2023
| Delaware | 20-1409613 | |||||||
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(State or other jurisdiction of incorporation or organization) | (I.R.S Employer Identification No.) | |||||||
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| Title of each class: | Trading symbol(s) | Name of each exchange on which registered: | ||||||
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Common | ENV |
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Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
TABLE OF CONTENTS
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•the competitiveness of our solutions and services as compared to those of others;
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Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.
These forward‑looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward‑looking statements we make in this annual report are set forth in Part I under “Risk Factors”; accordingly, investors should not place undue reliance upon our forward‑looking statements.
Except where we have otherwise indicated or the context otherwise requires, dollar amounts presented in this Form 10‑K are in thousands, except for Exhibits and per share amounts.
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More than 2,900 companies, including 16 of the 20 largest U.S. banks, 3948 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIA”),RIAs and hundreds of Internet servicesFinTech companies, all of which leverage Envestnet technology and services. Envestnet solutions enhance knowledge of the client, accelerate client on-boarding, improve client digital experiences, andservices that help drive better outcomes for enterprises, advisors and their clients.
Founded in 1999, Envestnet has been a leader in helping transform wealth management, working towards its goal of building a holistic financial wellness network that supports enterprises, advisors and their clients.
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•Envestnet Wealth Solutions – a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.
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We offer these solutionsEnvestnet Wealth Solutions serves its clients principally through the following product/product and service suites:
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Periodically, clients choose to change the way they pay for our solution, whereby they switch from an asset-based pricing model to a subscription-based model.
Advisors with Assets Under Management or AdministrationEnvestnet Wealth Solutions, distinguishing those metrics between AUM/A and subscription.
($ in billions)
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AUM/A & Subscription Accounts
(in thousands)
Accounts Under Management or AdministrationEnvestnet Data & Subscription and Licensing
(in thousands)
Assets Under Management or AdministrationAnalytics Segment
($ in billions)
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Envestnet | Yodlee Segment
Envestnet | YodleeAnalytics is a leading data aggregation, analytics and digital experiences platform. Envestnet Data & Analytics provides clients and their account holders with data intelligence platform. As a “big data” specialist, Envestnet | Yodlee gathers, refinesconnectivity via open APIs, data enrichment, AI-based analytics and aggregates a massive set of end-user permissioned transaction level data, which it then provides to customers as data analytics solutions and market research services.
More than a thousanddigital experiences.
end-users.
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Both FI•Alternative Data provides de-identified consumer spending insights for investment research and YI channels benefit customers by improving end-user satisfactioncorporate and retention, accelerating speed to market, creating technology savings and enhancing their data analytics solutions and marketmarketing research capabilities. End users receive better access to their financial information and more control over their finances, leading to more informed and personalized decision making. For customers who are members of the developer community, Yodlee solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.
clients.
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Market Opportunity
A number According to Boston Consulting Group's Global Wealth Report 2023, total net wealth in North America is expected to grow by 5% annually between 2022 and 2027 to exceed $200 trillion. Based on data from Cerulli Associates, invested assets comprised an estimated 52% of significantoverall U.S. household financial assets in 2022, advisor-directed assets totaled $26.9 trillion in 2022 and advisors had discretion over 57% of managed account assets as of September 30, 2023.
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These trends are impacting Envestnet’sour business and creating a significantlarge and growing market opportunity for technology‑enabled investmentdata, technology and wealth solutions and services like ours.
A technological shiftours:
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custody partners.
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•Integrated technology: Financial advisors and enterprises are looking for integrated, seamless WealthTech workflows; as such, spending on technology continues to climb. According to the Celent's North American IT spending report, North American wealth management firms expected to increase their technology budgets by 4.6% in 2023, with the largest level of investment being made in the front office. We are delivering a cloud-based, open architecture, end-to-end technology stack to the marketplace. Our technology platform is broad and integrated, encompassing portfolio management capabilities from proposal to planning to reporting and billing. We have invested in and connected our core technology offerings to the Envestnet Insurance Exchange, the Envestnet Credit Exchange, and the Envestnet Trust Exchange, among other offerings, to create a comprehensive digital ecosystem for advisors and their clients. In 2023, we rolled out our new proposal engine to 99% of client firms; the tool provides enhanced features, streamlined workflows, and seamless access to managed accounts. We enhanced integrations across the Envestnet ecosystem and with third-party software providers; for example, we fully integrated the Envestnet proposal tool into Envestnet | Tamarac, including new proposals and strategy modifications. We also expanded integrations with external CRM tools and simplified the account opening process with Docupace via our next generation proposal tool. We plan to continue to invest in software, APIs, developer tools, and integration points. •Holistic advice: Consumers are increasingly demanding a wider range of services from their financial services providers, leading more firms to embrace holistic advice. In fact, a 2023 McKinsey survey found that 47% of wealth clients preferred an investment professional that can holistically address financial needs across investments, taxes, banking, and life insurance—up from 29% in 2018. In addition, we believe the movement toward holistic advice reflects a natural maturation of the industry and is being driven by competition from scaled wealth management firms and innovation from self-directed fintech companies which are adding more services. Financial planning tools—which are foundational to providing holistic advice—have, in tandem, become more widely used by advisors. 86% of advisors in the 2024 T3/Inside Information Advisor Software Survey have adopted financial planning software, up from 79% in the 2021 survey. Envestnet’s mission is to make financial wellness a reality for everyone and as such |
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As we continue to expand our presenceecosystem of technology, solutions and intelligence for advisors. In 2023, we launched Envestnet Retire Complete, providing wealth advisors access to a range of retirement savings resources to help their clients meet their retirement objectives.
Envestnet’s
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| •Favorable trends with respect to growth in fee-based assets and need for advanced technology; •Recurring and resilient revenue base; •Strong customer retention/ enterprise relationships; •Pricing model that captures industry growth; and •Ability to operate and deliver at scale. Our revenue |
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Revenue is generated in three categories:
Assets underthe following manners:
AUM/A revenueand are made available to customers throughout the contractual term from the date the customized platform is asset‑launched.
In over 90%inflows or outflows of customer funds and market fluctuations.
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Subscription and Licensing
The firm also generates revenue from recurring, contractual subscription and licensing fees for providing customers continuous access to ourthe Company’s technology platforms.
Envestnet’s subscriptionplatforms for wealth management and licensingfinancial wellness. The subscription-based fees are also highly predictable because they are generally established in multi‑year contracts providing longer‑term visibility regarding that portion of total revenues.
include fixed fees and/or usage-based fees.
work as well as revenue resulting from our annual Advisor Summits.
Envestnet intends
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Envestnet undergoes anundergo annual SSAE 16 SOC 12 Type II auditaudits to validate the continued operation of our internal controls on three of its main technology platforms;for our flagship offerings within the ecosystem; the Unified Managed Platform, the Unified Managed Platform (Institutional)platform, Envestnet Data & Analytics platform and Envestnet | Tamarac platforms.platform. The SOC reports confirm design and operating effectiveness of internal controls. We maintain multiple redundancies, back up our databases and safeguard technologies and proprietary information consistent with industry best practices. We also maintain a comprehensive business continuity plan and company‑wide risk assessment program that is consistent with industry best practices and that complies with applicable regulatory requirements.
We have historically made significant investments in platform development in order to enhance and expand our technology platforms and expect to continue to make significant investments in the future. In the years ended December 31, 2017, 2016 and 2015, we incurred technology development costs totaling approximately $40,800, $38,100 and $12,600, respectively. Of these costs, we capitalized approximately $12,600, $8,600 and $5,500, respectively, as internally developed software. We expect to continue focusing our technology development efforts principally on adding features to increase our market competitiveness, enhancements to improve operating efficiency, address regulatory demands and reduce risk, and client‑driven requests for new capabilities.
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Our proprietary Web‑based platforms provideecosystem provides Enterprise clients in wealth management, financial advisors that are working alone or as part of financial advisory firms, financial institutions, and FinTech firms along with their respective customers, access to investment solutions and services, enriched financial data, analytics, and workflows that address, inenable the foundational orchestration to deliver holistic wealth management to their end clients via one unified centrally‑hosted platform, based on our knowledge of the industry,experience, with the widest range of front‑, middle‑ and back‑office needs in our industry.needs. The “open architecture” design of our technologyecosystem and platforms provide financial advisorsour customers and their customers with flexibility in terms of the investment solutions, and services they access, data they leverage, and configurability in the manner in which the financial advisors utilize particular investment solutions and services.to meet their unique needs. The multi‑tenant platform architecture ensures that this level of flexibility and customization is achieved without requiring us to create unique applications for each client, thereby reducing the need for additional technology personnelenabling improved efficacy and associated expenses.efficiency vs other offerings. In addition, though our technology platforms are designed to deliver a breadth of functions, financial advisors are able toour customers can select from the various investment solutions, services, data, and servicesanalytics we offer,offer; without being required to subscribe to or purchase more than what they believe is necessary.
Beyond collecting As data ouris ingested, it goes through data aggregation platform performs a data refining processquality control and augments the data with additional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding such elements asanonymization engine e.g., financial transaction categorization, and merchant identification, for bank or credit card account data andgeographical location as well as investment transaction security identification, classification and normalization for investment data. As our platform usage grows and is exposed to more users and use cases, the system benefits from machine learning algorithms to better normalize, categorize and process large amounts of data, allowing our network to become more effective, efficient and valuable to our customers. Utilizing this enhanced data, including consolidated data from within our FI customers and account data regarding accounts at other FIs, our data intelligence organizes, analyzes, and presents it in a manner that helps our customers offer personalized solutions that enable their consumers to achieve better financial outcomes.
Our analytics platform provides a highly scalable cloud based environment that supports a cost effective and secure way of handling very large data sets, permitting us to develop and test new machine learning algorithms, transform these data sets using the resulting models. The results of the computations can be accessed interactively, as files, or via API access through our data aggregation platform.
Our money movement solutions facilitate payment flows. Our customers can debit and credit consumer and small business accounts in real time or in batches and route payments between accounts (funds transfer), to billers (bill pay), or to other individuals (peer to peer). Designed to be run as a service, our money movement solutions allow us to operate these functionalities in the cloud and quickly adapt to new payment systems. Our payment engine, which is a principal component of our money movement solutions, is a task-based payment processing platform that controls all payment activity across cobrands, originators, processors, and billers.
Customers
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Our marketing efforts are focused on initiatives to drive global company, brand and solutions awareness and significant lead generation and sales acceleration across our whole business. These initiatives include educating the market about our solutions, achieving recognitionenterprise consultants, who serve as the industry leader through awards, speaking engagements, thought leadership articles, data trendsprimary point of contact for Envestnet's enterprise clients, and metrics,direct advisor sales and high profile interviews. Wepre-sales teams, which focus on servicing global financial institutions.
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team specializing in API integration and account management. Together, these teams are responsible for the growth and expansion of Envestnet's client base.
To implement our marketing efforts, we generally employ paid print and online advertisements in a variety of industry publications, as well as promotions that include e‑blast campaigns and sponsored webinars for financial advisors. We also partner with independent broker‑dealers on direct mail campaigns targeting such firms’ financial advisors to describe the investment solutions and services that we offer, produce brochures and presentations for financial advisors to use with their clients and we create Internet pages or sites to promote our investment solutions and services. Envestnet | Yodlee employs a variety of integrated sales and marketing initiatives, including hosted demand generation webinars, sponsorship and partnership of key industry conferences, customer and developer-focused events and programs, incubator efforts, and other high-profile activities designed to demonstrate thought leadership and engage new audiences in actionable and measurable ways. We employ many tools, including web and social properties, integrated creative campaigns consisting of online advertising, digital content marketing, direct mail, and blogs. Envestnet | Yodlee also supports industry analyst relations and media relations activities. In addition, our marketing efforts develop FI customer best practices tools to drive deeper consumer activity and engagement.
Competition
Within wealth management, Envestnet competes on the basis of several factors including:
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Our competitors offer a variety of products and services that compete with one or more of the investment solutions and services provided through our ecosystem of technology platforms; although, based on our industry experience, we believe that none offers a more comprehensive set of products and services than we do.
Within digital financial services,Wealth Solutions segment, we compete on the basis of several factors, including:
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Overview
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organizations and non-U.S. regulatory authorities. In addition, we are subject to numerous laws and regulations of general application.
Portfolio Brokerage Services, Inc., (“PBS”), our broker-dealer subsidiary, isFIDx Markets are registered as a broker-dealerbroker-dealers with the SEC under the Securities Exchange Act of 1934, (the “Exchange Act”), in all 50 states and the District of Columbia.select state securities regulators. In addition, PBS is a memberESI and FIDx Markets are members of the Financial Industry Regulatory Authority (“FINRA”),FINRA, the securities industry self-regulatory organization that supervises and regulates the conduct and activities of broker-dealers. Broker-dealers are subject to regulations that cover all aspects of their business, including sales practices, market making and trading among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, record-keeping and the conduct of directors, officers, employees, representatives and associated persons. FINRA and the SEC conduct periodic examinations of the operations of its members, including PBS.ESI and FIDx Markets. Violation of applicable regulations can result in the suspension or revocation of a broker-dealer’s registration, the imposition of censures or fines and the suspension or expulsion of the broker-dealer from FINRA. PBS isESI and FIDx Markets are subject to minimum net capital requirements under the Exchange Act, SEC and FINRA rules and conducts its business pursuant to the exemption from the SEC’s customer protection rule provided by Rule 15c3-3(k)(2)(i) under the Exchange Act. As of December 31, 2017, PBS was required to maintain a minimum of $100 in net capital and its actual net capital was $1,238.
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Protection Act of 2010 (the “Dodd-Frank Act”), for enhanced due diligence of the internal systems and processesadditional controls of companies like ours by their financial institutions customers.
Our subsidiaries are subject to various federal and state laws and regulations that grant supervisory agencies, including the SEC and OCC, broad administrative powers. In the event of a failure to comply with these laws and regulations, the possible sanctions that may be imposed include the suspension of individual employees, limitations on the permissibility of our regulated subsidiaries and our other subsidiaries to engage in business for specified periods of time, censures, fines, and the revocation of registration as a broker-dealer or investment adviser, as applicable. Additionally, the securities laws and other regulations applicable to us and our subsidiaries provide for certain private rights of action that could give rise to civil litigation. Any litigation could have significant financial and non-financial consequences including monetary judgments and the requirement to take action or limit activities that could ultimately affect our business.
ours.
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We believe that, to the extent we exercise discretion over accounts in any of these programs, these programs qualify for the safe-harbor because all of the programs have the following characteristics, which are generally required in order for a program to be eligible for the Rule 3a-4 safe harbor:
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Employees
As of December 31, 2017,2023, we had 3,516a total global workforce of approximately 3,100 employees, includingof which 99% are full-time employees in operations, research and development, engineering and systems, executive and corporate functions, sales and marketing and investment management and research. Of these 3,516 employees, 1,263 were54% are located in the United States 2,241and 46% are located outside of the United States, primarily in India. Envestnet’s global headcount has been reduced by approximately 10% since December 31, 2022. The reduced headcount is the result of terminations (both voluntary and involuntary) and a reduction in force initiative. The global voluntary turnover rate for the company is approximately 11%. In connection with the reduction in force initiative that began in the first quarter of 2023, as well as the fourth quarter 2022 organizational realignment, we incurred $35.4 million in total severance expense for the year ended December 31, 2023.
to ask questions about our industry, products and services and overall direction as a company.
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Shelly O’Brien | 58 | Chief Legal Officer, General Counsel and Corporate Secretary | |||||||||||||
Dartmouth College. We derive a substantial portion of our advisors. In addition, demand for our investment solutions and services A limited number of clients account for a material portion of our revenue. occur if estimates of fair values decrease, which would reduce future earnings. We have a significant amount of debt and servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to service our debt. Our strategic plans. unrestricted access to, or ability to use, such information, one or more of our current customers could decide to limit or block our access to the data feeds we currently have in place with these customers due to factors outside of our control, such as more burdensome regulation of our or our customers’ industry, increased compliance requirements or changes in business strategy. If the sources from which we obtain information that is important to our solutions limit or restrict our ability to access or use such information, we may be required to attempt to obtain the information, if at all, through end user-permissioned data scraping or other means that could be more costly and time-consuming, and less effective or efficient. In the past, a limited number of third parties, primarily airline and international sites, have either blocked our access to their websites or requested that we cease employing data scraping of their websites to gather information, and we could receive similar, additional requests in the future. Any such limitation or restriction may also preclude us from providing our solutions on a timely basis, if at all. In addition, if in the future one or more third parties challenge our right to access information from these sources, we may be required to negotiate with these sources for access to their information or to discontinue certain services currently provided by our solutions. The legal environment surrounding data scraping and similar means of obtaining access to information on third-party websites is not completely clear and is evolving, and one or more third parties could assert claims against us seeking damages or to prevent us from accessing information in that manner. In the event sources from which we obtain this information begin to charge us fees for accessing such information, we may be forced to increase the fees that we charge our customers, which could make our solutions less attractive, or our gross margins and other financial results could suffer. Competition could also affect the revenue mix of services we provide, resulting in decreased revenue in lines of business with higher profit margins. Many of our key technologies, investment solutions or services are not covered by any copyright registration, issued patent or patent application. We are the owner of certain patent rights, registered trademarks in the United States, including “ENVESTNET,” and we claim common law rights in other trademarks that are not registered. We other restrictions in connection with any ongoing effects of the pandemic. Further, remote working and other modified business practices, if required, could pose additional operational risks, including resiliency, cybersecurity, and execution risks. Any failure to manage these additional risks effectively may result in inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business activities. To the extent a public health crisis, pandemic or similar event adversely affects our business or the global economic conditions more generally, it may also have the effect of heightening many of the other risks described in this section entitled “Risk Factors” and any subsequent filings with the SEC. Our failure to successfully execute the conversion of our clients’ assets from their technology platform to our platforms in a timely and accurate manner could have a material adverse effect on our results of operations, financial condition or business. We Certain provisions in our charter documents and agreements and Delaware law may inhibit potential acquisition bids for our company and prevent changes in our management. 2017 High Low Quarter ended March 31, 2017 $ 39.90 $ 31.45 Quarter ended June 30, 2017 $ 39.85 $ 32.45 Quarter ended September 30, 2017 $ 51.00 $ 37.55 Quarter ended December 31, 2017 $ 54.25 $ 48.40 2016 High Low Quarter ended March 31, 2016 $ 28.95 $ 19.64 Quarter ended June 30, 2016 $ 37.31 $ 26.88 Quarter ended September 30, 2016 $ 40.87 $ 33.70 Quarter ended December 31, 2016 $ 39.10 $ 32.75 Common Stock 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 Envestnet, Inc. $ 100.00 $ 288.89 $ 352.26 $ 213.98 $ 252.69 $ 357.35 Russell® 2000 Index 100.00 141.70 149.03 142.45 172.81 198.13 S&P North American Technology Sector Index 100.00 132.73 150.99 163.83 183.57 250.10 The stock price performance included in the graph above is not necessarily indicative of future stock price performance. Maximum number (or Total number of approximate dollar shares purchased value) of shares Total number Average as part of publically that may yet be of shares price paid announced plans purchased under the purchased per share or programs plans or programs October 1, 2017 through October 31, 2017 7,512 $ 52.92 — 1,956,390 November 1, 2017 through November 30, 2017 27,999 51.32 — 1,956,390 December 1, 2017 through December 31, 2017 9,612 49.86 — 1,956,390 Year Ended December 31, 2017 2016 2015 2014 2013 (in thousands, except for share and per share information) Total revenues $ 683,679 $ 578,164 $ 420,919 $ 348,748 $ 242,535 Operating expenses: Cost of revenues 219,037 180,590 161,309 150,067 98,970 Compensation and benefits 264,392 241,584 139,756 104,457 77,442 General and administration 121,010 115,435 72,900 54,321 45,282 Depreciation and amortization 62,820 63,999 27,962 18,651 15,329 Total operating expenses 667,259 601,608 401,927 327,496 237,023 Income (loss) from operations 16,420 (23,444) 18,992 21,252 5,512 Other income (expense), net (18,109) (17,046) (10,004) 1,255 200 Income (loss) before income tax provision (1,689) (40,490) 8,988 22,507 5,712 Income tax provision 1,591 15,077 4,552 8,528 2,052 Net income (loss) (3,280) (55,567) 4,436 13,979 3,660 Add: Net loss attributable to non-controlling interest — — — 195 — Income (loss) attributable to common shareholders $ (3,280) $ (55,567) $ 4,436 $ 14,174 $ 3,660 Net income (loss) per share attributable to common stockholders Basic $ (0.08) $ (1.30) $ 0.12 $ 0.41 $ 0.11 Diluted $ (0.08) $ (1.30) $ 0.12 $ 0.38 $ 0.10 Weighted average common shares outstanding: Basic 43,732,148 42,814,222 36,500,843 34,559,558 33,191,088 Diluted 43,732,148 42,814,222 38,386,873 36,877,599 35,666,575 December 31, 2017 2016 2015 2014 2013 (in thousands) Cash and cash equivalents $ 60,115 $ 52,592 $ 51,718 $ 209,754 $ 49,942 Working capital (9,248) (42,870) (5,808) 172,661 23,892 Goodwill and intangible assets 655,686 697,494 713,948 163,630 110,033 Total assets 862,052 872,401 876,249 439,358 221,242 Long-term debt 240,158 252,984 284,753 145,203 — Stockholders’ equity 436,272 412,889 439,529 201,435 147,772 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations service providers with innovative technology, solutions and intelligence. Envestnet operations was $1.5 million. Operating Results As of December 31, 2017 2016 2015 (in millions except accounts and advisors data) Platform Assets Assets Under Management (AUM) $ 141,518 $ 105,178 $ 92,559 Assets Under Administration (AUA) 308,480 241,682 197,177 Total AUM/A 449,998 346,860 289,736 Subscription and Licensing 926,880 748,125 561,699 Total Platform Assets $ 1,376,878 $ 1,094,985 $ 851,435 Platform Accounts AUM 685,925 545,130 490,471 AUA 1,217,697 994,583 807,708 Total AUM/A 1,903,622 1,539,713 1,298,179 Subscription and Licensing 5,027,900 4,558,883 2,176,068 Total Platform Accounts 6,931,522 6,098,596 3,474,247 Advisors AUM/A 40,485 36,483 33,775 Subscription and Licensing 19,445 17,852 13,553 Total Advisors 59,930 54,335 47,328 Asset Rollforward - 2017 Reclass (to) from As of Gross Net Market Subscription and As of 12/31/2016 Sales Redemptions Flows Impact Licensing 12/31/2017 (in millions except account data) AUM $ 105,178 $ 50,331 $ (28,876) $ 21,455 $ 14,885 $ — $ 141,518 AUA 241,682 121,653 (84,240) 37,413 34,276 (4,891) 308,480 Total AUM/A $ 346,860 $ 171,984 $ (113,116) $ 58,868 $ 49,161 $ (4,891) $ 449,998 Fee-Based Accounts 1,539,713 386,673 (22,764) 1,903,622 Asset Rollforward - 2016 As of Gross Net Market As of 12/31/2015 Sales Redemptions Flows Impact 12/31/2016 (in millions except account data) AUM AUM $ 92,559 $ 34,504 $ (26,698) $ 7,806 $ 4,813 $ 105,178 AUA AUA 197,177 84,253 (54,942) 29,311 15,194 241,682 Total AUM/A Total AUM/A $ 289,736 $ 118,757 $ (81,640) $ 37,117 $ 20,007 $ 346,860 Fee-Based Accounts Fee-Based Accounts 1,298,179 241,534 1,539,713 End-Users paid end-users and firms using the Envestnet Data & Analytics platform in the periods indicated: We generally charge our customers fees based on a higher percentage of the market value of AUM than the fees we charge on the market value of AUA, because we provide fiduciary oversight and/or act as the investment advisor in connection with assets we categorize as AUM. The level of fees varies based on the nature of the investment solutions and services we provide, as well as the specific investment manager, fund and/or custodian chosen by the financial advisor. A portion of our administrative consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. We have experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to these indemnification and guarantee provisions. We believe that it is unlikely that we will have to make material payments under these arrangements and therefore we have not recorded a contingent liability in the consolidated balance sheets. and Estimates Envestnet Data & Analytics segments. fair value of a reporting unit exceeds If it is determined that it is unlikely that the carrying value of the reporting unit exceeds its fair value, a quantitative goodwill impairment evaluation is not required, and no impairment is recorded. If it is determined that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, then a quantitative goodwill impairment test must be performed and if the carrying value of a reporting unit exceeds its fair value, then an impairment loss equal to the difference is recorded. fourth quarter of 2023. 2021. Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. As of December 31, 2017 2016 Percent Change 2015 Percent Change (in thousands) (in thousands) Revenues: Assets under management or administration $ 410,016 $ 352,498 16 % $ 333,684 6 % Subscription and licensing 245,867 198,125 24 % 75,280 163 % Professional services and other 27,796 27,541 1 % 11,955 130 % Total revenues 683,679 578,164 18 % 420,919 37 % Operating expenses: Cost of revenues 219,037 180,590 21 % 161,309 12 % Compensation and benefits 264,392 241,584 9 % 139,756 73 % General and administration 121,010 115,435 5 % 72,900 58 % Depreciation and amortization 62,820 63,999 (2) % 27,962 129 % Total operating expenses 667,259 601,608 11 % 401,927 50 % Income (loss) from operations 16,420 (23,444) (170) % 18,992 * Other income (expense): Interest income 201 37 * 338 (89) % Interest expense (16,347) (16,600) (2) % (10,271) 62 % Other income (expense), net (1,963) (483) * (71) * % Total other expense, net (18,109) (17,046) 6 % (10,004) 70 % Income (loss) before income tax provision (benefit) (1,689) (40,490) (96) % 8,988 * Income tax provision 1,591 15,077 (89) % 4,552 * Net income (loss) (3,280) (55,567) (94) % 4,436 * Add: Net loss attributable to non-controlling interest — — * — * Net income (loss) attributable to Envestnet, Inc. $ (3,280) $ (55,567) (94) % $ 4,436 * Year Ended December 31, 2017 2016 Loss before income tax provision $ $ (40,490) Income tax provision 15,077 Effective tax rate % % Income tax provision Year Ended December 31, 2016 2015 Income (loss) before income tax provision $ $ 8,988 Income tax provision 4,552 Effective tax rate % % Year Ended December 31, 2017 2016 2015 Envestnet $ 75,449 $ 41,678 $ 43,278 Envestnet | Yodlee (19,456) (38,547) (2,984) Total segment income from operations 55,993 3,131 40,294 Nonsegment operating expenses (39,573) (26,575) (21,302) Interest expense, net (16,146) (16,563) (9,933) Other expense, net (1,963) (483) (71) Consolidated income (loss) before income tax provision (1,689) (40,490) 8,988 Income tax provision 1,591 15,077 4,552 Consolidated net income (loss) (3,280) (55,567) 4,436 Add: Net income (loss) attributable to non-controlling interest — — — Consolidated net income (loss) attributable to Envestnet, Inc. $ (3,280) $ (55,567) $ 4,436 As of December 31, 2017 2016 Percent Change 2015 Percent Change (in thousands) (in thousands) Revenues: Assets under management or administration $ 410,016 $ 352,498 16 % $ 333,684 6 % Subscription and licensing 106,048 84,340 26 % 63,719 32 % Professional services and other 11,841 10,794 10 % 9,435 14 % Total revenues 527,905 447,632 18 % 406,838 10 % Operating expenses: Cost of revenues 205,793 169,732 21 % 160,489 6 % Compensation and benefits 157,237 144,388 9 % 125,585 15 % General and administration 63,203 67,050 (6) % 54,118 24 % Depreciation and amortization 26,223 24,784 6 % 23,368 6 % Total operating expenses 452,456 405,954 11 % 363,560 12 % Income from operations $ 75,449 $ 41,678 81 % $ 43,278 (4) % As of December 31, 2017 2016 Percent Change 2015 Percent Change (in thousands) (in thousands) Revenues: Subscription and licensing $ 139,819 $ 113,785 23 % $ 11,561 * Professional services and other 15,955 16,747 (5) % 2,520 * Total revenues 155,774 130,532 19 % 14,081 * Operating expenses: Cost of revenues 13,244 10,858 22 % 820 * Compensation and benefits 93,316 85,972 9 % 8,777 * General and administration 32,073 33,034 (3) % 2,874 * Depreciation and amortization 36,597 39,215 (7) % 4,594 * Total operating expenses 175,230 169,079 4 % 17,065 * Loss from operations $ (19,456) $ (38,547) 50 % $ (2,984) * As of December 31, 2017 2016 Percent Change 2015 Percent Change (in thousands) (in thousands) Operating expenses: Compensation and benefits $ 13,839 $ 11,224 23 % $ 5,394 108 % General and administration 25,734 15,351 68 % 15,908 (4) % Total operating expenses 39,573 26,575 49 % 21,302 25 % Loss from operations $ (39,573) $ (26,575) 49 % $ (21,302) 25 % Year Ended December 31, 2017 2016 2015 (in thousands) Total revenues $ 683,679 $ 578,164 $ 420,919 Deferred revenue fair value adjustment 130 1,270 322 Adjusted revenues $ 683,809 $ 579,434 $ 421,241 Year Ended December 31, 2017 2016 2015 (in thousands) Net income (loss) $ (3,280) $ (55,567) $ 4,436 Add (deduct): Deferred revenue fair value adjustment 130 1,270 322 Interest income (201) (37) (338) Interest expense 16,347 16,600 10,271 Accretion on contingent consideration and purchase liability 512 150 888 Income tax provision 1,591 15,077 4,552 Depreciation and amortization 62,820 63,999 27,962 Non-cash compensation expense 31,331 33,276 15,160 Restructuring charges and transaction costs 13,666 5,784 13,495 Severance 2,316 4,342 1,695 Fair market value adjustment to contingent consideration — 1,588 (4,153) Litigation related expense 1,033 5,591 65 Foreign currency and related hedging activity 494 (716) — Other (income) expense — (1,384) 72 Non-income tax expense adjustment 346 6,229 — Impairment of equity method investment — 734 — Loss allocation from equity method investment 1,469 1,420 — Loss attributable to non-controlling interest 316 1,081 1,643 Adjusted EBITDA $ 128,890 $ 99,437 $ 76,070 Year Ended December 31, 2017 2016 2015 (in thousands) Net income (loss) $ (3,280) $ (55,567) $ 4,436 Income tax provision (1) 1,591 15,077 4,552 Income (loss) before income tax provision (1,689) (40,490) 8,988 Add (deduct): Deferred revenue fair value adjustment 130 1,270 322 Accretion on contingent consideration and purchase liability 512 150 888 Non-cash interest expense 8,994 8,244 6,393 Non-cash compensation expense 31,331 33,276 15,160 Restructuring charges and transaction costs 13,666 5,784 13,495 Severance 2,316 4,342 1,695 Amortization of acquired intangibles 42,127 45,515 17,636 Fair market value adjustment on contingent consideration — 1,588 (4,153) Litigation related expense 1,033 5,591 65 Foreign currency and related hedging activity 494 (716) — Other (income) expense — (1,384) 72 Non-income tax expense adjustment 346 6,229 — Impairment of equity method investment — 734 — Loss allocation from equity method investment 1,469 1,420 — Loss attributable to non-controlling interest 316 1,081 1,643 Adjusted net income before income tax effect 101,045 72,634 62,204 Income tax effect (2) (40,418) (29,054) (24,509) Adjusted net income $ 60,627 $ 43,580 $ 37,695 Basic number of weighted-average shares outstanding 43,732,148 42,814,222 36,500,843 Effect of dilutive shares: Options to purchase common stock 1,649,225 1,278,827 1,700,248 Unvested restricted stock units 770,428 486,823 185,782 Diluted number of weighted-average shares outstanding 46,151,801 44,579,872 38,386,873 Adjusted net income per share - diluted $ 1.31 $ 0.98 $ 0.98 Year Ended December 31, 2017 Envestnet Envestnet | Yodlee Non-Segment Total (in thousands) Total revenues $ 527,905 $ 155,774 $ — $ 683,679 Deferred revenue fair value adjustment 38 92 — 130 Adjusted revenues $ 527,943 $ 155,866 $ — $ 683,809 Income (loss) from operations $ 75,449 $ (19,456) $ (39,573) $ 16,420 Add (deduct): Deferred revenue fair value adjustment 38 92 — 130 Accretion on contingent consideration 512 — — 512 Depreciation and amortization 26,223 36,597 — 62,820 Non-cash compensation expense 15,191 10,880 5,260 31,331 Restructuring charges and transaction costs 366 — 13,300 13,666 Non-income tax expense adjustment 346 — — 346 Severance 1,954 346 16 2,316 Litigation related expense — 1,033 — 1,033 Loss attributable to non-controlling interest 316 — — 316 Adjusted EBITDA $ 120,395 $ 29,492 $ (20,997) $ 128,890 Year Ended December 31, 2016 Envestnet Envestnet | Yodlee Non-Segment Total (in thousands) Total revenues $ 447,632 $ 130,532 $ — $ 578,164 Deferred revenue fair value adjustment 329 941 — 1,270 Adjusted revenues $ 447,961 $ 131,473 $ — $ 579,434 Income (loss) from operations $ 41,678 $ (38,547) $ (26,575) $ (23,444) Add (deduct): Deferred revenue fair value adjustment 329 941 — 1,270 Accretion on contingent consideration 150 — — 150 Depreciation and amortization 24,784 39,215 — 63,999 Non-cash compensation expense 12,719 15,033 5,524 33,276 Restructuring charges and transaction costs 904 64 4,816 5,784 Non-income tax expense adjustment 6,229 — — 6,229 Severance 3,334 670 338 4,342 Fair market value adjustment to contingent consideration — — 1,588 1,588 Litigation related expense — 5,350 241 5,591 Foreign currency and related hedging activity — (462) — (462) Other loss — — 33 33 Loss attributable to non-controlling interest 1,081 — — 1,081 Adjusted EBITDA $ 91,208 $ 22,264 $ (14,035) $ 99,437 Year Ended December 31, 2015 Envestnet Envestnet | Yodlee Non-Segment Total (in thousands) Total revenues $ 406,838 $ 14,081 $ — $ 420,919 Deferred revenue fair value adjustment 117 205 — 322 Adjusted revenues $ 406,955 $ 14,286 $ — $ 421,241 Income (loss) from operations $ 43,255 $ (2,963) $ (21,300) $ 18,992 Add (deduct): Deferred revenue fair value adjustment 117 205 — 322 Accretion on contingent consideration 888 — — 888 Depreciation and amortization 23,369 4,592 — 27,961 Non-cash compensation expense 12,141 1,569 1,451 15,161 Restructuring charges and transaction costs — — 13,495 13,495 Severance 1,681 14 — 1,695 Fair market value adjustment to contingent consideration — — (4,152) (4,152) Litigation related expense — — 65 65 Loss attributable to non-controlling interest 1,643 — — 1,643 Adjusted EBITDA $ 83,094 $ 3,417 $ (10,441) $ 76,070 Year Ended December 31, 2017 2016 2015 (in thousands) Net cash provided by operating activities $ 108,607 $ 81,270 $ 42,035 Net cash used in investing activities (29,019) (57,927) (344,621) Net cash provided by (used in) financing activities (72,440) (22,469) 144,550 Effect of exchange rate on changes on cash 375 — — Net increase (decrease) in cash and cash equivalents 7,523 874 (158,036) Cash and cash equivalents, end of period 60,115 52,592 51,718 Payments Due by Period Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years (in thousands) Operating leases (1) $ 111,138 $ 14,104 $ 29,293 $ 24,335 $ 43,406 Convertible Notes 172,500 — 172,500 — — Convertible Notes coupon interest payments 4,529 3,019 1,510 — — Revolving credit facility (2) 81,168 — — 81,168 — Undrawn credit facility fees 1,319 290 580 449 — Estimated undiscounted contingent consideration 4,000 4,000 — — — Definite consideration payments 1,250 1,250 — — — Purchase obligations 27,425 14,884 12,287 254 — Total $ 403,329 $ 37,547 $ 216,170 $ 106,206 $ 43,406 Recent Accounting Item 7A. Quantitative and Qualitative Disclosures About Market Risk market declines, our asset-based revenue may negatively be impacted in future periods. and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ $ Fees and other receivables, net Prepaid expenses and other current assets Total current assets Property and equipment, net Internally developed software, net Intangible assets, net Goodwill Other non-current assets Total assets $ $ Liabilities and Equity Current liabilities: Accrued expenses and other liabilities $ $ Accounts payable Current portion of debt — Contingent consideration Deferred revenue Total current liabilities Convertible Notes Revolving credit facility — Term Notes — Contingent consideration Deferred revenue Deferred rent and lease incentive Deferred tax liabilities, net Other non-current liabilities Total liabilities Commitments and contingencies Redeemable units in ERS Equity: Stockholders’ equity: Preferred stock, par value $0.005, 50,000,000 shares authorized — — Common stock, par value $0.005, 500,000,000 shares authorized; 57,450,056 and 55,642,686 shares issued as of December 31, 2017 and December 31, 2016, respectively; 44,700,641 and 43,240,567 shares outstanding as of December 31, 2017 and December 31, 2016, respectively Additional paid-in capital Accumulated deficit (73,854) (70,574) Treasury stock at cost, 12,749,415 and 12,402,119 shares as of December 31, 2017 and December 31, 2016, respectively (47,042) (33,068) Accumulated other comprehensive income (loss) 624 (422) Total stockholders’ equity Non-controlling interest Total equity Total liabilities and equity $ $ (in thousands, except share and per share information) December 31, 2017 2016 2015 Revenues: Assets under management or administration $ $ 352,498 $ 333,684 Subscription and licensing 198,125 75,280 Professional services and other 27,541 11,955 Total revenues Operating expenses: Cost of revenues 180,590 161,309 Compensation and benefits 241,584 139,756 General and administration 115,435 72,900 Depreciation and amortization 63,999 27,962 Total operating expenses Income (loss) from operations Other income (expense): Interest income Interest expense (10,271) Other expense, net (483) Total other expense, net Income (loss) before income tax provision Income tax provision 15,077 4,552 Net income (loss) Add: Net income (loss) attributable to non-controlling interest — — — Net income (loss) attributable to Envestnet, Inc. $ $ $ Net income (loss) per share attributable to Envestnet, Inc.: Basic $ $ $ Diluted $ $ $ 0.12 Weighted average common shares outstanding: Basic 42,814,222 36,500,843 Diluted 42,814,222 38,386,873 Judson Bergman, Age 61.Bergman is the founder ofCrager serves as our companyChief Executive Officer and has served as a member of our Chairman,Board since March 2020. Previously, Mr. Crager served as our Interim Chief Executive Officer between October 2019 and a director since 1999. Prior to founding our company, Mr. Bergman was Managing Director at Nuveen Investments, Inc. (“Nuveen”), a diversified investment manager. Mr. Bergman received an MBA in finance and accounting from Columbia University and a BA from Wheaton College.Anil Arora, Age 57. Mr. Arora has served as Vice Chairman andMarch 2020, Chief Executive Officer of Envestnet | YodleeWealth Solutions since November 2015. Prior to then, he wasJanuary 2019, and President and Chief Executive Officer and was a member of the board of directors of Yodlee, Inc. since February 2000. Mr. Arora served as the Chairman of the board of directors of Yodlee, Inc. since March 2014. Prior to joining Yodlee, Mr. Arora served in various positions with Gateway, Inc. Mr. Arora holds an M.B.A. from the University of Michigan, Stephen M. Ross School of Business, and a B.S. in business administration from Rockford College.17William Crager, Age 53. Mr. Crager has served as our PresidentEnvestnet since 2002. Prior to joining us, Mr. Crager served as Managing Director of Marketing and Client Services atfor Rittenhouse Financial Services, Inc., an investment management firm affiliated with Nuveen. Mr. Crager received an MA from Boston University and a BA from Fairfield University with a dual majorwhere he majored in economics and English.Peter D’Arrigo, Age 50.now serves on the Board of Trustees. On January 7, 2024, the Company entered into a separation and release agreement with Mr. D’ArrigoCrager in which it was agreed that Mr. Crager will step down as chief executive officer on March 31, 2024 and as a member of the Company’s Board of Directors promptly following Envestnet’s 2024 Annual Meeting. Beginning April 2024, Mr. Crager will serve as a senior advisor, focusing on client and partner relationships. our Chief Financial Officer since 2008.November 2023. Prior to joining us, Mr. D’Arrigo worked at Nuveen where heWarren served BlackRock, Inc. as Treasurer since 1999, as well as holdingManaging Director and Global Head of Business Strategy for iShares and Index Investments, Managing Director in BlackRock's Corporate Strategy and Development team, and other roles. He also served on the Board of Directors and Audit and Risk Committee of iCapital, an alternative investments marketplace, from 2019 until 2023. Mr. Warren earned a variety of other titles after joining them in 1990. Mr. D’Arrigo received an MBAJD from the NorthwesternNew York University Kellogg Graduate School of ManagementLaw and an undergraduate degree in applied mathematicsa BA from Yale University.Scott Grinis, Age 56. Mr. Grinis has served as our Chief Technology Officer since 2004. Prior to joining us, Mr. Grinis co‑founded Oberon Financial Technology, Inc., our subsidiary, prior to its acquisition by us. Mr. Grinis received a BS and an MS degree in electrical engineering from Stanford University. Age 52. —Ms. O’Brien has served as our Chief Legal Officer, General Counsel and Corporate Secretary since 2002. Prior to joining us, Ms. O’Brien was General Counsel and Director of Legal and Compliance for ING (U.S.) Securities, Futures & Options Inc., a broker‑dealer, and futures commission merchant. Ms. O’Brien received a degree in political science from Northwestern University, a JD from Hamline University School of Law, and an LLM in taxation from John Marshall Law School.Brandon Thomas, Age 54.Thomas is a co‑founder of our company andFox has served as a member of our Board of Directors since February 2015 and Chair of the Board of Directors since March 2020. Mr. Fox retired as Non-Executive Chairman of FundQuest, Inc., upon its acquisition by the Company, effective December 2011 after serving in that role since September 2010 and, prior to that, as President and Chief InvestmentExecutive Officer starting in October 2005. Mr. Fox has over 30 years of senior executive experience with the BISYS Group, Inc., First Data Corporation, eOne Global, and Managing DirectorPFPC. He serves as a director of PortfolioMadison CF (UK) Limited, The Ultimus Group LLC and Yukon YC Holdings LLC. He also served as a director of Brinker Capital Holdings, Inc. from July 2015 until September 2020. Mr. Fox participated in the Advanced Management Consultants, our internal investment management and portfolio consulting group, since 1999. Prior to joining us, Mr. Thomas was DirectorProgram at the Wharton School of Equity Funds for Nuveen. Mr. Thomas received an MBA from the University of Chicago, a JDPennsylvania. He earned an M.B.A. in Finance from DePaulSuffolk University and a B.A. in Economics from the State University of New York at Oswego.graduate of Brown University.Josh Mayer, Age 44. Mr. Mayer was appointed Chief Operating Officer in April 2014. Previously, he served as Envestnet’s Executive Vice President and Director of Operations from January 2011 to April 2014, and as Envestnet’s Senior Vice President, Head of Operations from 2004 to January 2011. From 2000 to 2004, Mr. Mayer served aswebsite at the Director of Operations for Oberon Financial Technology,following address, through which was acquired by Envestnet in 2004. Mr. Mayer holds a Bachelor of Arts and Sciences from Georgetown University.securities offerings.securities. These risks and uncertainties include, but are not limited to, the risk factors set forth below. The risks and uncertainties described in this section are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be materially adversely affected.BusinessWe have experienced rapid revenue growth, which may be difficult to sustainResults of Operations and which may place significant demands on our administrative, operational and financial resources and any inability to maintain or manage our growth could have a material adverse effect on our results of operations, financial condition or business.Our revenues during the three years ended December 31, 2017 have grown at a compound annual growth rate of 27%. We expect our growth to continue, which could place additional demands on our resources and increase our expenses. Our future growth will depend on, among other things, our ability to successfully grow our total assets under management and administration and add additional clients. If we are unable to implement our growth strategy, develop new investment solutions and services and gain new clients, our results of operations, financial condition or business may be materially adversely affected.18Sustaining growth will also require us to commit additional management, operational and financial resources and to maintain appropriate operational and financial systems. In addition, continued growth increases the challenges involved in:·recruiting, training and retaining sufficiently skilled technical, marketing, sales and management personnel;·preserving our culture, values and entrepreneurial environment;·successfully expanding the range of investment solutions and services offered to our clients;·developing and improving our internal administrative infrastructure, particularly our financial, operational, compliance, record‑keeping, communications and other internal systems; and·maintaining high levels of satisfaction with our investment solutions and services among clients.There can be no assurance that we will be able to maintain or accelerate our growth, and any failure to do so could adversely affect our results of operations, financial condition or business.Our revenue can fluctuate from period to period, which could cause our share price to fluctuate.Our revenue may fluctuate from period‑to‑period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following events, as well as other factors described elsewhere in this document:·a decline or slowdown of the growth in the value of financial market assets, which may reduce the value of assets under management and administration and therefore our revenues and cash flows;·negative public perception and reputation of the financial services industry, which would reduce demand for our investment solutions and services;·unanticipated changes to economic terms in contracts with clients, including renegotiations;·downward pressure on fees we charge our clients, which would therefore reduce our revenue;·changes in laws or regulations that could impact our ability to offer investment solutions and services;·failure to obtain new clients;·cancellation or non‑renewal of existing contracts with clients;·failure to protect our proprietary technology and intellectual property rights;·unanticipated delays in connection with the conversion of client assets onto our technology platforms;·changes to or a reduction in the suite of investment solutions and services provided to or used by existing clients;·changes in our pricing policies or the pricing policies of our competitors to which we have to adapt;·fluctuations in currency exchange rates; and·general economic and political conditions, both domestically and internationally, as well as economic19conditions specifically affecting industries in which our customers operate.As a result of these and other factors, the results of operations for any quarterly or annual period may differ materially from the results of operations for any prior or future quarterly or annual period and should not be relied upon as indications of our future performance.We operate in highly competitive industries, with many firms competing for business from financial advisors and financial institutions on the basis of a number of factors, including the quality and breadth of investment solutions and services, ability to innovate, reputation and the prices of services and this competition could hurt our financial performance.We compete with many different types of companies that vary in size and scope, including custodians, turnkey asset management platforms, data and analytics providers, and other financial technology companies. Representative examples of competitors include Pershing LLC (a subsidiary of BNY Mellon Corporation), AssetMark, Inc., Advent Software (a subsidiary of SS&C Technologies Holdings, Inc.), Orion Advisor Services, and Quovo, Inc. Competition is discussed in greater detail under “Business—Competition” included in this Form 10‑K. In addition, some of our clients have developed or may develop the in‑house capability to provide the technology and/or investment advisory services they have retained us to perform. These clients may also offer internally developed services to their financial advisors, obviating the need to hire us, and they may offer these services to third‑party financial advisors or financial institutions, thereby competing directly with us for that business.Many of our competitors have significantly greater resources than we do. These resources may allow our competitors to respond more quickly to changes in demand for investment solutions and services, to devote greater resources to developing and promoting their services and to make more attractive offers to potential clients and strategic partners, which could hurt our financial performance.We may lose clients as a result of the sale or merger of a client, a change in a client’s senior management, competition from other financial advisors and financial institutions and for other reasons. We also face increased competition due to the current trend of industry consolidation. If large financial institutions that are not our clients are able to attract assets from our clients, our ability to grow revenues and earnings may be adversely affected.Our Envestnet | PMC group competes with other providers of investment solutions and products. These competitors may offer broader solutions and/or products and their solutions and/or products may have better investment returns during one or more periods. If the investment returns on our investment products are not perceived to be competitive, we could experience outflows of assets from these products and face difficulty attracting new assets to these products.We compete with many companies that have greater name recognition, substantially greater financial, technical, marketing and other resources, the ability to devote greater resources to the promotion, sale and support of their solutions, more extensive customer bases and broader customer relationships, and longer operating histories than we have.Our failure to successfully compete in any of the above‑mentioned areas could have a material adverse effect on our results of operations, financial condition or business. Competition could also affect the revenue mix of services we provide, resulting in decreased revenues in lines of business with higher profit margins.revenuesrevenue from the delivery of investment solutions and services to clients in the financial advisoryservices industry and our revenue could suffer if that industry experiences a downturn.revenues arerevenue is derived from clients in the financial services industry, particularly in financial advisory industry.services. A decline or lack of growth in demand for financial advisory services would adversely affect our clients and, in turn, our results of operations, financial condition and business. For example, the availability of free or low‑cost investment information and resources, including research and information relating to publicly traded companies and mutual funds available on the Internetinternet or on company websites, could lead to lower demand by investors for the services provided by financial20among financial advisors could decline for many reasons. Negative public perception and reputation of the financial services industry could reduce demand for our broader services and investment advisory solutions. Consolidation or limited growth in the financial services and advisory industry could reduce the number of our clients and potential clients. Events that adversely affect our clients’ businesses, rates of growth or the numbers of customers they serve, including decreased demand for our clients’ products and services, adverse conditions in our clients’ markets or adverse economic conditions generally, could in turn decrease demand for our investment solutions and services and thereby decrease our revenues.revenue. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.Because some of our sales efforts are targeted at large financial institutions and large Internet services companies, we face prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our sales cycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our operating results may be harmed.We target a portion of our sales efforts at large financial institutions and large Internet services companies, which presents challenges that are different from those we encounter with smaller customers. Because our large customers are often making an enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex customer requirements, substantial upfront sales costs, significant contract negotiations and less predictability in completing sales with these customers. Our sales cycle can often last one year or more with our largest customers, who often undertake an extended evaluation process, but is variable and difficult to predict. We anticipate that we will experience even longer sales cycles, more complex customer needs, higher upfront sales costs and less predictability in completing sales with customers located outside of the United States. If our sales cycle lengthens or our upfront sales investments do not generate sufficient revenue to justify our investments in our sales efforts, our operating results may be harmed.Failure of our customers to deploy our solutions in a timely and successful manner could negatively affect our revenue and operating results.The timing of revenue from our customers depends on a number of factors outside of our control and may vary from period to period. Our customers may request customization of our solutions for their systems or engage in a prolonged, internal decision making process regarding the deployment of our solutions. Among our larger customers, deployment of our solutions can be a complex and prolonged process and requires integration into the existing platform on our customers’ systems. Any delay during the deployment process related to technical difficulties experienced by our customers or us in integrating our solutions into our customers’ systems could further lengthen the deployment period and create additional costs or customer dissatisfaction. During the deployment period, we expend substantial time, effort, and financial resources to assist our customers with the deployment. We generally are not able to recognize the full potential value of our customer contracts until our customers actually deploy our solutions. Cancellation of any deployment after it has begun could result in lost time, effort, and expenses invested in the cancelled deployment process, and would adversely affect our ability to recognize revenue that we anticipated at the time of the execution of the related customer contract. If our customers do not timely and successfully deploy our solutions, our future revenue and operating results could be negatively impacted.21TerminationRenegotiation or termination of our contracts with any of these clients could have a material adverse effect on our results of operations, financial condition or business.2017, 20162023, 2022 and 2015, revenues2021, revenue associated with our relationship with our single largestone major client, FMR LLC, an affiliate of FMR Corp., or Fidelity, accounted for approximately 16%, 16% and 17%, 15% and 18% respectively, of our total revenuesrevenue and our ten largest clients accounted for approximately 37%, 36%34% and 42%33%, respectively, of our total revenues.revenue. Our license agreements with large financial institutions are generally multi-year contracts that may be terminated upon the expiration of the contract term or prior to such time for cause, which may include breach of contract, bankruptcy, insolvency and other reasons. A majority of our agreements with financial advisors generally provide for termination at any time.revenuesrevenue associated with Fidelity is derived from ongoing asset-based platform service fees paid by firms, advisors or advisors’ clients obtained through the Fidelity relationship based upon asset-based fees. A majority of our agreements with financial advisors generally provide for termination at any time. The license agreement with Fidelity, which accounted for less than 1% of our revenue in the year ended December 31, 2017, is subject to renewal on an annual basis.relationship. If Fidelity or a significant number of our most important clients were to renegotiate or terminate their contracts with us, and we were unable to obtain a significant number of new clients, our results of operations, financial condition or business could be materially adversely affected. Our investment advisory clients that pay us an asset‑based fee may seek to negotiate a lower fee percentage or may cease using our services, which could limit the growth of, or decrease, our revenues.A significant portion of our revenues are derived from asset‑based fees. Our investment advisory clients may, for a number of reasons, seek to negotiate a lower asset‑based fee percentage. For example, an increaseuseestimates of index‑linked investment products by the clientsfair value of our financial advisor clientsreporting units or of long-lived assets, particularly goodwill and intangible assets, may result in lower fees being paid to our clients, and our clients may in turn seek to negotiate lower asset‑based fee percentages for our services. In addition, as competition among our clients increases, they may be required to lower the fees they charge to their clients, which could cause them to seek to decrease our fees accordingly. Any of these factors could result in fluctuation or a decline in our asset‑based fees, which would have a material adverse effect on our results of operations, financial condition or business.Changes in market and economic conditions could lower the value of assets on which we earn revenues and could decrease the demand for our investment solutions and services.Asset‑based fees make up a significant portion of our revenues. Asset‑based fees represented 60%, 61% and 79% of our total revenues for the years ended December 31, 2017, 2016 and 2015, respectively. We expect that asset‑based fees will continue to represent a significant percentage of our total revenues in the future. Significant fluctuations in securities prices may materially affect the value of the assets managed by our clients and may also influence financial advisor and investor decisions regarding whether to invest in, or maintain an investment in, a mutual fund or other investment solution. If such market fluctuation led to less investment in the securities markets, our revenues and earnings derived from asset‑based fees could be materially adversely affected.We provide our investment solutions and services to the financial services industry. The financial markets, and in turn the financial services industry, are affected by many factors, such as U.S. and foreign economic conditions and general trends in business and finance that are beyond our control. In the event that the U.S. or international financial markets suffer a severe or prolonged downturn, investors may choose to withdraw assets from financial advisors, which we refer to as “redemptions”, and transfer them to investments that are perceived to be more secure, such as bank deposits and Treasury securities. For example, in late 2007 and through the first quarter of 2009, the financial markets experienced a broad and prolonged downturn, our redemption rates were higher than our historical average, and our results of operations, financial condition and business were materially adversely affected. Any prolonged downturn in financial markets or increased levels of asset withdrawals could have a material adverse effect on our results of operations, financial condition or business.22Investors’ decisions regarding their investment assets are affected by many factors and investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns or large‑scale withdrawal of investment funds could have a material adverse effect on our results of operations, financial condition or business.The clients of our financial advisors are generally free to change financial advisors, forgo the advice and other services provided by financial advisors or withdraw the funds they have invested with financial advisors. These clients of financial advisors may elect to change their investment strategies, by moving their assets away from equity securities to fixed income or other investment options, or by withdrawing all or a portion of their assets from their accounts to avoid all securities markets‑related risks. These actions by investors are outside of our control and could materially adversely affect the market value of the investment assets that our clients manage, which could materially adversely affect the asset‑based fees we receive from our clients.Our hosting, collection, use and storage of customer information and data require the implementation of effective security controls, and a data security breach could disrupt our business, result in the disclosure of confidential information, expose us to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.We, and our customers through which our solutions are made available to end users, collect, use, transmit and store confidential financial information such as bank account numbers, social security numbers, non-public personally identifiable information, portfolio holdings, credit card data and outstanding debts and bills. The measures we take to provide security for collection, use, storage, processing and transmission of confidential end user information may not be effective to protect against data security breaches by third parties. We use commercially available security technologies, including hardware and software data encryption techniques and multi-layer network security measures, to protect transactions and information. Although we encrypt data fields that typically include sensitive, confidential information, other unencrypted data fields may include similar information that could be accessible in the event of a security breach. We use security and business controls to limit access and use of confidential end user information. Although we require our customers and third-party suppliers to implement controls similar to ours, the technologies and practices of our customers and third-party suppliers may not meet all of the requirements we include in our contracts and we may not have the ability to effectively monitor the implementation of security measures of our customers and third-party suppliers. In a number of cases, our customers build and host their own web applications and access our solutions through our APIs. In these cases, additional risks reside in the customer’s system with respect to security and preventive controls. As a result, inadequacies of our customers’ and third-party suppliers’ security technologies and practices may only be detected after a security breach has occurred. Errors in the collection, use, storage or transmission of confidential end user information may result in a breach of privacy or theft of assets.The risk of unauthorized circumvention of our security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Criminals are using increasingly sophisticated techniques to engage in illegal activities involving solutions such as ours or involving end user information, such as counterfeiting, fraudulent payment and identity theft. Because the techniques used by hackers change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition to hackers, it is possible that a customer could gain unauthorized access to our database through the use of our solutions. Improper access to our systems or databases by hackers or customers intending to commit criminal activities could result in the theft, publication, deletion or modification of confidential end user information. An actual or perceived breach of our security may require notification under applicable data privacy regulations.A data security breach of the systems on which sensitive user data and account information are stored could lead to claims, industry fines, or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our revenue and profitability. Our customer contracts typically include security standards that must be complied with by us and our customers. If a data security breach occurs and we have not been in compliance with the security standards included in our applicable contracts, we could be liable for breach of contract claims brought by our customers.23We could also be required to indemnify our customers for third-party claims, fines, penalties and/or other assessments imposed on our customers as a result of any data security breach and our liability could exceed our insurance coverage or ability to pay. Envestnet’s Registered Investment Advisers and Broker-Dealer may face SEC, FINRA and state enforcement actions, including monetary fines, if it is determined that Envestnet had inadequate data security measures in place to prevent such theft.Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and many of our prospective and current customers conduct their own audits or review the results of such independent security audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to which our operations or our customers are subject. Adverse findings in these audits or examinations, even if not accompanied by any data security breach, could adversely affect our ability to maintain our existing customer relationships and establish new customer relationships.Data security breaches, acts of fraud involving our solutions, or adverse findings in security audits or examinations, could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to cease doing business with us and/or have a significant adverse impact on our revenue and future growth prospects. Further, any of these events could lead to additional regulation and oversight by federal and state agencies, which could impose new and costly compliance obligations and may lead to the loss of our ability to make our solutions available.We could incur significant costs protecting the personal information we store on our technology platforms.Users of our investment solutions and services are located in the United States and around the world. As a result, we collect and store the personal information of individuals who live in many different countries. Privacy regulators in some of those countries have publicly stated that foreign entities (including entities based in the United States) may render themselves subject to those countries’ privacy laws and the jurisdiction of such regulators by collecting or storing the personal data of those countries’ residents, even if such entities have no physical or legal presence there. Consequently, we may be obligated to comply with the privacy and data security laws of such foreign countries, including the European Union's (“EU”) General Data Protection Regulation which comes into effect on May 25, 2018 and requires businesses operating in the EU or foreign business dealing with EU customers to store and process all personal data within the EU borders. Our exposure to foreign countries’ privacy and data security laws impacts our ability to collect and use personal information, increases our legal compliance costs and may expose us to liability.We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. Increased domestic or international regulation of data utilization and distribution practices could require us to modify our operations and incur significant additional expense,impairment charges, which could have a material adverse effect on our results of operations, financial condition, cash flows or business. Furthermore, evennot directed at us specifically, attacks on other financial institutions could disrupt the overall functioningcarrying value of the financial system.Privacy concerns could havereporting unit exceeds its fair value, an adverse impactimpairment loss equal to the difference will be recorded. The identification of reporting units and consideration of aggregation criteria requires management’s judgment. Based on our revenue and harm our reputation andthe relevant GAAP authoritative guidance, we aggregate components of a single operating segment into a reporting unit, if appropriate. Future goodwill impairment charges may require us to modify our operations.our business,the annual goodwill impairment analysis, we use, transmit and store end user-permissioned, non-identified transaction data elements. We are subject to laws, rules and regulations relating toperformed a quantitative goodwill impairment evaluation for each reporting unit in the collection, use, and securityfourth quarter of end user data. For privacy or security reasons, privacy groups, governmental agencies and individuals may seek to restrict or prevent our use2023. As a result of this data. New lawsimpairment analysis, the carrying value of the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill of $191.8 million during the fourth quarter of 2023. Although the Company recorded this area have been passed by several jurisdictions,impairment charge in the fourth quarter of 2023, future goodwill impairment charges may occur if certain estimates and assumptions used to estimate thejurisdictions are considering imposing additional restrictions. These new laws may be interpreted and applied inconsistently from jurisdiction to jurisdiction and our current data protection policies and practiceslong lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be consistent with those interpretations and applications. In addition, the ability to execute transactions and the possession and userecoverable. Future asset impairment charges may occur if asset utilization declines, if customer demand decreases, or for a number of personal information and data in conducting our business subjects us to legislative and regulatory burdens that may require notification to customers or employees ofother reasons, which would reduce future earnings. Any such impairment charges could have a security breach, restrict our use of personal information, hinder our ability to acquire new customers or market to existing customers, require us to modify our operations and have anmaterial adverse effect on our business, financial condition, results of operations, and operating results. We have incurred,cash flows. Impairment charges would also reduce our consolidated stockholders’ equity and increase our debt-to-total-capitalization ratio, which could negatively impact our access to the debt and equity markets.incur, significant expenses to comply withconsider capital markets and other economic factors and its potential impact on our businesses, as well as other factors, in assessing goodwill and other long-lived assets for possible indications of impairment.24privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. As our business continues to expand to new industry segments that may be more highly regulated for privacy and data security, and to countries outside the United States that have more strict data protection laws, our compliance requirements and costs may increase.2017,2023, we had $81,168 of borrowings outstanding under our revolving credit facility (the “Second Amended and Restated Credit Agreement”) and $172,500$317.5 million of outstanding 1.75% convertible notes0.75% Convertible Notes due in 2019 (the “Convertible Notes”).2025, and $575.0 million of outstanding 2.625% Convertible Notes due 2027. As of December 31, 2017,2023, we had an additional $268,832$500.0 million available to us to borrow under our Amended and RestatedRevolving Credit Agreement.Facility. This indebtedness could, among other things:·make it difficult for us to pay other obligations;
•make it difficult for us to pay other obligations;·make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;
•make it difficult to obtain favorable terms for any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;·require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flow available for other purposes; and
•require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing the amount of cash flow available for other purposes; and·limit our flexibility in planning for and reacting to changes in our business.liability for losses that result from a breach of our fiduciary duties.Our investment advisory services involve fiduciary obligations that require us to act in the best interests of our clients, and we may be sued and face liabilities for actual or claimed breaches of our fiduciary duties. Because we provide investment advisory services, both directly and indirectly,counterparty risk with respect to substantial assetsthe capped call transactions, and the capped call transactions may not operate as planned.could face substantial liability if it is determinedwill be subject to the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the Capped Call Counterparties will not be secured by any collateral. Global economic conditions have, from time to time, resulted in the actual or perceived failure or financial difficulties of many financial institutions. If a Capped Call Counterparty becomes subject to insolvency proceedings, we have breachedwill become an unsecured creditor in those proceedings with a claim equal to our fiduciary duties. In certain circumstances, which generallyexposure at that time under our transactions with that Capped Call Counterparty. Our exposure will depend on many factors, but generally an increase in our exposure will be correlated with increase in the typesmarket price of investment solutionsthe volatility of our common stock. In addition, upon a default by a Capped Call Counterparty, we may suffer more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of any Capped Call Counterparty.servicesthey may not operate as planned. For example, the terms of the called call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur. Accordingly, these may not operate as we intend if we are providing, werequired to adjust their terms as a result of transactions in the future or upon unanticipated developments that may enter into client agreements jointly with advisorsadversely affect the functioning of the capped call transactions.third‑party investment money managers on behalf of clients. As a result, we may be included as a defendant in lawsuits against financial advisorssenior executive leadership and third‑party investment money managers that involve claims of breaches of the duties of such persons,other key employees and we may face liabilities for the improper actions and/or omissions of such advisors and third‑party investment money managers. In addition, we may face claims based on the results of our investment advisory recommendations, even in the absence of a breach of our fiduciary duty. Such claims and liabilities could therefore have a material adverse effect on our results of operations, financial condition or business.We are subject to liability for losses that result from potential, perceived or actual conflicts of interest.Potential, perceived and actual conflicts of interest are inherent in our existing and future business activities and could give rise to client dissatisfaction, litigation or regulatory enforcement actions. In particular, we pay varying fees to third‑party asset managers and custodians and our financial advisor customers, or their clients, could accuse us of directing them toward those asset managers or custodians that charge us the lowest fees and therefore provide us with a greater financial advantage. In addition, we offer proprietary mutual funds and portfolios of mutual funds through our internal investment management and portfolio consulting group, and financial advisors or their clients could conclude that we favor our proprietary investment products because of their belief that we earn higher fees when our proprietary investment products are used. Adequately addressing conflicts of interest is complex and difficult.successfully manage transitions. If we fail to retain talented, highly qualified senior management and other key employees, attract them when needed or appear to fail, to adequately address potential, perceived or actual conflicts of interest, the resulting negative public perceptionsuccessfully manage transitions, such failure could negatively impact our business and reputational harm could materially adversely affect our client relations or ability to enter into contracts with new clients and, consequently, our results of operations, financial condition and business.25If our reputation is harmed, our results of operations, financial condition or business could be materially adversely affected.reputation, whichfuture success depends on earning and maintaining the trust and confidence of our clients and end users, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, data security breaches, lawsuits initiated by our clients or stockholders, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of our solutions and services may not be the same or better than that of other providers, can also damage our reputation. Any damage to our reputation could harm our ability to attract and retain clients, which would materially adversely affectsenior executive leadership and other key employees and to successfully manage through transitions in senior executive leadership. Our current chief executive officer, William Crager, will step down as chief executive officer on March 31, 2024, and commencing on April 1, 2024, James Fox, who currently serves as chair of our resultsBoard of operations, financial condition and business. Attempts to repairDirectors, will serve as the interim chief executive officer. Our Board of Directors has initiated a search for a successor with assistance from an independent executive search firm. Although our reputation, if damaged may be costly and time consuming, and such efforts may not ultimately be successful.If our investment solutions and services fail to perform properly due to undetected errors or similar problems, our resultsBoard of operations, financial condition and business could be materially adversely affected.Investment solutions and services we develop or license may contain undetected errors or defects despite testing. Such errors can exist at any pointDirectors is confident in the life cycleinterim leadership of Mr. Fox, our success will depend, in part, on the effectiveness of our investment solutionsnew chief executive officer.services, but are frequently found after introduction of new investment solutions and services or enhancements to existing investment solutions or services. We continually introduce new investment solutions and services and new versions of our investment solutions and services. Despite internal testing and testing by current and potential clients, our current and future investment solutions and services may contain serious defects or malfunctions. If we detect any errors before release, we might be required to delay the releasesuccess of the investment solution or service for an extended period of time while we address the problem. We might not discover errors that affect our new or current investment solutions, services or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors. Errors may occur that could have a material adverse effect on our results of operations, financial condition or business and could result in harm to our reputation, lost sales, delays in commercial release, third‑party claims, regulatory actions, contractual disputes, contract terminations or renegotiations, or unexpected expenses and diversion of management and other resources to remedy errors.search process. In addition, negative public perceptionon November 15, 2023, we transitioned to a new chief financial officer. Leadership transitions are inherently difficult to manage and reputational damage caused by such claims would adversely affectmay cause uncertainty or disruption within the Company and with external relationships. The failure to adequately manage the transitions of senior executive leaders could negatively impact our client relationshipsfinancial performance and ability to meet operational goals and strategic plans. This may also impact our ability to enter into new contracts. Anyretain and hire other key members of these problems could have a material adverse effect onmanagement.results of operations, financial conditionability to provide our services and business.We could face liability or incur costs to remediate operational errors or to address possible customer dissatisfaction.Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized executionmaintain and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in our internal control processes. The success of our businessdevelop relationships with clients depends largely on our ability to mitigate those operational risksattract, train, motivate and deliver time-sensitive services. We operateretain highly skilled professionals, particularly professionals with backgrounds in diverse marketssales, marketing, technology and are reliant on the ability of our employees and systems to process large volumes of transactions often within short time frames. Our operations and those of third parties on whom we rely for information and transaction processing services are vulnerable to interruption by technical breakdowns, computer hardware and software malfunctions, software viruses, infrastructure failures, fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures and other events beyond our control. In the event of any such interruptions or improper operation of systems, human error or improper action by employees, we could suffer financial loss, regulatory sanctions or damage to our reputation.In addition, our contracts with our customers often include stringent requirements for us to maintain certain levels of performance and service availability. Failure by us to meet these contractual requirements could result in a claim for substantial damages against us, regardless of whether we are responsible for that failure. Our customers may also delay or withhold payment to us, elect to terminate or not to renew their contracts with us, or refuse to integrate our solutions into their online offerings, or we could lose future sales to new customers as a result of damage to our reputation due to such service downtime or interruptions. If we suffer a significant database or network facility outage, our business could experience disruption until we fully implement our back-up systems. The occurrence of any such disruptions in our solutions could materially and adversely affect our business.26Furthermore, there may be circumstances when our customers are dissatisfied with our investment solutions and services, even in the absence of an operational error. In such circumstances, we may elect to make payments or otherwise incur increased costs or lower revenues in order to maintain a strong customer relationship. In any of the forgoing circumstances, our results of operations, financial condition or business could be materially adversely affected.We may become subject to liability based on the use of our investment solutions and services by our clients.Our investment solutions and services support the investment processes of our clients, which, in the aggregate, manage billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potential liability claims brought by our clients or third parties based on the use of our investment solutions and services. However, these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. Use of our products as part of the investment process creates the risk that clients, or the parties whose assets are managed by our clients, may pursue claims against us for very significant dollar amounts. Any such claim, even if the outcome were to be ultimately favorable to us, would involve a significant commitment of our management, personnel, financial and other resourcesinvestment services. Consequently, we must hire and could have a negative impact on our reputation. Such claimsretain employees with the technical expertise and lawsuits could therefore have a material adverse effect on our results of operations, financial condition or business.Furthermore, our clients may use our investment solutions and services together with software, data or products from other companies. As a result, when problems occur, it might be difficultindustry knowledge necessary to identify the source of the problem. Even when our investment solutions and services do not cause these problems, the existence of these errors might cause us to incur significant costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our results of operations, financial condition or business.Our business relies heavily on computer equipment, electronic delivery systems and the Internet. Any failures or disruptions in such technologies could result in reduced revenues, increased costs and the loss of customers.Our business relies heavily on our computer equipment (including our servers), electronic delivery systems and the Internet, but these technologies are vulnerable to disruptions, failures or slowdowns caused by fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures, computer viruses and other events beyond our control. We derive our subscription revenue from licenses to a single software platform, and related support and professional services. As such, any factor adversely affecting subscriptions to that single software platform, including those described elsewhere under “Risk Factors” or in other portions of this Form 10-K, would harm our business and operating results. Furthermore, we rely on agreements with our suppliers, such as our current data hosting and service provider, to provide us with access to certain computer equipment, electric delivery systems and the Internet. We are unable to predict whether a future contractual dispute may arise with one of our suppliers that could cause a disruption in service, or whether our agreements with our suppliers can be obtained or renewed on acceptable terms, or at all. An unanticipated disruption, failure or slowdown affecting our key technologies or facilities may have significant ramifications, such as data‑loss, data corruption, damaged software codes or inaccurate processing of transactions. We maintain off‑ site back‑up facilities for our electronic information and computer equipment, but these facilities could be subject to the same interruptions that may affect our primary facilities. Any significant disruptions, failures, slowdowns, data‑loss or data corruption could have a material adverse effect on our results of operations, financial condition or business and result in the loss of customers.Our insurance coverage and contractual liability limitations may fail to provide adequate protections.We maintain general liability insurance coverage, including coverage for errors or omissions; however, this coverage may not continue to be available on reasonable terms or may be insufficient to cover one or more large claims. An insurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us that exceedsdevelop our available insurance coverage or changes in our insurance policies, including premium increases or the imposition of a large deductible or co-insurance requirement, could harm our operating resultsservices and financial condition. Additionally, although we attempt to limit our contractual liability in delivering our solutions, these limitations on liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages.27If we fail to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities, our revenue and earnings may be harmed.Envestnet | Yodlee processes a significant volume and dollar value of transactions on a daily basis using its money movement solutions. Effective processing systems and controls are essential to ensure that transactions are handled appropriately. Despite our efforts, it is possible that we may make errors or that funds may be misappropriated due to fraud. If we are unable to effectively manage our systemssales and processesmarketing organization to assist the growth of our operations. We believe there is significant competition for professionals with the skills necessary to perform the services we offer. We experience competition for these professionals from competitors, other technology companies and financial services organizations, many of which have greater resources than we do and therefore may be able to offer higher compensation packages. Competition for these employees is intense, and we may not have sufficient human resources programs, practices and benefits to be unableable to process money movement transactions in an accurate, reliableretain our existing employees or be able to recruit and timely manner, which may harm our business. In addition, if we do not detect suspected fraudulent or non-sufficient fund transactions within agreed-upon timelines, we may be requiredretain other highly skilled personnel. The inability to reimburse our customers for the transactionsattract and such reimbursements may exceed the amount of the reserves we have established to make such payments.The online payments industry has been experiencing an increasing amount of fraudulent activities by third parties. Although we do not believe that any of this activity is uniquely targeted at our business, this type of fraudulent activity may adversely impact us. In addition to any direct damages and potential fines that may result from such fraud, which may be substantial, a loss of confidence in our controls may seriously harm our business and damage our reputation. We may implement risk control mechanisms thatretain qualified personnel could make it more difficult for legitimate end users to use our solutions, which could result in lost revenue and negatively impact our operating results.If we are unable to maintain our payment network with third-party service providers, or if our disbursement partners encounter business difficulties, our business could be harmed.Envestnet | Yodlee’s payment network consists of a single Originating Deposit Financial Institution (“ODFI”),financial performance and a small number of bill payment processors. Our ODFI clears and processes the funds from the customer. In the instance of funds transfers, the ODFI also processes funds to the end user’s destination institution. For bill payment, funds are sent to the bill pay processors for disbursement to biller sites.While we have entered into an agreement with our ODFI and each of our bill payment processors, these partners could choose to terminate or not renew their agreements with us. If we are unable to maintain our agreements with our current partners, or our current partners are unable to handle increased transaction volumes, our ability to disburse transactionsmeet operational goals and our revenue and business may be harmed. If we are unable to sign new payment processors and/or ODFIs under terms consistent with, or better than, those currently in place, our revenue and business may be harmed.Payment processors and ODFI partners also engage in a variety of activities in addition to providing our services and may encounter business difficulties unrelated to our services. Such activities or difficulties could cause the affected partner to reduce the services provided, cease to do business with us, or cease doing business altogether. This could lead to our inability to move funds on a timely basis as required to settle transactions. In addition, because we offer next day automated clearing house transactions in certain cases, if a disbursement partner experiences insufficient liquidity or ceases to do business, we may not be able to recover funds that are held with that disbursement partner which could harm our financial condition and operating results.We may also be forced to cease doing business with payment processors and/or ODFIs if rules governing electronic funds transfers change or are reinterpreted to make it difficult or impossible for us to operate our money movement solutions.| YodleeData & Analytics data aggregation solutions require certain data that we obtain from thousands of sources, including banks, other financial institutions, retail businesses and other organizations, some of which are not our current customers. As of December 31, 2017,2023, we receive approximately 70%over 80% of this data through structured data feeds that are provided under the terms of our contracts with most of our financial institution, or FI, customers. Although all of the information we currently gather is end user-permissioned, non-identified data and, currently, we generally have free,28Failure by our customers to obtain proper permissions and waivers might result in claims against us or may limit or prevent our use of data, which could harm our business.Forrequire our customers to provide necessary noticesface longer sales cycles, complex customer requirements, substantial upfront sales costs, significant contract negotiations and to obtain necessary permissions and waivers for use and disclosure of information through our solutions.less predictability in completing sales with these customers. Our contractssales cycle can often last one year or more with our largest customers, for these services include assurances from themwho often undertake an extended evaluation process, but is variable and difficult to predict. We anticipate that they have done sowe will experience even longer sales cycles, more complex customer needs, higher upfront sales costs and will do so, but weless predictability in completing sales with customers located outside of the United States. If our sales cycle lengthens or our upfront sales investments do not auditgenerate sufficient revenue to justify our customers to ensure that they have acted, and continue to act, consistent with such assurances. If, despite these requirements and contractual obligations,investments in our customers do not obtain necessary permissions and waivers, then our use and disclosure of information that we receive from them or on their behalf might be limited or prohibited by federal, state or foreign privacy laws or other laws. Such a failure to obtain proper permissions and waivers could impair our functions, processes and databases that reflect, contain, or are based upon such data and might prevent use of such data. In addition, such a failure could interfere with, or prevent creation or use of, rules, analyses, or other data-driven activities that benefit us and our business. Moreover, we might be subject to claims or liability for use or disclosure of information by reason of lack of valid notices, agreements, permissions or waivers. These claims or liabilities could subject us to unexpected costs and adversely affectsales efforts, our operating results.We could face liability for certain information we provide, including information based on data we obtain from other parties.Weresults may be subject to claims for securities law violations, negligence, breachharmed.other claims relating to the information we provide. For example, individuals may take legal action against us if they rely on information we have provided and it contains an error. In addition, we could be subject to claims based upon the content that is accessible from our website through links to other websites. Moreover, we could face liability based on inaccurate information provided to us by others. Defendingwithdraw their investment assets generally at any such claims could be expensive and time‑consuming, and any such claim could materially adversely affect our resultstime. Significant changes in investing patterns or large‑scale withdrawal of operations, financial condition or business.We depend on our senior management team and other key personnel and the loss of their servicesinvestment funds could have a material adverse effect on our results of operations, financial condition or business.We dependefforts, relationshipsvalue of assets under management or administration. Changes in market and reputationseconomic conditions could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services.senior management teamrevenue. Asset‑based fees represented approximately 60% of our total revenue for the years ended December 31, 2023, 2022 and other key personnel, including Judson Bergman, our Chief Executive Officer, William Crager, our President, Anil Arora, Vice Chairman, and Scott Grinis, our Chief Technology Officer, in order to successfully manage our business.2021. We believeexpect that success in our businessasset‑based fees will continue to be based upon the strengthrepresent a significant percentage of our intellectual capital. The losstotal revenue in the future. Significant fluctuations in securities prices may materially affect the market value of the assets managed by our clients and may also influence financial advisor and investor decisions regarding whether to invest in, or maintain an investment in, a particular investment or strategy. If such market fluctuation led to less investment in the securities markets, our revenue and earnings derived from asset‑based fees could be materially adversely affected. Our asset-based fees are generally calculated quarterly using the value of assets at the end of each calendar quarter. Our methodology may result in lower fees if the financial markets are down when fees are calculated, even if the market had performed well earlier in the quarter.any member2022, the financial markets experienced a broad downturn, our redemption rates were higher than our historical average, and our results of our senior management teamoperations, financial condition and business were materially adversely affected. A continued downturn in financial markets or increased levels of other key personnelasset withdrawals could have a material adverse effect on our results of operations, financial condition or business. Historically, redemption rates have typically increased during periods where there has been a significant downturn in financial markets. Any potential decline in assets on which we earn fees would not necessarily be proportional to, and in total, could be greater than the overall market decline.29Our operations are subjectWe must continue to extensive government regulation, and compliance failures or regulatory action against us could adversely affect our results of operations, financial condition or business.The financial services industry is among the most extensively regulated industries in the United States. We operate investment advisory, broker‑dealer, and mutual fund lines of business, each of which is subject to a specific and extensive regulatory scheme. In addition, we are subject to numerous laws and regulations of general application. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses.Certain of our subsidiaries are registered as “investment advisers” with the SEC under the Advisers Act and are regulated thereunder. In addition, many of our investment advisory services are conducted pursuant to the non‑exclusive safe harbor from the definition of an “investment company” provided under Rule 3a‑4 under the Investment Company Act. If Rule 3a‑4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule is applied, our business could be adversely affected. Certain of our registered investment adviser subsidiaries provide advice to mutual fund clients. Mutual funds are registered as “investment companies” under the Investment Company Act. Our advisory subsidiaries provide advice on assets subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). The Advisers Act, Investment Company Act and ERISA, together with related regulations and interpretations of the SEC and the Department of Labor, impose numerous obligations and restrictions on investment advisers and mutual funds, including requirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on transactions between an adviser and its clients, and between a mutual fund and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciary obligations.In addition, PBS, our broker‑dealer subsidiary, is registered as a broker‑dealer with the SEC and with all 50 states and the District of Columbia, and is a member of FINRA, a securities industry self‑regulatory organization that supervises and regulates the conduct and activities of its members. Broker‑dealers are subject to regulations that cover all aspects of their business, including sales practices, market making and trading among broker‑dealers, use and safekeeping of customer funds and securities, capital structure, recordkeeping and the conduct of directors, officers, employees, representatives and associated persons. FINRA conducts periodic examinations of the operations of its members, including PBS. As a broker‑dealer, PBS is also subject to certain minimum net capital requirements under SEC and FINRA rules. Compliance with the net capital rules may limit our ability to withdraw capital from PBS.Envestnet | Yodlee is examined on a periodic basis by various regulatory agencies. For example, it is a supervised third-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas based on published guidance by the Federal Financial Institutions Examination Council. These examinations include examinations of our management, acquisition and development activities, support and delivery, IT, and disaster preparedness and business recovery planning. The Office of the Comptroller of the Currency (the “OCC”) is the agency in charge of these examinations. If deficiencies are identified, customers may choose to terminate or reduce their relationships with us.Either as a result of direct regulation or obligations under customer agreements, many of our subsidiaries are required to comply with certain provisions of the Gramm-Leach-Bliley Act (“GLBA”), related to the privacy of consumer information and may be subject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations have been proposed and are still being written to implement the Dodd-Frank Act for enhanced due diligence of the internal systems and processes of companies like ours by their regulated customers. If we are required to make changes to our internal processes and solutions as result of this heightened scrutiny, we could be required to invest substantial additional time and funds and divert time and resources from other corporate purposes to remedy any identified deficiency.All of the foregoing laws and regulations are complex, evolving, unclear and inconsistent across various jurisdictions and we are required to expend significant resources in order to maintain our monitoring of, and compliance with, such laws and regulations. We continually develop improvements to our existing products and services as well asintroduce new products and services. Many of these improvements or new products and services may implicate regulations to which we may not already be subject or with which we may not have experience. Any failure on our part to comply with30these and other applicable laws and regulations could result in decreasing the demand for these products and services, increasing our potential liability or increase or costs, regulatory fines, suspensions of personnel or other sanctions, including revocation of our subsidiaries as an investment adviser or broker‑dealer, as the case may be, which could, among other things, require changes to our business practices and scope of operations or harm our reputation. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.Changes to the laws or regulations applicable to us or to our clients could adversely affect our results of operations, financial condition or business.We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC or other U.S. or foreign governmental regulatory authorities or self‑regulatory organizations that supervise the financial markets around the world. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self‑regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any current proposals will become law, and it is difficult to predict how any changes or potential changes could affect our business. Changes to laws or regulations could increase our potential liability in connection with the investment solutions and other services that we provide. The introduction of any new laws orand technological enhancements to address our clients’ changing needs, market changes, regulations, could make our abilityand technological developments and failure to comply with applicable laws and regulations more difficult and expensive. Any of the foregoingdo so could have a material adverse effect on our results of operations, financial condition or business.A deemed “change of control”company could require usinvestment solutions and services, rapid technological change, including the use of AI by Envestnet or our clients. Changing client demands, new market rules and practices, or new technologies can render existing investment solutions and services obsolete and unmarketable. As a result, our future success will continue to obtaindepend upon our ability to develop new investment solutions and services, and service and technological enhancements that address the consentfuture needs of our target markets and respond to technological and market changes. We incurred technology development costs of approximately $234 million, $239 million and $192 million in the years ended December 31, 2023, 2022 and 2021, respectively. We expect that our technology development costs will reduce in 2024 as we have completed our investment cycle but may increase in the future. We may not be able to accurately estimate the impact of new investment solutions and services on our business or how their benefits will be perceived by our clients. Further, we may not be successful in developing, introducing, marketing and licensing our new investment solutions or services or investment solution or service enhancements on a timely and cost effective basis, or at all, and our new investment solutions and services and enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In addition, clients and a failure to do so properlymay delay purchases in anticipation of new investment solutions or services or enhancements. Any of these factors could materially adversely affect our results of operations, financial condition or business.UnderAdvisersUnited Kingdom, Canada and Australia, engage with other jurisdictions outside of the United States for the purpose of gathering data, and have customers located around the globe. Managing a global organization outside of the United States is difficult and time-consuming and introduces risks that we may not face with our operations and sales in the United States. These risks include:advisory agreements entered into bywe make and additional resources we use to expand our investment adviser subsidiariesoperations, target new international customers, expand our presence globally within our existing customers and manage operational and sales growth in other countries may not be assigned without the client’s consent. Under the Investment Company Act, advisory agreements with registered funds terminate automatically upon assignmentproduce desired levels of revenue or profitability, which could adversely affect our business and any assignmentoperating results.obtain all necessary consentseffectively manage certain risks and challenges related to our India operations, our business could be harmed.such a challenge were to be successful itcontinued for an extended period of time, could have a material adverse effect on our results of operations, financial condition or business.We rely on exemptions from certain laws and if for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third‑party claims and our business could be materially and adversely affected.We regularly rely on exemptions from various requirements of the Exchange Act, the Advisers Act, the Investment Company Act and ERISA in conducting our activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third‑party claims and our business could be materially and adversely affected.If government regulation of the Internet or other areas of our business changes, or if consumer attitudes toward use of the Internet change, we may need to change the manner in which we conduct our business or incur greater operating expenses.The adoption, modification or interpretation of laws or regulations relating to the Internet or other areas of our business could adversely affect the manner in which we conduct our business. Such laws and regulations may cover sales practices, taxes, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, broadband residential Internet access and the characteristics and quality of services. Moreover, it is not clear how existing laws governing these matters apply to the Internet. If we are requiredunable to complyeffectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could be slowed, and our operating results could be negatively impacted.new regulationsmany firms competing for business from financial advisors and financial institutions on the basis of a number of factors, including the quality and breadth of investment solutions and services, ability to innovate, reputation and the prices of services and this competition could hurt our financial performance.31
Many of our competitors in this business have significantly greater resources than we do. These resources may allow our competitors to respond more quickly to changes in demand for investment solutions and services, to devote greater resources to developing and promoting their services and to make more attractive offers to potential clients and strategic partners, which could hurt our financial performance.legislationthe sale or new interpretationsmerger of existing regulations or legislation, wea client, a change in a client’s senior management, competition from other financial advisors and financial institutions and for other reasons. We also face increased competition due to the current trend of industry consolidation. If large financial institutions that are not our clients are able to attract assets from our clients, our ability to grow revenue and earnings may be requiredadversely affected.incurdevote greater resources to the promotion, sale and support of their solutions, more extensive customer bases and broader customer relationships, and longer operating histories than we have.expensescost to their end users by bundling them with their existing applications and solutions. Increased competition is likely to result in pricing pressures, which could negatively impact our gross margins.alter our business model, eitherlack of market share which could have a material adverse effect on our results of operations, financial condition or business.We rely on a combination of patent, trade secret, trademark and copyright laws, confidentiality and nondisclosure agreements and other contractual and technical security measures to protect our proprietary technology, all of which provide only limited protection. As of December 31, 2017,2023, notwithstanding expiration of some of our oldest patents, we had approximately 80over 50 issued patents in the U.S. and foreign jurisdictions as well as additional pending patent applications in the U.S. and foreign jurisdictions. Some of these patents relate to technology that is included in our data aggregation platform and expire beginning in 2018. Any loss of our intellectual property rights, or any significant claim of infringement or indemnity for violation of the intellectual property rights of others, could have a material adverse effect on our results of operations, financial condition or business.cannot guarantee that:·our intellectual property rights will provide competitive advantages to us;·our ability to assert our intellectual property rights against potential competitors or to settle current or future disputes will not be limited by our agreements with third parties;·our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal protection may be weak;·any of the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in our business will not lapse or be invalidated, circumvented, challenged or abandoned;·our trademark applications will lead to registered trademarks; or·competitors will not design around our intellectual property rights or develop similar technologies, investment solutions or products; or that we will not lose the ability to assert our intellectual property rights against others.We are alsorely on a party to a number of third‑party intellectual property license agreements. Some of these license agreements require us to make one‑time payments or ongoing subscription payments. We cannot guarantee that the third‑party intellectual property we license will not be licensed to our competitors or others in our industry. In the future, we may need to obtain additional licenses or renew existing license agreements. We are unable to predict whether these license agreements can be obtained or renewed on acceptable terms, or at all. In addition, we have granted our customers certain rights to use our intellectual property in the ordinary course of our business. Some of our customer agreements restrict our ability to license or develop certain customized technology or services within certain markets or to certain competitors of our customers. For example, our agreement with Fidelity restricts our ability to develop an enterprise‑level integration or combination of productspatent, trade secret, trademark and services substantially similar to the technology platform we have developed for Fidelity. Some of our customercopyright laws, confidentiality and nondisclosure agreements grant our customers ownership rights with respect to the portion of the intellectual property we have developed or customized for our customers. In addition, some of our customer agreements require us to deposit the source code to the customized technology and investment solutions with a source code escrow agent, which source code may be released in the event we enter into bankruptcy or are unable to provide support and maintenance of the technology or investment solutions we have licensed to our customers. These provisions in our agreements may limit our ability to grow our business in the future.32Third parties may sue us for intellectual property infringement or misappropriation which, if successful, could require us to pay significant damages or make changes to the investment solutions or services that we offer.We cannot be certain that our internally developed or acquired technologies, investment solutions or services do not and will not infringe the intellectual property rights of others. In addition, we license content, software and other intellectual property rights from third partiescontractual and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights to the products they license to us. The risk of infringement claims against us will increase if more of our competitors are able to obtain patents for investment solutions or services or business processes. In addition, we face additional risk of infringement or misappropriation claims if we hire an employee who possesses third party proprietary information who decides to use such information in connection with our investment solutions, services or business processes without such third‑party’s authorization. We have in the past been and may in the future be subject to legal proceedings and claims that we have infringed or misappropriated the intellectual property rights of a third party. These claims sometimes involve patent holding companies who have no relevant product revenues and against whom our own proprietary technology may therefore provide little or no deterrence. In addition, third parties may in the future assert intellectual property infringement claims against our customers, which, in certain circumstances, we have agreed to indemnify. Any intellectual property related infringement or misappropriation claims, whether or not meritorious, could result in costly litigation and could divert management resources and attention. Moreover, should we be found liable for infringement or misappropriation, we may be required to enter into licensing agreements, if available on acceptable terms or at all, pay substantial damages or make changes to the investment solutions and services that we offer. Any of the foregoing could prevent us from competing effectively, result in substantial costs to us, divert management’s attention and our resources away from our operations and otherwise harm our reputation.If our intellectual property and proprietary technology are not adequately protected to prevent use or appropriation by our competitors, our business and competitive position would suffer.Our future success and competitive position depend in part on our abilitytechnical security measures to protect our intellectual property rights. The steps we have taken to protectproprietary technology, all of which provide only limited protection. Despite our intellectual property rights may be inadequate to prevent the misappropriation of our proprietary technology. There can be no assurance that others will not develop or patent similar or superior technologies, investment solutions or services. Unauthorizedefforts, unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our intellectual property rights without paying us for doing so, which could harm our business. Policing unauthorized use of proprietary technology is difficult and expensive and our monitoring and policing activities may not be sufficient to identify any misappropriation and protect our proprietary technology. In addition, third parties may knowingly or unknowingly infringe our trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. If litigation is necessary to protect and enforce our intellectual property rights, any such litigation could be very costly and could divert management attention and resources. If we are unable to protect our intellectual property rights or if third parties independently develop or gain access to our or similar technologies, investment solutions or services, our results of operations, financial condition and business could be materially adversely affected.The use“open source code”the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in investment solutionsour business will not lapse or be invalidated, circumvented, challenged or abandoned;exposeincur significant costs to develop these services internally or find a replacement provider.and harm ourincluding the loss of valuable intellectual property, rights.To a limited extent,cybersecurity issues and non-compliance with data protection and privacy laws. If TCS fails to perform as required or terminates our arrangements, we rely on open source code to develop our platform, investmentmight not realize the expected financial and other solutionsoperational benefits of the outsourcing arrangement and support for our internal systems and infrastructure. While we monitor our use of open source code to attempt to avoid subjecting our solutions to conditions we do not intend, such use could inadvertently occur. Additionally, if a third‑party software provider has incorporated certain types of open source code into software we license from such third party for our solutions, we could, under certain circumstances,may be required to disclose the source code forpursue new third-party relationships, which could significantly disrupt our solutions. This could harmoperations and adversely affect our intellectual property position and have a material adverse effect on our results of operations,business, financial condition, and business.33Confidentiality agreementsMagis Capital Partners LLC. Envestnet and Magis are jointly invested in four ventures: Fiduciary Exchange, LLC (FIDx), Advisor Credit Exchange, LLC (ACE), HealthPilot, LLC, and Trucendent, LLC. In addition to our investment in each of the Exchanges, we also have various commercial arrangements with employees, consultantsthe Exchanges and others may not adequately prevent disclosureMagis. Each of trade secretsthe Exchanges was formed, and other proprietary information.We have devoted substantial resourcesour initial investments in each of the Exchanges was made, prior to Mr. Sipp becoming an employee in April 2021. To date, our total investment in the Exchanges is $45.4 million, the Exchanges contributed $8.7 million of our revenue for the year ended December 31, 2023 and we made payments of $2.1 million to the developmentExchanges in the year ended December 31, 2023. As a co-founder of Magis and investor in Magis private funds invested in the Exchanges, Mr. Sipp has a financial interest in the Exchanges which may create, or appear to create, a conflict of interest when we face decisions that could have different implications for us and the Exchanges. When Mr. Sipp joined us, we established procedures to minimize any such actual or potential conflicts of interest. Compliance with these procedures are monitored by our Chief Compliance Officer and reported on to our Audit Committee. Notwithstanding these procedures, Mr. Sipp’s personal and financial interests in Magis and the Exchanges may give him interests regarding the Exchanges different from those of us and our stockholders and may influence certain of his business decisions that directly or indirectly affect the Exchanges.proprietary technologies, investment solutionsbusiness strategy, divert board and services. In order to protect our proprietary rights, we enter into confidentiality agreements with our employees, consultantsmanagement’s attention and independent contractors. These agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our technologies, investment solutions or products or obtaining and using information that we regard as proprietary. Moreover, these agreements may not provide an adequate remedy in the event of such unauthorized disclosures of confidential information and we cannot assure you that our rights under such agreements will be enforceable. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time‑consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could reduce any competitive advantage we have developedresources and cause us to lose customersincur substantial expense and impact and create volatility in our stock price.otherwise harmcapital allocation, advance shareholder proposals or engage in proxy solicitations. Any of these activities could (i) divert the attention of our business.Our failureBoard of Directors, management, and employees, and may disrupt the momentum in our business and operations, as well as our ability to successfully integrate acquisitions could strainexecute our resources. In addition, there are significant risks associated with growth through acquisitions,strategic plan, (ii) create perceived uncertainties as to the future direction of our business or strategy, which may result in the loss of customers and potential business opportunities, make it more difficult to attract and retain qualified personnel, and impact our relationship with investors, vendors, and other third parties and (iii) result in us incurring substantial costs, including legal, proxy solicitation and public relations fees. Any of these impacts could materially and adversely affect our resultsbusiness and operating results. Further, the market price of our common stock could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties described above.conditioncondition.business.acquisitions. Over the past four years we have completed five significant acquisitions.acquisitions and investments. Acquisitions and investments involve a number of risks. They can be time‑consuming and may divert management’s attention from day‑to‑day operations. Financing an acquisition or investment could result in dilution from issuing equity securities or a weaker balance sheet from using cash or incurring debt. Acquisitions and investments might also result in losing key employees. In addition, we may fail to successfully integrate acquisitions.acquisitions and investments. We may also fail to generate enough revenuesrevenue or profits from an acquisition or investment to earn a return on the associated purchase price.acquisitionsacquisition or investment could present a number of other risks, including:·incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring operations or assets;
•incorrect assumptions regarding the future results of acquired or invested in operations or assets or expected cost reductions or other synergies expected to be realized as a result of acquiring or investing in operations or assets;·failure to integrate the operations or management of any acquired operations or assets successfully and on a timely and cost effective basis;
•failure to integrate the operations or management of any acquired or invested in operations or assets successfully and on a timely and cost effective basis;·insufficient knowledge of the operations and markets of acquired businesses;
•insufficient knowledge of the operations and markets of acquired or invested in businesses;·loss of key personnel;
•loss of key personnel;·failure to obtain necessary customer consents or retain key customers;
•failure to obtain necessary customer consents or retain key customers;·diversion of management’s attention from existing operations or other priorities;
•diversion of management’s attention from existing operations or other priorities;·increased costs or liabilities as a result of historical, undetected or undisclosed legal, regulatory or financial issues related to acquired operations or assets; and
•increased costs or liabilities as a result of historical, undetected or undisclosed legal, regulatory or financial issues related to acquired or invested in operations or assets; and·inability to secure, on terms we find acceptable, sufficient financing that may be required for any such acquisition or investment.34will suffer ifresult in the disclosure of confidential information, expose us to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.keep up with rapid technologicallimit our potential liability for breaches of confidentiality, and consequential damages. If any person, including any of our employees, contractors, or consultants, penetrates our network security, misappropriates or mishandles sensitive data, inadvertently or otherwise, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change evolving industry standardsour business practices or changing requirementspricing structure, any of clients.We expect technological developments to continue atwhich could have a rapid pace in our industry. Our success will depend, in part,material adverse effect on our ability to:
revenue and profitability. In addition, our customer contracts typically require us to meet specified minimum system security and privacy standards. If a cybersecurity breach occurs and we have not been in compliance with these standards, we could be liable for breach of contract claims brought by our customers.·continue to develop our technology expertise;·recruit and retain skilled technology professionals;·enhance our current investment solutions and services;·develop new investment solutions and services that meet changing client needs;·implement changes to our investment solutions and services to meet changing regulatory requirements;·advertise and market our investment solutions and services;·protect our proprietary technology and intellectual property rights; and·influence and respond to emerging industry standards and other technological changes.must accomplish these tasks incould also be required to indemnify our customers for third-party claims, fines, penalties and/or other assessments imposed on our customers as a timely and cost‑effective mannerresult of any cybersecurity breach and our failureliability could exceed our insurance coverage or ability to do sopay. Our registered investment adviser and broker-dealer subsidiaries may face SEC, FINRA and state enforcement actions, including monetary fines, if it is determined that we had inadequate cybersecurity measures in place to prevent such theft.materiallyadversely affect our ability to maintain our existing customer relationships and establish new customer relationships.must continueoperate investment advisory, broker‑dealer, and funds lines of business, each of which is subject to introduce newa specific and extensive regulatory scheme. In addition, we are subject to numerous laws and regulations of general application. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses.solutionadviser or broker‑dealer, as the case may be, which could, among other things, require changes to our business practices and service enhancements to addressscope of operations or harm our clients’ changing needs, market changes, regulations, and technological developments and failure to do soreputation. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.marketinability to use data may limit the usefulness of our solutions and services which could adversely affect our business. For some of our solutions, we contractually require our customers to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of information through our solutions. A failure by our customers to comply with these contractual requirements could limit our use of the related data and therefore the usefulness of our solutions and services which could adversely affect our business. Furthermore, a failure by our customers to comply with these contractual requirements could subject us to claims or liability for unauthorized use or disclosure of information. These claims or liabilities could subject us to unexpected costs and have a material adverse effect on our results of operations, financial condition or business.is characterized by shiftingwe are providing, we may enter into client demands, evolving market practices, newagreements jointly with advisors and evolving regulations,retain third‑party investment money managers on behalf of clients. As a result, we may be included as a defendant in lawsuits against financial advisors and third‑party investment money managers that involve claims of breaches of the duties of such persons, and we may face liabilities for somethe improper actions and/or omissions of such advisors and third‑party investment money managers. In addition, we may face claims based on the results of our investment advisory recommendations, even in the absence of a breach of our fiduciary duty. This risk may be heightened during periods when equity or other financial markets are declining in value or are particularly volatile, or when clients or investors with financial advisory clients are experiencing losses. Such claims and liabilities could have a material adverse effect on our results of operations, financial condition or business.rapid technological change. Changing client demands, new market rules and practices, or new technologies can render existingby our clients.obsoletesupport the investment processes of our clients, which, in the aggregate, manage billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potential liability claims brought by our clients or third parties based on the use of our investment solutions and unmarketable. Asservices. However, these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. Use of our products as part of the investment process creates the risk that clients, or the parties whose assets are managed by our clients, may pursue claims against us for very significant dollar amounts. Any such claim, even if the outcome were to be ultimately favorable to us, would involve a result,significant commitment of our future success will continue to depend uponmanagement, personnel, financial and other resources and could have a negative impact on our ability to develop newreputation. Such claims and lawsuits could therefore have a material adverse effect on our results of operations, financial condition or business.and investment solution and service enhancements that addresstogether with software, data or products from other companies. As a result, when problems occur, it might be difficult to identify the future needssource of our target markets and respond to technological and market changes. We incurred technology development costs of approximately $40,800, $38,100 and $12,600 in the years ended December, 31, 2017, 2016 and 2015, respectively. We expect thatproblem. Even when our technology development costs will continue at this level or they may increase in the future. We may not be able to accurately estimate the impact of new investment solutions and services on our business or how their benefits will be perceived by our clients. Further, we maydo not be successful in developing, introducing, marketing and licensing our new investment solutions or services or investment solution or service35enhancements on a timely and cost effective basis, or at all, and our new investment solutions and services and enhancements may not adequately meetcause these problems, the requirements of the marketplace or achieve market acceptance. In addition, clients may delay purchases in anticipation of new investment solutions or services or enhancements. Anyexistence of these factorserrors might cause us to incur significant costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our results of operations, financial condition or business.a multinational organization faced with increasingly complex tax issues in several jurisdictions,deployed, and we could be obligatedmay need to pay additional taxes in various jurisdictions.As a multinational organization, weprovide enhancements to correct such errors. Errors may be subject to taxation in several jurisdictions around the world with increasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictions could increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents, whichoccur that could have a material adverse effect on our liquidity and operating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax, interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiaries or assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact on us and the results of our operations. For example, the taxing authorities of Indiaoperations, financial condition or business and other jurisdictions in which we operate may challenge our methodologies for allocating income and expense under our intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business is not consistent with the manner in which we report our income to the jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interest and penalties, resulting in higher effective tax rates, reduced cash flows and higher expenses.Changes in tax law could adversely affect an investment in our shares.New U.S. federal tax law was recently enacted containing significant changes. The new law is complex and lacks developed administrative guidance; thus, the full impact to us or our stockholders is currently unclear. This new law or future tax law changes, administrative guidance or U.S. court decisions regarding tax law could have an adverse impact on us or our stockholders.We face exposure to foreign currency exchange rate fluctuations.We have costs denominated in foreign currencies, primarily the Indian Rupee, and our revenue is primarily denominated in the U.S. dollar. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly, changes in exchange rates, and in particular a weakening of the U.S. dollar, would negatively affect our expenses and other operating results as expressed in U.S. dollars.If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be harmed.Our India operations are a key factor to our success. We believe that our significant presence in India provides certain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing our business internationally. However, it also creates certain risks that we must effectively manage. As of December 31, 2017, approximately 2,200 of our total employees were based in India. Wage costs in India for skilled professionals are currently lower than in the United States for comparably skilled professionals. However, wages in India are increasing at a faster rate than in the United States, which could result in us incurring increased costs for technical professionalsharm to our reputation, lost sales, delays in commercial release, third‑party claims, regulatory actions, contractual disputes, contract terminations or renegotiations, or unexpected expenses and reduced margins. There is intense competition in India for skilled technical professionals,diversion of management and we expect such competitionother resources to increase. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional new talent.remedy errors. In addition, India has experienced significant inflation, low growth in gross domestic productnegative public perception and shortages of foreign exchange. India also has experienced civil unrestreputational damage caused by such claims would adversely affect our client relationships and terrorism and, in the past, has been involved in conflicts with neighboring countries. The occurrence of anyour ability to enter into new contracts. Any of these circumstances could result in disruptions to our India operations, which, if continued for an extended period of time,problems could have a material adverse effect on our results of operations, financial condition and business.effectively manage anyobtain all necessary consents or if such a challenge were to be successful it could have a material adverse effect on our results of operations, financial condition or business.foregoing risks relatedholders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock. The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive.India operations,discretion; consequently, your ability to achieve a return on your investment may depend only on appreciation in the price of our development effortscommon stock.impaired,purchased under this program. We retain the ability to repurchase when circumstances warrant and may suspend or discontinue such program at any time. The Inflation Reduction Act of 2022, which was signed into law in August 2022, imposes a 1% excise tax on the fair market value of stock repurchases after December 31, 2022, which may impact our growth could be slowed, and our operating results could be negatively impacted.36
future decisions on how to return value to stockholders in the most tax efficient manner.As a global organization, our business is susceptible to risks associated with our international operations and sales.We currently maintain international operations in India, the United Kingdom, Canada and Australia, lease space in other jurisdictions outside of the United States for the purpose of gathering data, and have customers located around the globe. Managing a global organization and conducting sales outside of the United States is difficult and time-consuming and introduces risks that we may not face with our operations and sales in the United States. These risks include:·the burdens of complying with a wide variety of foreign regulations, laws and legal standards, including privacy, data security, tax and employment, some of which may be materially different or more stringent than those of the United States;·regional data privacy laws that apply to the transmission of data across international borders;·lack of familiarity with, and unexpected changes in, foreign regulatory requirements;·customers’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impact our business operations in their jurisdictions;·negative, local perception of industries and customers that we may pursue;·laws and business practices favoring local competitors;·localization of our solutions, including unanticipated costs related to translation into foreign languages and adaptation for local practices and regulatory requirements;·different pricing environments and longer sales cycles;·longer accounts receivable payment cycles and difficulties in collecting accounts receivable;·difficulties in managing and staffing international operations;·reduced or varied protection for intellectual property rights in some countries;·compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory or contractual limitations on our ability to sell our solutions in certain foreign markets, and the risks and costs of compliance;·fluctuations in currency exchange rates;·potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficulty in interpreting international tax laws and restrictions on the repatriation of earnings;·increased financial accounting and reporting burdens and complexities; and·political, social and economic instability abroad, terrorist attacks and security concerns in general.Operating in international markets also requires significant management attention and financial resources. A component of our growth strategy involves the further expansion of our operations and the development of new customer relationships internationally. As we seek to expand internationally, we will need to develop relationships with additional partners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements and risks associated with our international operations. The investment we make and additional resources we use to expand our operations, target new international customers, expand our presence globally within our existing customers37and manage operational and sales growth in other countries may not produce desired levels of revenue or profitability, which could adversely affect our business and operating results.We do not currently intend to pay dividends on our common stock for the foreseeable future and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.We do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any gains on their investment. Investors seeking cash dividends should not purchase our common stock.The conditional conversion feature of our Convertible Notes, if triggered, may adversely affect our financial condition and operating results.In the event the conditional conversion feature of our $172,500 of outstanding Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert their Convertible Notes at any time during specified periods at their option. We may elect to satisfy our conversion obligation in cash, in shares of our common stock or in a combination of cash and shares of our common stock. If one or more holders elect to convert their Convertible Notes, unless we satisfy our conversion obligation by delivering solely shares of our common stock (other than cash in lieu of any fractional share), we would be required to settle all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity. Furthermore, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long‑term liability, which would result in a material reduction of our net working capital.We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes or purchase the Convertible Notes as required upon a fundamental change, and our existing debt contains, and our future debt may contain, limitations on our ability to pay cash upon conversion or purchase of the Convertible Notes.Following a fundamental change, holders of Convertible Notes will have the right to require us to purchase their Convertible Notes for cash. A fundamental change may also constitute an event of default or prepayment under, and result in the acceleration of the maturity of, our then‑existing indebtedness. In addition, upon conversion of the Convertible Notes, unless we settle our conversion obligation solely in shares of our common stock (other than cash in lieu of any fractional share), we will be required to make cash payments in respect of the Convertible Notes being surrendered for conversion. We may not have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change purchase price in cash with respect to any Convertible Notes surrendered by holders for purchase upon a fundamental change or make cash payments upon conversions. In addition, restrictions in our Credit Agreement or future credit facilities or other indebtedness, if any, may not allow us to purchase the Convertible Notes upon a fundamental change or make cash payments upon conversions of the Convertible Notes. Our failure to purchase the Convertible Notes upon a fundamental change or make cash payments upon conversions thereof when required would result in an event of default with respect to the Convertible Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment of the related indebtedness were to be accelerated after any38applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Convertible Notes or make cash payments upon conversions thereof.Due to uncertainty in the application and interpretation of applicable state sales and use tax laws, we may be subject to additional tax liability.We and our customers are subject to a variety of sales, use and other tax laws in the various states and cities in which we and they do business. These laws and their interpretations change from time to time and often do not address with clarity their applicability to the types of products and services we and our subsidiaries provide. Vendors, like us, are typically held responsible by taxing authorities for the collection and payment of any applicable sales and use taxes, even when owed by the end user. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our products or services, we might be liable for past taxes in addition to taxes going forward. Liability for past taxes might also include interest and penalty charges. We are often entitled to seek reimbursement from our customers for any sales and use taxes we pay either under the terms of our customer contracts or under applicable law or legal principles. Nevertheless, our customers might be reluctant to pay back taxes and might refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes and any associated interest and penalties, and if our clients do not reimburse us for all or a portion of these amounts, we will incur unplanned expenses that may be substantial. Moreover, imposition of such taxes on us going forward will effectively increase the cost of our products and services to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.During 2017 and 2016, the Company estimated that a sales and use tax liability of $8,522 and $10,108 was probable related to a number of taxing jurisdictions with respect to revenues in the respective years ended December 31, and prior years. For the year ended December 31, 2017 and 2016, we recognized net sales and use tax expense of $345 and $6,229, including interest of approximately $244 and $914, respectively. In addition, we determined an estimated sales tax receivable of $2,705 and $3,879 as of December 31, 2017 and 2016, respectively, related to estimated recoverability of amounts due from customers. Additional future information obtained from the applicable jurisdictions or audits by one or more taxing authorities may affect our estimate of our sales and use tax liability. There can be no assurance that we will not be subject to sales and use taxes or related penalties for past sales in jurisdictions where we currently believe no such taxes are required. Chicago, Illinois. Office space is also leased for theBerwyn, Pennsylvania. We support our Envestnet Wealth Solutions segment primarily through offices in Denver, Colorado; New York, New York; San Jose, California; Boston, Massachusetts; Seattle, Washington; Raleigh, North Carolina; Plano, Texas; Tucson, Arizona; Berwyn, Pennsylvania; Richmond, Virginia; Boston, Massachusetts; and Trivandrum, India. Office space is leased for theWe support our Envestnet | YodleeData & Analytics segment primarily through our office in Redwood City, California; West Chester, Pennsylvania and Bangalore, India.Raleigh, North Carolina. The majority of our offices are leased. We believe that our office facilities are adequate for our immediate needs and that additional or substitute space is available if needed to accommodate the foreseeable growth of our operations.39The Company is involved in legal proceedings arising in the ordinary course of its business.fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. Legal proceedings accruals are recorded when and if it is determined that a loss is both probable and reasonably estimable. For legal proceedings matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of December 31, 2017. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on Envestnet’s results of operations or cash flow in a particular quarter or year.
(a)Market Information(a)Market Information(ENV)“ENV”. following table sets forth, for the periods indicated, the high and low closing sale prices of our common stock, for each of the periods presented below as reported in the consolidated reporting system for the New York Stock Exchange Composite Transactions.(b)HoldersThe approximate number of holders of record of our common stock was 518114 as of February 23, 2018.(c)DividendsWe have not paid dividends for the most recent two years.402017,2023, we had 500,000,000 common shares authorized at a par value of $0.005, of which 44,700,64154,773,662 shares were outstanding.2017,2023, we had 50,000,000 preferred shares authorized at a par value of $0.005, of which no shares were outstanding.
(c)Dividends(d)Securities Authorized for Issuance Under Equity Compensation Plan“Note 15 – Stockholders’ Equity” to the consolidated financial statements in Part II, Item 8.8, “Note 19—Stock-Based Compensation” and Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.(e)Stock Performance Graphof 1933, as amended, or the Exchange Act, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Envestnet, Inc. $ 100.00 $ 141.55 $ 167.29 $ 161.29 $ 125.43 $ 100.67 $ 100.00 $ 123.72 $ 146.44 $ 166.50 $ 130.60 $ 150.31 S&P North American Technology Sector Index $ 100.00 $ 143.19 $ 205.04 $ 257.70 $ 165.34 $ 264.45 41(f)Recent Sales of Unregistered SecuritiesNone(g)Issuer Purchases of Equity SecuritiesSelected Financial DataConsolidated Statements of Operations42Consolidated Balance Sheet Data43Except where we have otherwise indicated orcontext otherwise requires, dollar amounts presentedconsolidated financial statements and the notes to those statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in this Annual Report on Form 10‑KK. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See Part I, "Forward-Looking Statements" and Part I, Item 1A, "Risk Factors" for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results could differ materially from the results referenced in forward-looking statements.in thousands, except for Exhibitsdelivered. Our mission is to empower financial advisors and per share amounts.Overview Inc. (“Envestnet”) is a leading provider of intelligent systems forleader in helping transform wealth management, andworking towards its goal of expanding a holistic financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management process. Envestnet empowers enterprises andwellness ecosystem so that our clients can better serve their clients. to more fully understand their clients and deliver better outcomes.More than 2,900 companies, including 16 of the 20 largest U.S. banks, 3948 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIA”),RIAs and hundreds of Internet servicesFinTech companies, all of which leverage Envestnet technology and services. Envestnet solutions enhance knowledge of the client, accelerate client on-boarding, improve client digital experiences, andservices that help drive better outcomes for enterprises, advisors and their clients.Founded in 1999, Envestnet has been a leader in helping transform wealth management, working towards its goal of building a holistic financial wellness network that supports enterprises, advisors and their clients. software, servicestechnology, solutions and data, delivering better intelligence and enabling its customers to drive better outcomes.We believe that our business model results in a high degree of recurring and predictable financial results.Recent DevelopmentsFolioDynamixOn January 2, 2018, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of September 25, 2017, between Inc., Folio Dynamics Holdings, Inc., a Delaware corporation (“FolioDynamix”), FCD Merger Sub, Inc.,originally founded in 1999, serves clients from its headquarters in Berwyn, Pennsylvania, as well as other locations throughout the United States and India and other international locations.Delaware corporationseparation and release agreement with Mr. Crager in which it was agreed that Mr. Crager will step down as chief executive officer on March 31, 2024 and as a member of the Company’s Board of Directors promptly following Envestnet’s 2024 Annual Meeting. Beginning April 2024, Mr. Crager will serve as a senior advisor, focusing on client and partner relationships. Beginning April 1, 2024, James Fox will begin serving as our Interim Chief Executive Officer until our Board of Directors has appointed a new chief executive officer. Mr. Fox has served as a member of our Board of Directors since February 2015 and Chair of the Board of Directors since March 2020.wholly owned subsidiarystated interest rate of Envestnet (“Merger Sub”),8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and Actua USA Corporation, a Delaware corporation, solely in its capacity as the representativeis convertible into common stock or preferred stock of the stockholdersprivately held company upon qualified financing events or corporate transactions. During the year ended December 31, 2023, interest income related to the Convertible Promissory Note included in interest income in the consolidated statements of FolioDynamix, Envestnet completed the merger of Merger Sub with and into FolioDynamix, with FolioDynamix continuing as the surviving corporation (the “Acquisition”) and a wholly owned subsidiary of Envestnet. The completion of the Acquisition on January 2, 2018 followed the receipt of all necessary regulatory approvals and third party consents.Acquisition, EnvestnetConvertible Promissory Note, we concurrently entered into a call option agreement with the privately held company, which provides us an option to acquire the privately held company at a predetermined price as of the earlier of July 2024 or upon satisfaction of certain financial metrics. The financial metrics were met during the year ended December 31, 2023; however, we did not exercise the call option.$195,000 in cash for all the outstanding shares of FolioDynamix, subject to certain closing and post-closing adjustments. Envestnet funded the Acquisition price withusing a combination of cash on the Company’s balance sheethand and with borrowings under its revolving credit facility.FolioDynamix provides financial institutions, registered investment advisors, and other wealth management clients with an end-to-end technology solution pairedthe Company's Revolving Credit Facility. No shares of the Company's common stock were issued upon settlement of the Convertible Notes due 2023.suitenumber of advisory tools including model portfolios, research, and overlay management services.The acquisitionemployees. In connection with this reduction in force initiative that began in the first quarter of FolioDynamix added complementary trading tools2023, as well as commission and brokerage supporta fourth quarter 2022 organizational realignment, we incurred approximately $35.4 million of total severance expense in the year ended December 31, 2023.Envestnet’s existing suitethese efforts, of offerings. The Company expectswhich we anticipate approximately $9.2 million to integratebe paid throughout 2024, with the technology and operations of FolioDynamix into the Company’s wealth management business, enabling the Company to further leverage its operating scale and data analytics capabilities.remaining balance paid through 2030.44platform technology,platforms, financial advisors and investor accounts and financial advisors in the periods indicated.indicated: As of December 31, 2023 2022 2021 (in millions, except accounts and advisors data) Platform Assets AUM $ 416,001 $ 341,144 $ 362,038 AUA 430,846 367,412 456,316 Total AUM/A 846,847 708,556 818,354 Subscription 4,959,514 4,382,109 4,901,662 Total platform assets $ 5,806,361 $ 5,090,665 $ 5,720,016 Platform Accounts AUM 1,640,879 1,547,009 1,345,274 AUA 1,254,962 1,135,026 1,217,076 Total AUM/A 2,895,841 2,682,035 2,562,350 Subscription 16,248,598 15,665,020 14,986,531 Total platform accounts 19,144,439 18,347,055 17,548,881 Advisors AUM/A 38,697 38,025 39,735 Subscription 69,973 67,520 68,808 Total Advisors 108,670 105,545 108,543 table providestables provide information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated.indicated: Asset Rollforward - 2023 As of December 31, 2022 Gross Sales Redemptions Net Flows Market Impact Reclass to Subscription As of December 31, 2023 (in millions, except account data) AUM $ 341,144 $ 101,305 $ (71,217) $ 30,088 $ 47,360 $ (2,591) $ 416,001 AUA 367,412 127,906 (99,468) 28,438 48,868 (13,872) 430,846 Total AUM/A $ 708,556 $ 229,211 $ (170,685) $ 58,526 $ 96,228 $ (16,463) $ 846,847 Fee-Based Accounts 2,682,035 312,915 (99,109) 2,895,841 $49.6$72.3 billion in new client conversions. The CompanyWe onboarded an additional $57.1$169.7 billion in subscription and licensing conversions during 2017,the year ended December 31, 2023 bringing total conversions for the year ended December 31, 2023 to $106.7$242.0 billion.45 Asset Rollforward - 2022 As of December 31, 2021 Gross Sales Redemptions Net Flows Market Impact Reclass to Subscription As of December 31, 2022 (in millions, except account data) $17.1$52.9 billion in new client conversions. The CompanyWe onboarded an additional $137.4$132.3 billion in subscription and licensing conversions during 2016,the year ended December 31, 2022, bringing total conversions for the year ended December 31, 2022 to $154.5$185.2 billion.| YodleeData & Analytics SegmentUsersuserend-user is defined as a user of an application or service provided to our customer using the Envestnet | YodleeData & Analytics platform whose status corresponds to a billable activity under the associated customer contract. We believe that our ability to increase the number of paid usersend-users is an indicator of our market penetration, the growth of our business, and our potential future business opportunities.Paid users were over approximately 22.4 million, 22.0 million, and 21.3 million as of December 31, 2017, 2016 and 2015, respectively. increase was primarily driven by an increase in ourfollowing table provides information regarding the number of customers as well as expansion of user base within certain existing customers.RevenuesAs of December 31, December 31, December 31, 2023 2022 2021 (in millions, except number of firms data) Number of paid end-users 38.3 38.8 31.8 Number of firms 1,324 1,286 1,211 revenuesrevenue primarily under three pricing models. First, a majorityportion of our revenuesrevenue is derived from fees charged as a percentage of the assets that are managed or administered on our technology platforms by financial advisors. These revenues areThis revenue is recorded under revenues from AUM or AUA, or collectively AUM/A.asset-based revenue. Our asset‑based fees vary based on the types of investment solutions and services that financial advisors utilize. Asset‑based fees accounted for approximately 60%, 61% and 79% of our total revenues for the years ended December 31, 2017, 2016 and 2015, respectively. In future periods, the percentage of our total revenuesrevenue attributable to asset‑based fees is expected to vary based on fluctuations in securities markets, whether we enter into new, or lose, significant subscription agreements, the mix of AUM or AUA, and other factors.revenuesrevenue from recurring, contractual subscription fees for providing access to our technology platforms. This subscription revenue includes both contractual minimum payments and usage-based fees and is driven primarily by the number of customers, including new customers as well as customers who renew their existing subscription contracts, and the number of paid users. These revenues areend-users. This revenue is recorded under revenues from subscription and licensing fees.subscription-based revenue. Subscription and licensing fees vary based on the scope of technology solutions and services being used, and are priced in a variety of constructs based on the size of the business, number of users or number of accounts and in many cases can increase over time based on the growth of these factors. Subscription and licensing fees accounted for 36%, 34% and 18%total revenues for the years ended December 31, 2017, 2016 and 2015, respectively.We also generate revenuesrevenue is generated from fees received in connection with professional services and other revenue accounted for the remainder of our revenues.46
Asset-based recurring revenueRevenues from assets under management or administrationrevenuesrevenue from assets under management or administration includeincludes costs paid by us to third parties for sub‑advisory, clearing, custody and brokerage services. These expenses are recorded under cost of revenues.direct expense. We do not have fiduciary responsibility in connection with AUA and, therefore, generally charge lower fees on these assets. Our fees for AUA vary based on the nature of the investment solutions and services we provide.For over 90%revenuesasset-based recurring revenue from assets under management or administration, we billAUM/A are billed to customers at the beginning of each quarter and are based on the market value of customertheir assets on our platforms as of the end of the prior quarter. For example, revenues from assets under management or administrationasset-based recurring revenue recognized during the fourth quarter of 2017 were2023 was primarily based on the market value of assets as of September 30, 2017.2023. Our revenues from assets under management or administration areasset-based recurring revenue is generally recognized ratably throughout the quarter based on the number of days in the quarter.revenues from assets under management or administration areasset-based recurring revenue is affected by the amount of new assets that are added to existing and new client accounts, which we refer to as gross sales. Gross sales, from time to time, also include conversions of client assets to our technology platforms. The amounts of assets that are withdrawn from client accounts are referred to as redemptions. We refer to the difference between gross sales and redemptions as net flows. Positive net flows indicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawn from client accounts.revenues from assets under management or administration areasset-based revenue is also affected by changes in the market values of securities held in client accounts due to fluctuations in the securities markets. Certain types of securities have historically experienced greater market price fluctuations, such as equity securities, than other securities, such as fixed income securities, though in any given period the type of securities that experience the greatest fluctuations may vary.Revenues from subscription and licensing feesOur revenues received under license agreements are recognized over the contractual term. Subscription contracted term of each respective subscription agreement, commencing on the date the service is provisioned to the customer, provided all applicable revenue recognition criteria have been satisfied. As part of the subscription contracts, many of our open banking customers generally commit to a minimum level of paid usersend-users from which a minimum level of non-refundable subscription revenue is derived. As paid usersend-users in excess of the guaranteed minimum level access the Envestnet | Yodlee platform, the customer is then required to pay additional usage fees calculated based upon a contracted per-paid-user fee. No refunds or credits are given if fewer paid usersend-users access the Envestnet | Yodlee platform than the contracted minimum level. Usage-based revenue is recognized as earned, provided all applicable revenue recognition criteria have been satisfied.Revenues from professional Our subscription-based revenue is affected by the addition, loss and timing of customer contracts as well as access to data in the research business.To a lesser degree we revenuerevenuesrevenue from professional services fees by providing customers with certain technology platform software development and implementation services. These revenues areThis revenue is recognized with when completed, under a proportional‑performance model utilizing an output‑based approach or on a straight‑line basis, over the estimated life of the customer relationship. Our contracts generally have fixed prices and generally specify or quantify interim deliverables.items.items:47
Direct expenseCostDirect expense primarily consists of revenuesCost of revenues primarily includes expenses related to our receipt of sub‑advisory and clearing, custody and brokerage services from third parties. The largest component of cost of revenuesdirect expense is paid to third partythird-party investment managers. Clearing, custody and brokerage services are performed by third‑party providers. These expenses are typically calculated based upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter and are recognized ratably throughout the quarter based on the number of days in the quarter. Also included in cost of revenuesdirect expense are vendor specific expenses related to the direct support of revenuesrevenue associated with the Envestnet | Tamarac products and Envestnet | YodleeData & Analytics products.Compensation and benefitsCompensation and benefits expensesrelate toconsists of employee compensation, including salaries, short-term incentive compensation, non‑cash stock‑based compensation, incentive compensation, benefits and employer‑related taxes.administrationadministration expenses includeadministrative expense primarily consists of costs related to occupancy, costs and expenses relating to communications services, research and data services, websitesoftware and system development,maintenance charges, marketing, professional and legal services, travel and entertainment and acquisition/transaction related expenses.expenses includeexpense primarily consists of depreciation and amortization related to:·fixed assets, including computer equipment and software, leasehold improvements, office furniture and fixtures and other office equipment;·internally developed software; and·intangible assets, primarily related to customer lists, backlog, proprietary technology and trade names, the value•fixed assets, including building and building improvements, computer equipment and software, leasehold improvements, office furniture and fixtures and office equipment and other;
_________________________________________ Year Ended December 31, 2023 vs 2022 2022 vs 2021 2023 2022 2021 $ Change % Change $ Change % Change (in thousands, except per share information and percentages) Revenue: Envestnet Wealth Solutions: Asset-based $ 745,238 $ 738,228 $ 709,376 $ 7,010 1 % $ 28,852 4 % Subscription-based 325,398 310,217 280,076 15,181 5 % 30,141 11 % Total recurring revenue 1,070,636 1,048,445 989,452 22,191 2 % 58,993 6 % Professional services and other revenue 24,068 16,799 14,190 7,269 43 % 2,609 18 % Total Envestnet Wealth Solutions revenue $ 1,094,704 $ 1,065,244 $ 1,003,642 $ 29,460 3 % $ 61,602 6 % Envestnet Data & Analytics: Subscription-based $ 139,332 $ 167,627 $ 173,913 $ (28,295) (17) % $ (6,286) (4) % Total recurring revenue 139,332 167,627 173,913 (28,295) (17) % (6,286) (4) % Professional services and other revenue 11,584 6,913 8,962 4,671 68 % (2,049) (23) % Total Envestnet Data & Analytics revenue $ 150,916 $ 174,540 $ 182,875 $ (23,624) (14) % $ (8,335) (5) % Total consolidated revenue $ 1,245,620 $ 1,239,784 $ 1,186,517 $ 5,836 — % $ 53,267 4 % Deferred revenue fair value adjustment 69 216 284 (147) (68) % (68) (24) % Total consolidated adjusted revenue* $ 1,245,689 $ 1,240,000 $ 1,186,801 $ 5,689 — % $ 53,199 4 % Consolidated net income (loss) attributable to Envestnet, Inc. $ (238,724) $ (80,939) $ 13,296 $ (157,785) ** $ (94,235) ** Net income (loss) attributable to Envestnet, Inc. per share: Basic $ (4.38) $ (1.47) $ 0.24 $ (2.91) ** $ (1.71) ** Diluted $ (4.38) $ (1.59) $ 0.24 $ (2.79) ** $ (1.83) ** Adjusted EBITDA* $ 250,913 $ 215,408 $ 261,730 $ 35,505 16 % $ (46,322) (18) % Adjusted net income* $ 140,199 $ 122,476 $ 158,022 $ 17,723 14 % $ (35,546) (22) % Adjusted net income per diluted share* $ 2.12 $ 1.86 $ 2.42 $ 0.26 14 % $ (0.56) (23) %
___________________________________________________ Year Ended December 31, 2023 2022 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Asset-based $ 745,238 60 % $ 738,228 60 % $ 7,010 1 % Subscription-based 464,730 37 % 477,844 39 % (13,114) (3) % Total recurring revenue 1,209,968 97 % 1,216,072 98 % (6,104) (1) % Professional services and other revenue 35,652 3 % 23,712 2 % 11,940 50 % Total revenue 1,245,620 100 % 1,239,784 100 % 5,836 — % Operating expenses: Direct expense 473,038 38 % 470,424 38 % 2,614 1 % Employee compensation 444,828 36 % 490,725 40 % (45,897) (9) % General and administrative 210,113 17 % 218,831 18 % (8,718) (4) % Depreciation and amortization 130,304 10 % 125,828 10 % 4,476 4 % Goodwill impairment 191,818 15 % — — % 191,818 100 % Total operating expenses 1,450,101 116 % 1,305,808 105 % 144,293 11 % Loss from operations (204,481) (16) % (66,024) (5) % (138,457) * Other income (expense): Interest income 6,288 1 % 4,184 — % 2,104 50 % Interest expense (25,138) (2) % (16,843) (1) % (8,295) (49) % Other income (expense), net (9,666) (1) % 264 — % (9,930) * Total other income (expense), net (28,516) (2) % (12,395) (1) % (16,121) (130) % Loss before income tax provision (232,997) (19) % (78,419) (6) % (154,578) * Income tax provision 12,777 1 % 7,061 1 % 5,716 81 % Net loss (245,774) (20) % (85,480) (7) % (160,294) * Add: Net loss attributable to non-controlling interest 7,050 1 % 4,541 — % 2,509 55 % Net loss attributable to Envestnet, Inc. $ (238,724) (19) % $ (80,939) (7) % $ (157,785) * capitalized in connection with our acquisitions.Furniture and equipment are depreciated using the straight‑line method based on the estimated useful lives of the depreciable assets. Leasehold improvements are amortized using the straight‑line method over their estimated economic useful lives or the remaining lease term, whichever is shorter. Improvements are capitalized, while repairs and maintenance costs are recorded as expenses in the period they are incurred. Assets are tested for recoverability whenever events or circumstances indicate that the carryingmarket value of the assets may not be recoverable.Internally developed software is amortized on a straight‑line basis over its estimated useful life. We evaluate the useful lives of thesecustomers' assets on our platforms as of the end of the previous quarter.annual basisincrease of $15.2 million in the Envestnet Wealth Solutions segment, which can be attributed to new and testexisting customer growth.impairment whenever eventsthe year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to timing of the completion of customer projects and deployments and an increase in revenue recognized in the Data & Analytics segment as a result of point in time revenue recognized on customer deployments.changes1%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in circumstances occur that could impactasset-based direct expense of $3.8 million, which directly correlates with the recoverabilityincrease to asset-based recurring revenue during the period, partially offset by a decrease in subscription-based direct expense of these assets.Intangible assets are depreciated using$1.8 million, which directly correlates with the decrease to subscription-based recurring revenue during the period.acceleratedorganizational realignment in the fourth quarter of 2022, a decrease in non-cash compensation expense of $9.3 million and other immaterial decreases within employee compensation, partially offset by an increase in severance expense of $5.3 million as a result of the reduction in force initiative and organizational realignment.straight‑line basis over their estimated economic useful lives4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to decreases in restructuring charges and are reviewedtransaction costs of $22.1 million, marketing costs of $7.3 million, occupancy costs of $4.6 million, communications, research and data services of $3.4 million and other immaterial decreases within general and administrative expense, partially offset by increases in software and maintenance charges of $31.4 million which is primarily a result of the outsourcing arrangement with TCS.possible impairment whenever events or changesthe year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in circumstances occur that could impact the recoverability of these assets.Interest expenseInterest expense includes coupon interest, discount amortization, and issuance cost amortization related to internally developed software of $15.5 million, partially offset by decreases in amortization related to intangible assets of $9.0 million and deprecation related to fixed assets of $2.2 million.Convertible Notesyear ended December 31, 2023 compared to the year ended December 31, 2022 as a result of the recognition of a non-cash impairment charge to goodwill in the Envestnet Data & Analytics segment during the year ended December 31, 2023. Year Ended December 31, 2023 2022 (in thousands, except for percentages) Loss before income tax provision $ (232,997) $ (78,419) Income tax provision 12,777 7,061 Effective tax rate (5.5) % (9.0) % Year Ended December 31, 2022 2021 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Asset-based $ 738,228 60 % $ 709,376 60 % $ 28,852 4 % Subscription-based 477,844 39 % 453,989 38 % 23,855 5 % Total recurring revenue 1,216,072 98 % 1,163,365 98 % 52,707 5 % Professional services and other revenue 23,712 2 % 23,152 2 % 560 2 % Total revenue 1,239,784 100 % 1,186,517 100 % 53,267 4 % Operating expenses: Direct expense 470,424 38 % 423,723 36 % 46,701 11 % Employee compensation 490,725 40 % 432,829 36 % 57,896 13 % General and administrative 218,831 18 % 171,657 14 % 47,174 27 % Depreciation and amortization 125,828 10 % 117,767 10 % 8,061 7 % Total operating expenses 1,305,808 105 % 1,145,976 97 % 159,832 14 % Income (loss) from operations (66,024) (5) % 40,541 3 % (106,565) * Other income (expense): Interest income 4,184 — % 827 — % 3,357 * Interest expense (16,843) (1) % (16,931) (1) % 88 1 % Other income (expense), net 264 — % (4,076) — % 4,340 106% Total other income (expense), net (12,395) (1) % (20,180) (2) % 7,785 39 % Income (loss) before income tax provision (78,419) (6) % 20,361 2 % (98,780) * Income tax provision 7,061 1 % 7,667 1 % (606) (8) % Net income (loss) (85,480) (7) % 12,694 1 % (98,174) * Add: Net loss attributable to non-controlling interest 4,541 — % 602 — % 3,939 * Net income (loss) attributable to Envestnet, Inc. $ (80,939) (7) % $ 13,296 1 % $ (94,235) * Year Ended December 31, 2022 2021 (in thousands, except for percentages) Income (loss) before income tax provision $ (78,419) $ 20,361 Income tax provision 7,061 7,667 Effective tax rate (9.0) % 37.7 % Year Ended December 31, 2023 2022 2021 (in thousands) Envestnet Wealth Solutions $ 108,753 $ 57,323 $ 129,287 Envestnet Data & Analytics (216,542) (22,221) (2,603) Nonsegment operating expenses (96,692) (101,126) (86,143) Income (loss) from operations (204,481) (66,024) 40,541 Total other income (expense), net (28,516) (12,395) (20,180) Income (loss) before income tax provision (232,997) (78,419) 20,361 Income tax provision 12,777 7,061 7,667 Net income (loss) (245,774) (85,480) 12,694 Add: Net loss attributable to non-controlling interest 7,050 4,541 602 Net income (loss) attributable to Envestnet, Inc. $ (238,724) $ (80,939) $ 13,296 Year Ended December 31, 2023 2022 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Asset-based $ 745,238 68 % $ 738,228 69 % $ 7,010 1 % Subscription-based 325,398 30 % 310,217 29 % 15,181 5 % Total recurring revenue 1,070,636 98 % 1,048,445 98 % 22,191 2 % Professional services and other revenue 24,068 2 % 16,799 2 % 7,269 43 % Total revenue 1,094,704 100 % 1,065,244 100 % 29,460 3 % Operating expenses: Direct expense 449,065 41 % 444,447 42 % 4,618 1 % Employee compensation 313,338 29 % 321,277 30 % (7,939) (2) % General and administrative 120,247 11 % 143,597 13 % (23,350) (16) % Depreciation and amortization 103,301 9 % 98,600 9 % 4,701 5 % Total operating expenses 985,951 90 % 1,007,921 95 % (21,970) (2) % Income from operations $ 108,753 10 % $ 57,323 5 % $ 51,430 90 % Year Ended December 31, 2022 2021 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Asset-based $ 738,228 69 % $ 709,376 71 % $ 28,852 4 % Subscription-based 310,217 29 % 280,076 28 % 30,141 11 % Total recurring revenue 1,048,445 98 % 989,452 99 % 58,993 6 % Professional services and other revenue 16,799 2 % 14,190 1 % 2,609 18 % Total revenue 1,065,244 100 % 1,003,642 100 % 61,602 6 % Operating expenses: Direct expense 444,447 42 % 400,119 40 % 44,328 11 % Employee compensation 321,277 30 % 275,184 27 % 46,093 17 % General and administrative 143,597 13 % 108,028 11 % 35,569 33 % Depreciation and amortization 98,600 9 % 91,024 9 % 7,576 8 % Total operating expenses 1,007,921 95 % 874,355 87 % 133,566 15 % Income from operations $ 57,323 5 % $ 129,287 13 % $ (71,964) (56) % Year Ended December 31, 2023 2022 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Subscription-based $ 139,332 92 % $ 167,627 96 % $ (28,295) (17) % Professional services and other revenue 11,584 8 % 6,913 4 % 4,671 68 % Total revenue 150,916 100 % 174,540 100 % (23,624) (14) % Operating expenses: Direct expense 23,973 16 % 25,977 15 % (2,004) (8) % Employee compensation 69,414 46 % 101,300 58 % (31,886) (31) % General and administrative 55,250 37 % 42,256 24 % 12,994 31 % Depreciation and amortization 27,003 18 % 27,228 16 % (225) (1) % Goodwill impairment 191,818 127 % — — % 191,818 100 % Total operating expenses 367,458 243 % 196,761 113 % 170,697 87 % Loss from operations $ (216,542) (143) % $ (22,221) (13) % $ (194,321) * upfront fees$4.5 million and monthly feesdeprecation related to fixed assets of $1.6 million, partially offset by an increase in amortization related to internally developed software of $5.9 million. Year Ended December 31, 2022 2021 Amount % of Revenue Amount % of Revenue $ Change % Change (in thousands, except percentages) Revenue: Subscription-based $ 167,627 96 % $ 173,913 95 % $ (6,286) (4) % Professional services and other revenue 6,913 4 % 8,962 5 % (2,049) (23) % Total revenue 174,540 100 % 182,875 100 % (8,335) (5) % Operating expenses: Direct expense 25,977 15 % 23,604 13 % 2,373 10 % Employee compensation 101,300 58 % 99,385 54 % 1,915 2 % General and administrative 42,256 24 % 35,746 20 % 6,510 18 % Depreciation and amortization 27,228 16 % 26,743 15 % 485 2 % Total operating expenses 196,761 113 % 185,478 101 % 11,283 6 % Loss from operations $ (22,221) (13) % $ (2,603) (1) % $ (19,618) * Second Amendedoutsourcing arrangement with TCS and Restated Credit Agreement.an organizational realignment in the fourth quarter of 2022. Year Ended December 31, 2023 2022 $ Change % Change (in thousands, except percentages) Operating expenses: Employee compensation $ 62,076 $ 68,148 $ (6,072) (9) % General and administrative 34,616 32,978 1,638 5 % Total operating expenses $ 96,692 $ 101,126 $ (4,434) (4) % discount,normalized tax rate is based solely on the estimated blended statutory income tax rates in the jurisdictions in which we operate. We monitor the normalized tax rate based on events or trends that could materially impact the rate, including tax legislation changes and changes in the geographic mix of our operations. Year Ended December 31, 2023 2022 2021 (in thousands) Total revenue $ 1,245,620 $ 1,239,784 $ 1,186,517 69 216 284 Adjusted revenue $ 1,245,689 $ 1,240,000 $ 1,186,801 Year Ended December 31, 2023 2022 2021 (in thousands) Net income (loss) $ (245,774) $ (85,480) $ 12,694 Add (deduct): 69 216 284 Interest income (6,288) (4,184) (827) Interest expense 25,138 16,843 16,931 12,777 7,061 7,667 Depreciation and amortization 130,304 125,828 117,767 191,818 — — 71,031 80,333 68,020 16,263 35,141 18,490 35,399 30,117 11,347 6,982 6,055 7,591 437 1,419 (7) (392) 802 (1,347) — — 730 — — (1,067) (804) (400) (758) — — (1,206) — — (968) (546) (9,517) — 10,579 8,874 7,093 3,920 2,300 (704) Adjusted EBITDA $ 250,913 $ 215,408 $ 261,730 Year Ended December 31, 2023 2022 2021 (in thousands, except share and per share amounts) Net income (loss) $ (245,774) $ (85,480) $ 12,694 12,777 7,061 7,667 Income (loss) before income tax provision (benefit) (232,997) (78,419) 20,361 Add (deduct): 69 216 284 5,655 4,678 5,745 17,845 10,897 9,919 62,927 71,901 68,587 191,818 — — 71,031 80,333 68,020 16,263 35,141 18,490 35,399 30,117 11,347 6,982 6,055 7,591 437 1,419 (7) (392) 802 (1,347) — — 730 — — (1,067) (804) (400) (758) — — (1,206) — — (968) (546) (9,517) — 10,579 8,874 7,093 3,920 2,300 (704) Adjusted net income before income tax effect 188,186 164,397 212,110 (47,987) (41,921) (54,088) Adjusted net income $ 140,199 $ 122,476 $ 158,022 Basic number of weighted-average shares outstanding 54,457,365 55,199,482 54,470,975 Effect of dilutive shares: Convertible Notes 11,084,413 10,092,369 9,898,549 Non-vested RSUs and PSUs 413,734 390,270 633,384 Options to purchase common stock 47,388 111,327 206,022 Warrants — — 73,715 Diluted number of weighted-average shares outstanding 66,002,900 65,793,448 65,282,645 Adjusted net income per share - diluted $ 2.12 $ 1.86 $ 2.42 Year Ended December 31, 2023 Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total (in thousands) Revenue $ 1,094,704 $ 150,916 $ — $ 1,245,620 69 — — 69 Adjusted revenue $ 1,094,773 $ 150,916 $ — $ 1,245,689 Income (loss) from operations $ 108,753 $ (216,542) $ (96,692) $ (204,481) Add (deduct): 69 — — 69 Depreciation and amortization 103,301 27,003 — 130,304 — 191,818 — 191,818 44,510 8,193 18,328 71,031 10,868 215 5,180 16,263 17,232 11,813 6,354 35,399 — 5,322 1,660 6,982 (320) (72) — (392) 3,920 — — 3,920 Adjusted EBITDA $ 288,333 $ 27,750 $ (65,170) $ 250,913 Year Ended December 31, 2022 Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total (in thousands) Revenue $ 1,065,244 $ 174,540 $ — $ 1,239,784 216 — — 216 Adjusted revenue $ 1,065,460 $ 174,540 $ — $ 1,240,000 Income (loss) from operations $ 57,323 $ (22,221) $ (101,126) $ (66,024) Add (deduct): 216 — — 216 Depreciation and amortization 98,600 27,228 — 125,828 47,891 9,891 22,551 80,333 22,871 3,731 8,539 35,141 13,237 10,745 6,135 30,117 — 6,055 — 6,055 878 (76) — 802 2,300 — — 2,300 Other 635 5 — 640 Adjusted EBITDA $ 243,951 $ 35,358 $ (63,901) $ 215,408 Year Ended December 31, 2021 Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total (in thousands) Revenue $ 1,003,642 $ 182,875 $ — $ 1,186,517 284 — — 284 Adjusted revenue $ 1,003,926 $ 182,875 $ — $ 1,186,801 Income (loss) from operations $ 129,287 $ (2,603) $ (86,143) $ 40,541 Add (deduct): 284 — — 284 Depreciation and amortization 91,024 26,743 — 117,767 37,343 12,078 18,599 68,020 13,795 242 4,453 18,490 4,614 4,016 2,717 11,347 — 7,591 — 7,591 (1,507) 160 — (1,347) 632 98 — 730 — (1,067) — (1,067) (704) — — (704) Other 78 — — 78 Adjusted EBITDA $ 274,846 $ 47,258 $ (60,374) $ 261,730 upfronttransaction related expenditures and system integration costs related to implementation of a new Enterprise Resource Planning System. These third-party costs are infrequent and outside the ordinary course of our continuing operations. We exclude these costs to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.agreements.to fees receivable, investment manager fees, employee compensation, income tax, our annual Advisor Summit and various other items. Historically the first quarter of the year is our lowest quarter of cash provided by operating activities primarily due to the payment of annual bonuses during the first quarter of the year following the year they were incurred and prepayments made during the first quarter of the year associated with our Advisor Summit which is held during the second quarter of the year.48
We believe our existing cash and cash equivalents and cash generated in the ongoing operations of our businesswill be sufficient to fund our current operations, including capital expenditure needs and debt service obligations, over the next twelve months and beyond. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to borrow under our Revolving Credit Facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities.Other expense, netOther expense, net includes foreign exchange gainsOn February 20, 2024, the Company entered into a Waiver with respect to the Revolving Credit Facility, between the Company, the Guarantors party thereto from time to time, the Lenders party thereto from time to time and Bank of Montreal, as administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and June 30, 2023. The Company was in compliance with all other covenants in the Revolving Credit Facility as of December 31, 2023.lossconverted and gain or lossbear interest at a rate of 2.625% per annum payable semiannually in arrears on foreign currency forward contractsJune 1 and December 1 of each year. The Convertible Notes due 2025 are set to mature on August 15, 2025 and bear interest at a rate of 0.75% per annum payable semiannually in arrears on February 15 and August 15 of each year. Year Ended December 31, 2023 2022 (in thousands) Net cash provided by operating activities $ 154,868 $ 98,355 Net cash used in investing activities (154,063) (251,126) Net cash used in financing activities (72,706) (108,320) Effect of exchange rate on changes on cash, cash equivalents and restricted cash 1,106 (6,164) Net change in cash, cash equivalents and restricted cash $ (70,795) $ (267,255) other miscellaneous revenuea $19.6 million decrease in accrued compensation and related taxes, which includes accrued incentive compensation, from December 31, 2021 to December 31, 2022 as a result of lower operating performance in 2022 compared to 2021. These increases were partially offset by an increase in cash used in fees receivable, net of $15.6 million as a result of an increase in fees receivable net, from December 31, 2022 to December 31, 2023 due to timing of cash collections from our clients.expense items as appropriate.accounting principles generally accepted in the United States, or (“U.S. GAAP”).GAAP. The accounting policies described below require management to apply significant judgment in connection with the preparation of our consolidated financial statements. In particular, judgment is applied to determine the appropriate assumptions to be used in calculating estimates that affect certain reported amounts in our consolidated financial statements. These estimates and assumptions are based on historical experience and on various other factors that we believe to be reasonable under the circumstances. If different estimates or assumptions were used, our results of operations, financial condition and cash flows could have been materially different than those reflected in our consolidated financial statements. For additional information regarding our critical accounting policies, see Part II, Item 8, “Note 2 - 2—Summary of Significant Accounting Policies”.financial statements in Part II, Item 8.Revenue recognitionWe recognize revenues when all four of the following criteria have been met:
operations is considered to be revenue from contracts with customers. Sales and usage-based taxes are excluded from revenue.·Persuasive evidence of an arrangement exists;·The product has been delivered or the service has been performed;·The fee is fixed or determinable;·Collectability is reasonably assured.Types of revenuesWe generate revenues from assets under management or administration and are made available to customers throughout the contractual term from licensing, subscriptions and professional service fees.Revenues fromthe date the customized platform is launched. under managementmanaged or administration are generated from feesadministered on our platforms. The fee percentage varies based on a contractual percentage of assets under management or administration valued at each quarter‑end. These fees are generally collected at the beginning of a quarter in advance based upon the previous quarter‑end values. In less than 10% of our assets under management or administration contracts, fees are collected at the end of the quarter based upon the average daily balance. The contractual fee percentages vary based upon the level and type of services we provide to our customers. Pursuantcustomers, as well as the values of existing customer accounts. The values of the customer accounts are affected by inflows or outflows of customer funds and market fluctuations.contracts withcustomer over the quarter are considered distinct, as the customer benefits distinctly from each increment of our customers, we calculate ourservices and each quarter is separately identified in the contract, and are considered to be a single performance obligation under ASC 606.asset values, without making any judgment or estimates. None of our fees isvariable amounts earned pursuantfrom the platform services relate specifically to performance‑based or other incentive‑based arrangements.Subscriptionthe benefits transferred to the customer during that quarter. Accordingly, revenue is primarily derived from customers accessingallocated to the Envestnet | Yodlee platform or the Envestnet | Tamarac platformspecific quarter in which services are performed. include subscription, support, and usage-based fees. Subscription revenue is recognized ratablyon a ratable basis over the contracted term of each respective subscription agreement, commencingquarter beginning on the date that the service is provisionedplatform services are made available to the customer providedas the four revenue recognition criteria have been satisfied. Usage-based revenues are recognized as earned, providedcustomer simultaneously consumes and receives the four revenue recognition criteria have been satisfied.We generate revenues from licensing fees pursuant to recurring contractual fixed‑fee agreements. Our licensing fees vary based on the type of services we provide.49We also generate revenues from professional service fees by providing customers with customized technology platform software development and implementation services. These revenues are received pursuant to contracts that generally detail the naturebenefits of the services to be provided by us, the estimated number of hours such work will require and the total contract fee amount.Recognition of revenuesApplication of the applicable accounting principles of U.S. GAAP requires us to make judgments and estimates in connection with the measurement and recognition of certain revenues. Revenuesservices. All asset-based fees are recognized in the period in whichEnvestnet Wealth Solutions segment.related services are provided. In certain cases, management is required to determine whether revenues should be recognized in an amount equal to theprincipal (revenue reported on a gross basis) or agent (revenue reported on a net basis). Generally, we report customer fees we receive or net of payments of expenses to third‑parties, such asincluding charges for third party investment managers and custodians, that perform services for us in connection with certain of our financial advisors’ client accounts. Generally, when fees are collected for investment management, clearing, custody or brokerage services in circumstancesservice providers where we do not have a direct contract with such third party service providers on a gross basis, whereas the third‑party provider, the feesamounts billed to our customers are recorded as revenue, on a net basis. Fees we received in advance of the performance of servicesand amounts paid to third party service providers are recorded as deferred revenues ondirect expense. We are the principal in the transaction because we control the services before they are transferred to our consolidated balance sheetcustomers. Control is evidenced by being primarily responsible to our customers and having discretion in establishing pricing.recognizedconsidered stand-ready promises. Quarterly subscription services are considered distinct as revenues when earned, generally over three months.The Company derives subscription and licensing fees from recurring contractual fixed fee contracts with larger financial institutions or enterprise clients. Licensing contracts allow the customer can benefit from each increment of services on its own and each quarter is separately identified in the contract, and services are considered to providebe a unique configurationsingle performance obligation under the ASC 606.platform featuresthe contract. The fixed fees are generally calculated and investment solutions for their advisors.billed quarterly in advance. The licensingusage-based fees varyare generally calculated and are billed either monthly or quarterly based on the type of services providedactual usage and our revenues received under license agreements are recognized overrelate specifically to the contractual term. The Company’s license agreements do not generally provide its customers the ability to take possession of the software or host the software on the customers’ own systems or through a hosting arrangement with an unrelated party.When the Company enters into arrangements with multiple deliverables, exclusive of arrangements with software deliverables, it applies the FASB’s guidance for revenue arrangements with multiple deliverables and evaluates each deliverable to determine whether it represents a separate unit of accounting based on the following criteria: (i) whether the delivered item has valuebenefits transferred to the customer on a stand‑alone basis, and (ii) if the contract includes a general right of return relative to the delivered item, deliveryduring that month or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. Revenuequarter. Accordingly, revenue is allocated to each unit of accounting or element basedthe specific quarter in which services are performed.relative selling prices. The Company determines relative selling prices by using either (a) vendor‑specific objective evidence (“VSOE”) if it exists; or (b) third‑party evidence (“TPE”) of selling price. When neither VSOE nor TPE of selling price exists for a deliverable,ratable basis over the Company uses its best estimatequarter beginning when the subscription services are made available to the customer, as the customer simultaneously receives and consumes the benefits of the selling price for that deliverable.After determining which deliverables representsubscription services. Usage-based revenue is recognized on a separate unit of accounting, each unit is then accounted for undermonthly basis as the applicable revenue recognition guidance. In cases where elements cannot be treatedcustomer receives and consumes the benefit as separate units of accounting,we provide the elementsservices. Subscription-based fees are combined into a single unit of accounting for revenue recognition purposes. If one ofrecognized in both the elements that are combined into a single unit of accounting is fees fromEnvestnet Wealth Solutions and Envestnet Data & Analytics segments.including implementation relatedfees by providing contractual customized services or customized serviceand platform software development the professional service fees are recognized over the course of the expected customer relationship. We have estimated the life of the customer relationship by considering both the historical retention rate of our customers while not exceeding the number of years over which we can accurately forecast future revenues. We currently estimate this term to be five years.The Company also derives professional service fees from providing contractual customized platform software development andas well as initial implementation fees. Professional services which are recognized under a proportional‑performance model utilizing an output‑based approach. The Company’s contracts generally have fixed prices, and generally specify or quantify deliverables.Our revenue recognition is also affected by our judgmentthe deliverables in determining whether collectability is reasonably assured. With regard to allowances for uncollectible receivables, we consider customer‑specific information related to delinquent accounts and past loss experience, as well as current economic conditions in establishing the amount of the allowance.50
contract. Certain professional services contracts are billed on aPurchase accountingAssigning fair market values to the assets acquiredtime and liabilities assumed at the date of an acquisition requires knowledge of current market values,materials basis and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retainrevenue is recognized over time as the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and contingent consideration.Acquired intangible assets, excluding goodwill, are valued usingperformed. For contracts billed on a discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates and assumptions, the most significant being projectedfixed price basis, revenue growth rates, margins, and forecasted cash flowsis recognized over time based on the discount rateproportion of services performed. Initial implementation fees are fixed and terminal growth rate. Management projectsare generally recognized ratably over the contract term.growth rates, margins and cash flows based onprimarily include revenue related to the historical operating resultsAdvisor Summit. Other revenue is recognized when the events are held. Other revenue is not significant.acquired entity adjusted for synergies anticipated to be achieved through integration, expected futureprofessional services and other contracts contain one performance operational strategies,obligation. Professional services and other revenue are recognized in both the general macroeconomic environment. We review finite‑lived intangible assets for triggering events such as significant changes in operations, customers or future revenue that might indicate the need to impair the assets acquired or change the useful lives of the assets acquired. There was no impairment recognized on intangible assets in 2017, 2016 or 2015.Assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumed obligations, including contractual liabilities assumed, which require the exercise of professional judgment.Assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition date. Such valuation is subject to management judgment regarding the evaluationEnvestnet Wealth Solutions and interpretation of contract terms in relation to other economic circumstances, such as the market rates for office space leases.If we assume a performance obligation to customers as of the acquisition date, a deferred revenue obligation is recognized. Judgment is required to evaluate whether a future performance obligation exists and to assign a value to the performance obligation.Assumed acquired tax liabilities for uncertain tax positions are dependent on assessing the past practices of the acquisition target based on our review of actual tax filings and information obtained through due diligence procedures. Evaluation of the validity of tax positions taken by the acquisition target are subject to management judgment.The Company determines the fair value of contingent acquisition consideration payable on the acquisition date using a discounted cash flow approach utilizing an appropriate discount rate. Each reporting period thereafter, the Company revalues these obligations and records increases or decreases in their fair value as adjustments to fair market value adjustment on contingent consideration in the Company’s consolidated statements of operations. Changes in the fair value of the contingent acquisition consideration payable can result from adjustments to the estimated revenue forecasts included in the contingent payment calculations.U.S. GAAP authoritative guidance, we aggregate components of a single operating segment into a reporting unit, if appropriate. For purposes of performing the impairment tests, we identify reporting units in accordance with U.S. GAAP. The identification of reporting units and consideration of aggregation criteria requires management judgment.If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is performed. If the carrying value of the reporting unit exceeds its fair value, then a quantitative evaluation must be performed. If the carrying value of a reporting unit’s goodwill exceeds its fair value, then an impairment loss equal to the difference will be recorded. thea quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not that the51theits carrying value. If it is determined that it is unlikely that the carrying value exceeds the fair value, the Company is not required to complete the quantitative goodwill impairment evaluation. The selection and assessment of qualitative factors used to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves management judgment.completed itsData & Analytics segment in 2023 compared to prior years, the Company performed a quantitative goodwill impairment evaluation as part of the annual goodwill impairment testanalysis for each reporting unit as of October 31, 2017 for2023. Additionally, the fiscal year ended December 31, 2017. AtCompany implemented organizational changes that date, Envestnetresulted in changes to its reporting units. The Company completed an assessment immediately prior to and after the organization change and determined it was appropriate to aggregate certain components of the same operating segment into a single reporting unit. The Company has concluded that it has two reporting units. Envestnet also determined that it wasis not more likely than not that the fair value of itsthe Company’s reporting units exceededunit is greater than the carrying value. As a result of these analyses, the carrying value and concluded thatof the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill was not impaired. As a result,of $191.8 million during the Company did not perform the quantitative goodwill impairment evaluation. Company’s ongoing monitoring efforts to assess goodwill for possible indications of impairment, we will continue to consider a wide variety of factors, including but not limited to the global economic environment and its potential impact on Envestnet’sour business. There can be no assurance that our estimates and assumptions regarding forecasted cash flows of certainour reporting units, the current economic environment, discount rates, or the other inputs used in forecasting the present value of forecasted cash flows, as well as the selection of representative guideline public company’s will prove to be accurate projections of future performance.2017, 20162023, 2022 and 2015.the Company’sour income tax provision in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax assets to an amount that we determine is more-likely-than-not to be realized in the future.52 It is anticipated that the net deferred tax liability position of our January 2018 acquisition of Folio Dynamix will cause the Company to release a portion of its valuation allowance during the first quarter of 2018.state taxes, permanent differences,the effect of goodwill impairment, the change in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, the generation of R&D tax credits, unrecognizedthe executive compensation deduction limitation, tax benefits, prior period true-ups, changesdeficiency related to stock-based compensation, income related to the India partnerships, change in valuation allowances, changes in ratesour permanent reinvestment assertion for our Indian subsidiary, and tax reform.state taxes. Our provision for income taxes varies based on, among other things, changes in the valuation of our deferred tax assets and liabilities, the tax effects of non-cash stock-based compensation or changes in applicable tax laws, regulations and accounting principles or interpretations thereof.subsidiary issubsidiaries are currently under examination by the India Tax Authority for the fiscal years ended March 31, 20052023, 2022, 2021, 2020, 2019, 2017, 2012, 2011 and forward.2010. Based on the outcome of examinations of our subsidiary or the result of the expiration of statutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those recorded in the consolidated balance sheets. It is possible that one or more of these audits may be finalized within the next twelve months.53Results of Operations*Not meaningfulYear ended December 31, 2017 compared to year ended December 31, 2016RevenuesTotal revenues increased 18% from $578,164 in 2016 to $683,679 in 2017. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2017, relative to the corresponding period in 2016 and an increase in subscription and licensing revenues of $47,742, of which $26,034 was related to the Envestnet | Yodlee segment primarily attributable to our data analytics and FI and YI channels. Revenues from assets under management or administration comprised 60% and 61% of total revenues in 2017 and 2016, respectively.Assets under management or administrationRevenues earned from assets under management or administration increased 16% from $352,498 in 2016 to $410,016 in 2017. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2017, relative to the corresponding period in 2016. In 2017, revenues were further positively affected by new account growth, market appreciation and positive net flows of AUM or AUA during 2016 and 2017, partially offset by a lower overall effective fee rate on AUM/A.54The number of financial advisors with AUM or AUA on our technology platforms increased from 36,483 as of December 31, 2016 to 40,485 as of December 31, 2017 and the number of AUM or AUA client accounts increased from approximately 1,540,000 as of December 31, 2016 to approximately 1,900,000 as of December 31, 2017.Subscription and licensingSubscription and licensing revenues increased 24% from $198,125 in 2016 to $245,867 in 2017. This increase was primarily due to an increase in Envestnet | Yodlee contributing an additional $26,034, Envestnet | Tamarac related revenue of $12,212 and Envestnet | Enterprise revenue of $9,496. The increase in the Envestnet | Yodlee segments was primarily attributable to our data analytics and FI and YI channels. The Envestnet | Tamarac revenue increase resulted from the continued addition of new clients and selling additional services to existing clients. The Envestnet | Enterprise revenue increase was primarily attributable to a significant client which attributed revenue for an entire year during 2017 as compared to a portion of 2016.Professional services and otherProfessional services and other revenues increased 1% from $27,541 in 2016 to $27,796 in 2017. This was primarily due to relatively consistent year over year implementation fees and data analytics customer deployments.Cost of revenuesCost of revenues increased 21% from $180,590 in 2016 to $219,037 in 2017, primarily due to the corresponding increase in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues increased from 31% in 2016 to 32% in 2017. The increase in cost of revenues as a percentage of total revenue is primarily a result of the an increase in third party consulting and professional services for new data analytics customer deployments and hosting and payment processing services.Compensation and benefitsCompensation and benefits increased 9% from $241,584 in 2016 to $264,392 in 2017, primarily due to an increase in salaries, benefits and related payroll taxes of $21,764 related to an increase in headcount, and increases in incentive compensation of $3,610 and short-term variable compensation of $1,553, partially offset by decreases in severance expense of $2,025 and non-cash compensation expense of $1,944. Headcount increased from an average of 2,900 in 2016 to an average of 3,000 in 2017, primarily as a result of an increase in headcount to support the organic growth of our operations. As a percentage of total revenues, compensation and benefits decreased from 42% in 2016 to 39% in 2017. The decrease in compensation and benefits as a percentage of total revenues is primarily due to a higher revenue increase compared to a lower compensation and benefit increase.General and administrationGeneral and administration expenses increased 5% from $115,435 in 2016 to $121,010 in 2017, primarily due to increases in transaction related costs of $7,882, occupancy costs of $3,901, professional and legal fees of $2,016, marketing costs of $1,623 and travel and entertainment expense of $1,264, partially offset by decreases in non-income tax expense of $5,883, litigation expense of $4,558 and fair market value adjustment on continent consideration of $1,588. As a percentage of total revenues, general and administration expenses decreased from 20% in 2016 to 18% in 2017. The decrease in general and administration as a percentage of total revenues is primarily due to a higher revenue increase compared to a lower general and administration increase.Depreciation and amortizationDepreciation and amortization expense decreased 2% from $63,999 in 2016 to $62,820 in 2017, primarily due to a decrease in intangible asset amortization of $3,388 due to a significant portion of the intangible assets being amortized using an accelerated expense method throughout the assets’ useful livesand the majority of such assets being acquired prior to 2017 (see “Note 3 – Business Acquisitions” to the notes to consolidated financial statements in Part II, Item 8). The decrease in depreciation and amortization was partially offset by an increase in amortization and55depreciation on internally developed software and property and equipment, primarily due to an increase in capital expenditures. As a percentage of total revenues, depreciation and amortization decreased from 11% in 2016 to 9% in 2017, primarily as a result of a decrease in Envestnet | Yodlee intangible asset amortization.Interest expenseInterest expense remained consistent from $16,600 in 2016 to $16,347 in 2017. Interest expense includes coupon interest, discount amortization, and issuance cost amortization related to the Convertible Notes as well as interest and amortization of upfront fees and monthly fees related to the Second Amended and Restated Credit Agreement. The discount, issuance costs, and upfront fees are amortized over the term of the related agreements.Other expense, netOther expense, net increased from $483 in 2016 to $1,963 in 2017, primarily due to a one-time 2016 gain related to a customer settlement of $1,384 as well as comparatively favorable foreign currency impacts of $532, partially offset by a decrease in losses and impairments booked on investments in private companies of $685.Income tax provision(1,689) 1,591 (94.2) (37.2) Our 2017 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, AMT Credit conversion to a receivable, foreign tax expense, change in foreign unremitted earnings assertion, indefinite-lived intangibles, changes in valuation allowance on our domestic temporary differences and tax reform.Our 2016 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, foreign tax expense, unremitted foreign earnings true-up, indefinite-lived intangibles and changes in valuation allowance on our domestic temporary differences.Year ended December 31, 2016 compared to year ended December 31, 2015RevenuesTotal revenues increased 37% from $420,919 in 2015 to $578,164 in 2016. The increase was primarily due to an increase in subscription and licensing revenues of $122,845 related to the acquisition of Yodlee on November 19, 2015. Revenues from assets under management or administration comprised 61% and 79% of total revenues in 2016 and 2015, respectively.Assets under management or administrationRevenues earned from assets under management or administration increased 6% from $333,684 in 2015 to $352,498 in 2016. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2016, relative to the corresponding period in 2015. In 2016, revenues were further positively affected by new account growth, market appreciation and positive net flows of AUM or AUA during 2015 and 2016, partially offset by a lower overall effective fee rate on AUM/A, primarily related to the transition of a WMS client to a lower priced solution.56The number of financial advisors with AUM or AUA on our technology platforms increased from 33,775 as of December 31, 2015 to 36,483 as of December 31, 2016 and the number of AUM or AUA client accounts increased from approximately 1,298,000 as of December 31, 2015 to approximately 1,540,000 as of December 31, 2016.Subscription and licensingSubscription and licensing revenues increased 163% from $75,280 in 2015 to $198,125 in 2016. This increase was primarily due to an increase in Envestnet | Yodlee contributing an additional $102,224 and Envestnet | Tamarac related revenue of $11,544. Envestnet | Yodlee was acquired November 19, 2015 and therefore its revenues were included for only a small portion of the year in comparison to an entire year during 2016. The Envestnet | Tamarac revenue increase resulted from the continued addition of new clients and selling additional services to existing clients.Professional services and otherProfessional services and other revenues increased 130% from $11,955 in 2015 to $27,541 in 2016. This increase was primarily due to an increase in Envestnet | Yodlee contributing an additional $14,227 and Envestnet | Tamarac related revenue of $1,207. Envestnet | Yodlee was acquired November 19, 2015 and therefore its revenues were included for only a small portion of the year in comparison to an entire year during 2016. The increase in Envestnet and Envestnet | Tamarac professional service revenue was a result of an increase in implementation revenue from the onboarding of new clients.Cost of revenuesCost of revenues increased 12% from $161,309 in 2015 to $180,590 in 2016, primarily due to the corresponding increase in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues decreased from 38% in 2015 to 31% in 2016. The decrease in cost of revenues as a percentage of total revenue is primarily a result of the inclusion of Envestnet | Yodlee segment revenues which have a lower cost of revenue profile.Compensation and benefitsCompensation and benefits increased 73% from $139,756 in 2015 to $241,584 in 2016, primarily due to an increase in salaries, benefits and related payroll taxes of $67,290 related to an increase in headcount, an increase in incentive compensation of $9,142 and an increase in non‑cash compensation expense of $18,115. Headcount increased from an average of 1,400 in 2015 to an average of 2,900 in 2016, primarily as a result of the Yodlee acquisition as well as an increase in headcount to support the growth of our operations. As a percentage of total revenues, compensation and benefits increased from 33% in 2015 to 42% in 2016. The increase in compensation and benefits as a percentage of total revenues is primarily due to the inclusion of the Envestnet | Yodlee segment which has a higher compensation and benefits profile. General and administrationGeneral and administration expenses increased 58% from $72,900 in 2015 to $115,435 in 2016, primarily due to general and administration expense increases related to the Envestnet | Yodlee segment of $30,160 as well as an increase in non-income tax expense of $6,229. As a percentage of total revenues, general and administration expenses increased from 17% in 2015 to 20% in 2016. The increase in general and administration expense as a percentage of total revenues is primarily due to the inclusion of the Envestnet | Yodlee segment which has a higher general and administrative expense profile. Depreciation and amortizationDepreciation and amortization expense increased 129% from $27,962 in 2015 to $63,999 in 2016, primarily due to an increase in intangible asset amortization of $27,879 as a result of intangible assets recorded in purchase accounting related to our 2015 and 2016 acquisitions (see “Note 3 – Business Acquisitions” to the notes to consolidated financial statements in Part II, Item 8). The increase in depreciation and amortization expense was also due to increases in57capitalized computer equipment and software to support the growth of our operations. As a percentage of total revenues, depreciation and amortization increased from 7% in 2015 to 11% in 2016, primarily as a result of Envestnet | Yodlee intangible asset amortization. Interest expenseInterest expense increased 62% from $10,271 in 2015 to $16,600 in 2016 as a result of the issuance of $160,000 in Term Notes under the Amended and Restated Credit Agreement during the fourth quarter of 2015. Interest expense includes coupon interest, discount amortization, and issuance cost amortization related to the Convertible Notes as well as interest and amortization of upfront fees and monthly fees related to the Amended and Restated Credit Agreement. The discount, issuance costs, and upfront fees are amortized over the term of the related agreements.Income tax provision(40,490) 15,077 (37.2) 50.6 Our 2016 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, foreign tax expense, unremitted foreign earnings true-up, indefinite-lived intangibles and changes in valuation allowance on our domestic temporary differences.Our 2015 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, non-deductible transaction costs, non-deductible meals and entertainment expense, income inclusion under IRC Section 956, unremitted foreign earnings true-up, changes in valuation allowance related to state net operating losses that will expire unused, release of uncertain tax position reserves related to the tax year ended December 31, 2011, and research and development tax credit generation. Business SegmentsThe Company has two segments as described below:Envestnet – a leading provider of unified wealth management software and services to empower financial advisors and institutions.Envestnet | Yodlee– a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services.58The following table reconciles income from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:EnvestnetThe following table presents income from operations for the Envestnet segment: Year ended December 31, 2017 compared to year ended December 31, 2016 for the Envestnet segmentRevenuesAssets under management or administrationRevenues earned from assets under management or administration increased 16% from $352,498 in 2016 to $410,016 in 2017. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2017, relative to the corresponding period in 2016. In 2017, revenues were further positively affected by new account growth, market appreciation and positive net flows of AUM or AUA during 2016 and 2017, partially offset by a lower overall effective fee rate on AUM/A.59The number of financial advisors with AUM or AUA on our technology platforms increased from 36,483 as of December 31, 2016 to 40,485 as of December 31, 2017 and the number of AUM or AUA client accounts increased from approximately 1,540,000 as of December 31, 2016 to approximately 1,900,000 as of December 31, 2017.Subscription and licensingSubscription and licensing revenues increased 26% from $84,340 in 2016 to $106,048 in 2017. This increase was primarily due to an increase in Envestnet | Tamarac and Envestnet | Enterprise related revenue of $12,212 and $9,496, respectively. The Envestnet | Tamarac and Envestnet | Enterprise revenue increase resulted from the continued addition of new clients and selling additional services to existing clients. Professional services and otherProfessional services and other revenues increased 10% from $10,794 in 2016 to $11,841 in 2017. This increase was primarily due to increases in Envestnet | Tamarac and Envestnet | Enterprise related revenue of $640 and $400, respectively. The increase in Envestnet | Tamarac professional service revenue was a result of an increase in implementation revenue from the onboarding of new clients. The Envestnet | Enterprise revenue increase was primarily due to an increase in Advisor Summit related revenue.Cost of revenuesCost of revenues increased 21% from $169,732 in 2016 to $205,793 in 2017, primarily due to the corresponding increase in revenues from AUM or AUA, and the mix of such revenues. As a percentage of total revenues, cost of revenues increased from 38% in 2016 to 39% in 2017.Compensation and benefitsCompensation and benefits increased 9% from $144,388 in 2016 to $157,237 in 2017, primarily due to an increase in salaries, benefits and related payroll taxes of $8,765 related to an increase in headcount, an increase in non‑cash compensation expense of $2,472 and an increase in incentive compensation of $1,784. As a percentage of total revenues, compensation and benefits decreased from 32% in 2016 to 30% in 2017. The decrease in compensation and benefits as a percentage of total revenues is primarily due to a higher revenue increase compared to a lower compensation and benefit increase.General and administrationGeneral and administration expenses decreased 6% from $67,050 in 2016 to $63,203 in 2017, primarily due to decreases in non-income tax expenses of $5,883 and website and systems development costs of $2,392, partially offset by increases in communication, research and data services costs of $2,330 and occupancy costs of $2,043. As a percentage of total revenues, general and administration expenses decreased from 15% in 2016 to 12% in 2017. The decrease in general as a percentage of total revenues is primarily due to a higher revenue increase compared to a lower general and administration increase.Depreciation and amortizationDepreciation and amortization expense increased 6% from $24,784 in 2016 to $26,223 in 2017, primarily due to increases in internally developed software amortization expense of $1,664 and property and equipment depreciation expense of $1,510, partially offset by a decrease in intangible asset amortization expense of $1,735. As a percentage of total revenues, depreciation and amortization decreased from 6% in 2016 to 5% in 2017.60Year ended December 31, 2016 compared to year ended December 31, 2015 for the Envestnet segmentRevenuesAssets under management or administrationRevenues earned from assets under management or administration increased 6% from $333,684 in 2015 to $352,498 in 2016. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in 2016, relative to the corresponding period in 2015. In 2016, revenues were further positively affected by new account growth, market appreciation and positive net flows of AUM or AUA during 2015 and 2016, partially offset by a lower overall effective fee rate on AUM/A, primarily related to the transition of a WMS client to a lower priced solution.The number of financial advisors with AUM or AUA on our technology platforms increased from 33,775 as of December 31, 2015 to 36,483 as of December 31, 2016 and the number of AUM or AUA client accounts increased from approximately 1,298,000 as of December 31, 2015 to approximately 1,540,000 as of December 31, 2016.Subscription and licensingSubscription and licensing revenues increased 32% from $63,719 in 2015 to $84,340 in 2016. This increase was primarily due to an increase in Envestnet | Tamarac related revenue of $11,544. The Envestnet | Tamarac revenue increase resulted from the continued addition of new clients and selling additional services to existing clients. The remainder of the increase was primarily due to the addition of several large contracts by Envestnet.Professional services and otherProfessional services and other revenues increased 14% from $9,435 in 2015 to $10,794 in 2016. This increase was primarily due to an increase in Envestnet | Tamarac related revenue of $1,207. The increase in Envestnet | Tamarac professional service revenue was a result of an increase in implementation revenue from the onboarding of new clients.Cost of revenuesCost of revenues increased 6% from $160,489 in 2015 to $169,732 in 2016, primarily due to the corresponding increase in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues decreased from 39% in 2015 to 38% in 2016.Compensation and benefitsCompensation and benefits increased 15% from $125,585 in 2015 to $144,388 in 2016, primarily due to an increase in salaries, benefits and related payroll taxes of $14,057 related to an increase in headcount, an increase in incentive compensation of $2,449 and an increase in non‑cash compensation expense of $578. As a percentage of total revenues, compensation and benefits increased from 31% in 2015 to 32% in 2016.General and administrationGeneral and administration expenses increased 24% from $54,118 in 2015 to $67,050 in 2016, primarily due to increases in non-income tax expenses of $6,229, occupancy costs of $2,276, travel and entertainment expenses of $1,296, marketing expenses of $841 and bad debt expense of $769. As a percentage of total revenues, general and administration expenses increased from 13% in 2015 to 15% in 2016.61Depreciation and amortizationDepreciation and amortization expense increased 6% from $23,368 in 2015 to $24,784 in 2016, primarily due to an increase in internally developed software amortization expense of $988. As a percentage of total revenues, depreciation and amortization remained consistent at 6% in both 2015 and 2016. Envestnet | YodleeThe following table presents loss from operations for the Envestnet | Yodlee segment:*Not meaningfulYear ended December 31, 2017 compared to year ended December 31, 2016 for the Envestnet | Yodlee segmentRevenuesSubscription and licensingSubscription and licensing revenues increased 23% from $113,785 in 2016 to $139,819 in 2017. This increase was primarily due to an increase of $18.9 million in revenue attributed to our data analytics channel with the remainder primarily derived from our FI and YI channels.Professional services and otherProfessional services and other revenues decreased 5% from $16,747 in 2016 to $15,955 in 2017. This decrease was primarily due to timing of new data analytics customer deployments.62Cost of revenuesCost of revenues increased 22% from $10,858 in 2016 to $13,244 in 2017, primarily due toan increase in third party consulting and professional services of $900 for new data analytics customer deployments and hosting and payment processing services of $1,577 to support our overall revenue growth. As a percentage of total revenues, cost of revenues increased from 8% in 2016 to 9% in 2017.Compensation and benefitsCompensation and benefits increased 9% from $85,972 in 2016 to $93,316 in 2017, primarily due to an increase in salaries, benefits and related payroll taxes of $10,192, as a result of increased headcount to support organic growth and an increase related to the Wheelhouse acquisition, and an increase in incentive compensation of $1,809, offset by a decrease in non-cash compensation expense of $4,153. As a percentage of total revenues, compensation and benefits decreased from 66% in 2016 to 60% in 2017. The decrease in compensation and benefits as a percentage of total revenues is primarily due to a higher revenue increase compared to lower growth in compensation and benefit expenses.General and administrationGeneral and administration expenses decreased 3% from $33,034 in 2016 to $32,073 in 2017, primarily due to decreases in litigation related expense of $4,317 and realized losses on designated hedges of $486, offset by increases in software purchase and maintenance of $2,120 and occupancy cost of $1,856. As a percentage of total revenues, general and administration expenses decreased from 25% in 2016 to 21% in 2017. The decrease in general and administration as a percentage of total revenues is primarily due to a higher revenue increase compared to lower growth in general and administration expenses.Depreciation and amortizationDepreciation and amortization expense decreased 7% from $39,215 in 2016 to $36,597 in 2017, primarily due to a decrease in intangible asset amortization of $1,653primarily due to a significant portion of the intangible assets being amortized using an accelerated expense method throughout the assets’ useful lives and the majority of such assets being acquired prior to 2017, as well as a decrease in depreciation of property and equipment of $965. As a percentage of total revenues, depreciation and amortization expense decreased from 30% in 2016 to 23% in 2017. The decrease in depreciation and amortization as a percentage of total revenues is primarily due to a higher revenue increase and a decrease in depreciation and amortization expenses.Year ended December 31, 2016 compared to year ended December 31, 2015 for the Envestnet | Yodlee segmentThe 2015 period for Envestnet | Yodlee consists of financial activity from November 19, 2015 through December 31, 2015. Due to this time period deviating significantly from 2016 where twelve months of financial activity is consolidated, a year-over-year review would not be meaningful. For additional information pertaining to our business segments, see “Note 21 – Segment Information” to the notes to consolidated financial statements inSee Part II, Item 8, as well as Item 1 in Part I.63NonsegmentThe following table presents nonsegment loss from operations:Year ended December 31, 2017 compared to year ended December 31, 2016Significant Accounting Policies” for nonsegmentCompensation and benefitsCompensation and benefits increased 23% from $11,224 in 2016 to $13,839 in 2017, primarily due to increases in salaries, benefits and related payroll taxesa detailed description of $2,807.General and administrationGeneral and administration expenses increased 68% from $15,351 in 2016 to $25,734 in 2017, primarily due to increases in transaction related expenses of $8,484, professional and legal fees of $2,582 and marketing expense of $524, partially offset by a decrease in fair market value adjustments to contingent consideration liabilities of $1,588.Year ended December 31, 2016 compared to year ended December 31, 2015 for nonsegmentNonsegment expenses increased 25% from $21,302 in 2015 to $26,575 in 2016, primarily due to increases in fair market value adjustments to contingent consideration liabilities of $5,740, non-cash compensation expense of $4,073, professional and legal fees of $1,786, incentive compensation of $694, salary and benefits expense of $634, offset by a decrease in transaction related costs of $8,679.Non‑GAAP Financial MeasuresIn addition to reporting results according to U.S. GAAP, we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include “adjusted revenues”, “adjusted EBITDA”, “adjusted net income” and “adjusted net income per share”.“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. Under U.S. GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the full amount of revenue that would have been recorded by these entities had they remained stand‑alone entities.“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, accretion on contingent consideration, income tax provision (benefit), depreciation and amortization, non‑cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration, litigation related expense, foreign currency and related hedging activity, other64(income) expense, non-income tax expense adjustment, impairment of equity method investment, loss allocation from equity method investment and loss attributable to non‑controlling interest.“Adjusted net income” represents net income (loss) before deferred revenue fair value adjustment, accretion on contingent consideration, non‑cash interest expense, non‑cash compensation expense, restructuring charges and transaction costs, severance, amortization of acquired intangibles, fair‑market value adjustment on contingent consideration, litigation related expense, foreign currency and related hedging activity, other (income) expense, non-income tax expense adjustment, impairment of equity method investment, loss allocation from equity method investment and loss attributable to non‑controlling interest. Reconciling items are presented gross of tax, and a normalized tax rate is applied to the total of all reconciling items to arrive at adjusted net income. The reconciling items, and resulting adjusted net income, are presented on a different basis than historically shown to eliminate the impact of quarterly volatility of the GAAP tax provision on the Company’s adjusted earnings figures.“Adjusted net income per share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted‑average shares outstanding.Our Board of Directors and our management use adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share:·As measures of operating performance;·For planning purposes, including the preparation of annual budgets;·To allocate resources to enhance the financial performance of our business;·To evaluate the effectiveness of our business strategies; and·In communications with our Board of Directors concerning our financial performance.Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, among other factors, when determining management’s incentive compensation.We also present adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental performance measures because we believe that they provide our Board of Directors, management and investors with additional information to assess our performance. Adjusted revenues provide comparisons from period to period by excluding the effect of purchase accounting on the fair value of acquired deferred revenue. Adjusted EBITDA provide comparisons from period to period by excluding potential differences caused by variations in the age and book depreciation of fixed assets affecting relative depreciation expense and amortization of internally developed software, amortization of acquired intangible assets, litigation‑related expense, foreign currency and related hedging activity, income tax provision, restructuring charges and transaction costs, accretion on contingent consideration and purchase liability, fair market value adjustments on contingent consideration, non-income tax expense, other (income) expense, severance, impairment of equity method investment, loss allocation from equity method investment, loss attributable to non‑controlling interest, and changes in interest expense and interest income that are influenced by capital structure decisions and capital market conditions. Our management also believes it is useful to exclude non‑cash stock‑based compensation expense from adjusted EBITDA and adjusted net income because non‑cash equity grants made at a certain price and point in time do not necessarily reflect how our business is performing at any particular time.We believe adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are useful to investors in evaluating our operating performance because securities analysts use adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investor and analyst presentations will include adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share.65Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to revenues, net income, operating income or any other performance measures derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of our profitability or liquidity.We understand that, although adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are frequently used by securities analysts and others in their evaluation of companies, these measures have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as reported under U.S. GAAP. In particular you should consider:·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect changes in, or cash requirements for, our working capital needs;·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect non‑cash components of employee compensation;·Although depreciation and amortization are non‑cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;·Due to either net losses before income tax expenses or the use of federal and state net operating loss carryforwards in 2017, 2016 and 2015, we had cash income tax payments, net of refunds, of $3,261, $1,114, and $1,700 in the years ended December 31, 2017, 2016 and 2015, respectively. Income tax payments will be higher if we continue to generate taxable income and our existing net operating loss carryforwards for federal and state income taxes have been fully utilized or have expired; and·Other companies in our industry may calculate adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share differently than we do, limiting their usefulness as a comparative measure.Management compensates for the inherent limitations associated with using adjusted revenues, adjusted EBITDA, adjusted operating income, adjusted net income and adjusted net income per share through disclosure of such limitations, presentation of our financial statements in accordance with U.S. GAAP and reconciliation of adjusted revenues to revenues, the most directly comparable U.S. GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per share to net income and net income per share, the most directly comparable U.S. GAAP measure. Further, our management also reviews U.S. GAAP measures and evaluates individual measures that are not included in some or all of our non‑U.S. GAAP financial measures, such as our level of capital expenditures and interest income, among other measures.The following table sets forth a reconciliation of total revenues to adjusted revenues based on our historical results:66The following table sets forth the reconciliation of net income (loss) to adjusted EBITDA based on our historical results:67The following table sets forth the reconciliation of net income (loss) to adjusted net income and adjusted net income per diluted share based on our historical results: (1) For the years ended December 31, 2017, 2016 and 2015, the effective tax rate computed in accordance with U.S. GAAP equaled (94.2%), (37.2)% and 50.6%, respectively. (2) For the years ended December 31, 2017, 2016 and 2015, an estimated normalized effective tax rate of 40% has been used to compute adjusted net income.Note on Income Taxes: As of December 31, 2017, the Company had NOL carryforwards of $249,653 and $143,775 for federal and state income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes the Company pays for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with U.S. GAAP, and from the normalized rate shown above. 68The following tables set forth the reconciliation of revenues to adjusted revenues and income (loss) from operations to adjusted EBITDA based on our historical results for each segment for the years ended December 31, 2017, 2016 and 2015:69Liquidity and Capital ResourcesAs of December 31, 2017, we had total cash and cash equivalents of $60,115, compared to $52,592 as of December 31, 2016. We plan to use existing cash as of December 31, 2017 and cash generated in the ongoing operations of our business to fund our current operations, capital expenditures and possible acquisitions or other strategic activity, and to meet our debt service obligations. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements we may be required to borrow under our bank credit agreement to fund our ongoing operations or to fund potential acquisitions or other strategic activities. The Company funded the FolioDynamix acquisition subsequent to year-end with a combination of cash on the Company’s balance sheet and borrowings under its revolving credit facility.Credit AgreementOn July 18, 2017, the Company and certain of its subsidiaries entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”) with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent (the “Administrative Agent”). The Second Amended and Restated Credit Agreement amends and restates the Amended and Restated Credit Agreement, dated as of November 19, 2015, as amended, among the Company, the guarantors party thereto, the lenders party thereto and Bank of Montreal, as administrative agent (the “Prior Credit Facility”). Pursuant to the Second Amended and Restated Credit Agreement, the Banks have agreed to provide to the Company revolving credit commitments (the “Revolving Credit Facility”) in the aggregate amount of up to $350,000 which amount may be increased by $50,000. The Second Amended and Restated Credit Agreement also includes a $5,000 subfacility for the issuance of letters of credit.Obligations under the Second Amended and Restated Credit Agreement are guaranteed by substantially all of the Company’s U.S. subsidiaries. In accordance with the terms of the Amended and Restated Security Agreement, dated July 18, 2017 (the “Security Agreement”), among the Company, the Debtors party thereto and the Administrative Agent, obligations under the Second Amended and Restated Credit Agreement are secured by substantially all of the Company’s domestic assets and the Company’s pledge of 66% of the voting equity and 100% of the non-voting equity of certain of its first-tier foreign subsidiaries. Proceeds under the Second Amended and Restated Credit Agreement may be used to finance capital expenditures, working capital, permitted acquisitions and for general corporate purposes.70The Company will pay interest on borrowings made under the Second Amended and Restated Credit Agreement at rates between 1.50 percent and 3.25 percent above LIBOR based on the Company’s total leverage ratio. Borrowings under the Second Amended and Restated Credit Agreement are scheduled to mature on July 18, 2022.The Second Amended and Restated 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 senior leverage ratio, a maximum total leverage ratio, a minimum interest coverage ratio and minimum liquidity requirement, and provisions that limit the ability of the Company and its subsidiaries to incur debt, make investments, sell assets, create liens, engage in transactions with affiliates, engage in mergers and acquisitions, pay dividends and other restricted payments, grant negative pledges and change their business activities.The July 18, 2017 amendment to the Prior Credit Facility replaced the Term Notes and related excess cash flow payment obligations with a revolving line of credit. The Company’s consolidated balance sheets reflect these changes with no resulting portion of debt related to the revolving credit facility being classified as short-term, in accordance with the term of the Second Amended and Restated Credit Agreement.As of December 31, 2017, an amount of $81,168 was outstanding on the Revolving Credit Facility. Subsequent to December 31, 2017, the Company borrowed $195,000 to fund the acquisition of FolioDynamix.Cash Flows The following table presents information regarding our cash flows and cash and cash equivalents for the periods indicated:Operating activitiesNet cash provided by operating activities in 2017 increased by $27,337 compared to 2016, primarily due to a decrease in net loss of $52,287, partially offset by decreases in the change in deferred income tax liabilities of $10,181 andchanges in operating assets and liabilities of $11,372.Net cash provided by operating activities in 2016 increased by $39,235 compared to 2015, primarily due to the Yodlee acquisition contributing an entire year of operating cash flow, an increase in the change in operating assets and liabilities totaling $24,777, an increase in non‑cash adjustments totaling $74,461, offset by a decrease in net income of $60,003 in 2016 compared to the prior year period.Investing activitiesNet cash used in investing activities in 2017 decreased by $28,908 compared to 2016, primarily due to a decrease in cash used for acquisition of business of $31,613, partially offset by an increase in capital expenditures for internally develop software of $4,015.Net cash used in investing activities in 2016 decreased by $286,694 compared to 2015, primarily due to the Yodlee and other acquisitions during 2015 totaling $328,305 offset by cash used in acquisitions of $31,613 during 2016. 71In 2016, the Company acquired FinaConnect and Wheelhouse for net cash totaling $6,693, and $13,219, respectively, as well as a payment of $11,701 related to the Yodlee dissenting shareholders (see “Note 3 – Business Acquisitions” to the notes to consolidated financial statements in Part II, Item 8).Financing activitiesNet cash used in financing activities in 2017 increased by $49,971 compared to 2016, primarily due to increases in Term Note payments of $27,862, payments on the revolving credit facility of $22,500, purchase of treasury stock for stock-based minimum tax withholdings of $3,008, and an increase in proceeds from borrowings on the revolving credit facility of $5,000. These impacts were partially offset by an increase in proceeds from the exercise of stock options of $3,027 and a decrease in payments of purchase consideration liabilities of $3,021.Net cash used in financing activities in 2016 was $22,469 compared to net cash provided by financing activities in 2015 of $144,550. The fluctuation of $167,019 was primarily the result of 2015 including $160,000 of proceeds from the issuance of Term Notes.BacklogWe sell subscriptions to our solutions through contracts that are generally one to three years in length, although terms can extend to as long as five years. Our subscription agreements with our customers generally contain scheduled minimum subscription fees, and usage-based fees which depend on the extent their customers or end users use our platform. We consider the unpaid contractual minimum payments under our subscription agreements to be our backlog. Due to the inherent volatility of backlog measured using contractual minimums, and the fact that contractual minimums are becoming increasingly less important to our business, we do not utilize backlog as a key management metric internally and we do not believe that it is a meaningful measurement of our future revenues.We expect that the amount of backlog relative to the total value of our subscription agreements will change from year to year for several reasons, including the timing of contract renewals, the proportion of total subscription revenue represented by contractual minimum payments and the average non-cancellable terms of our subscription agreements. The change in backlog that results from these events may not be an indicator of the likelihood of renewal or expected future revenues.We also expect that as our customer base continues to mature and customer deployments scale usage, renewals over time will increasingly have fewer contractual minimum fees because such fees are intended to decrease the timing risk associated with initial deployment commitments.In addition, because revenue for any period is a function of revenue recognized from deferred revenue under contracts in existence at the beginning of the period, as well as contracts that are renewed and new customer contracts that are entered into during the period, backlog at the beginning of any period is not necessarily indicative of future performance.72CommitmentsThe following table sets forth information regarding our contractual obligations as of December 31, 2017:(1)We lease facilities under non‑cancelable operating leases expiring at various dates through 2030.(2)No scheduled payments exist for the revolving credit facility, and prepayments can be made without penalty.The table above does not reflect the following:·Amounts estimated for uncertain tax positions as the timing and likelihood of such payments cannot be reasonably estimated.·Voluntary employer matching contributions to our defined contribution benefit plans since the amount cannot be reasonably estimated. For the years ended December 31, 2017, 2016 and 2015, we made voluntary employer matching contributions of $4,038, $2,270 and $1,521, respectively.The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability in the consolidated balance sheets.Off‑Balance Sheet ArrangementsOther than operating leases as indicated above, we do not have any other off‑balance sheet arrangements.PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers.73 In August 2015, the FASB issued ASU 2015-14 to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company will adopt the standard in its first quarter of 2018.The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial adoption. The standard also allows entities to apply certain practical expedients at their discretion. The Company will adopt the standard using the modified retrospective approach with a cumulative catch-up adjustment and will provide additional disclosures comparing results to previous GAAP in our 2018 consolidated financial statements. We plan to apply the new revenue standard only to contracts not completed as of the date of initial application, referred to as open contracts. The Company has substantially completed the implementation of key systems changes and changes to internal controls over financial reporting to allow the Company to timely compile the information needed to account for transactions under this new guidance. In adopting ASU 2014-09, the Company expects the following significant changes:i)Timing of revenue recognition for initial implementation services. Under ASU 2014-09, the Company will recognize professional services revenue from the initial implementation services over the remaining contractual term of the arrangement. Previously, this revenue was recognized on a straight line basis over the estimated life of the customer relationship; andii)Deferral of incremental direct costs to obtaining a contract with a customer. Under ASU 2014-09, the Company will capitalize certain variable compensation (i.e., shot term incentive compensation) payable to its sales force and subsequently amortize the capitalized costs over a period of time that is consistent with the transfer of the related good or service to the customer, which the Company has determined to be five years. Capitalized costs, net of accumulated amortization, will be included in other non-current assets on the Company’s consolidated balance sheets. Previously, the Company elected to expense these incremental direct costs as incurred.The Company currently estimates the adoption of ASU 2014-09 will decrease its 2018 beginning accumulated deficit balance by approximately $9,000, offset by an approximate $4,000 decrease in deferred revenues and an approximate $5,000 increase in other non-current assets.Additionally, while we are still in the process of assessing the statement of operations classification impact, under ASU 2014-09, for a subset of third party manager agreements, the existing presentation of gross versus net revenue may change.In February 2016, the FASB issued ASU 2016-02, “Leases”. This update amends the requirements for assets and liabilities recognized for all leases longer than twelve months. Lessees will be required to recognize a lease liability measured on a discounted basis, which is the lessee’s obligation to make lease payments arising from the lease, and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on our consolidated financial statements.In March 2016, The FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update is intended to reduce the cost and complexity of accounting for share-based payments; however, some changes may also increase volatility in reported earnings. Under the new guidance, all excess tax benefits and deficiencies will be recorded as an income tax benefit or expense in the income statement and excess tax benefits will be recorded as an operating activity in the statements of cash flows. The new guidance also allows withholding up to the maximum individual statutory tax rate without classifying the awards as a liability. The cash paid to satisfy the statutory income tax withholding obligation will be classified as a financing activity in the statements of cash flows. Lastly, the update allows forfeitures to be estimated or recognized when they occur. The requirements for the excess tax effects related to share-based payments at settlement must be applied on a prospective basis, and the other requirements under this standard are to be applied on a retrospective basis. This standard will be effective for financial statements74issued by public companies for annual and interim periods beginning after December 15, 2016.These changes became effective for the Company’s fiscal year beginning January 1, 2017 and have been reflected in these consolidated financial statements. As a result of the retrospective adoption of ASU 2016-09, for the year ended December 31, 2016 and 2015, net cash provided by operating activities increased by $4,455 and $17,607, respectively, with a corresponding offset to net cash used in financing activities. The Company did not elect an accounting policy change to record forfeitures as they occur and will continue to estimate forfeitures at each period.In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statements of cash flows. This ASU is effective for the Company January 1, 2018 with early adoption permitted. Upon adoption, the ASU requires a retrospective application unless it is determined that it is impractical to do so for which it must be retrospectively applied at the earliest date practical. We will adopt the standard effective January 1, 2018. Upon adoption, the Company does not anticipate significant changes to the Company's existing accounting policies or presentation of the consolidated statements of cash flows.In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350),” which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. This standard will be effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The Company has adopted this standard as of April 1, 2017, however it did not have a material impact on the Company’s consolidated financial statements.In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business (Topic 805), which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This standard will be effective for public companies for annual and interim periods beginning after December 15, 2017. Early adoption is permitted effective for transactions not yet reported in financial statements issued or made available for issuance. We will adopt the standard effective January 1, 2018. Upon adoption, the Company will assess all future purchases within the context of this updated guidance. We do not anticipate significant changes to the Company's existing accounting policies or presentation of the consolidated statements of cash flows. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update clarifies which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. Specifically, an entity would not apply modification account if the fair value, vesting conditions, and classification as an equity or liability instrument are the same before and after the modification. The ASU is effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2017. Early adoption of the standard is permitted. The standard will be applied prospectively to awards modified on or after the adoption date. We will adopt the standard effective January 1, 2018. Upon adoption, the Company will assess all future awards within the context of this updated guidance. We do not anticipate significant changes to the Company's existing accounting policies or presentation of the consolidated statements of cash flows.revenues from asset management or administrationasset-based recurring revenue earned based upon a contractual percentage of AUM or AUA. InAsset‑based fees represented approximately 60% of our total revenue for the years ended December 31, 2017, 20162023, 2022 and 2015, 60%, 61% and 79% of our revenues, respectively, were derived from revenues based on the market value of AUM or AUA.75This2021. We expect this percentage willto vary over time. A decrease in the aggregate value of AUM or AUA may cause our revenue and income to decline. We do not use derivativedecline which in turn could lead to a decrease in our earnings. If there are financial instruments for speculative, hedging or trading purposes.India subsidiary,Indian subsidiaries, which primarily consist of expenditurescosts related to employee compensation, and benefits, are paid using the Indian Rupee. We are directly exposed to changes in foreign currency exchange rates through the translation of these monthly expenditurescosts into U.S. dollars. As ofFor the year ended December 31, 2017,2023, we estimate that a hypothetical 10% increase in the value of the Indian Rupee to the U.S. dollar would result in a decrease of approximately $4,350$4.1 million to pre-tax earnings and a hypothetical 10% decrease in the value of the Indian Rupee to the U.S. dollar would result in an increase of approximately $3,560$3.4 million to pre-tax earnings.The Company transacts business with entities which provide payment for services in foreign currencies. We are directly exposed to changes in foreign currency exchange rates through the translation of these revenues into U.S. dollars. As of December 31, 2017, we estimate that a hypothetical 10% increase in the value of these currencies to the U.S. dollar would result in a decrease of approximately $2,920 to pre-tax earnings and a hypothetical 10% decrease in the value of these currencies to the U.S. dollar would result in an increase of approximately $2,840 to pre-tax earnings.rates. The Company has a revolving credit facility that bearsrates if we have borrowings outstanding on the Revolving Credit Facility. Outstanding loans under the Revolving Credit Facility accrue interest, at LIBORour option, at a rate equal to either (i) a base rate plus an applicable margin between 1.50 percent and 3.25 percent. Asranging from 0.25% to 1.75% per annum or (ii) an adjusted Term SOFR plus an applicable margin ranging from 1.25% to 2.75% per annum, in each case based upon our total net leverage ratio, as calculated pursuant to the LIBOR rates fluctuate, so too will the interest expense on amounts borrowed under the Second Amended and RestatedRevolving Credit Agreement. Interest charged on the revolving credit facility during 2017 was approximately 3.6%.Facility. As of December 31, 2017, there were $81,168 of revolving credit2023, we have no borrowings or amounts outstanding under the Second Amended and RestatedRevolving Credit Agreement. The Company incurred interest expense of $4,153 for the year ended December 31, 2017 related to the Second Amended and Restated Credit Agreement. A hypothetical 0.25% increase or decrease in our interest rate would increase or decrease interest expense on an annual basis by approximately $270.Facility.767720172023 and 2016,2022, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.20172023 and 2016,2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.Management’sManagement's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.78Chicago, Illinois
Feburary2018202479(in thousands, except share information)60,115 52,592 51,522 44,268 19,470 16,224 131,107 113,084 35,909 33,000 22,174 14,860 222,731 265,558 432,955 431,936 17,176 13,963 862,052 872,401 105,897 87,763 11,097 11,480 37,926 2,115 2,286 21,246 16,499 140,355 155,954 158,990 152,575 81,168 100,409 666 2,582 12,047 15,643 15,185 12,060 969 5,555 15,102 13,436 424,482 458,214 900 900 287 278 556,257 516,675 436,272 412,889 398 398 436,670 413,287 862,052 872,401 See accompanying notes to Consolidated Financial Statements.80Envestnet, Inc.Consolidated Statements of Operations410,016 245,867 27,796 683,679 578,164 420,919 219,037 264,392 121,010 62,820 667,259 601,608 401,927 16,420 (23,444) 18,992 201 37 338 (16,347) (16,600) (1,963) (71) (18,109) (17,046) (10,004) (1,689) (40,490) 8,988 1,591 (3,280) (55,567) 4,436 (3,280) (55,567) 4,436 (0.08) (1.30) 0.12 (0.08) (1.30) 43,732,148 43,732,148 December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 91,378 $ 162,173 Fees receivable, net 120,958 101,696 Prepaid expenses and other current assets 51,472 47,422 Total current assets 263,808 311,291 Property and equipment, net 48,223 48,481 Internally developed software, net 224,713 184,558 Intangible assets, net 338,068 379,995 Goodwill 806,563 998,414 Operating lease right-of-use assets, net 69,154 81,596 Other assets 126,723 107,830 Total assets $ 1,877,252 $ 2,112,165 Liabilities and equity Current liabilities: Accounts payable, accrued expenses and other current liabilities $ 241,424 $ 233,866 Operating lease liabilities 12,909 11,949 Deferred revenue 38,201 36,363 Current portion of debt — 44,886 Total current liabilities 292,534 327,064 Debt 876,612 871,769 Operating lease liabilities, net of current portion 100,830 110,652 Deferred tax liabilities, net 16,568 16,196 Other liabilities 16,202 18,880 Total liabilities 1,302,746 1,344,561 Commitments and contingencies Stockholders’ equity Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of December 31, 2023 and December 31, 2022 — — Common stock, par value $0.005, 500,000,000 shares authorized; 71,129,801 and 70,025,733 shares issued as of December 31, 2023 and December 31, 2022, respectively; 54,773,662 and 54,013,826 shares outstanding as of December 31, 2023 and December 31, 2022, respectively 355 350 Treasury stock at cost, 16,356,139 and 16,011,907 shares as of December 31, 2023 and December 31, 2022, respectively (272,573) (253,551) Additional paid-in capital 1,206,627 1,135,284 Accumulated deficit (357,651) (118,927) Accumulated other comprehensive loss (8,567) (8,589) Total stockholders’ equity, attributable to Envestnet, Inc. 568,191 754,567 Non-controlling interest 6,315 13,037 Total equity 574,506 767,604 Total liabilities and equity $ 1,877,252 $ 2,112,165
See accompanying notes to Consolidated Financial Statements.81
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| 2017 |
| 2016 |
| 2015 |
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Net income (loss) attributable to Envestnet, Inc. |
| $ | (3,280) |
| $ | (55,567) |
| $ | 4,436 |
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Other comprehensive income (loss), net of taxes: |
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Foreign currency translation gain (loss) |
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| 1,046 |
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| (412) |
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| (2) |
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Gain (loss) on foreign currency contracts designated as cash flow hedges reclassified to earnings |
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| — |
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| (204) |
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| 196 |
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Total other comprehensive income (loss), net of taxes |
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| 1,046 |
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| (616) |
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| 194 |
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Comprehensive income (loss), net of taxes |
| $ | (2,234) |
| $ | (56,183) |
| $ | 4,630 |
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See accompanying notes to Consolidated Financial Statements.
82
Envestnet, Inc.
Consolidated Statements of Stockholders’ Equity
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| Capital |
| Income (Loss) |
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| Interest |
| Equity | |||||||
Balance, December 31, 2014 |
| 46,345,376 |
| $ | 232 |
| (11,800,723) |
| $ | (13,242) |
| $ | 233,888 |
| $ | — |
| $ | (19,443) |
| $ | 556 |
| $ | 201,991 |
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Exercise of stock options |
| 1,047,911 |
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| 5 |
| — |
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| — |
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| 8,274 |
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| — |
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| — |
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| 8,279 |
Issuance of common stock - vesting of restricted stock units |
| 434,292 |
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| 2 |
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| 2 |
Acquisition of businesses |
| 6,097,836 |
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| 31 |
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| 195,420 |
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| 195,451 |
Acquisition of business - attribution of the fair market value of replacement awards |
| — |
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| 4,318 |
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| 4,318 |
Stock-based compensation expense |
| — |
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| 15,161 |
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| — |
|
| — |
|
| — |
|
| 15,161 |
Excess tax benefits from stock-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 17,607 |
|
| — |
|
| — |
|
| — |
|
| 17,607 |
Purchase of treasury stock for stock-based minimum tax withholdings |
| — |
|
| — |
| (145,566) |
|
| (7,412) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (7,412) |
Purchase of ERS units |
| — |
|
| — |
| — |
|
| — |
|
| 58 |
|
| — |
|
| — |
|
| (158) |
|
| (100) |
Foreign currency translation loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (2) |
|
| — |
|
| — |
|
| (2) |
Unrealized gain on foreign currency contracts designated as accounting hedges |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 196 |
|
| — |
|
| — |
|
| 196 |
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 4,436 |
|
| — |
|
| 4,436 |
Balance, December 31, 2015 |
| 53,925,415 |
| $ | 270 |
| (11,946,289) |
| $ | (20,654) |
| $ | 474,726 |
| $ | 194 |
| $ | (15,007) |
| $ | 398 |
| $ | 439,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
| 598,382 |
|
| 2 |
| — |
|
| — |
|
| 4,922 |
|
| — |
|
| — |
|
| — |
|
| 4,924 |
Issuance of common stock - vesting of restricted stock units |
| 1,118,889 |
|
| 6 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 6 |
Stock-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 32,572 |
|
| — |
|
| — |
|
| — |
|
| 32,572 |
Excess tax benefits from stock-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 4,455 |
|
| — |
|
| — |
|
| — |
|
| 4,455 |
Purchase of treasury stock for stock-based minimum tax withholdings |
| — |
|
| — |
| (412,220) |
|
| (10,966) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (10,966) |
Common stock shares repurchased |
| — |
|
| — |
| (43,610) |
|
| (1,448) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,448) |
Foreign currency translation loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (412) |
|
| — |
|
| — |
|
| (412) |
Loss on foreign currency contracts designated as cash flow hedges reclassified to earnings |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| (204) |
|
| — |
|
| — |
|
| (204) |
Net loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (55,567) |
|
| — |
|
| (55,567) |
Balance, December 31, 2016 |
| 55,642,686 |
| $ | 278 |
| (12,402,119) |
| $ | (33,068) |
| $ | 516,675 |
| $ | (422) |
| $ | (70,574) |
| $ | 398 |
| $ | 413,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
| 837,857 |
|
| 4 |
| — |
|
| — |
|
| 7,947 |
|
| — |
|
| — |
|
| — |
|
| 7,951 |
Issuance of common stock - vesting of restricted stock units |
| 969,513 |
|
| 5 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5 |
Stock-based compensation expense |
| — |
|
| — |
| — |
|
| — |
|
| 31,635 |
|
| — |
|
| — |
|
| — |
|
| 31,635 |
Purchase of treasury stock for stock-based tax withholdings |
| — |
|
| — |
| (347,296) |
|
| (13,974) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (13,974) |
Foreign currency translation gain |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 1,046 |
|
| — |
|
| — |
|
| 1,046 |
Net loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (3,280) |
|
| — |
|
| (3,280) |
Balance, December 31, 2017 |
| 57,450,056 |
| $ | 287 |
| (12,749,415) |
| $ | (47,042) |
| $ | 556,257 |
| $ | 624 |
| $ | (73,854) |
| $ | 398 |
| $ | 436,670 |
See accompanying notes to Consolidated Financial Statements.
83
Envestnet, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (3,280) |
| $ | (55,567) |
| $ | 4,436 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 62,820 |
|
| 63,999 |
|
| 27,962 |
Deferred rent and lease incentive amortization |
|
| 1,027 |
|
| (438) |
|
| 1819 |
Provision for doubtful accounts |
|
| 867 |
|
| 1,122 |
|
| 176 |
Deferred income taxes |
|
| (4,597) |
|
| 5,584 |
|
| (10,508) |
Stock-based compensation expense |
|
| 31,331 |
|
| 33,276 |
|
| 15,161 |
Non-cash interest expense |
|
| 8,994 |
|
| 8,244 |
|
| 10,271 |
Accretion on contingent consideration and purchase liability |
|
| 512 |
|
| 150 |
|
| 888 |
Fair market value adjustment to contingent consideration |
|
| — |
|
| 1,588 |
|
| (4,153) |
Loss allocation from equity method investment |
|
| 1,469 |
|
| 1,420 |
|
| — |
Impairment of equity method investment |
|
| — |
|
| 734 |
|
| — |
Loss on disposal of fixed assets |
|
| 76 |
|
| 398 |
|
| — |
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
Fees and other receivables |
|
| (8,121) |
|
| 1,646 |
|
| (9,297) |
Prepaid expenses and other current assets |
|
| (787) |
|
| (3,290) |
|
| 14,716 |
Other non-current assets |
|
| (1,690) |
|
| (98) |
|
| (6,025) |
Accrued expenses and other liabilities |
|
| 16,810 |
|
| 17,174 |
|
| (13,653) |
Accounts payable |
|
| (442) |
|
| (462) |
|
| 3,128 |
Deferred revenue |
|
| 1,191 |
|
| 2,014 |
|
| 10,906 |
Other non-current liabilities |
|
| 2,427 |
|
| 3,776 |
|
| (3,792) |
Net cash provided by operating activities |
|
| 108,607 |
|
| 81,270 |
|
| 42,035 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (14,945) |
|
| (13,967) |
|
| (9,184) |
Capitalization of internally developed software |
|
| (12,624) |
|
| (8,609) |
|
| (5,532) |
Investment in private companies |
|
| (1,450) |
|
| (2,238) |
|
| (1,500) |
Purchase of ERS units |
|
| — |
|
| (1,500) |
|
| (100) |
Acquisition of businesses, net of cash acquired |
|
| — |
|
| (31,613) |
|
| (328,305) |
Net cash used in investing activities |
|
| (29,019) |
|
| (57,927) |
|
| (344,621) |
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Term Notes |
|
| — |
|
| — |
|
| 160,000 |
Payment of Term Notes |
|
| (35,862) |
|
| (8,000) |
|
| (10,000) |
Proceeds from borrowings on revolving credit facility |
|
| 35,000 |
|
| 40,000 |
|
| 10,000 |
Payments on revolving credit facility |
|
| (62,500) |
|
| (40,000) |
|
| (10,000) |
Debt issuance costs |
|
| (94) |
|
| — |
|
| — |
Payments of contingent consideration |
|
| (2,286) |
|
| (3,729) |
|
| (7,219) |
Payments of definite consideration |
|
| (445) |
|
| — |
|
| — |
Payments of purchase consideration liabilities |
|
| (235) |
|
| (3,256) |
|
| — |
Issuance of redeemable units in ERS |
|
| — |
|
| — |
|
| 900 |
Proceeds from exercise of stock options |
|
| 7,951 |
|
| 4,924 |
|
| 8,279 |
Purchase of treasury stock for stock-based tax withholdings |
|
| (13,974) |
|
| (10,966) |
|
| (7,412) |
Common stock acquired under the share repurchase program |
|
| — |
|
| (1,448) |
|
| — |
Issuance of restricted stock units |
|
| 5 |
|
| 6 |
|
| 2 |
Net cash provided by (used in) financing activities |
|
| (72,440) |
|
| (22,469) |
|
| 144,550 |
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH |
|
| 375 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 7,523 |
|
| 874 |
|
| (158,036) |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
| 52,592 |
|
| 51,718 |
|
| 209,754 |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 60,115 |
| $ | 52,592 |
| $ | 51,718 |
|
|
| . |
|
|
|
|
|
|
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes |
| $ | 3,261 |
| $ | 1,114 |
| $ | 1,700 |
Supplemental disclosure of cash flow information - cash paid during the period for interest |
|
| 7,353 |
|
| 8,356 |
|
| 3,877 |
Supplemental disclosure of non-cash operating, investing and financing activities: |
|
|
|
|
|
|
|
|
|
Non-cash debt issuance costs |
|
| 2,230 |
|
| — |
|
| — |
Leasehold improvements funded by lease incentive |
|
| 2,098 |
|
| 1,522 |
|
| 330 |
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities |
|
| 1,286 |
|
| 1,136 |
|
| — |
Purchase liabilities included in accrued expenses and other liabilities |
|
| 856 |
|
| 996 |
|
| 13,676 |
Contingent consideration issued in business acquisitions |
|
| — |
|
| 4,868 |
|
| 1,500 |
Common stock issued in business acquisitions |
|
| — |
|
| — |
|
| 195,451 |
Attribution of the fair market value of replacement awards |
|
| — |
|
| — |
|
| 4,318 |
See accompanying notes to Consolidated Financial Statements.
84
Envestnet, Inc.
Notes to Consolidated Financial Statements
(in thousands, except share and per share amounts)
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Asset-based | $ | 745,238 | $ | 738,228 | $ | 709,376 | ||||||||||||||
| Subscription-based | 464,730 | 477,844 | 453,989 | |||||||||||||||||
| Total recurring revenue | 1,209,968 | 1,216,072 | 1,163,365 | |||||||||||||||||
| Professional services and other revenue | 35,652 | 23,712 | 23,152 | |||||||||||||||||
| Total revenue | 1,245,620 | 1,239,784 | 1,186,517 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Direct expense | 473,038 | 470,424 | 423,723 | |||||||||||||||||
| Employee compensation | 444,828 | 490,725 | 432,829 | |||||||||||||||||
| General and administrative | 210,113 | 218,831 | 171,657 | |||||||||||||||||
| Depreciation and amortization | 130,304 | 125,828 | 117,767 | |||||||||||||||||
| Goodwill impairment | 191,818 | — | — | |||||||||||||||||
| Total operating expenses | 1,450,101 | 1,305,808 | 1,145,976 | |||||||||||||||||
| Income (loss) from operations | (204,481) | (66,024) | 40,541 | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest income | 6,288 | 4,184 | 827 | |||||||||||||||||
| Interest expense | (25,138) | (16,843) | (16,931) | |||||||||||||||||
| Other income (expense), net | (9,666) | 264 | (4,076) | |||||||||||||||||
| Total other income (expense), net | (28,516) | (12,395) | (20,180) | |||||||||||||||||
| Income (loss) before income tax provision | (232,997) | (78,419) | 20,361 | |||||||||||||||||
| Income tax provision | 12,777 | 7,061 | 7,667 | |||||||||||||||||
| Net income (loss) | (245,774) | (85,480) | 12,694 | |||||||||||||||||
| Add: Net loss attributable to non-controlling interest | 7,050 | 4,541 | 602 | |||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. | $ | (238,724) | $ | (80,939) | $ | 13,296 | ||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. per share: | ||||||||||||||||||||
| Basic | $ | (4.38) | $ | (1.47) | $ | 0.24 | ||||||||||||||
| Diluted | $ | (4.38) | $ | (1.59) | $ | 0.24 | ||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 54,457,365 | 55,199,482 | 54,470,975 | |||||||||||||||||
| Diluted | 54,457,365 | 56,842,125 | 55,384,096 | |||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. | $ | (238,724) | $ | (80,939) | $ | 13,296 | ||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation adjustments | 22 | (6,690) | (1,501) | |||||||||||||||||
| Total other comprehensive income (loss), net of tax | 22 | (6,690) | (1,501) | |||||||||||||||||
| Comprehensive income (loss) attributable to Envestnet, Inc. | $ | (238,702) | $ | (87,629) | $ | 11,795 | ||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional | Other | Non- | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Paid-in | Comprehensive | Accumulated | controlling | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 67,832,706 | $ | 339 | (13,739,171) | $ | (110,466) | $ | 1,166,774 | $ | (398) | $ | (79,912) | $ | (519) | $ | 975,818 | ||||||||||||||||||||||||||||||||||||||||
Adoption of ASU 2020-06, net of taxes of $7,641 (See note 2) | — | — | — | — | (108,470) | — | 28,628 | — | (79,842) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | 13,296 | (602) | 12,694 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (1,501) | — | — | (1,501) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 67,525 | — | — | — | 67,525 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, vesting of RSUs and PSUs | 891,466 | 5 | — | — | — | — | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net cash paid related to tax withholding for stock-based compensation | — | — | (291,405) | (20,529) | — | — | — | — | (20,529) | |||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from the exercise of stock options | 76,303 | — | — | — | 2,090 | — | — | — | 2,090 | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution, non-controlling interest | — | — | — | — | (127) | — | — | 3,328 | 3,201 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | 78,677 | — | — | — | 4,068 | — | — | — | 4,068 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net cash paid related to share repurchases | — | — | (55,488) | (4,001) | — | — | — | — | (4,001) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | (232) | — | — | 246 | 14 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 68,879,152 | $ | 344 | (14,086,064) | $ | (134,996) | $ | 1,131,628 | $ | (1,899) | $ | (37,988) | $ | 2,453 | $ | 959,542 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (80,939) | (4,541) | (85,480) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (6,690) | — | — | (6,690) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 79,581 | — | — | — | 79,581 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, vesting of RSUs and PSUs | 1,063,779 | 6 | — | — | — | — | — | — | 6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net cash paid related to tax withholding for stock-based compensation | — | — | (356,201) | (23,516) | — | — | — | — | (23,516) | |||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from the exercise of stock options | 82,802 | — | — | — | 2,620 | — | — | — | 2,620 | |||||||||||||||||||||||||||||||||||||||||||||||
| Capital contribution, non-controlling interest | — | — | — | — | 1,288 | — | — | 14,749 | 16,037 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net cash paid related to share repurchases | — | — | (1,569,642) | (95,039) | — | — | — | — | (95,039) | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of Capped Call Transactions | — | — | — | — | (79,585) | — | — | — | (79,585) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | (248) | — | — | 376 | 128 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 70,025,733 | $ | 350 | (16,011,907) | $ | (253,551) | $ | 1,135,284 | $ | (8,589) | $ | (118,927) | $ | 13,037 | $ | 767,604 | ||||||||||||||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Additional | Other | Non- | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Paid-in | Comprehensive | Accumulated | controlling | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Interest | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 70,025,733 | $ | 350 | (16,011,907) | $ | (253,551) | $ | 1,135,284 | $ | (8,589) | $ | (118,927) | $ | 13,037 | $ | 767,604 | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (238,724) | (7,050) | (245,774) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | 22 | — | — | 22 | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 70,719 | — | — | 312 | 71,031 | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, vesting of RSUs and PSUs | 1,031,658 | 5 | — | — | — | — | — | — | 5 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net cash paid related to tax withholding for stock-based compensation | — | — | (344,232) | (19,022) | — | — | — | — | (19,022) | |||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from the exercise of stock options | 72,410 | — | — | — | 1,608 | — | — | — | 1,608 | |||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of non-controlling units from third-party shareholders | — | — | — | — | (984) | — | — | (24) | (1,008) | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | 40 | 40 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 71,129,801 | $ | 355 | (16,356,139) | $ | (272,573) | $ | 1,206,627 | $ | (8,567) | $ | (357,651) | $ | 6,315 | $ | 574,506 | ||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | (245,774) | $ | (85,480) | $ | 12,694 | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization | 130,304 | 125,828 | 117,767 | |||||||||||||||||
| Deferred income taxes | (1,479) | (3,490) | (320) | |||||||||||||||||
| Goodwill impairment | 191,818 | — | — | |||||||||||||||||
| Non-cash compensation expense | 71,031 | 80,333 | 68,020 | |||||||||||||||||
| Non-cash interest expense | 5,037 | 7,445 | 5,799 | |||||||||||||||||
| Fair market value adjustment to investment in private company | (804) | (400) | (758) | |||||||||||||||||
| Dilution gain on equity method investee share issuance | (546) | (9,517) | — | |||||||||||||||||
| Loss allocations from equity method investments | 10,579 | 8,874 | 7,093 | |||||||||||||||||
| Lease related impairments | 5,120 | 15,750 | 1,537 | |||||||||||||||||
| Loss on extinguishment of Convertible Notes due 2023 | — | 13,421 | — | |||||||||||||||||
| Gain on extinguishment of Convertible Notes due 2025 | — | (15,089) | — | |||||||||||||||||
| Loss on property and equipment disposals | — | 5,097 | — | |||||||||||||||||
| Payments of contingent consideration | — | — | (2,360) | |||||||||||||||||
| Fair market value adjustment to contingent consideration liability | — | — | (1,067) | |||||||||||||||||
| Gain on settlement of liability | — | — | (1,206) | |||||||||||||||||
| Other | 1,781 | 1,266 | 2,793 | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Fees receivable, net | (20,584) | (5,031) | (16,731) | |||||||||||||||||
| Prepaid expenses and other assets | (11,573) | (16,090) | 3,140 | |||||||||||||||||
| Accounts payable, accrued expenses and other liabilities | 19,229 | (24,257) | 56,256 | |||||||||||||||||
| Deferred revenue | 729 | (305) | (2,080) | |||||||||||||||||
| Net cash provided by operating activities | 154,868 | 98,355 | 250,577 | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Purchases of property and equipment | (18,995) | (16,172) | (23,731) | |||||||||||||||||
| Capitalization of internally developed software | (94,307) | (89,153) | (65,170) | |||||||||||||||||
| Acquisitions of businesses, net of cash acquired | — | (104,100) | (32,794) | |||||||||||||||||
| Investments in private companies | (4,175) | (16,351) | (25,926) | |||||||||||||||||
| Acquisition of proprietary technology | (17,000) | (19,000) | (28,517) | |||||||||||||||||
| Issuance of loan receivable to private company | (20,000) | — | — | |||||||||||||||||
| Issuance of note receivable to equity method investees | — | (6,350) | — | |||||||||||||||||
| Other | 414 | — | — | |||||||||||||||||
| Net cash used in investing activities | (154,063) | (251,126) | (176,138) | |||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from borrowings under Revolving Credit Facility | 55,000 | — | — | |||||||||||||||||
| Payments related to Revolving Credit Facility | (55,000) | — | — | |||||||||||||||||
| Settlement of Convertible Notes due 2023 | (45,000) | — | — | |||||||||||||||||
| Proceeds from issuance of Convertible Notes due 2027 | — | 575,000 | — | |||||||||||||||||
| Convertible Notes due 2027 issuance costs | — | (16,323) | — | |||||||||||||||||
| Repurchase of Convertible Notes due 2023 | — | (312,422) | — | |||||||||||||||||
| Repurchase of Convertible Notes due 2025 | — | (181,772) | — | |||||||||||||||||
| Payments related to Capped Call Transactions | — | (79,585) | — | |||||||||||||||||
| Proceeds from exercise of stock options | 1,608 | 2,620 | 2,090 | |||||||||||||||||
| Payments related to tax withholdings for stock-based compensation | (19,022) | (23,516) | (20,529) | |||||||||||||||||
| Payments related to share repurchases | (9,289) | (85,750) | (4,001) | |||||||||||||||||
| Purchase of non-controlling units from third-party shareholders | (1,008) | — | — | |||||||||||||||||
| Proceeds from capital contributions of non-controlling shareholders | — | 16,037 | 3,201 | |||||||||||||||||
| Payments of contingent consideration | — | (743) | (9,276) | |||||||||||||||||
| Other | 5 | (1,866) | (655) | |||||||||||||||||
| Net cash used in financing activities | (72,706) | (108,320) | (29,170) | |||||||||||||||||
| Effect of exchange rate on changes on cash, cash equivalents and restricted cash | 1,106 | (6,164) | (555) | |||||||||||||||||
| Net change in cash, cash equivalents and restricted cash | (70,795) | (267,255) | 44,714 | |||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 162,173 | 429,428 | 384,714 | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 91,378 | $ | 162,173 | $ | 429,428 | ||||||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||||||||||
| Net cash paid for income taxes | $ | 15,866 | $ | 12,120 | $ | 7,920 | ||||||||||||||
| Cash paid for interest | $ | 20,101 | $ | 11,046 | $ | 11,132 | ||||||||||||||
| Supplemental disclosure of non-cash activities | ||||||||||||||||||||
| Purchase of fixed assets included in accounts payable and accrued expenses and other current liabilities | $ | 710 | $ | 4,206 | $ | 1,328 | ||||||||||||||
| Right-of-use assets obtained in exchange for lease liabilities, net | $ | 1,395 | $ | 13,211 | $ | 4,596 | ||||||||||||||
| Conversion of equity method investee loan to shares | $ | 4,129 | $ | 2,623 | $ | — | ||||||||||||||
| Treasury stock purchases included in accrued expenses and other liabilities | $ | — | $ | 9,289 | $ | — | ||||||||||||||
| Membership interest liabilities included in other liabilities | $ | — | $ | 752 | $ | 496 | ||||||||||||||
| Common stock issued to settle purchase liability | $ | — | $ | — | $ | 4,068 | ||||||||||||||
| Internally developed software costs included in accrued expenses and other liabilities | $ | — | $ | — | $ | 591 | ||||||||||||||
| Leasehold improvements funded by lease incentive | $ | — | $ | — | $ | 164 | ||||||||||||||
| Purchase liabilities included in accrued expenses and other liabilities | $ | — | $ | — | $ | 2,951 | ||||||||||||||
The Company offers these solutions principally through the following product and service suites:
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•Envestnet operates three RIAs| Workplace Solutionsoffers a comprehensive suite of services for advisor-sold retirement plans. It's retirement solutions address the regulatory, data, and a registered broker-dealer. The RIAs are registered withinvestment needs of retirement plans and delivers the U.S. Securities and Exchange Commission (“SEC”). The broker-dealer is registered with the SEC, all 50 states and the District of Columbia and information holistically. Workplace Solutions includesis a memberdigital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. With Envestnet's retirement solutions marketplace, advisors can employ Envestnet's outsourced fiduciary services for investment selection and monitoring in retirement plan portfolios and can access essential information to make investment recommendations and understand the impact of fund changes to the total cost of their plans.
Statements
consolidated balance sheets should have been recognized as a prepayment included within prepaid expenses and other current assets and other assets in the consolidated balance sheets. The Company concluded that the classification of these transactions was immaterial in prior period financial statements and that amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior years reported within this Annual Report on Form 10-K for the year ended December 31, 2023.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
relate to estimating uncollectible receivables, revenue recognition, valuations and assumptions used for impairment testing of goodwill, intangible and other long-lived assets, fair value of restricted stock and stock optionsright-of-use assets, performance shares issued, fair value of contingent consideration, realization of deferred tax assets, uncertain tax positions, sales tax liabilities, fair value of the liability portion of the convertible debtoperating lease liabilities, commitments and contingencies and assumptions used to allocate purchase prices in business combinations. Actual results could differ materially from these estimates under different assumptions or conditions.
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Subscription— Subscriptionquarter. Accordingly, revenue is primarily derived from customers accessingallocated to the SaaS technology platformspecific quarter in which services are performed.
Licensing— The Company derives licensing fees from recurring contractual fixed fee contracts with larger financial institutions or enterprise clients. Licensing contracts allow the customer to provide a unique configurationsimultaneously consumes and receives the benefits of platform features and investment solutions for their advisors. The licensingthe services. All asset-based fees vary based on the type of services provided and our revenues received under license agreements are recognized overin the contractual term. The Company’s license agreements do not generally provide its customers the ability to take possession of the software or host the software on the customers’ own systems or through a hosting arrangement with an unrelated party.
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The Company derives professional services fees from providing contractual customized service platform software development as well as implementation fees, which are recognized under a proportional performance model utilizing an output-based approach or are deferred and amortized over the estimated life of the customer relationship. The Company’s contracts generally have fixed prices, and generally specify or quantify deliverables.
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(in thousands, except share and per share amounts)
Cash receivedFor certain services provided by third parties, the Company in advance ofevaluates whether it is the performance of services is deferred and recognized as revenue when earned. Certain portions of the Company’s revenues require management’s consideration of the nature of the client relationship in determining whether to recognize as revenue the gross amount billed or net amount retained after payments are made to providers for certain services related to the product or service offering.
The Company uses the following factors to determine whether to record revenueprincipal (revenue reported on a gross basis) or agent (revenue reported on a net basis:
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Whenbasis). Generally, the Company reports customer fees includeincluding charges for third party service providers where the Company has a direct contract with such third party service providers on a gross basis, whereas the amounts billed to its customers are recorded as revenue, recognizedand amounts paid to third party service providers are recorded as direct expense. The Company is the principal in the transaction because it controls the services before they are transferred to its customers. Control is evidenced by the Company equals the fee paid by the customer. The cost of revenues recognized by the Company is the amount duebeing primarily responsible to the third party service provider.
In instances where the Company does not have a direct contract with the third party service provider, the Company cannot exerciseits customers and having discretion in establishing pricing.
Multiple Element Arrangements—When the Company enters into arrangements with multiple deliverables, exclusive of arrangements with software deliverables, it applies the FASB’s guidance for revenue arrangements with multiple deliverablescontract. The fixed fees are generally calculated and evaluates each deliverable to determine whether it represents a separate unit of accountingbilled quarterly in advance. The usage-based fees are generally calculated and are billed either monthly or quarterly based on the following criteria: (i) whetheractual usage and relate specifically to the delivered item has valuebenefits transferred to the customer on a stand-alone basis, and (ii) if the contract includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. Revenueduring that quarter. Accordingly, revenue is allocated to each unitthe specific quarter in which services are performed.
After determining which deliverables represent a separate unit of accounting, each unit is then accounted for under the applicable revenue recognition guidance. In cases where elements cannot be treated as separate units of accounting, the elements are combined into a single unit of accounting for revenue recognition purposes. If one of the elements that are combined into a single unit of accounting is fees fromearns professional services including implementation relatedfees by providing contractual customized services or customized serviceand platform software development as well as initial implementation fees. Professional services contracts generally have one performance obligation, fixed prices, and generally specify the deliverables in the contract. Certain professional serviceservices contracts are billed on a time and materials basis and revenue is recognized over time as the services are performed. For contracts billed on a fixed price basis, revenue is recognized over time based on the proportion of services performed. Initial implementation fees are fixed and are generally recognized ratably over the coursecontract term.
contain
services are delivered to the customer.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
not represent the total contract value of these multi-year subscription agreements. Deferred revenue also includes certain deferred professional services fees, which are recognized in accordance withSales Incentive Compensation—Sales incentive compensation earned by the Company’s revenue recognition policy.
Costsales force is considered an incremental and recoverable cost to acquire a contract with a customer. Sales incentive compensation for initial contracts is deferred and amortized on a straight-line basis over the period of Revenues—Costbenefit. The Company determined the period of revenuesbenefit by taking into consideration its customer contracts, life of the technology and other factors. Sales incentive compensation for renewal contracts are deferred and amortized on a straight-line basis over the related contractual renewal period. Deferred sales incentive compensation is included in other assets in the consolidated balance sheets and amortization expense is included in employee compensation expenses in the consolidated statements of operations.
Also included in direct expense are vendor specific expenses related to the direct support of revenue associated with the Envestnet Data & Analytics products.
Investments—
| December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Cash and cash equivalents | $ | 91,378 | $ | 162,173 | $ | 429,279 | ||||||||||||||
| Restricted cash included in prepaid expenses and other current assets | — | — | 149 | |||||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 91,378 | $ | 162,173 | $ | 429,428 | ||||||||||||||
The Company has investments in which it uses the equity method of accounting to record its portion of investments in these privately held companies’ 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 percent ownership and lack of control. The Company’s interest in the earnings or losses of the privately held companies will be reflected in other expense, net on the consolidated statements of operations.
The Company’s investments are assessed for impairment when
2021.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Internally Developed Software for Internal Use—Use—Costs incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Maintenance and training costs are expensed as incurred. Internally developed software is amortized on a straight-line basis over its estimated useful life. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were noimmaterial impairments of internally developed software for internal use duringfor the years ended December 31, 2017, 20162023, 2022 and 2015.
2021.
Prior to performing the quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value. If it is determined that it is unlikely that the carrying value exceeds the fair value, the Company is not required to complete the quantitative goodwill impairment evaluation. If it is determined that the carrying value may exceed fair value when considering qualitative factors, a quantitative goodwill impairment evaluation is performed.
When performing the quantitative evaluation, if the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the difference will be recorded.
No goodwill impairment charges have beenwere recorded for the years ended December 31, 2017, 20162022 and 2015.
2021. See "Note 10—Goodwill" for a discussion of the impairment analysis for the year ended December 31, 2023.
Operating Leases—In certain circumstances,2021.
choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the Company’s choice to use fair value on its earnings.
| Level I: | Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date. | |||||||
| Level II: | Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or inputs that are observable and can be corroborated by observable market data. | |||||||
| Level III: | Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments. | |||||||
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. The tax benefits recognized in the consolidated financial statements from tax positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Non-income Tax Liabilities—Certain of the Company’s revenues are subject to sales and use taxes in certain jurisdictions where it conducts business in the United States. During 2017 and 2016, the Company estimated that a sales and use tax liability of $8,522 and $10,108, respectively, was probable related to multiple taxing jurisdictions with respect to revenues in the years ended December 31, 2017 and December 31, 2016, and prior years. This amount is included in accrued expenses and other liabilities on the consolidated balance sheets. For the same periods, the Company also estimated a sales and use tax receivable of $2,704 and $3,879, respectively, related to estimated recoverability of amounts due from customers. This amount is included in prepaid expenses and other current assets on the consolidated balance sheets.
For the year ended December 31, 2017 and 2016, we recognized net sales and use tax expense of $345 and $6,229, including interest of approximately $244 and $914, respectively. The sales and use tax adjustment was recorded in general and administration on the consolidated statements of operations. Additional future information obtained from the applicable jurisdictions may affect the Company’s estimate of its sales and use tax liability.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Convertible Notes—On December 15, 2014, the Company issued $172,500 of 1.75% convertible notes due December 2019 (the “Convertible Notes”). The Convertible Notes are accounted for in accordance with ASC 470-20.470. The Company has determined that the embedded conversion options in the Convertible Notes are not required to be separately accounted for as a derivative under GAAP. TheUpon adoption of ASU 2020-06, the Company separately accounts for the liability and equity components of Convertible Notes that can be settled in cash by allocatingas a single liability measured at amortized cost.
Non-controlling Interest—Effective February 1, 2014, the Company formed ERS with various third parties. ERS offers advisory and technology enabled services to financial advisors and retirement plans. In exchange for a 64.5% ownership interest in ERS, the Company contributed certain assets and has agreed to fund a certain amount of the operating expenses of ERS. As described in “Note 3 – Business Acquisitions,” primarily duerespect to the issuance of units related to the contributions of FinaConnect, Inc. (“FinaConnect”) and Castle Rock Innovations, Inc. (“Castle Rock”) and the purchase of additional ERS units acquired from the former owners of Klein Decisions, Inc. (“Klein”), the Company’s ownership in ERS increased to 80.8% as of December 31, 2016. During the year ended December 31, 2017, the Company purchased an additional 15 units, which increased the Company’s ownership percentage to 81.5% as of December 31, 2017.
The allocation of gains and losses to the members of ERS is based on a hypothetical liquidation book value method in accordance with the ERS operating agreement. There were no losses for the years ended December 31, 2017, 2016 and 2015, reflected as non-controlling interest in the consolidated statements of operations.
Recent Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers.
In August 2015, the FASB issued ASU 2015-14 to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company will adopt the standard in its first quarter of 2018.
The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial adoption. The standard also allows entities to apply certain practical expedients at their discretion. The Company will adopt the standard using the modified retrospective approach with a cumulative catch up adjustment and will provide additional disclosures comparing results to previous GAAP in our 2018 consolidated financial statements. We plan to apply the new revenue standard only to contracts not completed as of the date of initial application, referred to as open contracts. The Company has substantially completed the implementation of key systems changes and changes to internal controls over financial reporting to allow the Company to timely compile the information needed to account for transactions under this new guidance.
In adopting ASU 2014-09, the Company expects the following significant changes:
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the basic weighted average number of shares is increased by the dilutive effect of the Company's potentially dilutive securities, including stock options, restricted stock awards, restricted stock units, common warrants and convertible notes. The Company currently estimatesaccounts for the adoptioneffect of ASU 2014-09 will decrease its 2018 beginning accumulated deficit balance by approximately $9,000, offset by an approximate $4,000 decrease in deferred revenues and an approximate $5,000 increase in other non-current assets.
Additionally, while we are still inconvertible notes on diluted net income (loss) per share using the process of assessing the statement of operations classification impact, under ASU 2014-09, for a subset of third party manager agreements, the existing presentation of gross versus net revenue may change.
if-converted method.
In March 2016, The FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”. This update is intended to reduce the cost and complexity of accounting for share-based payments; however, some changes may also increase volatility in reported earnings. Under the new guidance, all excess tax benefits and deficiencies will be recorded as an income tax benefit or expense in the income statement and excess tax benefits will be recorded as an operating activity in the statements of cash flows. The new guidance also allows withholding up to the maximum individual statutory tax rate without classifying the awards as a liability. The cash paid to satisfy the statutory income tax withholding obligation will be classified as a financing activity in the statements of cash flows. Lastly, the update allows forfeitures to be estimated or recognized when they occur. The requirements for the excess tax effects related to share-based payments at settlement must be applied on a prospective basis, and the other requirements under this standard are to be applied on a retrospective basis. This standard will be effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2016. These changes became effective for the Company’s fiscal year beginning January 1, 2017 and have been reflected in these consolidated financial statements. As a result2022. Early adoption of the retrospective adoption of ASU 2016-09, for the year ended December 31, 2016 and 2015, net cash provided by operating activities increased by $4,455 and $17,607, respectively, with a corresponding offset to net cash used in financing activities. The Company did not elect an accounting policy change to record forfeitures as they occur and will continue to estimate forfeitures at each period.
In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” which clarifies eight specific cash flow issues in an effort to reduce diversity in practice in how certain transactions are classified within the statements of cash flows. This ASU is effective for the Company January 1, 2018 with early adoption permitted. Upon adoption, the ASU requires a retrospective application unless it is determined that it is impractical to do so for which it must be retrospectively applied at the earliest date practical. We will adopt the standard effective January 1, 2018. Upon adoption, the Company does not anticipate
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
significant changes to the Company's existing accounting policies or presentation of the consolidated statements of cash flows.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350),” which removes step two from the goodwill impairment test. As a result, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units’ fair value. This standard will be effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. Early adoption is permitted. The amendment is to be applied prospectively to business combinations occurring on or after the effective date of the amendment. The Company has early adopted this standard as of AprilJanuary 1, 2017, however it2022. Adoption of ASU 2021-08 did not have a material impact on the Company’sCompany's consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. This update clarifies which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting. Specifically, an entity would not apply modification account if the fair value, vesting conditions, and classification as an equity or liability instrument are the same before and after the modification. The ASU is effective for financial statements issued by public companies for the annual and2023, including interim periods beginning after December 15, 2017.within those fiscal years. Early adoption of the standard is permitted. TheAdoption of ASU 2023-01 will not have a material impact on the Company's consolidated financial statements.
3. Business Acquisitions
The following acquisitions are included within the Envestnet segment, except for Yodlee and Wheelhouse, which comprise the Envestnet | Yodlee segment.
Upside Holdings, Inc.
On February 24, 2015, Envestnet, Inc. (the “Company”) acquired all of the stock of Upside Holdings, Inc. (including its subsidiaries “Upside”) for consideration totaling $2,641.
Upsidestandard is a technology company that was previously registered as an Internet Investment Adviser under Rule 203A-2(f) of the Investment Advisers Act of 1940 (“Advisers Act”). Upside helps financial advisors compete against other digital advisors, or “robo advisors,” by leveraging technology and algorithms to advise, manage, and serve clients who want personalized investment services.
The Company acquired Upside to integrate its technology within the Company’s unified wealth management platform, which will allow advisors to compete more aggressively to engage their clients online and reach a new class of investors. The goodwill arising from the acquisition represents the advantage of this integrated technology, the expected
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(in thousands, except share and per share amounts)
synergistic benefits3.Acquisitions
The estimated consideration transferred in the acquisitionthese two arrangements as a single unit of account. As of the acquisition date, the net cost of the proprietary technology acquired, including capitalized transaction costs, was approximately $24.5 million, which will be amortized over a five-year period on a straight-line basis. The proprietary technology has been integrated into the Envestnet Wealth Solutions segment.
|
|
|
|
|
|
|
|
|
|
Cash consideration |
|
|
|
|
|
|
| $ | 2,040 |
Purchase consideration liability |
|
|
|
|
|
|
|
| 615 |
Cash acquired |
|
|
|
|
|
|
|
| (14) |
Total |
|
|
|
|
|
|
| $ | 2,641 |
|
|
|
|
|
|
|
|
|
|
Total tangible assets acquired |
|
|
|
|
|
|
| $ | 88 |
Total liabilities assumed |
|
|
|
|
|
|
|
| (404) |
Identifiable intangible assets |
|
|
|
|
|
|
|
| 1,450 |
Goodwill |
|
|
|
|
|
|
|
| 1,507 |
Total net assets acquired |
|
|
|
|
|
|
| $ | 2,641 |
The estimated useful life and amortization method of the intangible asset acquired is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated |
| Amortization |
|
|
|
|
|
|
|
|
| Amount |
| Useful Life in Years |
| Method |
| |
Proprietary technology |
|
|
|
|
|
|
| $ | 1,450 |
| 4 |
| Straight-line |
|
The results of Upside’s operations are included in the consolidated statements of operations beginning February 24, 2015, and are not material to the Company’s results of operations.
Oltis Software LLC
On May 6, 2015, the Company acquired all of the issued and outstanding membership interests of Oltis Software LLC (d/b/a Finance Logix®), an Arizona limited liability company (“Finance Logix”). Finance Logix provides financial planning and wealth management software solutions to banks, broker-dealers and RIAs.
The Company paid upfront consideration of $20,595 in cash, purchase consideration liability of $3,000, 123,410 in shares of Envestnet common stock with a fair value of $6,388 and 123,410 stock options to acquire Envestnet common stock at $52.67 per share with an estimated fair value of $2,542.
The Company acquired Finance Logix to integrate its technology within the Company’s unified wealth management platform, which will allow advisors to offer financial planning that flows seamlessly into portfolio construction and ongoing management on a single platform. Finance Logix allows the Company to deliver that capability and increase the breadth of our platform and the functionality gap between our platform and competing platforms. The goodwill arising from the acquisition represents cross-selling opportunities, the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill is deductible for income tax purposes.
94
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The estimated consideration transferred in the acquisition as of the acquisition date was as follows:
|
|
|
|
|
|
|
|
|
|
Cash consideration |
|
|
|
|
|
|
| $ | 20,595 |
Stock and stock option consideration |
|
|
|
|
|
|
|
| 8,930 |
Purchase consideration liability |
|
|
|
|
|
|
|
| 3,000 |
Cash acquired |
|
|
|
|
|
|
|
| (909) |
Total |
|
|
|
|
|
|
| $ | 31,616 |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
|
|
|
Total tangible assets acquired |
|
|
|
|
|
|
| $ | 952 |
Total liabilities assumed |
|
|
|
|
|
|
|
| (2,628) |
Identifiable intangible assets |
|
|
|
|
|
|
|
| 9,800 |
Goodwill |
|
|
|
|
|
|
|
| 23,492 |
Total net assets acquired |
|
|
|
|
|
|
| $ | 31,616 |
A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated |
| Amortization |
|
|
|
|
|
|
|
|
| Amount |
| Useful Life in Years |
| Method |
| |
Customer list |
|
|
|
|
|
|
| $ | 8,300 |
| 12 |
| Accelerated |
|
Proprietary technology |
|
|
|
|
|
|
|
| 1,000 |
| 4 |
| Straight-line |
|
Trade names and domains |
|
|
|
|
|
|
|
| 500 |
| 5 |
| Straight-line |
|
Total |
|
|
|
|
|
|
| $ | 9,800 |
|
|
|
|
|
The results of Finance Logix’s operations are included in the consolidated statements of operations beginning May 6, 2015. Finance Logix’s revenues for the period ended December 31, 2015 totaled $1,892. Finance Logix’s net loss for the period ended December 31, 2015 totaled $999. The net loss for the period ended December 31, 2015 includes acquired intangible asset amortization of $974.
For the periods ended December 31, 2017, 2016 and 2015, acquisition related costs for Finance Logix totaled $145, $548 and $465, respectively, and are included in general and administration expenses.
Castle Rock Innovations, Inc.
On August 30, 2015, the Company acquired all of the outstanding shares of stock of Castle Rock Innovations, Inc., a Delaware corporation (“Castle Rock”). Castle Rock provides data aggregation and plan benchmark solutions to retirement plan record-keepers, broker-dealers, and advisors.
The Company combined the acquired Castle Rock assets with ERS on December 1, 2016. Castle Rock’s AXIS Retirement Plan Analytics Platform enables retirement plan fiduciaries to comply with 408(b)(2) and 404a-5 regulatory fee disclosure reporting requirements. The AXIS platform offers a single web-based interface and data repository to service the reporting needs of all types of retirement plans, and can be integrated with all record-keeping systems. AXIS also includes features for editing and generating reports for filings, reporting plan expenses, and comparing retirement plans and participants to those of their peers by industry, company size, and other characteristics. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill is not deductible for income tax purposes.
95
| Tangible assets acquired, net of cash received | $ | 5,310 | ||||||
| Identifiable intangible assets | 9,500 | |||||||
| Goodwill | 18,526 | |||||||
| Total assets acquired | 33,336 | |||||||
| Total liabilities assumed | (542) | |||||||
| Total net assets acquired, net of cash received | $ | 32,794 | ||||||
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The estimated consideration transferred in the acquisition as of the acquisition date was as follows:
|
|
|
|
|
|
|
|
|
|
Cash consideration |
|
|
|
|
|
|
| $ | 6,190 |
Contingent consideration liability |
|
|
|
|
|
|
|
| 1,500 |
Cash acquired |
|
|
|
|
|
|
|
| (320) |
Total |
|
|
|
|
|
|
| $ | 7,370 |
In connection with the acquisition of Castle Rock, the Company is required to pay contingent consideration of 40% of the first annual post-closing period revenues minus $100, 35% of the second annual post-closing period revenue minus $100 and 30% of the third annual post-closing period revenue minus $100.
On December 1, 2016, the Company and Castle Rock amended the stock purchase agreement to fix the remaining post-closing period payments. The first post-closing payment was made during October 2016 in the amount of $805. The second post-closing period payment of $445 was paid in January 2017 and the third post-closing payment of $1,250 was paid in January 2018.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
|
|
|
Total tangible assets acquired |
|
|
|
|
|
|
| $ | 255 |
Total liabilities assumed |
|
|
|
|
|
|
|
| (1,366) |
Identifiable intangible assets |
|
|
|
|
|
|
|
| 3,900 |
Goodwill |
|
|
|
|
|
|
|
| 4,581 |
Total net assets acquired |
|
|
|
|
|
|
| $ | 7,370 |
A summary of intangible assets acquired, estimated useful lives and amortization method is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated |
| Amortization |
|
|
|
|
|
|
|
|
| Amount |
| Useful Life in Years |
| Method |
| |
Customer list |
|
|
|
|
|
|
| $ | 3,000 |
| 12 |
| Accelerated |
|
Proprietary technology |
|
|
|
|
|
|
|
| 800 |
| 5 |
| Straight-line |
|
Trade names and domains |
|
|
|
|
|
|
|
| 100 |
| 4 |
| Straight-line |
|
Total |
|
|
|
|
|
|
| $ | 3,900 |
|
|
|
|
|
The results of Castle Rock’s operations are included in the consolidated statements of operations beginning September 1, 2015. Castle Rock’s revenues and net income for the period ended December 31, 2015 totaled $1,011 and $109, respectively. The net income includes acquired intangible asset amortization of $178.
On September 1, 2015, ERS accepted the subscription of certain former owners of Castle Rock (the “Castle Rock Parties”) to purchase a 6.5% ownership interest of ERS for $900. The Castle Rock Parties have the right to require ERS to repurchase units issued pursuant to the subscription in approximately 36 months after September 1, 2015 for the amount of $900. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in the consolidated balance sheets.
Yodlee, Inc.
On November 19, 2015, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated August 10, 2015, among Yodlee, the Company and Yale Merger Corp. (“Merger Sub”), a wholly owned subsidiary of
96
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Envestnet, Merger Sub was merged (the “Merger”) with and into Yodlee with Yodlee continuing as a wholly owned subsidiary of Envestnet.
Yodlee, operating as Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services. The Company acquired Yodlee to enhance the Company’s wealth management solutions with a deeply integrated data aggregation capability, expand the Company’s addressable market by delivering the Company’s wealth management solutions to Yodlee’s clients and partners, and benefit from the revenue potential resulting from Yodlee’s fast growing data analytics solutions.
Under the terms of the Merger Agreement, Yodlee stockholders received $11.51 in cash and 0.1889 of a share of Envestnet common stock per Yodlee share. Based upon the volume weighted average price per share of Envestnet common stock for the ten consecutive trading days ending on (and including) November 17, 2015, the second trading day immediately prior to completion of the Merger, Yodlee stockholders received total consideration with a value of $17.49 per share.
Net cash consideration totaled approximately $375,658 and the Company issued approximately 5,974,000 shares of Envestnet common stock to Yodlee stockholders in the Merger. Holders of 577,829 shares of Yodlee common stock have exercised their statutory appraisal rights under Delaware law. As of December 31, 2015, the Company recognized a liability in the amount of $10,061, which represented $17.49 in cash for each share of Yodlee common stock held by them. Although the Company believed the fair value of these shares did not exceed the consideration paid in the Acquisition, nevertheless, during the first quarter of 2016, the Company settled the appraisal claim in order to avoid the costs, uncertainties, disruptions and distraction of potential litigation. The difference between the liability as of December 31, 2015 and the settlement amount resulted in an increase to goodwill and total consideration paid.
The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenuesrevenue as a result of potential cross selling opportunities, and new lines of business, as well as lower future operating expenses. The goodwill is also relatedenhancements to the knowledge and experience of the workforce in place.Company's existing technologies. The goodwill is not deductible for income tax purposes.
The estimated consideration transferred in the acquisition was as follows:
|
|
|
|
|
|
|
|
|
|
Cash consideration |
|
|
|
|
|
|
| $ | 375,658 |
Stock consideration |
|
|
|
|
|
|
|
| 186,522 |
Attribution of the fair market value of replacement awards |
|
|
|
|
|
|
|
| 4,318 |
Cash acquired |
|
|
|
|
|
|
|
| (63,234) |
Total |
|
|
|
|
|
|
| $ | 503,264 |
In connection with the Yodlee merger, the Company issued 1,052,000 shares of Envestnet restricted stock awards (“replacement awards”) issued in connection with unvested Yodlee employee equity awards. The Yodlee unvested stock options and unvested restricted stock units were canceled and exchanged for the replacement awards. See “Note 16 – Stock-Based Compensation” for additional information related to the replacement awards.
97
(in thousands, except share and per share amounts)
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
| $ | 16,882 |
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
| 3,507 |
Property and equipment, net |
|
|
|
|
|
|
|
| 13,800 |
Other non-current assets |
|
|
|
|
|
|
|
| 1,959 |
Identifiable intangible assets |
|
|
|
|
|
|
|
| 244,000 |
Goodwill |
|
|
|
|
|
|
|
| 282,429 |
Total assets acquired |
|
|
|
|
|
|
|
| 562,577 |
Accounts payable |
|
|
|
|
|
|
|
| (2,424) |
Accrued expenses |
|
|
|
|
|
|
|
| (28,173) |
Capital lease obligations |
|
|
|
|
|
|
|
| (1,527) |
FIN 48 liability |
|
|
|
|
|
|
|
| (5,450) |
Deferred tax liability |
|
|
|
|
|
|
|
| (16,693) |
Deferred revenue |
|
|
|
|
|
|
|
| (4,100) |
Other long term liabilities |
|
|
|
|
|
|
|
| (946) |
Total liabilities assumed |
|
|
|
|
|
|
|
| (59,313) |
Total net assets acquired |
|
|
|
|
|
|
| $ | 503,264 |
As part of the final acquisition accounting, management assigned $24,613 of the total acquired goodwill of $282,429 to the Envestnet segment given the expected benefit to that segment related to the synergies resulting from the combination.
A summary of intangible assets acquired estimated useful lives and amortization method is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Estimated |
| Amortization |
|
|
|
|
|
|
|
|
| Amount |
| Useful Life in Years |
| Method |
| |
Customer list |
|
|
|
|
|
|
| $ | 177,000 |
| 15 |
| Accelerated |
|
Backlog |
|
|
|
|
|
|
|
| 11,000 |
| 4 |
| Accelerated |
|
Proprietary technology |
|
|
|
|
|
|
|
| 35,000 |
| 5 |
| Straight-line |
|
Trade names |
|
|
|
|
|
|
|
| 21,000 |
| 7 |
| Straight-line |
|
Total |
|
|
|
|
|
|
| $ | 244,000 |
|
|
|
|
|
| Gross Carrying Amount | Estimated Useful Life | Amortization Method | ||||||||||||||||||||||||||||||
| (in thousands) | (in years) | |||||||||||||||||||||||||||||||
| Proprietary technology | $ | 6,900 | 6 | Straight-line | ||||||||||||||||||||||||||||
| Customer list | 2,600 | 14 | Accelerated | |||||||||||||||||||||||||||||
| Total intangible assets acquired | $ | 9,500 | ||||||||||||||||||||||||||||||
For the periods ended December 31, 2017, 2016 and 2015, acquisition related costs for Yodlee totaled $1,289, $2,186 and $6,624, respectively, and are included in general and administration expenses.
FinaConnect, Inc.
On February 1, 2016 Envestnet acquired all of the outstanding shares of capital stock of FinaConnect, Inc. (“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
98
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
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 next two years, 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 and estimated the second year earnout to be $0 as of December 31, 2017.
The estimated consideration transferred in the acquisition as of the acquisition date 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 intangible assets acquired, estimated useful lives and amortization methods are 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 arewere not considered material to the Company’s results of operations.
For the periods ended December 31, 2017 and 2016,
99
2022 Acquisitions
401kplans.com
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Wheelhouse AnalyticsRetirement Solutions, LLC,
On October 3, 2016, a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding membership interests of Wheelhouse Analytics LLC (“Wheelhouse”). Wheelhouse is401kplans.com. 401kplans.com has been integrated into the Envestnet Wealth Solutions 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 tobest-fitting 401(k) plan for their clients. Envestnet expects to deeply integrate Wheelhouse’s tools, delivering robust online dashboards and reporting that provides actionable intelligence.
cash acquired. The consideration transferred inCompany funded 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 |
|
|
|
|
|
|
|
|
|
|
Total tangible assets acquired |
|
|
|
|
|
|
| $ | 385 |
Total liabilities assumed |
|
|
|
|
|
|
|
| (1,420) |
Identifiable intangible assets |
|
|
|
|
|
|
|
| 6,600 |
Goodwill |
|
|
|
|
|
|
|
| 11,015 |
Total net assets acquired |
|
|
|
|
|
|
| $ | 16,580 |
| Tangible assets acquired, net of cash received | $ | 104 | ||||||
| Identifiable intangible assets | 3,000 | |||||||
| Goodwill | 11,396 | |||||||
| Total net assets acquired, net of cash received | $ | 14,500 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
| Gross Carrying Amount | Estimated Useful Life | Amortization Method | ||||||||||||||||||
| (in thousands) | (in years) | |||||||||||||||||||
| Proprietary technology | $ | 3,000 | 5 | Straight-line | ||||||||||||||||
100
(in thousands, except share and per share amounts)
For the periods ended December 31, 2017 and 2016,The Company’s acquisition related costs for Wheelhouse totaled $874 and $383, respectively, and are included in general and administrationadministrative expense in the consolidated statements of operations.
Unaudited pro forma resultsoperations were not material for the year ended December 31, 2023 and 2022.
further connect its ecosystem by creating transformative progress for its advisors and clients. Truelytics is an advisor transition management platform and the first end-to-end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The Truelytics platform combines Envestnet data, analytics, and wealth technology to further support advisors across the ecosystem.
| Tangible assets acquired, net of cash received | $ | 510 | ||||||||||||||||||
| Identifiable intangible assets | 4,000 | |||||||||||||||||||
| Goodwill | 16,217 | |||||||||||||||||||
| Total net assets acquired, net of cash received | $ | 20,727 | ||||||||||||||||||
| Gross Carrying Amount | Estimated Useful Life | Amortization Method | ||||||||||||||||||
| (in thousands) | (in years) | |||||||||||||||||||
| Proprietary technology | $ | 4,000 | 5 | Straight-line | ||||||||||||||||
4. Cost2022.
Redi2
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | |||
Assets under management or administration |
| $ | 194,894 |
| $ | 160,842 |
| $ | 152,573 |
Subscription and licensing |
|
| 19,818 |
|
| 16,113 |
|
| 7,785 |
Professional services and other |
|
| 4,325 |
|
| 3,635 |
|
| 951 |
Total |
| $ | 219,037 |
| $ | 180,590 |
| $ | 161,309 |
5.
| Current assets, net of cash received | $ | 1,985 | ||||||||||||||||||
| Other assets | 3,321 | |||||||||||||||||||
| Identifiable intangible assets | 26,500 | |||||||||||||||||||
| Goodwill | 46,467 | |||||||||||||||||||
| Total assets acquired | 78,273 | |||||||||||||||||||
| Accounts payable and accrued expenses | (2,428) | |||||||||||||||||||
| Operating lease liabilities | (2,201) | |||||||||||||||||||
| Deferred revenue | (4,771) | |||||||||||||||||||
| Total liabilities assumed | (9,400) | |||||||||||||||||||
| Total net assets acquired, net of cash received | $ | 68,873 | ||||||||||||||||||
| Gross Carrying Amount | Estimated Useful Life | Amortization Method | ||||||||||||||||||
| (in thousands) | (in years) | |||||||||||||||||||
| Customer lists | $ | 14,000 | 14-16 years | Accelerated | ||||||||||||||||
| Proprietary technologies | 9,500 | 6 years | Straight-line | |||||||||||||||||
| Trade names | 3,000 | 6-7 years | Straight-line | |||||||||||||||||
| Total intangible assets acquired | $ | 26,500 | ||||||||||||||||||
|
|
|
|
|
|
|
|
| At December 31, | ||||
|
| 2017 |
| 2016 | ||
Non-income tax receivable |
| $ | 2,704 |
| $ | 3,879 |
FinaConnect escrow |
|
| 2,000 |
|
| 429 |
Prepaid technology |
|
| 1,843 |
|
| 1,318 |
Income tax receivable |
|
| 1,684 |
|
| 1,864 |
Prepaid rent |
|
| 959 |
|
| 882 |
Prepaid insurance |
|
| 575 |
|
| 552 |
Other |
|
| 9,705 |
|
| 7,300 |
|
| $ | 19,470 |
| $ | 16,224 |
101
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||
| Prepaid technology | $ | 14,630 | $ | 16,649 | ||||||||||
| Prepaid data servers | 7,991 | 6,059 | ||||||||||||
| Income tax prepayments and receivables | 9,625 | 2,515 | ||||||||||||
| Non-income tax receivables | 4,041 | 5,488 | ||||||||||||
| Prepaid insurance | 2,785 | 2,881 | ||||||||||||
| Other | 12,400 | 13,830 | ||||||||||||
| Total prepaid expenses and other current assets | $ | 51,472 | $ | 47,422 | ||||||||||
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
6.
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, |
| ||||
|
| Estimated Useful Life |
| 2017 |
| 2016 |
| ||
Cost: |
|
|
|
|
|
|
|
|
|
Computer equipment and software |
| 3 years |
| $ | 56,192 |
| $ | 52,921 |
|
Leasehold improvements |
| Shorter of the lease term or useful life of the asset |
|
| 23,192 |
|
| 17,286 |
|
Office furniture and fixtures |
| 3-7 years |
|
| 8,110 |
|
| 6,911 |
|
Other office equipment |
| 3-5 years |
|
| 2,052 |
|
| 1,367 |
|
|
|
|
|
| 89,546 |
|
| 78,485 |
|
Less: accumulated depreciation and amortization |
|
|
|
| (53,637) |
|
| (45,485) |
|
Property and equipment, net |
|
|
| $ | 35,909 |
| $ | 33,000 |
|
| December 31, | ||||||||||||||||||||
| Depreciable Life | 2023 | 2022 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Computer equipment and software | 3 years | $ | 61,852 | $ | 67,230 | |||||||||||||||
| Leasehold improvements | Lesser of estimated useful life or life of lease | 38,296 | 36,158 | |||||||||||||||||
| Office furniture and fixtures | 3-7 years | 11,333 | 10,796 | |||||||||||||||||
| Office equipment and other | 3-5 years | 15,114 | 11,563 | |||||||||||||||||
| Building and building improvements | 7-39 years | 2,729 | 2,729 | |||||||||||||||||
| Land | Not applicable | 940 | 940 | |||||||||||||||||
| Total property and equipment | 130,264 | 129,416 | ||||||||||||||||||
| Less: accumulated depreciation | (82,041) | (80,935) | ||||||||||||||||||
| Total property and equipment, net | $ | 48,223 | $ | 48,481 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 |
| Year Ended December 31, 2016 | ||||||||
|
|
|
|
| Accumulated |
|
|
|
| Accumulated | ||
|
| Cost |
| Depreciation |
| Cost |
| Depreciation | ||||
Computer equipment and software |
| $ | 7,528 |
| $ | (7,523) |
| $ | 6,593 |
| $ | (6,498) |
Office furniture and fixtures |
|
| 184 |
|
| (113) |
|
| 225 |
|
| (206) |
Other office equipment |
|
| — |
|
| — |
|
| 1,175 |
|
| (916) |
Leasehold improvements |
|
| — |
|
| — |
|
| 130 |
|
| (105) |
Total property and equipment retirements |
| $ | 7,712 |
| $ | (7,636) |
| $ | 8,123 |
| $ | (7,725) |
During 2016,
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | |||||||||||||||||||||||||
| Accumulated | Accumulated | |||||||||||||||||||||||||
| Cost | Depreciation | Cost | Depreciation | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Computer equipment and software | $ | 12,269 | $ | (12,267) | $ | 15,887 | $ | (14,947) | ||||||||||||||||||
| Leasehold improvements | 934 | (860) | 2,442 | (1,209) | ||||||||||||||||||||||
| Office furniture and fixtures | 721 | (551) | 660 | (418) | ||||||||||||||||||||||
| Office equipment and other | 149 | (57) | 11,467 | (8,785) | ||||||||||||||||||||||
| Total property and equipment retirements | $ | 14,073 | $ | (13,735) | $ | 30,456 | $ | (25,359) | ||||||||||||||||||
| December 31, | ||||||||||||||||||||
| Estimated Useful Life | 2023 | 2022 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Internally developed software | 5 years | $ | 405,078 | $ | 313,200 | |||||||||||||||
| Less: accumulated amortization | (180,365) | (128,642) | ||||||||||||||||||
| Internally developed software, net | $ | 224,713 | $ | 184,558 | ||||||||||||||||
Depreciationnet and amortization expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Depreciation and amortization expense |
| $ | 15,383 |
| $ | 14,838 |
| $ | 7,668 |
7. Internally Developed Software
Internallyinternally developed software, consistsnet by geographic area:
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||
| United States | $ | 270,381 | $ | 231,855 | ||||||||||
| India | 2,555 | 1,093 | ||||||||||||
| Other | — | 91 | ||||||||||||
| Total long-lived assets, net | $ | 272,936 | $ | 233,039 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, | ||||
|
| Estimated Useful Life |
| 2017 |
| 2016 | ||
Internally developed software |
| 5 years |
| $ | 46,342 |
| $ | 33,718 |
Less: accumulated amortization |
|
|
|
| (24,168) |
|
| (18,858) |
Internally developed software, net |
|
|
| $ | 22,174 |
| $ | 14,860 |
102
(in thousands, except share and per share amounts)
Amortization8.Intangible Assets, Net
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||
| Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||||||||||
| Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||||||||||||||||
| Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| Customer lists | $ | 604,080 | $ | (327,042) | $ | 277,038 | $ | 604,080 | $ | (285,288) | $ | 318,792 | |||||||||||||||||||||||||||||
| Proprietary technologies | 93,058 | (37,052) | 56,006 | 113,224 | (59,401) | 53,823 | |||||||||||||||||||||||||||||||||||
| Trade names | 15,700 | (10,676) | 5,024 | 15,700 | (8,320) | 7,380 | |||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 712,838 | $ | (374,770) | $ | 338,068 | $ | 733,004 | $ | (353,009) | $ | 379,995 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Amortization expense |
| $ | 5,310 |
| $ | 3,646 |
| $ | 2,658 |
8. Goodwill
| 2024 | $ | 57,368 | |||
| 2025 | 53,973 | ||||
| 2026 | 46,448 | ||||
| 2027 | 37,672 | ||||
| 2028 | 30,296 | ||||
| Thereafter | 112,311 | ||||
| Total | $ | 338,068 | |||
Amortization Expense
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Intangible asset amortization | $ | 62,927 | $ | 71,901 | $ | 68,587 | ||||||||||||||
| Internally developed software amortization | 52,422 | 36,959 | 28,603 | |||||||||||||||||
| Property and equipment depreciation | 14,955 | 16,968 | 20,577 | |||||||||||||||||
| Total depreciation and amortization | $ | 130,304 | $ | 125,828 | $ | 117,767 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Envestnet |
| Envestnet | Yodlee |
| Total | |||
Balance at December 31, 2015 |
| $ | 135,224 |
| $ | 286,049 |
| $ | 421,273 |
FinaConnect acquisition |
|
| 4,792 |
|
| — |
|
| 4,792 |
Wheelhouse acquisition |
|
| — |
|
| 10,558 |
|
| 10,558 |
Purchase accounting adjustments - Yodlee |
|
| 24,613 |
|
| (28,233) |
|
| (3,620) |
Purchase accounting adjustments - Castle Rock |
|
| (388) |
|
| — |
|
| (388) |
Other |
|
| (490) |
|
| (189) |
|
| (679) |
Balance at December 31, 2016 |
|
| 163,751 |
|
| 268,185 |
|
| 431,936 |
Purchase accounting adjustments - Wheelhouse |
|
| — |
|
| 457 |
|
| 457 |
Foreign currency translation |
|
| — |
|
| 562 |
|
| 562 |
Balance at December 31, 2017 |
| $ | 163,751 |
| $ | 269,204 |
| $ | 432,955 |
Intangible assets consist
| Envestnet Wealth Solutions | Envestnet Data & Analytics | Total | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Balance as of December 31, 2021 | $ | 636,246 | $ | 288,908 | $ | 925,154 | ||||||||||||||
| Goodwill recognized from acquisitions | 74,080 | — | 74,080 | |||||||||||||||||
| Foreign currency translation | — | (820) | (820) | |||||||||||||||||
| Balance as of December 31, 2022 | 710,326 | 288,088 | 998,414 | |||||||||||||||||
| Goodwill impairment | — | (191,818) | (191,818) | |||||||||||||||||
| Foreign currency translation | — | (33) | (33) | |||||||||||||||||
| Balance as of December 31, 2023 | $ | 710,326 | $ | 96,237 | $ | 806,563 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| December 31, 2016 | ||||||||||||||
|
|
|
|
|
|
| Gross |
|
|
|
| Net |
| Gross |
|
|
|
| Net | ||||
|
| Estimated |
| Carrying |
| Accumulated |
| Carrying |
| Carrying |
| Accumulated |
| Carrying | |||||||||
|
| Useful Life |
| Amount |
| Amortization |
| Amount |
| Amount |
| Amortization |
| Amount | |||||||||
Customer lists |
| 7 | - | 15 | years |
| $ | 259,350 |
| $ | (78,482) |
| $ | 180,868 |
| $ | 259,490 |
| $ | (54,861) |
| $ | 204,629 |
Proprietary technologies |
| 4 | - | 8 | years |
|
| 57,377 |
|
| (31,067) |
|
| 26,310 |
|
| 57,770 |
|
| (20,214) |
|
| 37,556 |
Trade names |
| 1 | - | 7 | years |
|
| 24,840 |
|
| (9,701) |
|
| 15,139 |
|
| 25,007 |
|
| (6,178) |
|
| 18,829 |
Backlog |
|
|
| 4 | years |
|
| 11,000 |
|
| (10,586) |
|
| 414 |
|
| 11,000 |
|
| (6,456) |
|
| 4,544 |
Total intangible assets |
|
|
|
|
|
| $ | 352,567 |
| $ | (129,836) |
| $ | 222,731 |
| $ | 353,267 |
| $ | (87,709) |
| $ | 265,558 |
During 2016, the Company wrote off fully amortized intangible assets, specifically customer lists,annual goodwill impairment analysis for each reporting unit in the amountfourth quarter of $4,159. The Company did not write off any intangible assets in 2017.
Amortization expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Amortization expense |
| $ | 42,127 |
| $ | 45,515 |
| $ | 17,636 |
103
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Future amortization expense2023 utilizing a combination of the intangible assets asdiscounted cash flow method (income approach) and guideline public company method (market approach). As a result of December 31, 2017, is expected to be as follows:
|
|
|
Years ending December 31: |
|
|
2018 | $ | 35,807 |
2019 |
| 31,288 |
2020 |
| 28,344 |
2021 |
| 20,638 |
2022 |
| 19,015 |
Thereafter |
| 87,639 |
| $ | 222,731 |
9. Other Non-Current Assets
Other non-current assets consist of the following:
|
|
|
|
|
|
|
| At December 31, |
| ||||
| 2017 |
| 2016 |
| ||
Assets to fund deferred compensation liability | $ | 5,185 |
| $ | 2,738 |
|
Deposits: |
|
|
|
|
|
|
Lease |
| 4,291 |
|
| 4,262 |
|
Other |
| 615 |
|
| 2,083 |
|
Unamortized issuance costs on revolving credit facility |
| 3,106 |
|
| — |
|
Investments in private companies |
| 2,731 |
|
| 2,750 |
|
Other |
| 1,248 |
|
| 2,130 |
|
| $ | 17,176 |
| $ | 13,963 |
|
The Company owns 756,347 Class B Units in a privately held company at a historical purchase price of $1,250. The Company uses the cost method of accounting for this investment.
In April 2015, the Company purchased 150,000 Class B units representing 10.3% of the outstanding membership interests of a privately held company for cash consideration of $1,500. In July 2016, the Company purchased an additional 738,463 Class B units of the outstanding membership interests of a privately held company for cash consideration of $738 bringing its total of the outstanding membership interests to 16.2%. The Company uses the equity method of accounting to record its portion of the privately held company’s net income or loss on a one quarter lag from its actual results of operations. The Company uses the equity method of accounting because of its less than 50 percent ownership and lack of control. The Company’s share in the loss of the privately held company was $1,420 and $84 during the years ended December 31, 2016 and 2015, respectively.
In December 2016, the Company determined that its investment in this privately held company was other than temporarily impaired. Therefore, the Company reducedimpairment test, the carrying value of the Envestnet Data & Analytics reporting unit exceeded its investmentfair value, which resulted in the recognition of a non-cash impairment charge to zero and recorded an impairment lossgoodwill of $734, which was recorded$191.8 million in other expense, net on the consolidated statements of operations for the year ended December 31, 2016.
In November 2016,2023.
| December 31, | ||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Current assets | $ | 68,602 | $ | 42,059 | ||||||||||||||||
| Other assets | $ | 66,016 | $ | 50,703 | ||||||||||||||||
| Current liabilities | $ | 17,150 | $ | 17,647 | ||||||||||||||||
| Other liabilities | $ | 1,857 | $ | 9,437 | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue | $ | 71,815 | $ | 79,062 | $ | 65,085 | ||||||||||||||
| Loss from operations | $ | (16,733) | $ | (8,896) | $ | (149) | ||||||||||||||
| Net loss | $ | (20,235) | $ | (7,124) | $ | (134) | ||||||||||||||
Envestnet’s proportional share of gains (losses) (1) | $ | (10,033) | $ | 643 | $ | (7,093) | ||||||||||||||
104
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The Company uses the equity method of accounting to record its portion of this privately held company’scompany'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.
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||
| Accrued investment manager fees | $ | 106,612 | $ | 99,851 | ||||||||||
| Accrued compensation and related taxes | 72,466 | 77,939 | ||||||||||||
| Accounts payable | 35,738 | 11,271 | ||||||||||||
| Accrued professional services | 14,289 | 10,762 | ||||||||||||
| Accrued technology | 4,151 | 6,393 | ||||||||||||
| Accrued interest | 2,473 | 3,091 | ||||||||||||
| Accrued treasury stock purchases | — | 9,289 | ||||||||||||
| Other accrued expenses | 5,695 | 15,270 | ||||||||||||
| Total accrued expenses and other current liabilities | $ | 241,424 | $ | 233,866 | ||||||||||
10. Fair Value Measurements
December 31, 2023 the Company had an ending liability balance of $10.3 million related to these efforts, of which the Company anticipates approximately $9.2 million to be paid during 2024, with the remaining balance paid through 2030.
Financial assets and liabilities recorded at fair valuerelated taxes in the consolidated balance sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:
|
| |
|
| |
|
|
105
| Envestnet Wealth Solutions | Envestnet Data & Analytics | Nonsegment | Total | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | 4,670 | $ | 810 | $ | — | $ | 5,480 | ||||||||||||||||||
| Severance | 13,237 | 10,745 | 6,135 | 30,117 | ||||||||||||||||||||||
| Cash payments | (5,325) | (8,769) | (6,135) | (20,229) | ||||||||||||||||||||||
| Balance as of December 31, 2022 | 12,582 | 2,786 | — | 15,368 | ||||||||||||||||||||||
| Severance | 17,232 | 11,813 | 6,354 | 35,399 | ||||||||||||||||||||||
| Cash payments | (20,021) | (14,113) | (6,354) | (40,488) | ||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | 9,793 | $ | 486 | $ | — | $ | 10,279 | ||||||||||||||||||
(in thousands, except share and per share amounts)
Fair Value on a Recurring Basis:
14.Debt
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | ||||||||||
| Fair Value |
| Level I |
| Level II |
| Level III | ||||
Assets |
|
|
|
|
|
|
|
| |||
Money market funds(1) | $ | 39,400 |
| $ | 39,400 |
| $ | — |
| $ | — |
Assets to fund deferred compensation liability(2) |
| 5,185 |
|
| — |
|
| — |
|
| 5,185 |
Total assets | $ | 44,585 |
| $ | 39,400 |
| $ | — |
| $ | 5,185 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration | $ | 2,781 |
| $ | — |
| $ | — |
| $ | 2,781 |
Deferred compensation liability(3) |
| 4,364 |
|
| 4,364 |
|
| — |
|
| — |
Total liabilities | $ | 7,145 |
| $ | 4,364 |
| $ | — |
| $ | 2,781 |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2016 | ||||||||||
| Fair Value |
| Level I |
| Level II |
| Level III | ||||
Assets |
|
|
|
|
|
|
|
| |||
Money market funds(1) | $ | 31,644 |
| $ | 31,644 |
| $ | — |
| $ | — |
Assets to fund deferred compensation liability(2) |
| 2,738 |
|
| — |
|
| — |
|
| 2,738 |
Total assets | $ | 34,382 |
| $ | 31,644 |
| $ | — |
| $ | 2,738 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration | $ | 4,868 |
| $ | — |
| $ | — |
| $ | 4,868 |
Deferred compensation liability(3) |
| 2,885 |
|
| 2,885 |
|
| — |
|
| — |
Total liabilities | $ | 7,753 |
| $ | 2,885 |
| $ | — |
| $ | 4,868 |
|
|
|
|
|
|
Level I assets and liabilities include money-market funds not insured by the FDIC, deferred compensation liability and the revolving credit facility. The Company periodically invests excess cash in money-market funds not insured by the FDIC. The Company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. These money-market funds are considered Level 1 and are included in cash and cash equivalents in the consolidated balance sheets. The fair value of the deferred compensation liability is based upon the daily quoted market prices for net asset value on the various funds selected by participants. The outstanding balance on the revolving credit facility approximated fair value as the revolving credit facility bore interest at variable rates and we believe our credit risk quality was consistent with when the debt originated.
106
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Level II liabilities consist of Convertible Notes and Term Notes in which the Company uses observable market prices to determine the fair value. The outstanding value of our Term Notes approximated fair value as the Term Notes bore interest at variable rates and we believe our credit risk quality was consistent with when the debt originated through July 18, 2017, at which time the Second Amended and Restated Credit Facility replaced the Term Notes with the revolving credit facility.
Level III liabilities consist of the estimated fair value of contingent consideration as well as the deferred compensation asset. The fair market value of the deferred compensation asset is based upon the cash surrender value of the life insurance premiums.
The fair value of the contingent consideration liabilities related to the FinaConnect and Wheelhouse acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level III fair value measurement as defined in ASC 820, Fair Value Measurements and Disclosures. The significant inputs in the Level III measurement not supported by market activity included our assessments of expected future cash flows related to our acquisitions of FinaConnect and Wheelhouse during the subsequent periods from the date of acquisition, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the agreement.
The Company utilized a discounted cash flow method with expected future performance of FinaConnect and Wheelhouse, and their ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair values of their respective contingent consideration. The Company will continue to reassess the fair value of the contingent consideration for each acquisition at each reporting date until settlement. Changes to the estimated fair values of the contingent consideration will be recognized in earnings of the Company and included in general and administration on the consolidated statements of operations.
The table below presents a reconciliation of contingent consideration liabilities of which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2016 to December 31, 2017:
|
|
|
|
|
| Fair Value of | |
|
| Contingent | |
|
| Consideration | |
|
| Liabilities | |
Balance at December 31, 2016 |
| $ | 4,868 |
Settlement of contingent consideration liability |
|
| (2,286) |
Contingent consideration adjustment |
|
| (218) |
Accretion on contingent consideration |
|
| 417 |
Balance at December 31, 2017 |
| $ | 2,781 |
The table below presents a reconciliation of the assets to fund deferred compensation liability of which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2016 to December 31, 2017:
|
|
|
|
|
| Fair Value of | |
|
| Assets to Fund | |
|
| Deferred | |
|
| Compensation | |
|
| Liability | |
Balance at December 31, 2016 |
| $ | 2,738 |
Contributions and fair value adjustments |
|
| 2,447 |
Balance at December 31, 2017 |
| $ | 5,185 |
107
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The asset value was increased due to funding of the plan as well as immaterial gains on the underlying investment vehicles, which resulted in an asset value of $5,185 as of December 31, 2017, which was included in other non-current assets on the condensed consolidated balance sheets.
The Company assesses categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the year.
On December 15, 2014, the Company issued $172,500 of Convertible Notes. As of December 31, 2017 and 2016, the carrying value of the 2019 Convertible Notes equaled $158,990 and $152,575, respectively, and represents the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of December 31, 2017 and 2016, the fair value of the Convertible Notes was $180,180 and $164,824, respectively. The Company considers the Convertible Notes to be a Level II liability as of December 31, 2017 and 2016, and uses a market approach to calculate the fair value of the Convertible Notes. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on or near December 31, 2017 (see “Note 12 – Debt”).
As of December 31, 2017 and 2016, there was $0 and $142,000, respectively, of Term Notes outstanding. The July 18, 2017 amendment to the Prior Credit Facility replaced the Term Notes and related excess cash flow payment obligations with a revolving line of credit. As of December 31, 2016, the outstanding value of our Term Notes approximated fair value as the Term Notes bore interest at variable rates and we believed our credit risk quality was consistent with when the debt originated. As of December 31, 2016, the carrying value of the Term Notes equaled $138,335, and represents the aggregate principal amount outstanding less the unamortized debt issuance costs. The Company considered the Term Notes to be a Level II liability as of December 31, 2016 (see “Note 12 – Debt”).
As of December 31, 2017 and 2016, there was $81,168 and $0, respectively, outstanding on the revolving credit facility under the Second Amended and Restated Credit Agreement. As of December 31, 2017 and 2016, the outstanding balance on our revolving credit facility approximated fair value as the revolving credit facility bore interest at variable rates and we believed our credit risk quality was consistent with when the debt originated. The Company considered the revolving credit facility to be a Level I liability as of December 31, 2017 and 2016 (see “Note 12 – Debt”).
We consider the recorded value of our other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at December 31, 2017 based upon the short-term nature of the assets and liabilities.
11. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
|
|
|
|
|
|
|
|
| At December 31, | ||||
|
| 2017 |
| 2016 | ||
Accrued compensation and related taxes |
| $ | 43,724 |
| $ | 35,287 |
Accrued investment manager fees |
|
| 39,324 |
|
| 31,278 |
Sales and use tax payable |
|
| 9,037 |
|
| 10,108 |
Accrued professional services |
|
| 4,985 |
|
| 3,213 |
Definite consideration |
|
| 1,250 |
|
| 445 |
Other accrued expenses |
|
| 7,577 |
|
| 7,432 |
|
| $ | 105,897 |
| $ | 87,763 |
108
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
12. Debt
The Company’s outstandingCompany's debt obligations as of December 31, 20172023 and 2016 were as follows:
|
|
|
|
|
|
| At December 31, | ||||
| 2017 |
| 2016 | ||
Convertible Notes | $ | 172,500 |
| $ | 172,500 |
Unaccreted discount on Convertible Notes |
| (11,677) |
|
| (17,149) |
Unamortized issuance costs on Convertible Notes |
| (1,833) |
|
| (2,776) |
Convertible Notes carrying value | $ | 158,990 |
| $ | 152,575 |
|
|
|
|
|
|
Term Notes | $ | — |
| $ | 142,000 |
Unamortized issuance costs on Term Notes |
| — |
|
| (3,665) |
Term Notes carrying value | $ | — |
| $ | 138,335 |
|
|
|
|
|
|
Revolving credit facility balance | $ | 81,168 |
| $ | — |
| December 31, 2023 | ||||||||||||||||||||||||||
| Issuance Amount | Unamortized Issuance Costs | Carrying Value | Fair Value (Level II) | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Revolving Credit Facility | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Convertible Notes due 2025 | 317,500 | (2,968) | 314,532 | 294,958 | ||||||||||||||||||||||
| Convertible Notes due 2027 | 575,000 | (12,920) | 562,080 | 571,746 | ||||||||||||||||||||||
| Total debt | $ | 892,500 | $ | (15,888) | $ | 876,612 | $ | 866,704 | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Issuance Amount | Unamortized Issuance Costs | Carrying Value | Fair Value (Level II) | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Revolving Credit Facility | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Convertible Notes due 2023 | 45,000 | (114) | 44,886 | 46,058 | ||||||||||||||||||||||
| Convertible Notes due 2025 | 317,500 | (4,765) | 312,735 | 293,688 | ||||||||||||||||||||||
| Convertible Notes due 2027 | 575,000 | (15,966) | 559,034 | 606,119 | ||||||||||||||||||||||
| Total debt | $ | 937,500 | $ | (20,845) | $ | 916,655 | $ | 945,865 | ||||||||||||||||||
Facility
On July 18, 2017,in its entirety, the Company's prior credit agreement. In connection with entering into the Revolving Credit Facility, the Company capitalized $1.9 million of deferred financing charges to other assets in the consolidated balance sheets and certainwrote off $0.6 million of its subsidiaries entered intopre-existing finance charges to other income (expense), net in the consolidated statements of operations.
December 31, 2022.
EnvestnetFacility, at the Company's option, it will pay interest on these borrowings made underat 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 SOFR plus an applicable margin ranging from 1.25% to 2.75% per annum, in each case based upon the Second Amended and Restatedtotal net leverage ratio, as calculated pursuant to the Revolving Credit Agreement at rates between 1.50 percent and 3.25 percent above LIBOR based on the Company’s total leverage ratio. Borrowings under the Second Amended and Restated Credit Agreement are scheduled to mature on July 18, 2022.Facility. There is also a commitment fee equalat a rate ranging from 0.25% to 0.25 percent0.30% per annum onbased upon the daily unused portiontotal net leverage ratio.
109
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The Second Amended and RestatedRevolving Credit AgreementFacility contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring Envestnetthe Company to maintain compliance with a maximum seniortotal leverage ratio a maximum total leverage ratio,and a minimum interest coverage ratio and minimum adjusted EBITDA, and provisions that limitratio.
As of December 31, 2017, there were $0 of Term Notes and $81,168 of revolving credit amounts outstanding under the Second Amended and Restated Credit Agreement. The July 18, 2017 amendment replaced the Term Notes and related excess cash flow payment obligations, which were issued in relation to a previous amendment, with a revolving line of credit. The Company’s consolidated balance sheets reflect these changes as of December 31, 2017 with no portion of debt relatedrespect to the revolving credit facility being classified as short-term. As of December 31, 2017, the debt issuance costs related to the Second Amended and Restated Credit Agreement and the PriorRevolving Credit Facility, are presented in prepaid expensesbetween the Company, the Guarantors party thereto from time to time, the Lenders party thereto from time to time and other non-current assets which have outstanding amountsBank of $855Montreal, as administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and $3,106, respectively.
June 30, 2023. The Company was in compliance with all other covenants ofin the Second Amended and RestatedRevolving Credit AgreementFacility as of December 31, 2017.
2023.
On December 15, 2014,
In connection with1, 2023. Upon maturity, the issuanceCompany settled the remaining aggregate principal amount on the Convertible Notes due 2023 for $45.0 million. The Convertible Notes due 2023 were paid using a combination of cash on hand and borrowings under the Company's Revolving Credit Facility. No shares of the Company's common stock were issued upon settlement of the Convertible Notes due 2023.
Notes due 2025 could result in approximately 3.0 million shares issuable upon conversion, subject to adjustment under certain conditions.
110
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
occurs, is more than 130% of the conversion price of the Convertible Notes in effect on each applicable trading day; (b) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price per $1,000 principal amount offor the Convertible Notesnotes for each such trading day wasis less than 98% of the last reported sale price of ourthe Company's common stock on such date multiplied by the then-current conversion rate; (c) if the Company calls any or (c)all of the Convertible 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 as defineddescribed in the indenture.
Holders may surrender the Convertible Notes due 2025 and Convertible Notes due 2027 for conversion at any time, regardless of the foregoing circumstances, on or after February 15, 2025 and June 1 2027, respectively, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, the Company may pay cash, shares of the Company’sCompany's common stock or a combination of cash and stock, as determined by the Company in its discretion. The Company’s stated policy is to settle the debt component of the Convertible Notes at least partially or wholly in cash. This policy is based both on the Company’s intent and the Company’s ability to settle these instruments in cash.
The Company has separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds from issuance of the Convertible Notes 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 $26,618 to the equity component, net of offering costs of $882. The Company recorded a discount on the Convertible Notes of $27,500 which will be accreted and recorded as additional interest expense over the life of the Convertible Notes. During 2017, 2016 and 2015, the Company recognized $5,472, $5,237 and $4,932, respectively, in accretion related to the discount. The effective interest rate of the liability component of the Convertible Notes is equal to the stated interest rate plus the accretion of original issue discount. The effective interest rate on the liability component of the Convertible Notes for the years ended December 31, 2017, 2016 and 2015 was approximately 6%.
Interest expense on the Convertible Notes and the Second Amended and Restated Credit agreement was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Coupon interest |
| $ | 3,019 |
| $ | 3,019 |
| $ | 3,019 |
Amortization of issuance costs |
|
| 3,279 |
|
| 2,875 |
|
| 1,462 |
Accretion of debt discount |
|
| 5,472 |
|
| 5,237 |
|
| 4,932 |
Interest on credit agreement |
|
| 4,153 |
|
| 5,128 |
|
| 606 |
Undrawn and other fees |
|
| 424 |
|
| 341 |
|
| 252 |
|
| $ | 16,347 |
| $ | 16,600 |
| $ | 10,271 |
See “Note 17 – 22—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income per common share.
13. Other Non-Current Liabilities
Other non-current liabilities consist
|
|
|
|
|
|
|
|
| December 31, |
| December 31, | ||
|
| 2017 |
| 2016 | ||
Uncertain tax positions |
| $ | 10,640 |
| $ | 7,762 |
Accrued deferred compensation |
|
| 4,364 |
|
| 2,885 |
Other |
|
| 98 |
|
| 1,539 |
Accrued purchase liability |
|
| — |
|
| 1,250 |
|
| $ | 15,102 |
| $ | 13,436 |
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Convertible Notes interest | $ | 17,845 | $ | 10,897 | $ | 9,919 | ||||||||||||||
Amortization of debt discount and issuance costs(1) | 5,655 | 4,678 | 5,745 | |||||||||||||||||
| Undrawn and other fees | 1,255 | 1,268 | 1,267 | |||||||||||||||||
| Revolving Credit Facility interest | 383 | — | — | |||||||||||||||||
| Total interest expense | $ | 25,138 | $ | 16,843 | $ | 16,931 | ||||||||||||||
111
| December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Convertible Notes due 2023 | N/A | 2.4 | % | 2.4 | % | |||||||||||||||
| Convertible Notes due 2025 | 1.3 | % | 1.3 | % | 1.3 | % | ||||||||||||||
| Convertible Notes due 2027 | 3.2 | % | 3.2 | % | N/A | |||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands, except weighted-averages) | ||||||||||||||||||||
| Total operating lease cost | $ | 17,549 | $ | 15,157 | $ | 18,600 | ||||||||||||||
| Short-term lease cost | $ | 16,203 | $ | 12,445 | $ | 4,940 | ||||||||||||||
| Weighted-average remaining lease term (in years) | 8.5 | 9.2 | 9.8 | |||||||||||||||||
| Weighted-average discount rate | 4.9 | % | 5.0 | % | 5.1 | % | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | 16,718 | $ | 15,748 | $ | 18,052 | ||||||||||||||
| 2024 | $ | 18,204 | ||||||
| 2025 | 15,590 | |||||||
| 2026 | 15,450 | |||||||
| 2027 | 15,582 | |||||||
| 2028 | 15,889 | |||||||
| Thereafter | 59,316 | |||||||
| Total lease payments | 140,031 | |||||||
| Less: imputed interest | (26,292) | |||||||
| Total operating lease liabilities | $ | 113,739 | ||||||
14.
| December 31, 2023 | ||||||||||||||||||||||||||
| Fair Value | Level I | Level II | Level III | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market funds | $ | 51,653 | $ | 51,653 | $ | — | $ | — | ||||||||||||||||||
| Assets to fund deferred compensation liability | 10,961 | — | — | 10,961 | ||||||||||||||||||||||
| Total assets | $ | 62,614 | $ | 51,653 | $ | — | $ | 10,961 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Deferred compensation liability | $ | 8,045 | $ | 8,045 | $ | — | $ | — | ||||||||||||||||||
| Total liabilities | $ | 8,045 | $ | 8,045 | $ | — | $ | — | ||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
| Fair Value | Level I | Level II | Level III | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Money market funds | $ | 2,628 | $ | 2,628 | $ | — | $ | — | ||||||||||||||||||
| Assets to fund deferred compensation liability | 10,074 | — | — | 10,074 | ||||||||||||||||||||||
| Total assets | $ | 12,702 | $ | 2,628 | $ | — | $ | 10,074 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Deferred compensation liability | $ | 8,088 | $ | 8,088 | $ | — | $ | — | ||||||||||||||||||
| Total liabilities | $ | 8,088 | $ | 8,088 | $ | — | $ | — | ||||||||||||||||||
| Contingent Consideration Liability | Assets to Fund Deferred Compensation Liability | |||||||||||||
| (in thousands) | ||||||||||||||
| Balance at December 31, 2021 | $ | 743 | $ | 11,140 | ||||||||||
| Payments | (743) | — | ||||||||||||
| Contributions | — | 649 | ||||||||||||
| Fair value adjustments and fees | — | (1,715) | ||||||||||||
| Balance at December 31, 2022 | — | 10,074 | ||||||||||||
| Fair value adjustments and fees | — | 887 | ||||||||||||
| Balance at December 31, 2023 | $ | — | $ | 10,961 | ||||||||||
| Year Ended December 31, 2023 | ||||||||||||||||||||
| Envestnet Wealth Solutions | Envestnet Data & Analytics | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Asset-based | $ | 745,238 | $ | — | $ | 745,238 | ||||||||||||||
| Subscription-based | 325,398 | 139,332 | 464,730 | |||||||||||||||||
| Total recurring revenue | 1,070,636 | 139,332 | 1,209,968 | |||||||||||||||||
| Professional services and other revenue | 24,068 | 11,584 | 35,652 | |||||||||||||||||
| Total revenue | $ | 1,094,704 | $ | 150,916 | $ | 1,245,620 | ||||||||||||||
| Year Ended December 31, 2022 | ||||||||||||||||||||
| Envestnet Wealth Solutions | Envestnet Data & Analytics | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Asset-based | $ | 738,228 | $ | — | $ | 738,228 | ||||||||||||||
| Subscription-based | 310,217 | 167,627 | 477,844 | |||||||||||||||||
| Total recurring revenue | 1,048,445 | 167,627 | 1,216,072 | |||||||||||||||||
| Professional services and other revenue | 16,799 | 6,913 | 23,712 | |||||||||||||||||
| Total revenue | $ | 1,065,244 | $ | 174,540 | $ | 1,239,784 | ||||||||||||||
| Year Ended December 31, 2021 | ||||||||||||||||||||
| Envestnet Wealth Solutions | Envestnet Data & Analytics | Consolidated | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Asset-based | $ | 709,376 | $ | — | $ | 709,376 | ||||||||||||||
| Subscription-based | 280,076 | 173,913 | 453,989 | |||||||||||||||||
| Total recurring revenue | 989,452 | 173,913 | 1,163,365 | |||||||||||||||||
| Professional services and other revenue | 14,190 | 8,962 | 23,152 | |||||||||||||||||
| Total revenue | $ | 1,003,642 | $ | 182,875 | $ | 1,186,517 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| United States | $ | 1,223,246 | $ | 1,218,254 | $ | 1,166,251 | ||||||||||||||
| International | 22,374 | 21,530 | 20,266 | |||||||||||||||||
| Total revenue | $ | 1,245,620 | $ | 1,239,784 | $ | 1,186,517 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Asset-based | $ | 434,123 | $ | 430,345 | $ | 393,717 | ||||||||||||||
| Subscription-based | 30,814 | 32,577 | 29,445 | |||||||||||||||||
| Professional services and other | 8,101 | 7,502 | 561 | |||||||||||||||||
| Total direct expense | $ | 473,038 | $ | 470,424 | $ | 423,723 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Stock-based compensation expense | $ | 71,031 | $ | 79,581 | $ | 67,525 | ||||||||||||||
| Tax effect on stock-based compensation expense | (18,113) | (20,293) | (17,219) | |||||||||||||||||
| Net effect on income (loss) | $ | 52,918 | $ | 59,288 | $ | 50,306 | ||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2021 | ||||||||||||||||||||
| Weighted-average grant date fair value | $ | 31.23 | ||||||||||||||||||
| Expected volatility | 42.1 | % | ||||||||||||||||||
| Risk-free interest rate | 0.4 | % | ||||||||||||||||||
| Expected dividend yield | — | % | ||||||||||||||||||
| Expected term (in years) | 6.5 | |||||||||||||||||||
| Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||||||||||||
| (Years) | (in thousands) | |||||||||||||||||||||||||
| Outstanding as of December 31, 2022 | 277,535 | $ | 40.07 | |||||||||||||||||||||||
| Exercised | (72,410) | $ | 25.07 | |||||||||||||||||||||||
| Forfeited | (2,959) | $ | 55.28 | |||||||||||||||||||||||
| Outstanding and exercisable as of December 31, 2023 | 202,166 | $ | 45.22 | 1.6 | $ | 1,330 | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Intrinsic value of options exercised | $ | 2,243 | $ | 2,650 | $ | 3,815 | ||||||||||||||
| Cash received from exercises of stock options | $ | 1,608 | $ | 2,620 | $ | 2,090 | ||||||||||||||
| RSUs | PSUs | |||||||||||||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value per Share | Number of Shares | Weighted-Average Grant Date Fair Value per Share | |||||||||||||||||||||||
| Non-vested as of December 31, 2022 | 1,681,976 | $ | 72.69 | 259,049 | $ | 74.83 | ||||||||||||||||||||
| Granted | 1,106,853 | $ | 61.01 | 40,010 | $ | 69.47 | ||||||||||||||||||||
| Vested | (1,006,719) | $ | 72.75 | (24,939) | $ | 107.10 | ||||||||||||||||||||
| Forfeited | (332,857) | $ | 63.75 | (51,062) | $ | 63.21 | ||||||||||||||||||||
| Non-vested as of December 31, 2023 | 1,449,253 | $ | 65.78 | 223,058 | $ | 72.92 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Domestic |
| $ | (9,387) |
| $ | (47,059) |
| $ | 7,059 |
|
Foreign |
|
| 7,698 |
|
| 6,569 |
|
| 1,929 |
|
Total |
| $ | (1,689) |
| $ | (40,490) |
| $ | 8,988 |
|
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Domestic | $ | (240,904) | $ | (89,000) | $ | 9,730 | ||||||||||||||
| Foreign | 7,907 | 10,581 | 10,631 | |||||||||||||||||
| Total | $ | (232,997) | $ | (78,419) | $ | 20,361 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | (1,201) |
| $ | 3,812 |
| $ | 12,731 |
|
State |
|
| 951 |
|
| 1,172 |
|
| 1,644 |
|
Foreign |
|
| 6,438 |
|
| 4,509 |
|
| 685 |
|
|
|
| 6,188 |
|
| 9,493 |
|
| 15,060 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (4,439) |
|
| 5,992 |
|
| (9,384) |
|
State |
|
| 146 |
|
| 117 |
|
| (1,288) |
|
Foreign |
|
| (304) |
|
| (525) |
|
| 164 |
|
|
|
| (4,597) |
|
| 5,584 |
|
| (10,508) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 1,591 |
| $ | 15,077 |
| $ | 4,552 |
|
112
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 8,774 | $ | 1,185 | $ | — | ||||||||||||||
| State | 4,894 | 6,964 | 3,488 | |||||||||||||||||
| Foreign | 588 | 2,402 | 4,499 | |||||||||||||||||
| 14,256 | 10,551 | 7,987 | ||||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | 2,138 | (2,453) | 4,021 | |||||||||||||||||
| State | (4,399) | (1,439) | (3,548) | |||||||||||||||||
| Foreign | 782 | 402 | (793) | |||||||||||||||||
| (1,479) | (3,490) | (320) | ||||||||||||||||||
| Total | $ | 12,777 | $ | 7,061 | $ | 7,667 | ||||||||||||||
(in thousands, except share and per share amounts)
Net deferredDeferred tax assets (liabilities) consist, net consisted of the following:
|
|
|
|
|
|
|
|
|
| At December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
Deferred revenue |
| $ | 5,723 |
| $ | 6,309 |
|
Prepaid expenses and accruals |
|
| 1,459 |
|
| 1,363 |
|
Deferred rent and lease incentives |
|
| 3,419 |
|
| 3,940 |
|
Net operating loss and tax credit carryforwards |
|
| 66,896 |
|
| 100,471 |
|
Property and equipment and intangible assets |
|
| (51,182) |
|
| (90,222) |
|
Stock-based compensation expense |
|
| 6,894 |
|
| 10,641 |
|
Convertible Notes |
|
| (2,886) |
|
| (6,346) |
|
Other |
|
| 1,221 |
|
| (2,101) |
|
Total deferred tax assets |
|
| 31,544 |
|
| 24,055 |
|
Less: valuation allowance |
|
| (32,513) |
|
| (29,610) |
|
Net deferred tax liabilities |
| $ | (969) |
| $ | (5,555) |
|
On December 22, 2017 the Tax Cuts and Jobs Act (“the Act”) was signed into law. The Act significantly changes U.S. income tax law and is the first major overhaul of the federal income tax code in more than 30 years. Key provisions of the Act that may impact the Company include: (i) reduction of the U.S. federal corporate income tax rate from 35% to 21%, (ii) repeal of the Corporate Alternative Minimum Tax (“AMT”) system (iii) replacement of the worldwide taxation system with a territorial tax system which exempts certain foreign operations from U.S. taxation, (iv) further limitation on the deductibility of certain executive compensation, (v) modification of earnings calculations for certain foreign subsidiaries that were previously tax deferred to a one-time tax, (vi) creation of a new minimum tax on certain foreign earnings and a new base erosion anti-abuse tax, (vii) allowance for immediate capital expensing of certain qualified property, (viii) limitation on the deduction for net interest expense incurred by a U.S. corporation, and (ix) modification and/or repeal of a number of other international provisions.
The Company recognized the income tax effects of the Act in its 2017 financial statements in accordance with Staff Accounting Bulletin 118 which provides SEC staff guidance for the application of ASC Topic 740.
The Company has completed its assessment for the income tax effects of the Act for the following items:
|
|
The Company has not completed its assessment for the income tax effects of the Act but has recorded a reasonable estimate of the effects for the items below. The Company anticipates completing the analyses for these estimates by the fourth quarter of 2018, within the one year measurement period for the following items:
|
|
|
|
113
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| (in thousands) | ||||||||||||||
| Deferred revenue | $ | 8,699 | $ | 8,945 | ||||||||||
| Prepaid expenses and accrued expenses | 6,663 | 8,847 | ||||||||||||
| Right-of-use assets | (17,528) | (20,388) | ||||||||||||
| Lease liabilities | 29,497 | 31,328 | ||||||||||||
| Net operating loss and tax credit carryforwards | 63,866 | 64,590 | ||||||||||||
| Property and equipment and intangible assets | (84,139) | (94,061) | ||||||||||||
| Stock-based compensation expense | 9,215 | 10,559 | ||||||||||||
| Investment in partnerships | (4,416) | 2,836 | ||||||||||||
| Convertible Notes | 16,754 | 20,440 | ||||||||||||
| R&D expenditures | 68,543 | 43,956 | ||||||||||||
| Withholding taxes | (5,035) | (4,841) | ||||||||||||
| Other | (865) | 196 | ||||||||||||
| Total deferred tax assets, net | 91,254 | 72,407 | ||||||||||||
| Less: valuation allowance | (107,822) | (88,603) | ||||||||||||
| Deferred tax liabilities, net | $ | (16,568) | $ | (16,196) | ||||||||||
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
|
|
|
The Company has not completed its assessment for the income tax effects of the Act and is unable to calculate a reasonable estimate of such effect for the items below. The Company anticipates completing the analysis for these items by the fourth quarter of 2018, within the one year measurement period:
|
|
|
|
The valuation allowance for net deferred tax assets as of December 31, 20172023 and 20162022 was $32,513$107.8 million and $29,610,$88.6 million, respectively. The change in the valuation allowance from 20162022 to 20172023 was primarily related to the amortization of book intangibleincreased deferred tax assets which increased thefor R&D expenditures, original issue discount on convertible debt, and additional valuation allowance on state R&D tax credits and the change in the federal tax rate due to the Act, which reduced the value of the ending valuation allowance.net operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.
On the basis of this evaluation, as of December 31, 2017,2023, a valuation allowance of $32,513 was$107.8 million has been recorded to offsetrecord only the portion of the deferred tax assets for which the Companyasset that is not at more likely than not that they willto be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of
114
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
cumulative losses is no longer present and additional weight may be given to subjective evidence, such as ourthe Company's projections for growth.
Prior
Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Tax provision (benefit), at U.S. federal statutory tax rate |
| $ | (573) |
| $ | (13,767) |
| $ | 3,056 |
|
|
|
|
|
|
|
|
|
|
|
|
State income tax provision (benefit), net of federal benefit |
|
| (1,251) |
|
| (2,053) |
|
| 247 |
|
Effect of stock-based compensation excess tax benefit |
|
| (11,522) |
|
| — |
|
| — |
|
Effect of permanent items |
|
| 1,145 |
|
| 1,773 |
|
| 1,899 |
|
Change in valuation allowance |
|
| 2,151 |
|
| 26,269 |
|
| 841 |
|
Effect of change in federal income tax rate |
|
| 13,792 |
|
| — |
|
| — |
|
Effect of change in state income tax rate |
|
| 537 |
|
| 279 |
|
| 283 |
|
Uncertain tax positions |
|
| 3,668 |
|
| 2,024 |
|
| (859) |
|
Research and development credits |
|
| (2,815) |
|
| (2,758) |
|
| (1,914) |
|
Change in permanent reinvestment assertion |
|
| (4,494) |
|
| — |
|
| — |
|
State net operating loss adjustment, net of valuation allowance impact |
|
| 836 |
|
| — |
|
| — |
|
Other |
|
| 117 |
|
| 3,310 |
|
| 999 |
|
Income tax provision |
| $ | 1,591 |
| $ | 15,077 |
| $ | 4,552 |
|
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Tax provision (benefit), at U.S. federal statutory tax rate | $ | (47,449) | $ | (15,515) | $ | 4,402 | ||||||||||||||
| State income tax provision (benefit), net of federal benefit | (440) | (3,463) | 856 | |||||||||||||||||
| Effect of stock-based compensation tax shortfall | 3,394 | 717 | (364) | |||||||||||||||||
| Effect of limitation on executive compensation | 1,057 | 2,511 | 1,678 | |||||||||||||||||
| Effect of permanent items | 447 | 869 | 661 | |||||||||||||||||
| Effect of India partnerships | 1,366 | 1,644 | 1,422 | |||||||||||||||||
| Change in valuation allowance | 19,219 | 26,974 | 5,660 | |||||||||||||||||
| Effect of change in state and foreign income tax rates | 97 | (254) | (1,184) | |||||||||||||||||
| Uncertain tax positions | 1,211 | (617) | 158 | |||||||||||||||||
| Research and development credits | (11,189) | (10,993) | (5,695) | |||||||||||||||||
| Effect of goodwill impairment | 40,282 | — | — | |||||||||||||||||
| Change in India indefinite reinvestment assertion | 3,699 | 4,372 | — | |||||||||||||||||
| Other | 1,083 | 816 | 73 | |||||||||||||||||
| Income tax provision | $ | 12,777 | $ | 7,061 | $ | 7,667 | ||||||||||||||
In addition, at December 31, 2017, the Company had AMT credit carryforwards of approximately $1,330 for Federal purposes. As a result of tax reform, AMT credits are refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50 percent (100 percent in the case of taxable years beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. Thus, the minimum tax credit was reclassified from a deferred tax asset to an income tax receivable. The Company also had AMT credits of $21 for California, which are available to reduce future California income taxes, if any, over an indefinite period.2041. In addition, the Company had research and developmentR&D credit carryforwards of approximately $10,430$38 million for federal and $8,103$15 million for California, Massachusetts and Illinois,New Jersey, as well as foreign tax credits of $2,459$0.9 million available to offset federal income tax.
115
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Unrecognized tax benefits balance at beginning of year |
| $ | 16,476 |
| $ | 14,129 |
| $ | 2,092 |
|
Additions based on tax positions related to the current year |
|
| 1,691 |
|
| 1,153 |
|
| 576 |
|
Additions based on tax positions related to prior years |
|
| 145 |
|
| 1,257 |
|
| — |
|
Additions based on tax positions related to acquired entities |
|
| — |
|
| — |
|
| 12,780 |
|
Reductions for settlements with taxing authorities related to prior years |
|
| — |
|
| — |
|
| (1,120) |
|
Reductions for lapses of statute of limitations |
|
| — |
|
| (63) |
|
| (199) |
|
Unrecognized tax benefits balance at end of year |
| $ | 18,312 |
| $ | 16,476 |
| $ | 14,129 |
|
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Balance at beginning of year | $ | 13,612 | $ | 14,517 | $ | 15,132 | ||||||||||||||
| Additions based on tax positions related to the current year | 2,456 | 2,522 | 1,631 | |||||||||||||||||
| Additions (reductions) based on tax positions related to prior years | 58 | (296) | (550) | |||||||||||||||||
| Reductions for settlements with taxing authorities related to prior years | — | — | (394) | |||||||||||||||||
| Reductions for lapses of statute of limitations | (839) | (3,131) | (1,302) | |||||||||||||||||
| Balance at end of year | $ | 15,287 | $ | 13,612 | $ | 14,517 | ||||||||||||||
$15.3 million. At this time, the Company estimates that the liability for unrecognized tax benefits will decrease by an estimated $1.6 million in the next twelve months as statutes of limitations expire and a transfer pricing agreement is concluded with India.
2022, respectively, which are included in other liabilities in the consolidated balance sheets.
Our
15. Stockholders’ Equity
On May 6, 2015, in connection with the acquisition It is possible that one or more of Finance Logix, the Company issued 123,410 in shares of Envestnet common stock with a fair value of $6,388 and 123,410 stock options to acquire Envestnet common stock at $52.67 per share with an estimated fair value of $2,542.
On November 19, 2015 in connection with the merger of Yodlee, Envestnet issued approximately 5,974,000 shares of Envestnet common stock with a fair value of $186,522 to Yodlee stockholders in the Merger.
On February 25, 2016, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company may repurchase up to 2,000,000 shares of its common stock. The timing and volume of share repurchases will be determined by the Company’s management based on its ongoing assessments of the capital needs of the business, the market price of its common stock and general market conditions. No time limit has been set for the completion of the repurchase program, and the programthese audits may be suspended or discontinued at any time. The repurchase program authorizesfinalized within the Company to purchase its common stock from time to time in the open market
116
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
(including pursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other forward transactions or otherwise, all in compliance with applicable laws and other restrictions. For the years ended December 31, 2017 and 2016, the Company purchased 0 and 43,610 shares of the Company’s common stock, respectively. As of both December 31, 2017 and 2016, a maximum of 1,956,390 shares may yet be purchased under this program.
16. Stock-Based Compensation
On December 31, 2004, the Company adopted a stock incentive plan (the “2004 Plan”). The 2004 Plan provided for the grant of options to employees, consultants, and non-employee directors to purchase common stock, which vest over time and have a ten -year contractual term. To satisfy options granted under the 2004 Plan, the Company made common stock available from authorized but unissued shares or shares held in treasury, if any, by the Company. Stock options granted under the 2004 Plan were non-stock options, as defined in the 2004 Plan agreement. Stock options were granted with an exercise price no less than the fair-market-value price of the common stock at the date of the grant.
The 2004 Plan has a change in control provision whereby if a change in control occurs and the participant’s awards are not equitably adjusted, such awards shall become fully vested and exercisable and all forfeiture restrictions on such awards shall lapse. Based on the terms of the 2004 Plan, the Company’s initial public offering in 2010 did not trigger the change in control provision and did not result in any modifications to the outstanding equity awards under the 2004 Plan.
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) 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. The maximum number of shares of common stock that may be delivered under the 2010 Plan is equal to the sum of 2,700,000 plus the number of shares of common stock that are subject to outstanding awards under the 2004 Plan which are forfeited, expire or are cancelled after the effective date of the Company’s initial public offering. 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. On May 13, 2015 and July 13, 2017, the shareholders approved the 2010 Long-Term Incentive Plan as Amended. The amendments increased the number of common shares of the Company reserved for delivery under the 2010 Plan by 2,700,000 shares and 3,525,000 shares, respectively.
As a result of the merger between Envestnet and Tamarac, the Company adopted the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”). The 2012 Plan provides for the grant of restricted common stock, stock options and the purchase of common stock for certain Envestnet | Tamarac employees. The maximum number of shares of stock which may be issued with respect to awards under the 2012 Plan is 1,023,851.
The 2012 Plan provides for the grant of up to 559,551 shares of common stock (“Target Incentive Awards”). The Target Incentive Awards vest based upon Tamarac meeting certain performance conditions and then a subsequent two-year service condition. The Company measured the cost of these awards based on the estimated fair value of the award as of the market closing price on the day before the acquisition closed. 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 the assumptions impact the total amount of expense and are recognized over the vesting period. As of December 31, 2017, all 559,551 shares of restricted stock have vested.
117
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
As a result of the merger between Envestnet and Yodlee, the Company adopted the Envestnet, Inc. 2015 Acquisition Equity Award Plan (the “2015 Plan”). The 2015 Plan provides for the assumption of all unvested equity awards previously granted pursuant to the Yodlee employees and the conversion of such awards into equity awards of the Company pursuant to the 2015 Plan. No new awards are being made under the 2015 Plan. The maximum number of shares of stock which may be issued with respect to awards under the 2015 Plan is 1,058,807.
As of December 31, 2017, the maximum number of options and restricted stock available for future issuance under the Company’s plans is 3,960,729.
Employee stock-based compensation expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Stock-based compensation expense |
| $ | 31,331 |
| $ | 33,276 |
| $ | 15,161 |
Tax effect on stock-based compensation expense |
|
| (11,906) |
|
| (13,001) |
|
| (7,678) |
Net effect on income |
| $ | 19,425 |
| $ | 20,275 |
| $ | 7,483 |
Stock Options
The following weighted average assumptions were used to value options granted during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
| At December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Grant date fair value of options |
| $ | 14.51 |
| $ | 9.56 |
| $ | 19.06 |
|
Volatility |
|
| 43.8 | % |
| 42.2 | % |
| 37.8 | % |
Risk-free interest rate |
|
| 2.1 | % |
| 1.4 | % |
| 1.8 | % |
Dividend yield |
|
| — | % |
| — | % |
| — | % |
Expected term (in years) |
|
| 6.3 |
|
| 6.3 |
|
| 6.0 |
|
118
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
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, 2014 |
| 4,265,337 |
| $ | 10.73 |
| 4.7 |
| $ | 163,830 |
Granted |
| 358,087 |
|
| 48.38 |
|
|
|
|
|
Exercised |
| (1,047,911) |
|
| 7.90 |
|
|
|
|
|
Forfeited |
| (41,722) |
|
| 41.10 |
|
|
|
|
|
Outstanding as of December 31, 2015 |
| 3,533,791 |
|
| 15.03 |
| 4.7 |
|
| 61,199 |
Granted |
| 163,864 |
|
| 22.38 |
|
|
|
|
|
Exercised |
| (598,382) |
|
| 8.23 |
|
|
|
|
|
Forfeited |
| (66,079) |
|
| 35.08 |
|
|
|
|
|
Outstanding as of December 31, 2016 |
| 3,033,194 |
|
| 16.33 |
| 4.3 |
|
| 63,264 |
Granted |
| 75,238 |
|
| 31.70 |
|
|
|
|
|
Exercised |
| (837,857) |
|
| 9.49 |
|
|
|
|
|
Forfeited |
| (16,010) |
|
| 37.42 |
|
|
|
|
|
Outstanding as of December 31, 2017 |
| 2,254,565 |
|
| 19.23 |
| 4.3 |
|
| 69,939 |
Options exercisable |
| 2,041,660 |
|
| 17.74 |
| 3.8 |
|
| 66,291 |
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, 2017, 2016 and 2015 of $49.85, $35.25 and $29.85, 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. Exercise prices of stock options outstanding as of December 31, 2017 range from $7.15 to $55.29.
Other information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Total intrinsic value of options exercised |
| $ | 29,562 |
| $ | 14,165 |
| $ | 37,879 |
|
Cash received from exercises of stock options |
|
| 7,951 |
|
| 4,924 |
|
| 8,279 |
|
At December 31, 2017, there was $1,891 of unrecognized compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 1.7 years.
Restricted Stock Units and Restricted Stock Awards
Periodically, the Company grants restricted stock unit awards to employees. Beginning with grants issued in February 2016, restricted stock units awards vest one-third on the first anniversary of the grant date and quarterly thereafter. For grants issued prior to February 2016, restricted stock units awards would vest ratably in three annual
119
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
tranches from the date of grant. The following is a summary of the activity for unvested restricted stock units and awards granted under the Company’s plans:
|
|
|
|
|
|
|
|
|
| Weighted- | |
|
|
|
| Average Grant | |
|
| Number of |
| Date Fair Value | |
|
| Shares |
| per Share | |
Outstanding as of December 31, 2014 |
| 1,098,674 |
| $ | 33.72 |
Granted |
| 1,508,796 |
|
| 34.55 |
Vested |
| (434,292) |
|
| 29.26 |
Forfeited |
| (19,967) |
|
| 38.58 |
Outstanding as of December 31, 2015 |
| 2,153,211 |
|
| 35.63 |
Granted |
| 1,009,661 |
|
| 28.82 |
Vested |
| (1,082,206) |
|
| 29.12 |
Forfeited |
| (185,907) |
|
| 30.96 |
Outstanding as of December 31, 2016 |
| 1,894,759 |
|
| 30.40 |
Granted |
| 959,591 |
|
| 32.38 |
Vested |
| (969,513) |
|
| 31.51 |
Forfeited |
| (118,198) |
|
| 30.11 |
Outstanding as of December 31, 2017 |
| 1,766,639 |
|
| 32.48 |
At December 31, 2017, there was $42,250 of unrecognized compensation expense related to unvested restricted stock unit awards, which the Company expects to recognize over a weighted-average period of 1.8 years.
The Company entered into employment agreements with certain executive officers, three of whom received a total of 205,000 performance-based restricted stock unit awards in May 2016 which vest upon the achievement of certain “Target Performance Measures” as defined in the employment agreements, for the periods ending December 31, 2016, December 31, 2017 and December 31, 2018 and four of whom also received a total of 125,000 restricted stock units awards in August 2016 which vest quarterly thereafter. The Target Performance Measures for the First and Second Performance Periods, as defined in the employment agreements, were achieved as of December 31, 2017.
In connection with the Yodlee merger, on November 19, 2015, the Company issued 1,052,000 shares of Envestnet restricted stock unit awards (“replacement awards”) issued in connection with unvested Yodlee employee equity awards. The Yodlee unvested stock options and unvested restricted stock units were canceled and exchanged for the replacement awards. In accordance with ASC 805, these awards are considered to be replacement awards. Exchanges of share options or other share-based payment awards in conjunction with a business combination are modifications of share-based payment awards in accordance with ASC Topic 718. As a result, a portion of the fair-value-based measure of the replacement awards, are included in measuring the consideration transferred in the Yodlee business combination. To determine the portion of the replacement award that is part of consideration transferred to acquire Yodlee, we have measured both the replacement awards granted by Envestnet and the historical Yodlee awards as of November 19, 2015 in accordance with ASC 718. The portion of the fair-value-based measure of the replacement award that is part of the consideration transferred in exchange for the acquisition of Yodlee, equals the portion of the Yodlee award that is attributable to pre-combination service. Envestnet is attributing a portion of the replacement awards to post combination service as these awards require post combination service. The fair value of the rollover consideration was estimated to be $32,836 of which $4,318 was attributable to pre-acquisition services. The remaining fair value of $28,518 is amortizing over the 43 month vesting period subsequent to the acquisition date. As of December 31, 2017, the remaining amount of unrecognized expense totaled $4,719.
120
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
17. 22.Net Income (Loss) Per Share
Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted earnings per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants, restricted stock and Convertible Notes using the treasury stock method.
The Company accounts for the effect of the Convertible Notes on diluted net income per share using the treasury stock method since they may be settled in cash, shares or a combination thereof at the Company’s option. As a result, the Convertible Notes have no effect on diluted net loss per share until the Company’s stock price exceeds the conversion price of $62.88 per share, or if the trading price of the Convertible Notes meets certain criteria as described in “Note 12 – Debt.” In the period of conversion, the Convertible Notes will have no impact on diluted net income if the Convertible Notes are settled in cash and will have an impact on basic and diluted net income per share if the Convertible Notes are settled in shares upon conversion.
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Basic income (loss) per share calculation: |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Envestnet, Inc. |
| $ | (3,280) |
| $ | (55,567) |
| $ | 4,436 |
|
|
|
|
|
|
|
|
|
|
Basic number of weighted-average shares outstanding |
|
| 43,732,148 |
|
| 42,814,222 |
|
| 36,500,843 |
Basic |
| $ | (0.08) |
| $ | (1.30) |
| $ | 0.12 |
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share calculation: |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Envestnet, Inc. |
| $ | (3,280) |
| $ | (55,567) |
| $ | 4,436 |
|
|
|
|
|
|
|
|
|
|
Basic number of weighted-average shares outstanding |
|
| 43,732,148 |
|
| 42,814,222 |
|
| 36,500,843 |
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
Options to purchase common stock |
|
| — |
|
| — |
|
| 1,700,248 |
Unvested restricted stock units |
|
| — |
|
| — |
|
| 185,782 |
Diluted number of weighted-average shares outstanding |
|
| 43,732,148 |
|
| 42,814,222 |
|
| 38,386,873 |
Diluted |
| $ | (0.08) |
| $ | (1.30) |
| $ | 0.12 |
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands, except share and per share amounts) | ||||||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. - Basic | $ | (238,724) | $ | (80,939) | $ | 13,296 | ||||||||||||||
| Interest and gain on settlement of Convertible Notes due 2025, net of interest and tax | — | (9,524) | — | |||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. - Diluted | $ | (238,724) | $ | (90,463) | $ | 13,296 | ||||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||||||
| Basic | 54,457,365 | 55,199,482 | 54,470,975 | |||||||||||||||||
| Effect of dilutive shares: | ||||||||||||||||||||
| Convertible Notes | — | 1,642,643 | — | |||||||||||||||||
| Non-vested RSUs and PSUs | — | — | 633,384 | |||||||||||||||||
| Options to purchase common stock | — | — | 206,022 | |||||||||||||||||
| Warrants | — | — | 73,715 | |||||||||||||||||
| Diluted | 54,457,365 | 56,842,125 | 55,384,096 | |||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc., per share: | ||||||||||||||||||||
| Basic | $ | (4.38) | $ | (1.47) | $ | 0.24 | ||||||||||||||
| Diluted | $ | (4.38) | $ | (1.59) | $ | 0.24 | ||||||||||||||
|
|
|
|
|
|
|
|
| At December 31, | ||||
|
| 2017 |
| 2016 |
| 2015 |
Options to purchase common stock |
| 2,254,565 |
| 3,033,194 |
| 297,343 |
Unvested restricted stock awards and units |
| 1,766,639 |
| 1,894,759 |
| 210,233 |
Ungranted unvested restricted stock units related to Upside |
| — |
| — |
| 132,384 |
Convertible Notes |
| 2,743,321 |
| 2,743,321 |
| 2,743,321 |
Total |
| 6,764,525 |
| 7,671,274 |
| 3,383,281 |
| December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
Convertible Notes(1) | 11,084,413 | 11,470,646 | 9,898,549 | |||||||||||||||||
| Non-vested RSU's and PSU's | 1,672,311 | 1,941,025 | — | |||||||||||||||||
| Options to purchase common stock | 202,166 | 277,535 | — | |||||||||||||||||
| Total anti-dilutive securities | 12,958,890 | 13,689,206 | 9,898,549 | |||||||||||||||||
121
(in thousands, except share
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Envestnet Wealth Solutions | $ | 108,753 | $ | 57,323 | $ | 129,287 | ||||||||||||||
| Envestnet Data & Analytics | (216,542) | (22,221) | (2,603) | |||||||||||||||||
| Nonsegment operating expenses | (96,692) | (101,126) | (86,143) | |||||||||||||||||
| Income (loss) from operations | (204,481) | (66,024) | 40,541 | |||||||||||||||||
| Total other income (expense), net | (28,516) | (12,395) | (20,180) | |||||||||||||||||
| Income (loss) before income tax provision | (232,997) | (78,419) | 20,361 | |||||||||||||||||
| Income tax provision | 12,777 | 7,061 | 7,667 | |||||||||||||||||
| Net income (loss) | (245,774) | (85,480) | 12,694 | |||||||||||||||||
| Add: Net loss attributable to non-controlling interest | 7,050 | 4,541 | 602 | |||||||||||||||||
| Net income (loss) attributable to Envestnet, Inc. | $ | (238,724) | $ | (80,939) | $ | 13,296 | ||||||||||||||
18. Major Customers
One customer accounted for 10% or more of consolidated revenues:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
|
| 2017 |
| 2016 |
| 2015 |
|
Fidelity |
| 17 | % | 15 | % | 18 | % |
| Total Assets | Depreciation and amortization | Capital expenditures | ||||||||||||||||||||||||||||||||||||||||||||||||
| As of December 31, | For the year ended December 31, | For the year ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Envestnet Wealth Solutions | $ | 1,562,600 | $ | 1,560,923 | $ | 103,301 | $ | 98,600 | $ | 91,024 | $ | 95,777 | $ | 82,442 | $ | 66,709 | ||||||||||||||||||||||||||||||||||
| Envestnet Data & Analytics | 314,652 | 551,242 | 27,003 | 27,228 | 26,743 | 17,525 | 22,883 | 22,192 | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 1,877,252 | $ | 2,112,165 | $ | 130,304 | $ | 125,828 | $ | 117,767 | $ | 113,302 | $ | 105,325 | $ | 88,901 | ||||||||||||||||||||||||||||||||||
19.
Leases
The Company rents office space under leases that expire at various dates through 2030.
Future annual minimum lease commitments under operating leases were as follows:
|
|
|
|
Years ending December 31: |
|
|
|
2018 |
| $ | 14,104 |
2019 |
|
| 14,721 |
2020 |
|
| 14,572 |
2021 |
|
| 13,986 |
2022 |
|
| 10,349 |
Thereafter |
|
| 43,406 |
Total |
| $ | 111,138 |
Rent expense for all operating leases totaled:
Purchase Obligations and Indemnifications
122
(in thousands, except share and per share amounts)
In connection with the Redi2 acquisition, the Company has agreed to pay up to $20.0 million in performance bonuses based upon the achievement of certain performance targets. As of December 31, 2023, the liabilities associated with these performance bonuses were immaterial.
Contingencies
Certain of the Company’s revenues are subject to sales and use taxes in certain jurisdictions where it conducts business in the United States. During 2017 and 2016, the Company estimated that a sales and use tax liability of $8,522 and $10,108, respectively, was probable related to multiple taxing jurisdictions with respect to revenues in the years ended December 31, 2017 and December 31, 2016, and prior years. This amount is included in accrued expenses and other liabilities on the consolidated balance sheets.
For the years ended December 31, 2017 and 2016, the Company also estimated a sales and use tax receivable of $2,704 and $3,879, respectively, related to the estimated recoverability of a portion of the liability from customers. This amount is included in prepaid expenses and other current assets on the consolidated balance sheets.
Additional future information obtained from the applicable jurisdictions may affect the Company’s estimate of its sales and use tax liability, but such change in the estimate cannot currently be made.
20. Benefit Plan
The Company sponsors a profit sharing and savings plan under Section 401(k) of the Internal Revenue Code, covering substantially all domestic employees. The Company made voluntary employer matching contributions as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Voluntary employer matching contributions |
| $ | 4,038 |
| $ | 2,270 |
| $ | 1,521 |
|
21. Segment Information
Business segments are generally organized around our business services. Our business segments are:
|
|
123
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
|
|
The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment expenses include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, restructuring charges, and other non-recurring and/or non-operationally related expenses. There are no inter-segment revenues for the year ended December 31, 2017. The accounting policies of the reportable business segments are the same as those described in “Note 2 – Summary of Significant Accounting Policies.”
The following table presents revenue by segment:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Revenue: |
|
|
|
|
|
|
|
|
|
Envestnet |
|
|
|
|
|
|
|
|
|
Assets under management or administration |
| $ | 410,016 |
| $ | 352,498 |
| $ | 333,684 |
Subscription and licensing |
|
| 106,048 |
|
| 84,340 |
|
| 63,719 |
Professional services and other |
|
| 11,841 |
|
| 10,794 |
|
| 9,435 |
Total Envestnet segment revenues |
|
| 527,905 |
|
| 447,632 |
|
| 406,838 |
Envestnet | Yodlee |
|
|
|
|
|
|
|
|
|
Subscription and licensing |
|
| 139,819 |
|
| 113,785 |
|
| 11,561 |
Professional services and other |
|
| 15,955 |
|
| 16,747 |
|
| 2,520 |
Total Envestnet | Yodlee segment revenues |
|
| 155,774 |
|
| 130,532 |
|
| 14,081 |
Consolidated revenue |
| $ | 683,679 |
| $ | 578,164 |
| $ | 420,919 |
|
|
|
|
|
|
|
|
|
|
Fidelity revenue as a percentage of Envestnet segment revenue: |
|
| 22% |
|
| 19% |
|
| 18% |
No single customer revenue amounts for Envestnet | Yodlee exceeded 10% of the segment revenue total.
The following table presents a reconciliation from income from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
Envestnet | $ | 75,449 |
| $ | 41,678 |
| $ | 43,278 |
Envestnet | Yodlee |
| (19,456) |
|
| (38,547) |
|
| (2,984) |
Total segment income from operations |
| 55,993 |
|
| 3,131 |
|
| 40,294 |
Nonsegment operating expenses |
| (39,573) |
|
| (26,575) |
|
| (21,302) |
Interest expense, net |
| (16,146) |
|
| (16,563) |
|
| (9,933) |
Other expense, net |
| (1,963) |
|
| (483) |
|
| (71) |
Consolidated income (loss) before income tax provision |
| (1,689) |
|
| (40,490) |
|
| 8,988 |
Income tax provision |
| 1,591 |
|
| 15,077 |
|
| 4,552 |
Consolidated net income (loss) |
| (3,280) |
|
| (55,567) |
|
| 4,436 |
Add: Net income (loss) attributable to non-controlling interest |
| — |
|
| — |
|
| — |
Consolidated net income (loss) attributable to Envestnet, Inc. | $ | (3,280) |
| $ | (55,567) |
| $ | 4,436 |
124
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Segment assets primarily consist of cash, accounts receivable, prepaid expenses and other current assets, property and equipment, net, internally developed software, goodwill, intangible assets, net, deferred tax assets and other non-current assets.
A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital expenditures by segment follows:
|
|
|
|
|
|
|
|
| At December 31, | ||||
|
| 2017 |
| 2016 | ||
Segment assets: |
|
|
|
|
|
|
Envestnet |
| $ | 353,048 |
| $ | 341,602 |
Envestnet | Yodlee |
|
| 509,004 |
|
| 530,799 |
Consolidated total assets |
| $ | 862,052 |
| $ | 872,401 |
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Segment depreciation and amortization: |
|
|
|
|
|
|
|
|
|
Envestnet |
| $ | 26,223 |
| $ | 24,784 |
| $ | 23,369 |
Envestnet | Yodlee |
|
| 36,597 |
|
| 39,215 |
|
| 4,593 |
Consolidated depreciation and amortization |
| $ | 62,820 |
| $ | 63,999 |
| $ | 27,962 |
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Segment capital expenditures: |
|
|
|
|
|
|
|
|
|
Envestnet |
| $ | 22,434 |
| $ | 17,120 |
| $ | 13,682 |
Envestnet | Yodlee |
|
| 5,135 |
|
| 5,456 |
|
| 1,034 |
Consolidated capital expenditures |
| $ | 27,569 |
| $ | 22,576 |
| $ | 14,716 |
22. Geographical Information
Revenue by geography is based on the billing address of the customer. The following table sets forth revenue by geographic area:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
| 2017 |
| 2016 |
| 2015 | |||
United States | $ | 617,835 |
| $ | 519,998 |
| $ | 388,098 |
International (1) |
| 65,844 |
|
| 58,166 |
|
| 32,821 |
Total | $ | 683,679 |
| $ | 578,164 |
| $ | 420,919 |
|
|
The following table sets forth property, plant, and equipment, net by geographic area:
|
|
|
|
|
|
| At December 31, | ||||
| 2017 |
| 2016 | ||
United States | $ | 30,647 |
| $ | 28,713 |
India |
| 4,907 |
|
| 3,596 |
Other |
| 355 |
|
| 691 |
Total | $ | 35,909 |
| $ | 33,000 |
125
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
23. Net Capital Requirements
Portfolio Brokerage Services, Inc. (“PBS”) is a broker-dealer subject to the SEC Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital (“net capital ratio”), both as defined, shall not exceed 15 to 1. SEC Rule 15c3-1 also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. At December 31, 2017, the Company had net capital of $1,238, which was $1,138 in excess of its required net capital of $100. At December 31, 2017, the Company’s net capital ratio was .05 to 1.
Additionally, PBS is subject to net capital requirements of certain self-regulatory organizations and at December 31, 2017, PBS was in compliance with such requirements.
24. Subsequent Events
FolioDynamix
On January 2, 2018, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of September 25, 2017, between the Company, Folio Dynamics Holdings, Inc., a Delaware corporation (“FolioDynamix”), FCD Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and Actua USA Corporation, a Delaware corporation, solely in its capacity as the representative of the stockholders of FolioDynamix, the Company completed the merger of Merger Sub with and into FolioDynamix, with FolioDynamix continuing as the surviving corporation (the “Acquisition”) and a wholly owned subsidiary of the Company. The completion of the Acquisition on January 2, 2018 followed the receipt of all necessary regulatory approvals and third party consents.
In connection with the Acquisition, the Company paid $195,000 in cash for all the outstanding shares of FolioDynamix, subject to certain closing and post-closing adjustments. The Company funded the Acquisition price with a combination of cash on the Company’s balance sheet and with borrowings under its revolving credit facility.
FolioDynamix provides financial institutions, registered investment advisors, 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.
The acquisition of FolioDynamix added complementary trading tools as well as commission and brokerage support to the Company’s existing suite of offerings. The acquisition also added one RIA. The Company expects to integrate the technology and operations of FolioDynamix into the Company’s wealth management business, enabling the Company to further leverage its operating scale and data analytics capabilities.
Due to the lack of availability of sufficient information, the disclosures in relation to ASC 805 are currently not able to be included.
126
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
25. Quarterly Financial Data (Unaudited)
Quarterly results for the years ended December 31, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| ||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| ||||
Total revenues |
| $ | 157,786 |
| $ | 167,417 |
| $ | 175,614 |
| $ | 182,862 |
|
Income (loss) from operations |
|
| (3,354) |
|
| 2,743 |
|
| 4,348 |
|
| 12,683 |
|
Net income (loss) attributable to Envestnet, Inc. |
|
| (13,135) |
|
| (6,470) |
|
| (1,320) |
|
| 17,645 |
|
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (1) |
|
| (0.30) |
|
| (0.15) |
|
| (0.03) |
|
| 0.40 |
|
Diluted (1) (2) |
|
| (0.30) |
|
| (0.15) |
|
| (0.03) |
|
| 0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2016 |
| ||||||||||
|
| First |
| Second |
| Third |
| Fourth |
| ||||
Total revenues |
| $ | 131,821 |
| $ | 141,708 |
| $ | 149,155 |
| $ | 155,480 |
|
Loss from operations |
|
| (12,760) |
|
| (6,330) |
|
| (1,291) |
|
| (3,063) |
|
Net loss attributable to Envestnet, Inc. |
|
| (10,993) |
|
| (7,943) |
|
| (4,057) |
|
| (32,574) |
|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (1) |
|
| (0.26) |
|
| (0.19) |
|
| (0.09) |
|
| (0.75) |
|
Diluted (1) |
|
| (0.26) |
|
| (0.19) |
|
| (0.09) |
|
| (0.75) |
|
|
|
|
|
127
2023.
.
During the year ended December 31, 2017, improvements to the processes of financial reporting were implemented which include enhanced disclosure preparation and review controls, a condensed financial close process providing an increased time frame to prepare and review financial reporting documents, as well as streamlined financial data aggregation which increases reliance on system generated reports, thereby decreasing the likelihood of human error. In addition, management has reorganized the accounting department as well as increased its overall staffing levels.
During the three months ended December 31, 2017, the material weakness related to ineffective design and operation of internal controls over the accounting for non-routine transactions and the relevance and reliability of data used to prepare financial statement
128
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
disclosures and the material weakness related to ineffective design and operation of internal controls related to our state and local tax compliance process were remediated and the impacted controls were effective at December 31, 2017.
The remedial actions that management undertook in the three months ended December 31, 2017 to address these material weaknesses included the following:
|
|
|
|
Except for the remediation of the material weaknesses noted above, thereThere were no changes to our internal control over financial reporting during the three months ended December 31, 20172023, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
129
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
130
The information
section. We intend to disclose any amendment to, or waiver from, a provision of this code of ethics by posting such information to our Website, atwebsite. Information found on our website is not part of this Annual Report or any other report filed with the address and location specified above.
Information regarding executive compensation is under the captions “Board Meetings and Committees—Director Compensation,” “Board Meetings and Committees—Compensation Committee Interlocks and Insider Participation,” “Compensation Committee Report on Compensation Discussion and Analysis,” and “Executive Compensation”
Information regarding security ownership of certain beneficial owners and management and related stockholder matters is under the tables captioned “Stock Ownership of Management,” “Persons Owning More Than Five Percent of Envestnet, Inc. Stock,” and
Information regarding principal accountant fees and services is under the captions “Audit Committee Report to Stockholders—Audit Committee’s Policy on Pre‑Approval of Services Provided
131
| (a) | The following documents are filed as part of this Annual Report on Form 10-K: | |||||||||
| 1. |
| |||||||||
| Consolidated Financial Statements | |||||||||
| The following financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K: | ||||||||||
(KPMG LLP, Denver, CO, Auditor Firm ID: 185) | ||||||||||
Consolidated Balance Sheets as of December 31, | 2022 | |||||||||
Consolidated Statements of Operations for each of the years ended December 31, | 2021 | |||||||||
Consolidated Statements of Comprehensive Income (Loss) for each of the years ended December 31, | 2021 | |||||||||
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31, | 2021 | |||||||||
Consolidated Statements of Cash Flows for each of the years ended December 31, | 2021 | |||||||||
|
| Financial Statement Schedules | ||||||||
Financial statements and schedules are omitted for the reason that they are not applicable, are not required, or the information is included in the financial statements or the related | notes. | |||||||||
|
| |||||||||
| The Exhibits required by Item 601 of Regulation S-K are listed in the Index to the Exhibits | ||||||||||
INDEX TO EXHIBITS 4.1 101.SCH * * * * (1) * Management contract or compensation plan.132Exhibit No. Description Exhibit No.Description3.13.2 4.2 [Reserved] 4.3 4.44.54.64.4[Reserved] 4.5 [Reserved] 4.6 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.1010.8133Exhibit No.Description10.1110.1210.1310.10Exhibit No. Description 10.11 10.12 10.13 10.14 10.1410.1510.1510.1610.1610.1710.1710.1810.1910.2010.1810.2110.1910.2210.2310.2410.2510.2610.2010.2710.2110.22 [Reserved] 10.23 [Reserved] 10.24 10.2810.25134Exhibit No.Description10.2910.3010.2710.3110.28Exhibit No. Description 10.3210.2910.3310.3010.3410.3510.3610.3110.3710.3212.110.3321.110.34 10.35 10.36 10.37 10.38 10.39 10.40 10.41 10.42 10.43 10.44 Exhibit No. Description 10.45 10.46 10.47 10.48 21.1 23.1 31.1 31.2 32.1(1)32.2(1)101.INS101.INS XBRL Instance Document***Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document101.CAL101.LAB101.PRE101.DEFInline XBRL Taxonomy Extension Schema Document*** 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document*** 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document*** 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document*** 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document**** 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
__________________________________________________________The material contained in Exhibit 32.1 and 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference. 135