes due 2027
In November 2022, the Company issued $575.0 million of Convertible Notes due 2027. Net proceeds from the offering were $558.7 million. The Convertible Notes due 2027 bear interest at a rate of 2.625% per annum payable semiannually in arrears in cash on June 1 and December 1 of each year.
The Convertible Notes due 2027 are general unsecured senior obligations, subordinated in right of payment to the Company’s obligations under its Credit Agreement. The Convertible Notes due 2027 rank equally in right of payment with all of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s future subordinated obligations. The Convertible Notes due 2027 will be structurally subordinated to the indebtedness and other liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc., which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible Notes due 2027 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to repurchase all or a portion of the Convertible Notes due 2027 for cash at 100% of the principal amount of the Convertible Notes due 2027 being purchased, plus any accrued and unpaid interest.
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after December 5, 2025 if the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any of the trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2027 are convertible into shares of Envestnet’s common stock under certain circumstances prior to maturity at a an initial conversion rate of 13.6304 shares per one thousand principal amount of the Convertible Notes due 2027, which represents a conversion price of $73.37 per share and approximately 7.8 million shares issuable upon conversion, subject to adjustment under certain conditions. The initial conversion rate is subject to adjustment upon a "fundamental change", as defined in the indenture, if the Company calls all or any portion of the notes for optional redemption, or subject to anti-dilution provisions provided in the indenture. Holders may convert their Convertible Notes due 2027 at their option at any time prior to the close of business on the business day immediately preceding June 1, 2027, only under the following circumstances: (a) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Notes in effect on each applicable trading day; (b) during the consecutive business-day period following any consecutive trading-day period in which the trading price for the notes for each such trading day is less than 98% of the last reported sale price of Envestnet’s common stock on such date multiplied by the then-current conversion rate; (c) if the Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (d) upon the occurrence of specified corporate events described in the Indenture. On or after June 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and stock, as determined by the Company in its discretion.
As of December 31, 2022, the Convertible Notes due 2027 are presented at their gross proceeds of $575.0 million less unamortized debt issuance costs of $16.0 million.
In connection with the issuance of the Convertible Notes due 2027, the Company incurred a total of $16.3 million of issuance costs in 2022, which are being amortized and recorded as additional interest expense over the life of the Convertible Notes due 2027.
See “Note 18—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income per common share.
In connection with the pricing of the Convertible Notes due 2027, the Company entered into privately negotiated Capped Call Transactions for a total cost of approximately $79.6 million. The Capped Call Transactions initially cover the number of shares of our common stock underlying the Convertible Notes due 2027, subject to customary anti-dilution adjustments. The Capped Call Transactions generally are expected to reduce the potential dilutive effect on the common stock upon any conversion of the Convertible Notes due 2027 and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes due 2027, as the case may be, with such reduction and/or offset subject to a cap, subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call Transactions allow the Company to purchase shares of our common stock at a strike price equal to the initial conversion price of $73.37 per share and are subject to a cap of $110.74 per share, subject to certain adjustments under the terms of the Capped Call Transactions. The options underlying the Capped Call Transactions can, at the Company’s option, remain outstanding until the maturity date for the Convertible Notes due 2027 of December 1, 2027, even if all or a portion of the Convertible Notes due 2027 are converted, repurchased or redeemed prior to such date.
Interest Expense
Interest expense was comprised of the following and is included in other income (expense), net in the consolidated statements of operations:
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(1) For the year ended December 31, 2022, amount includes a net gain on the extinguishment of debt of $1.7 million related to the partial repurchase of Convertible Notes due 2023 and Convertible Notes due 2025.
For the years ended December 31, 2022, 2021 and 2020, total interest expense related to the Convertible Notes due 2023 was $20.7 million, $8.0 million, and $17.1 million, respectively, with coupon interest expense of $5.4 million, $6.0 million, and $6.0 million, and amortization of debt discount, issuance costs of $1.9 million, $2.0 million, and $11.1 million, respectively. For the year ended December 31, 2022, recognized in total interest expense of $20.7 million includes a loss on extinguishment of debt of $13.4 million in connection with the repurchase of $300.0 million in Convertible Notes due 2023. Excluding the impact of the repurchase, the effective interest rate of the Convertible Notes due 2023 was approximately 2.4%, 2.4%, and 6.0% for the years ended December 31, 2022, 2021, and 2020, respectively. The effective interest rate of the Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance costs subsequent to adoption of ASU 2020-06.
For the years ended December 31, 2022, 2021 and 2020, total interest expense related to the Convertible Notes due 2025 was $(8.6) million, $6.8 million, and $6.9 million, respectively, with coupon interest expense of $3.7 million, $3.9 million, and $1.4 million, and amortization of debt discount and issuance costs of $2.8 million, $2.9 million, and $5.5 million, respectively. For the year ended December 31, 2022, recognized in total interest expense of $8.6 million includes a gain on extinguishment of debt of $15.1 million in connection with the repurchase of $200.0 million in Convertible Notes due 2025, Excluding the impact of the repurchase, the effective interest rate of the Convertible Notes due 2025 was approximately 1.3%, 1.3%, and 4.0% for the years ended December 31, 2022, 2021, and 2020, respectively. The effective interest rate of the Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance costs subsequent to adoption of ASU 2020-06.
For the year ended December 31, 2022, total interest expense related to the Convertible Notes due 2027 was $2.2 million with coupon interest expense of $1.8 million and issuance costs of $0.4 million. The effective interest rate of the Convertible Notes due 2027 for the year ended December 31, 2022 was approximately 3.2%. The effective interest rate of the Convertible Notes due 2027 was equal to the stated interest rate plus the amortization of the debt issuance costs.
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