Investments |
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Dec. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity Method Investments and Joint Ventures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Investments |
Investments Equity Method Investments
The Company owns equity interests in various privately held companies for which it has significant influence and, therefore, recognizes its investment under the equity method. Equity method investments are initially recorded at cost. Under the equity method of accounting, the investment is adjusted for the Company’s proportionate share of earnings or losses, dividends, capital contributions and changes in ownership interests.
As of December 31, 2023, the Company’s ownership interests in these companies ranged from approximately 4% to 55%. As of December 31, 2022, the Company’s ownership interests in these companies ranged from approximately 3% to 48%. As of December 31, 2023 and 2022, the carrying value of the Company’s equity method investments was $33.5 million and $37.4 million, respectively, which are included in other assets in the consolidated balance sheets. As of December 31, 2023, the Company has committed $8.8 million in future funding to certain of these equity method investees.
Summarized combined financial information for these investments was as follows (amounts represent 100% of investee financial information, except Envestnet’s proportional share of losses):
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(1) The years ended December 31, 2023 and 2022 include a $0.5 million and $9.5 million dilution gain on equity method investee share issuance, respectively.
Envestnet's proportional share of gains (losses) from the Company’s equity method investments are included in other income (expense), net in the consolidated statements of operations.
The Company has an approximate 3.76% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. Revenue from the private services company totaled $12.3 million, $16.0 million and $16.4 million in the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023 and 2022, the Company had recorded a net receivable of $1.7 million and $2.0 million, respectively, from the private services company. During the year ended December 31, 2022, the Company recognized a $2.6 million dilution gain on this investment.
During the first quarter of 2022, the Company funded a $2.5 million convertible loan to a privately held company that is accounted for under the equity method. During the second quarter of 2022, this privately held company raised additional preferred equity which reduced the Company's ownership to 41.0% and the Company's convertible loan was converted. As a result of this transaction, the Company recorded a $6.9 million dilution gain during the second quarter of 2022, which is included in other income (expense), net in the consolidated statements of operations. During the third quarter of 2022, the Company acquired additional membership units in this privately held company for $8.4 million which increased its ownership interest to 48.0%. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. After this unit purchase, the Company's investment in this privately held company exceeded its proportionate share of its net assets by approximately $7.8 million, which represents amortizable intangible assets. The Company will recognize amortization of this basis difference prospectively over a period of 5 years. This amortization will be included within Envestnet's proportional share of income (loss) in other income (expense), net in the consolidated statements of operations.
During the second quarter of 2022, the Company acquired an approximate 25.0% interest in a privately held company for cash consideration of $5.0 million and subject to the occurrence of certain conditions, the Company agreed to invest up to an additional $10.0 million for additional units in the future. During 2023, the Company contributed an additional $2.5 million, decreasing the future additional commitment to $7.5 million. The Company uses the equity method of accounting to record its portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. The Company uses the equity method of accounting because of its less than 50% ownership interest and lack of control and does not otherwise exercise control over the significant economic and operating decisions of the privately held company.
Other Equity Investments
The Company owns equity interests in various privately held companies for which it does not have significant influence, there is no readily determinable fair value, and its investment qualifies for recognition under the measurement alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes.
As of December 31, 2023 and December 31, 2022, the carrying value of these other equity investments was $22.8 million and $22.1 million, respectively, which are included in other assets in the consolidated balance sheets. For the year ended December 31, 2023, an impairment, or downward adjustment due to observable transactions, of $2.0 million was recognized for these investments. No such charge was recognized for the year ended December 31, 2022. Fair value adjustments, resulting from observable price changes, of $2.8 million and $0.4 million were recognized during the years ended December 31, 2023 and 2022, respectively. These adjustments are included in other income (expense), net in the consolidated statements of operations.
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