UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2021~~March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-34835

Envestnet, Inc.

(Exact name of registrant as specified in its charter)


Delaware						20-1409613
(State or other jurisdiction of incorporation or organization)						(I.R.S Employer Identification No.)

~~35 East Wacker Drive,~~1000 Chesterbrook Boulevard, Suite ~~2400, Chicago, Illinois~~250, Berwyn, Pennsylvania

~~60601~~19312

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code:

(312) 827-2800

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of exchange on which registered
Common Stock, par value $0.005 per share	ENV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of ~~November 1, 2021,~~April 29, 2022, Envestnet, Inc. had ~~54,644,263~~55,187,306 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021			3
Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			5
Condensed Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~			97
Notes to Unaudited Condensed Consolidated Financial Statements			119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			3225
Overview			3427
Results of Operations			3932
Liquidity and Capital Resources			5643

Item 3. Quantitative and Qualitative Disclosures About Market Risk			5744

Item 4. Controls and Procedures			5744

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			5845

Item 1A. Risk Factors			5845

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5845

Item 3. Defaults Upon Senior Securities			5845

Item 4. Mine Safety Disclosures			5845

Item 5. Other Information			5845

Item 6. Exhibits			5845

Index to Exhibits			5946

Signatures			6047

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


		September 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	393,799	$	384,565	Cash and cash equivalents	$	359,614	$	429,279
Fees receivable, net	Fees receivable, net	116,137		80,064		Fees receivable, net	88,377		95,291
Prepaid expenses and other current assets	Prepaid expenses and other current assets	39,585		40,570		Prepaid expenses and other current assets	53,488		42,706
Total current assets	Total current assets	549,521		505,199		Total current assets	501,479		567,276

Property and equipment, net	Property and equipment, net	48,158		47,969		Property and equipment, net	62,848		50,215
Internally developed software, net	Internally developed software, net	125,590		96,501		Internally developed software, net	147,014		133,659
Intangible assets, net	Intangible assets, net	417,644		435,041		Intangible assets, net	400,876		400,396
Goodwill	Goodwill	924,504		906,773		Goodwill	925,003		925,154
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	93,204		105,249		Operating lease right-of-use assets, net	88,011		90,714
Other non-current assets	Other non-current assets	58,724		47,558		Other non-current assets	74,539		73,768
Total assets	Total assets	$	2,217,345	$	2,144,290	Total assets	$	2,199,770	$	2,241,182

Liabilities and Equity	Liabilities and Equity					Liabilities and Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accrued expenses and other liabilities	Accrued expenses and other liabilities	$	200,206	$	158,548	Accrued expenses and other liabilities	$	201,087	$	225,159
Accounts payable	Accounts payable	21,763		18,003		Accounts payable	18,854		19,092
Operating lease liabilities	Operating lease liabilities	12,021		13,649		Operating lease liabilities	10,439		10,999
Contingent consideration		806		11,251

Deferred revenue	Deferred revenue	34,609		34,918		Deferred revenue	44,427		33,473
Total current liabilities	Total current liabilities	269,405		236,369		Total current liabilities	274,807		288,723

Long-term debt	Long-term debt	847,633		756,503		Long-term debt	850,097		848,862
Non-current operating lease liabilities	Non-current operating lease liabilities	107,852		112,182		Non-current operating lease liabilities	103,332		105,920
Deferred tax liabilities, net	Deferred tax liabilities, net	27,754		34,740		Deferred tax liabilities, net	2,108		21,021
Other non-current liabilities	Other non-current liabilities	17,626		28,678		Other non-current liabilities	16,271		17,114
Total liabilities	Total liabilities	1,270,270		1,168,472		Total liabilities	1,246,615		1,281,640

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0

Equity:	Equity:					Equity:
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of September 30, 2021 and December 31, 2020		—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 68,636,215 and 67,832,706 shares issued as of September 30, 2021 and December 31, 2020, respectively; 54,617,904 and 54,093,535 shares outstanding as of September 30, 2021 and December 31, 2020, respectively		343		339
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021						Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of March 31, 2022 and December 31, 2021	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 69,432,152 and 68,879,152 shares issued as of March 31, 2022 and December 31, 2021, respectively; 55,175,096 and 54,793,088 shares outstanding as of March 31, 2022 and December 31, 2021, respectively						Common stock, par value $0.005, 500,000,000 shares authorized; 69,432,152 and 68,879,152 shares issued as of March 31, 2022 and December 31, 2021, respectively; 55,175,096 and 54,793,088 shares outstanding as of March 31, 2022 and December 31, 2021, respectively	347		344
Additional paid-in capital	Additional paid-in capital	1,108,864		1,166,774		Additional paid-in capital	1,153,892		1,131,628
Accumulated deficit	Accumulated deficit	(32,879)		(79,912)		Accumulated deficit	(51,847)		(37,988)
Treasury stock at cost, 14,018,311 and 13,739,171 shares as of September 30, 2021 and December 31, 2020, respectively		(129,877)		(110,466)
Treasury stock at cost, 14,257,056 and 14,086,064 shares as of March 31, 2022 and December 31, 2021, respectively						Treasury stock at cost, 14,257,056 and 14,086,064 shares as of March 31, 2022 and December 31, 2021, respectively	(147,566)		(134,996)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,016)		(398)		Accumulated other comprehensive loss	(3,377)		(1,899)
Total stockholders’ equity	Total stockholders’ equity	944,435		976,337		Total stockholders’ equity	951,449		957,089
Non-controlling interest	Non-controlling interest	2,640		(519)		Non-controlling interest	1,706		2,453
Total equity	Total equity	947,075		975,818		Total equity	953,155		959,542
Total liabilities and equity	Total liabilities and equity	$	2,217,345	$	2,144,290	Total liabilities and equity	$	2,199,770	$	2,241,182

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share information)

(unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020				2022		2021
Revenues:	Revenues:									Revenues:
Asset-based	Asset-based	$	184,008	$	137,744	$	513,458	$	394,801	Asset-based		$	202,717	$	159,375
Subscription-based	Subscription-based	113,572		107,897		335,905		317,427		Subscription-based		114,734		109,829
Total recurring revenues	Total recurring revenues	297,580		245,641		849,363		712,228		Total recurring revenues		317,451		269,204
Professional services and other revenues	Professional services and other revenues	5,473		6,918		17,533		22,183		Professional services and other revenues		3,912		5,901
Total revenues	Total revenues	303,053		252,559		866,896		734,411		Total revenues		321,363		275,105

Operating expenses:	Operating expenses:									Operating expenses:
Cost of revenues	Cost of revenues	109,836		78,545		303,199		222,327		Cost of revenues		125,282		92,869
Compensation and benefits	Compensation and benefits	109,839		94,428		316,101		300,423		Compensation and benefits		126,849		100,714
General and administration	General and administration	39,393		38,979		117,463		118,537		General and administration		44,335		36,315
Depreciation and amortization	Depreciation and amortization	29,850		28,951		88,252		85,077		Depreciation and amortization		31,618		28,392
Total operating expenses	Total operating expenses	288,918		240,903		825,015		726,364		Total operating expenses		328,084		258,290

Income from operations		14,135		11,656		41,881		8,047
Income (loss) from operations										Income (loss) from operations		(6,721)		16,815
Other expense, net	Other expense, net	(3,551)		(8,836)		(14,803)		(18,546)		Other expense, net		(5,967)		(7,468)
Income (loss) before income tax provision (benefit)	Income (loss) before income tax provision (benefit)	10,584		2,820		27,078		(10,499)		Income (loss) before income tax provision (benefit)		(12,688)		9,347

Income tax provision (benefit)	Income tax provision (benefit)	(854)		497		9,074		(161)		Income tax provision (benefit)		2,020		(5,588)

Net income (loss)	Net income (loss)	11,438		2,323		18,004		(10,338)		Net income (loss)		(14,708)		14,935
Add: Net (income) loss attributable to non-controlling interest		302		(413)		401		(12)
Add: Net loss attributable to non-controlling interest										Add: Net loss attributable to non-controlling interest		849		11
Net income (loss) attributable to Envestnet, Inc.	Net income (loss) attributable to Envestnet, Inc.	$	11,740	$	1,910	$	18,405	$	(10,350)	Net income (loss) attributable to Envestnet, Inc.		$	(13,859)	$	14,946

Net income (loss) per share attributable to Envestnet, Inc.:	Net income (loss) per share attributable to Envestnet, Inc.:									Net income (loss) per share attributable to Envestnet, Inc.:
Basic	Basic	$	0.22	$	0.04	$	0.34	$	(0.19)	Basic		$	(0.25)	$	0.28
Diluted	Diluted	$	0.21	$	0.03	$	0.33	$	(0.19)	Diluted		$	(0.25)	$	0.27

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	54,547,858		53,800,048		54,400,247		53,464,101		Basic		54,903,677		54,208,469
Diluted	Diluted	55,388,627		55,558,983		55,287,972		53,464,101		Diluted		54,903,677		59,917,648

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020				2022		2021
Net income (loss) attributable to Envestnet, Inc.	Net income (loss) attributable to Envestnet, Inc.	$	11,740	$	1,910	$	18,405	$	(10,350)	Net income (loss) attributable to Envestnet, Inc.		$	(13,859)	$	14,946
Foreign currency translation gains (losses), net of taxes		270		1,739		(1,618)		290
Foreign currency translation losses, net of taxes										Foreign currency translation losses, net of taxes		(1,478)		(624)
Comprehensive income (loss) attributable to Envestnet, Inc.	Comprehensive income (loss) attributable to Envestnet, Inc.	$	12,010	$	3,649	$	16,787	$	(10,060)	Comprehensive income (loss) attributable to Envestnet, Inc.		$	(15,337)	$	14,322

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share information)

(unaudited)


										Accumulated																	Accumulated
		Common Stock			Treasury Stock			Additional		Other				Non-					Common Stock			Treasury Stock			Additional		Other				Non-
					Common			Paid-in		Comprehensive		Accumulated		controlling		Total						Common			Paid-in		Comprehensive		Accumulated		controlling		Total
		Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity			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)
Balance, December 31, 2021																		Balance, December 31, 2021	68,879,152	$	344	(14,086,064)	$	(134,996)	$	1,131,628	$	(1,899)	$	(37,988)	$	2,453	$	959,542
Exercise of stock options	Exercise of stock options	27,043	—		—	—		522		—		—		—		522		Exercise of stock options	38,681	—		—	—		658		—		—		—		658
Issuance of common stock - vesting of restricted stock units	Issuance of common stock - vesting of restricted stock units	455,349	2		—	—		—		—		—		—		2		Issuance of common stock - vesting of restricted stock units	514,319	3		—	—		—		—		—		—		3
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		14,013		—		—		—		14,013		Stock-based compensation expense	—	—		—	—		21,690		—		—		—		21,690
Shares withheld to satisfy tax withholdings	Shares withheld to satisfy tax withholdings	—	—		(147,041)	(9,541)		—		—		—		—		(9,541)		Shares withheld to satisfy tax withholdings	—	—		(170,992)	(12,570)		—		—		—		—		(12,570)
Share repurchase		—	—		(24,227)	(1,672)		—		—		—		—		(1,672)
Foreign currency translation loss, net of taxes		—	—		—	—		—		(624)		—		—		(624)
Other		—	—		—	—		—		—		—		118		118
Net income (loss)		—	—		—	—		—		—		14,946		(11)		14,935
Balance, March 31, 2021		68,315,098	$	341	(13,910,439)	$	(121,679)	$	1,072,839	$	(1,022)	$	(36,338)	$	(412)	$	913,729
Exercise of stock options		4,082	—		—	—		51		—		—		—		51
Issuance of common stock - vesting of restricted stock units		140,082	1		—	—		—		—		—		—		1
Stock-based compensation expense		—	—		—	—		17,161		—		—		—		17,161
Shares withheld to satisfy tax withholdings		—	—		(46,699)	(3,479)		—		—		—		—		(3,479)
Share repurchase		—	—		(6,261)	(425)		—		—		—		—		(425)
Capital contribution - non-controlling interest		—	—		—	—		(788)		—		—		811		23

Foreign currency translation loss, net of taxes	Foreign currency translation loss, net of taxes	—	—		—	—		—		(1,264)		—		—		(1,264)		Foreign currency translation loss, net of taxes	—	—		—	—		—		(1,478)		—		—		(1,478)
Other	Other	—	—		—	—		—		—		—		38		38		Other	—	—		—	—		(84)		—		—		102		18
Net loss	Net loss	—	—		—	—		—		—		(8,281)		(88)		(8,369)		Net loss	—	—		—	—		—		—		(13,859)		(849)		(14,708)
Balance, June 30, 2021		68,459,262	$	342	(13,963,399)	$	(125,583)	$	1,089,263	$	(2,286)	$	(44,619)	$	349	$	917,466
Balance, March 31, 2022																		Balance, March 31, 2022	69,432,152	$	347	(14,257,056)	$	(147,566)	$	1,153,892	$	(3,377)	$	(51,847)	$	1,706	$	953,155

~~-continued-~~

~~Envestnet, Inc.~~

~~Condensed Consolidated Statements of Stockholders' Equity (continued)~~

~~(in thousands, except share information)~~

~~(unaudited)~~

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, June 30, 2021 68,459,262 $ 342 (13,963,399) $ (125,583) $ 1,089,263 $ (2,286) $ (44,619) $ 349 $ 917,466
Exercise of stock options 12,954 — — — 347 — — — 347
Issuance of common stock - vesting of restricted stock units 163,999 1 — — — — — — 1
Stock-based compensation expense — — — — 18,760 — — — 18,760
Shares withheld to satisfy tax withholdings — — (54,912) (4,294) — — — — (4,294)
Capital contribution - non-controlling interest — — — — 661 — — 2,517 3,178
Foreign currency translation gain, net of taxes — — — — — 270 — — 270
Other — — — — (167) — — 76 (91)
Net income (loss) — — — — — — 11,740 (302) 11,438
Balance, September 30, 2021 68,636,215 $ 343 (14,018,311) $ (129,877) $ 1,108,864 $ (2,016) $ (32,879) $ 2,640 $ 947,075

~~See accompanying notes to unaudited Condensed Consolidated Financial Statements.~~

~~Envestnet, Inc.~~

~~Condensed Consolidated Statements of Stockholders' Equity (continued)~~

~~(in thousands, except share information)~~

~~(unaudited)~~


										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, 2019		66,320,706	$	331	(13,479,000)	$	(90,965)	$	1,037,141	$	(1,749)	$	(75,664)	$	(1,518)	$	867,576
Adoption of ASC 326, net of taxes		—	—		—	—		—		—		(1,141)		—		(1,141)
Balance, December 31, 2020																		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																		Adoption of ASU 2020-06, net of taxes of $7,641	—	—		—	—		(108,470)		—		28,628		—		(79,842)
Exercise of stock options	Exercise of stock options	357,974	2		—	—		3,406		—		—		—		3,408		Exercise of stock options	27,043	—		—	—		522		—		—		—		522
Issuance of common stock - vesting of restricted stock units	Issuance of common stock - vesting of restricted stock units	398,881	2		—	—		—		—		—		—		2		Issuance of common stock - vesting of restricted stock units	455,349	2		—	—		—		—		—		—		2
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		13,765		—		—		—		13,765		Stock-based compensation expense	—	—		—	—		14,013		—		—		—		14,013
Shares withheld to satisfy tax withholdings	Shares withheld to satisfy tax withholdings	—	—		(130,164)	(9,199)		—		—		—		—		(9,199)		Shares withheld to satisfy tax withholdings	—	—		(147,041)	(9,541)		—		—		—		—		(9,541)
Share repurchase																		Share repurchase	—	—		(24,227)	(1,672)		—		—		—		—		(1,672)
Foreign currency translation loss, net of taxes	Foreign currency translation loss, net of taxes	—	—		—	—		—		(3,024)		—		—		(3,024)		Foreign currency translation loss, net of taxes	—	—		—	—		—		(624)		—		—		(624)
Other																		Other	—	—		—	—		—		—		—		118		118
Net income (loss)	Net income (loss)	—	—		—	—		—		—		(7,336)		146		(7,190)		Net income (loss)	—	—		—	—		—		—		14,946		(11)		14,935
Balance, March 31, 2020		67,077,561	$	335	(13,609,164)	$	(100,164)	$	1,054,312	$	(4,773)	$	(84,141)	$	(1,372)	$	864,197
Exercise of stock options		184,475	1		—	—		3,274		—		—		—		3,275
Issuance of common stock - vesting of restricted stock units		134,207	1		—	—		—		—		—		—		1
Stock-based compensation expense		—	—		—	—		13,006		—		—		—		13,006
Shares withheld to satisfy tax withholdings		—	—		(43,697)	(3,617)		—		—		—		—		(3,617)
Transfer of non-controlling units		—	—		—	—		910		—		—		(139)		771
Foreign currency translation gain (loss)		—	—		—	—		—		1,575		—		—		1,575
Net loss		—	—		—	—		—		—		(4,924)		(547)		(5,471)
Balance, June 30, 2020		67,396,243	$	337	(13,652,861)	$	(103,781)	$	1,071,502	$	(3,198)	$	(89,065)	$	(2,058)	$	873,737
Exercise of stock options		44,672	—		—	—		1,370		—		—		—		1,370
Issuance of common stock - vesting of restricted stock units		144,041	—		—	—		—		—		—		—		—
Stock-based compensation expense		—	—		—	—		15,729		—		—		—		15,729
Shares withheld to satisfy tax withholdings		—	—		(47,196)	(3,467)		—		—		—		—		(3,467)
Capital contribution - non-controlling interest		—	—		—	—		(339)		—		—		339		—
Issuance of Convertible Notes due 2025, net of offering costs and taxes of $8,617		—	—		—	—		61,936		—		—		—		61,936
Foreign currency translation gain (loss), net of taxes		—	—		—	—		—		1,739		—		—		1,739
Net income (loss)		—	—		—	—		—		—		1,910		413		2,323
Balance, September 30, 2020		67,584,956	$	337	(13,700,057)	$	(107,248)	$	1,150,198	$	(1,459)	$	(87,155)	$	(1,306)	$	953,367
Balance, March 31, 2021																		Balance, March 31, 2021	68,315,098	$	341	(13,910,439)	$	(121,679)	$	1,072,839	$	(1,022)	$	(36,338)	$	(412)	$	913,729

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income (loss)	Net income (loss)	$	18,004	$	(10,338)	Net income (loss)	$	(14,708)	$	14,935
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	88,252		85,077		Depreciation and amortization	31,618		28,392
Provision for doubtful accounts	Provision for doubtful accounts	2,051		2,323		Provision for doubtful accounts	(1,747)		298
Deferred income taxes	Deferred income taxes	7,078		79		Deferred income taxes	(18,955)		(3,581)
Non-cash compensation expense	Non-cash compensation expense	50,307		45,721		Non-cash compensation expense	21,814		14,137
Non-cash interest expense	Non-cash interest expense	4,889		12,255		Non-cash interest expense	2,599		2,015
Accretion on contingent consideration and purchase liability	Accretion on contingent consideration and purchase liability	656		1,308		Accretion on contingent consideration and purchase liability	—		388
Payments of contingent consideration		(2,360)		—

Fair market value adjustment to contingent consideration liability	Fair market value adjustment to contingent consideration liability	(1,067)		(2,056)		Fair market value adjustment to contingent consideration liability	—		(140)
Fair market value adjustment to investment in private company		(758)		—
Gain on settlement of liability		(1,206)		—
Gain on acquisition of equity method investment		—		(4,230)
Loss allocation from equity method investments		5,553		4,280
Impairment of right of use assets		1,537		1,426

Loss allocations from equity method investments						Loss allocations from equity method investments	1,545		3,288

Other	Other	249		556		Other	(59)		165
Changes in operating assets and liabilities, net of acquisitions:
Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Fees receivable, net	Fees receivable, net	(38,030)		(10,825)		Fees receivable, net	8,661		473
Prepaid expenses and other current assets	Prepaid expenses and other current assets	569		(11,139)		Prepaid expenses and other current assets	(8,377)		1,756
Other non-current assets	Other non-current assets	4,854		(1,807)		Other non-current assets	(1,114)		3,093
Accrued expenses and other liabilities	Accrued expenses and other liabilities	26,637		3,393		Accrued expenses and other liabilities	(27,320)		(28,668)
Accounts payable	Accounts payable	4,122		12,084		Accounts payable	(432)		6,444
Deferred revenue	Deferred revenue	(1,065)		1,488		Deferred revenue	11,097		7,882
Other non-current liabilities	Other non-current liabilities	(298)		2,084		Other non-current liabilities	(1,361)		(1,068)
Net cash provided by operating activities	Net cash provided by operating activities	169,974		131,679		Net cash provided by operating activities	3,261		49,809

INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:
Purchases of property and equipment	Purchases of property and equipment	(15,779)		(8,824)		Purchases of property and equipment	(3,896)		(7,062)
Capitalization of internally developed software	Capitalization of internally developed software	(49,024)		(40,257)		Capitalization of internally developed software	(21,671)		(15,058)
Acquisition of proprietary technology						Acquisition of proprietary technology	(15,000)		(25,517)
Investments in private companies	Investments in private companies	(8,926)		(13,875)		Investments in private companies	(3,000)		(2,538)
Acquisition of proprietary technology		(25,517)		—
Acquisitions of businesses, net of cash acquired		(32,794)		(20,257)

Advance for technology solutions		(3,000)		—
Other						Other	(2,500)		—
Net cash used in investing activities	Net cash used in investing activities	(135,040)		(83,213)		Net cash used in investing activities	(46,067)		(50,175)

-continued-

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows (continued)

(in thousands)

(unaudited)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2025		—		517,500
Convertible Notes due 2025 issuance costs		—		(14,540)
Proceeds from borrowings on revolving credit facility		—		45,000
Payments on revolving credit facility		—		(305,000)
Capital contributions - non-controlling shareholders		3,201		—
Payments of deferred consideration on prior acquisitions		—		(1,879)
Payments of contingent consideration		(9,200)		—

Proceeds from exercise of stock options	Proceeds from exercise of stock options	920		8,053		Proceeds from exercise of stock options	658		522
Taxes paid in lieu of shares issued for stock-based compensation	Taxes paid in lieu of shares issued for stock-based compensation	(17,314)		(16,283)		Taxes paid in lieu of shares issued for stock-based compensation	(12,570)		(9,541)
Finance lease payments						Finance lease payments	(12,454)		—
Revolving credit facility issuance costs						Revolving credit facility issuance costs	(1,869)		—
Share repurchases	Share repurchases	(2,097)		—		Share repurchases	—		(1,672)
Payments of contingent consideration						Payments of contingent consideration	—		(1,000)
Other	Other	(666)		3		Other	3		(479)
Net cash provided by (used in) financing activities		(25,156)		232,854
Net cash used in financing activities						Net cash used in financing activities	(26,232)		(12,170)

EFFECT OF EXCHANGE RATE CHANGES ON CASH	EFFECT OF EXCHANGE RATE CHANGES ON CASH	(544)		(1,009)		EFFECT OF EXCHANGE RATE CHANGES ON CASH	(627)		(52)

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		9,234		280,311
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH						DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	(69,665)		(12,588)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	384,714		82,755		CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	429,428		384,714

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	393,948	$	363,066	CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)	$	359,763	$	372,126

Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	5,895	$	5,349	Supplemental disclosure of cash flow information - net cash paid during the period for income taxes	$	716	$	1,879
Supplemental disclosure of cash flow information - cash paid during the period for interest	Supplemental disclosure of cash flow information - cash paid during the period for interest	7,794		9,652		Supplemental disclosure of cash flow information - cash paid during the period for interest	2,254		2,200

Supplemental disclosure of non-cash operating, investing and financing activities:	Supplemental disclosure of non-cash operating, investing and financing activities:					Supplemental disclosure of non-cash operating, investing and financing activities:

Contingent consideration issued in acquisition of businesses		—		5,239
Purchase liabilities included in accrued expenses and other liabilities		—		632
Purchase liabilities included in other non-current liabilities		2,951		—

Fixed assets acquired through finance lease						Fixed assets acquired through finance lease	12,454		—
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	449		1,104		Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities	1,883		1,129
Internally developed software costs included in accrued expenses and other liabilities	Internally developed software costs included in accrued expenses and other liabilities	1,060		—		Internally developed software costs included in accrued expenses and other liabilities	178		—
Membership interest liabilities included in other non-current liabilities	Membership interest liabilities included in other non-current liabilities	373		3,221		Membership interest liabilities included in other non-current liabilities	124		124

Leasehold improvements funded by lease incentive	Leasehold improvements funded by lease incentive	164		1,766		Leasehold improvements funded by lease incentive	—		127
Assets obtained in exchange for lease liabilities		4,387		—
Transfer of non-controlling units		—		771

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

Envestnet, Inc. (“Envestnet”) through its subsidiaries (collectively, the “Company”) is transforming the way financial advice and ~~wellness~~insight are delivered. Its mission is to empower financial advisors and ~~financial~~ service providers with innovative technology, solutions and ~~intelligence to make~~intelligence. Envestnet has been a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ~~a reality for everyone. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet provides a unique~~ecosystem so that our clients can deliver an intelligent financial ~~network connecting technology, solutions and data, delivering better intelligence and enabling its customers~~life to ~~drive better outcomes.~~their clients.

Envestnet is organized around 2 primary, complementary business segments. Financial information about each business segment is contained in “Note ~~15—~~14—Segment Information” to the condensed consolidated financial statements.

2.Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of ~~September 30, 2021~~March 31, 2022 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, ~~2020~~2021 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of ~~September 30, 2021~~March 31, 2022 and the results of operations, equity, comprehensive income (loss) and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a functional currency other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the unaudited condensed consolidated balance sheets as accumulated other comprehensive income (loss) within stockholders' equity. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™, sometimes referred to as the codification or “ASC.” These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on February ~~26, 2021.~~25, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported within the condensed consolidated statements of cash flows:


		September 30,		September 30,			March 31,		March 31,
		2021		2020			2022		2021

		(in thousands)					(in thousands)
Cash and cash equivalents	Cash and cash equivalents	$	393,799	$	362,918	Cash and cash equivalents	$	359,614	$	371,977
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	149		—		Restricted cash included in prepaid expenses and other current assets	149		—
Restricted cash included in other non-current assets	Restricted cash included in other non-current assets	—		148		Restricted cash included in other non-current assets	—		149
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	393,948	$	363,066	Total cash, cash equivalents and restricted cash	$	359,763	$	372,126

~~Financial Impacts Related To COVID-19~~Russia and Ukraine Conflict

~~On March 11, 2020,~~In February 2022, military conflict escalated between Russia and Ukraine which continues as of the ~~World Health Organization declared~~date of this quarterly report. The uncertainty over the ~~outbreak~~extent and duration of ~~COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak~~the ongoing conflict continues to cause disruptions to businesses and markets ~~worldwide as the virus spreads.~~worldwide. The extent of the effect on the Company’s ~~operational and~~ financial performance will continue to depend on future developments, including the ~~duration, spread~~extent and ~~intensity~~duration of the ~~pandemic, and~~conflict, economic sanctions imposed, further governmental ~~regulatory~~ and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the overall financial effect of the ~~pandemic~~conflict at this time, as the ~~pandemic~~conflict continues, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. As of ~~September 30, 2021,~~March 31, 2022, these condensed consolidated financial statements do not reflect any adjustments as a result of the ~~pandemic.~~conflict.

Related Party Transactions

The Company has a ~~4.3%~~4.4% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. Revenues from the private services company totaled ~~$4.2~~$4.7 million and ~~$2.9~~$3.8 million in the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively. Revenues from the private services company totaled $11.9 million and $8.0 million in the nine months ended September 30, 2021 and 2020,~~ respectively. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company ~~had~~ recorded a net receivable of ~~$3.3~~$2.9 million and ~~$2.1~~$3.0 million, respectively, from the private services company.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements—In ~~December 2019,~~October 2021, the FASB issued ASU ~~2019-12, “Income Taxes~~2021-08, “Business Combinations (Topic ~~740): Simplifying the Accounting for Income Taxes.~~805).” This update ~~aims~~amends Topic 805 to ~~reduce complexity within~~add contract assets and contract liabilities to the ~~accounting for income taxes as part~~list of exceptions to the ~~simplification initiative.~~recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities in accordance with ASC 606. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, ~~2020. These changes became~~2022. Early adoption of the standard is permitted. The amendment is to be applied prospectively to business combinations occurring on or after the effective ~~for~~date of the ~~Company's fiscal year beginning~~amendment. The Company adopted this standard as of January 1, ~~2021. This standard will be applied prospectively.~~2022. Adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.” This update simplifies the accounting for certain convertible instruments by reducing the number of accounting models available for convertible debt instruments and revises Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies for a scope exception from derivative accounting. Under the new guidance, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. In addition, the new guidance requires the if-converted method to be applied for all convertible instruments. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2021. Early adoption of the standard is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption of the standard requires using either a modified retrospective or a full retrospective approach.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The Company has early adopted this standard as of January 1, 2021 using the modified retrospective approach. Adoption of this standard resulted in a decrease to accumulated deficit of $28.6 million (net of $0.9 million in taxes), a decrease to paid-in capital of $108.5 million (net of $6.7 million in taxes) and an increase to Convertible Notes of $87.5 million. Interest expense recognized in future periods is expected to be reduced as a result of accounting for the convertible debt instrument as a single liability measured at its amortized cost, with an expected decrease of approximately $22.1 million in 2021 as a result of the adoption. The adoption of ASU 2020-06 had no impact on the Company's consolidated statements of cash flows.

3.~~Acquisitions~~

~~Acquisition of Proprietary Technology~~

The Company previously owned approximately 29% of the outstanding units in a privately held company and accounted for it as an equity method investment. On March 11, 2021, the Company entered into an intellectual property purchase agreement with this privately held company to acquire all of the proprietary technology developed by the privately held company for approximately $35.5 million. Concurrent with the intellectual property purchase agreement, the Company also entered into a redemption agreement with the same privately held company to redeem the Company's previously held equity interest for approximately $10.0 million. The Company accounted for these 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.

~~Acquisition of Harvest~~

On April 7, 2021, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of March 31, 2021, between, among others, Harvest Savings & Wealth Technologies (“Harvest”), a Delaware corporation, and Bounty Merger Sub, Inc, a wholly-owned subsidiary of the Company (“Merger Sub”), the Company completed the merger of Harvest with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Harvest Acquisition”) and operating as a wholly-owned subsidiary of Envestnet. Harvest has been integrated into the Envestnet Wealth Solutions segment.

Harvest provides automated goals-based saving and wealth solutions tools to customers of banks, credit unions, trust companies, and other financial institutions. The acquisition optimizes the Company's API-based financial wellness ecosystem, and also helps strengthen the Company's foothold to enable embedded finance, which the Company sees as a key driver of the future of financial services.

In connection with the Harvest Acquisition, the Company paid estimated consideration of $32.8 million (of which $3.0 million is being held in escrow for 18 months after the closing date), net of cash acquired, subject to certain post-closing adjustments. The Company funded the acquisition with cash on hand.

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

Preliminary Estimate Measurement Period Adjustments Revised Estimate
(in thousands)
Tangible assets acquired, net of cash(1)
$ 2,032 $ 3,938 $ 5,970
Total liabilities assumed (596) 54 (542)
Identifiable intangible assets 9,500 — 9,500
Goodwill 21,858 (3,992) 17,866
Total net assets acquired $ 32,794 $ — $ 32,794

~~(1)~~ ~~The Company recorded measurement period adjustments of $4.0 million primarily due to the establishment of deferred tax assets in the three months ended September 30, 2021.~~

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily related to an increase in future revenues as a result of potential cross selling opportunities, as well as enhancements to the Company's existing technologies. The goodwill is not deductible for income tax purposes.

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

Preliminary Estimate
(in thousands) Estimated Useful Life in Years Amortization Method
Proprietary technology $ 6,900 6 Straight-line
Customer list 2,600 14 Accelerated
Total intangible assets acquired $ 9,500

The estimated fair values of certain of the assets and liabilities acquired are provisional and based on information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies that are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and goodwill balances and complete the acquisition accounting as soon as reasonably practicable but no later than April 7, 2022.

The results of Harvest’s operations are included in the condensed consolidated statements of operations beginning April 7, 2021 and were not considered material to the Company’s results of operations.

For the three and nine months ended September 30, 2021, the Company’s acquisition related costs were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2021.

4.~~Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets consisted of the following:~~

September 30, December 31,
2021 2020
(in thousands)
Prepaid technology $ 14,825 $ 13,165
Non-income tax receivables 7,031 6,571
Income tax prepayments and receivables 4,012 1,684
Prepaid insurance 3,035 1,777
Advance payroll taxes and benefits 1,449 6,429
Other 9,233 10,944
Total prepaid expenses and other current assets $ 39,585 $ 40,570

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Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

5.3.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	March 31,		December 31,
	2022		2021

	(in thousands)
Prepaid technology	$	22,227	$	15,415
Non-income tax receivables	5,986		7,013
Advisor Summit prepayments and deposits	4,856		1,057
Escrow for acquisition	2,951		2,951
Prepaid insurance	2,584		2,234
Loan to equity method investee	2,560		—
Other	12,324		14,036
Total prepaid expenses and other current assets	$	53,488	$	42,706

4.Property and Equipment, Net

Property and equipment, net consisted of the following:


			September 30,		December 31,				March 31,		December 31,
		Estimated Useful Life	2021		2020			Estimated Useful Life	2022		2021

			(in thousands)						(in thousands)
Cost:	Cost:						Cost:
Computer equipment and software	Computer equipment and software	3 years	$	72,415	$	72,443	Computer equipment and software	3 years	$	73,142	$	72,289
Leasehold improvements	Leasehold improvements	Shorter of the lease term or useful life of the asset	43,860		37,671		Leasehold improvements	Shorter of the lease term or useful life of the asset	43,970		43,544
Leased data servers							Leased data servers	3 years	13,044		590
Office furniture and fixtures	Office furniture and fixtures	3-7 years	12,243		11,249		Office furniture and fixtures	3-7 years	12,286		12,214
Office equipment and other	Office equipment and other	3-5 years	5,810		7,151		Office equipment and other	3-5 years	8,193		7,973
Building and building improvements	Building and building improvements	7-39 years	2,669		2,669		Building and building improvements	7-39 years	2,729		2,729
Land	Land	Not applicable	940		940		Land	Not applicable	940		940
			137,937		132,123				154,304		140,279
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization		(89,779)		(84,154)		Less: accumulated depreciation and amortization		(91,456)		(90,064)
Total property and equipment, net	Total property and equipment, net		$	48,158	$	47,969	Total property and equipment, net		$	62,848	$	50,215

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, the Company entered into an arrangement with a third party cloud service provider for the use of dedicated servers to migrate its infrastructure to the cloud. As the terms of the arrangement convey a finance lease under FASB Topic 842 - Leases (“ASC 842”), the Company accounts for those dedicated servers as leased assets when the lease term commences. The Company accounts for each lease and any non-lease components associated with that lease as a single lease component for all asset classes. The leased dedicated servers are presented as a component of property and equipment, net in the condensed consolidated balance sheets as of March 31, 2022. To take advantage of the favorable savings programs offered by the cloud service provider, the Company prepaid the lease payments and therefore does not have a lease liability recorded for the leased assets. Gross property and equipment under finance leases as of March 31, 2022 was $13.0 million with accumulated depreciation of $1.1 million. Finance lease activity as of and for the year ended December 31, 2021 was not material.

During the three months ended March 31, 2022 and 2021, the Company retired property and equipment that was no longer in service ~~for the Envestnet Wealth Solutions segment~~ with an historical ~~cost~~costs of ~~$1.8~~$4.0 million and ~~$9.6~~$3.1 million, respectively. ~~During the three and nine months ended September 30, 2021, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics~~Retirements within each segment ~~with an historical cost of $0.4 million and $1.0 million million, respectively.~~

During the three and nine months ended September 30, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $1.0 million and $5.5 million, respectively. During the three and nine months ended September 30, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $1.4 million and $2.1 million, respectively.were immaterial.

Gains and losses on asset retirements during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ were not material.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Depreciation and amortization expense was as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Depreciation and amortization expense $ 4,998 $ 5,341 $ 15,887 $ 16,021


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Depreciation and amortization expense			$	5,604	$	5,643

6.5.Internally Developed Software

Internally developed software, net consisted of the following:


			September 30,		December 31,				March 31,		December 31,
		Estimated Useful Life	2021		2020			Estimated Useful Life	2022		2021

			(in thousands)						(in thousands)
Internally developed software	Internally developed software	5 years	$	209,703	$	159,619	Internally developed software	5 years	$	247,229	$	225,380
Less: accumulated amortization	Less: accumulated amortization		(84,113)		(63,118)		Less: accumulated amortization		(100,215)		(91,721)
Internally developed software, net	Internally developed software, net		$	125,590	$	96,501	Internally developed software, net		$	147,014	$	133,659

Amortization expense was as follows:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Amortization expense			$	8,494	$	6,271

6.Intangible Assets, Net

Procurement of Technology Solutions

On June 21, 2021, the Company entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of $18.0 million, including an advance of $3.0 million. The Company closed the transaction and paid the remaining $15.0 million in February 2022. This proprietary technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an estimated useful life of five years. In addition, the agreement includes an earn-out payment of $10.0 million based upon the achievement of certain target metrics within five years after the date of the Company’s launch of the technology solutions. The parties have agreed to renegotiate the terms of the earn-out payment.

Intangible assets, net consisted of the following:


			March 31, 2022						December 31, 2021
			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
			Amount		Amortization		Amount		Amount		Amortization		Amount

			(in thousands)
Customer lists			$	590,080	$	(252,313)	$	337,767	$	590,080	$	(241,189)	$	348,891
Proprietary technologies			103,324		(48,168)		55,156		85,324		(43,004)		42,320
Trade names			33,700		(25,747)		7,953		33,700		(24,515)		9,185
Total intangible assets	$	727,104	$	(326,228)	$	400,876	$	709,104	$	(308,708)	$	400,396

There were no material retirements of intangible assets during the three months ended March 31, 2022 and 2021.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Amortization expense was as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Amortization expense $ 7,462 $ 5,100 $ 20,995 $ 13,042

7.~~Goodwill and Intangible Assets, Net~~


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Amortization expense			$	17,520	$	16,478

~~Changes in the carrying amount of goodwill were as follows:~~

Envestnet Wealth Solutions Envestnet Data & Analytics Total
(in thousands)
Balance at December 31, 2020 $ 603,350 $ 303,423 $ 906,773
Harvest Acquisition 17,866 — 17,866
Foreign exchange rates — (135) (135)
Balance at September 30, 2021 $ 621,216 $ 303,288 $ 924,504

~~Intangible assets, net consisted of the following:~~

September 30, 2021 December 31, 2020
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
(in thousands)
Customer lists $ 593,820 $ (233,477) $ 360,343 $ 591,520 $ (198,555) $ 392,965
Proprietary technologies 85,324 (38,439) 46,885 54,914 (26,949) 27,965
Trade names 33,700 (23,284) 10,416 33,700 (19,589) 14,111
Total intangible assets $ 712,844 $ (295,200) $ 417,644 $ 680,134 $ (245,093) $ 435,041

~~There were no material retirements of intangible assets during the three and nine months ended September 30, 2021 and 2020.~~

~~Amortization expense was as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Amortization expense $ 17,390 $ 18,510 $ 51,370 $ 56,014

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

8.7.Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following:

September 30, December 31,
2021 2020
(in thousands)
Accrued investment manager fees $ 88,963 $ 57,894
Accrued compensation and related taxes 80,549 71,039
Accrued professional services 8,453 9,240
Accrued technology 7,032 4,701
Non-income tax payables 4,615 8,398
Accrued purchase consideration 4,008 —
Other accrued expenses 6,586 7,276
Total accrued expenses and other liabilities $ 200,206 $ 158,548

In the fourth quarter of 2020, as part of an organizational realignment, the Company entered into separation agreements with several employees. In connection with this realignment, the Company recognized a net credit of $0.1 million of severance expense in the three months ended September 30, 2021. Total severance expense related to this program for the nine months ended September 30, 2021 was $5.1 million. The Company has approximately $1.6 million and $5.1 million in accrued compensation and related taxes associated with these separation agreements as of September 30, 2021 and December 31, 2020, respectively.


	March 31,		December 31,
	2022		2021

	(in thousands)
Accrued investment manager fees	$	100,566	$	95,858
Accrued compensation and related taxes	51,898		97,523
Income tax payables	19,147		—
Accrued professional services	5,620		7,746
Accrued technology	7,483		8,951
Non-income tax payables	4,154		4,907

Other accrued expenses	12,219		10,174
Total accrued expenses and other liabilities	$	201,087	$	225,159

9.8.Debt

The Company’s outstanding debt obligations as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:


		September 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021

		(in thousands)					(in thousands)
Revolving credit facility balance	Revolving credit facility balance	$	—	$	—	Revolving credit facility balance	$	—	$	—

Convertible Notes due 2023	Convertible Notes due 2023	$	345,000	$	345,000	Convertible Notes due 2023	$	345,000	$	345,000
Unamortized issuance costs on Convertible Notes due 2023	Unamortized issuance costs on Convertible Notes due 2023	(3,491)		(4,306)		Unamortized issuance costs on Convertible Notes due 2023	(2,463)		(2,979)
Unaccreted discount on Convertible Notes due 2023		—		(24,058)

Convertible Notes due 2023 carrying value	Convertible Notes due 2023 carrying value	$	341,509	$	316,636	Convertible Notes due 2023 carrying value	$	342,537	$	342,021

Convertible Notes due 2025	Convertible Notes due 2025	$	517,500	$	517,500	Convertible Notes due 2025	$	517,500	$	517,500
Unamortized issuance costs on Convertible Notes due 2025	Unamortized issuance costs on Convertible Notes due 2025	(11,376)		(11,731)		Unamortized issuance costs on Convertible Notes due 2025	(9,940)		(10,659)
Unaccreted discount on Convertible Notes due 2025		—		(65,902)

Convertible Notes due 2025 carrying value	Convertible Notes due 2025 carrying value	$	506,124	$	439,867	Convertible Notes due 2025 carrying value	$	507,560	$	506,841

~~Amended~~Third Credit Agreement

At September 30, 2021, the Company was not in compliance with a covenant in its revolving credit agreement (the “Amended Credit Agreement”) that limits the Company's ability to make investments in an aggregate amount not to exceed $25.0 million, unless specifically identified in the Amended Credit Agreement. The banks have waived this non-compliance. Furthermore, on October 29, 2021, the banks andOn February 4, 2022, the Company entered into a Third ~~Amendment to the~~ Amended and Restated Credit Agreement ~~whereby the investment threshold was increased from $25.0 million to $50.0 million.~~(the “Third Credit Agreement”) with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The ~~Company was in compliance with all other covenants in the Amended~~Third Credit Agreement asamends and restates, in its entirety, the Company's prior credit agreement. In connection with entering into the Third Credit Agreement, the Company capitalized an additional $1.9 million of ~~September 30, 2021.~~deferred financing charges to Other non-current assets on the condensed consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges to Other expense, net on the condensed consolidated statements of operations.

~~As of September 30, 2021,~~Pursuant to the Third Credit Agreement, the Banks have agreed to provide the Company ~~had all $500.0 million available to borrow under the~~with a revolving credit facility ~~subject to covenant compliance.~~

of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-facility for the issuances of letters of credit. As of March 31, 2022 and December 31, 2021, there were no amounts outstanding under the Revolving Credit Facility.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and the guarantors, subject to certain exclusions. Obligations under the Third 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 Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions and for working capital and general corporate purposes.

In the event the Company has borrowings under the Third Credit Agreement, at the Company's option, it will pay interest on these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin ranging from 1.25% to 2.75% per annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Credit Agreement. Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.

As of March 31, 2022, debt issuance costs related to the Third Credit Agreement are presented in prepaid expenses and other non-current assets in the condensed consolidated balance sheets which have outstanding amounts of $0.7 million and $2.7 million, respectively.

The Third Credit Agreement contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio, a minimum interest coverage ratio and a minimum liquidity covenant. The Company was in compliance with these financial covenants as of March 31, 2022.

As of March 31, 2022, the Company had all $500.0 million available to borrow under the revolving Credit Facility, subject to covenant compliance.

Convertible Notes due 2023

~~Upon adoption~~In May 2018, the Company issued $345.0 million of ~~ASU 2020-06, effective January~~Convertible Notes due 2023 that mature on June 1, ~~2021, the embedded conversion option, or equity component, is no longer separated from the host contract~~2023. The Convertible Notes due 2023 bear interest at a rate of 1.75% per annum payable semiannually in arrears on June 1 and recognized within additional paid-in capital and is instead now accounted for as a single liability measured at amortized cost within Long-term debt in the condensed consolidated balance sheets. Accordingly, asDecember 1 of ~~September 30, 2021, the~~each year. The Convertible Notes due 2023 are ~~presented at their gross proceeds~~general unsecured obligations, subordinated in right of ~~$345.0 million less unamortized debt issuance costs of $3.5 million with no future accretion of the original issue discount necessary.~~

~~In connection with the issuance of the Convertible Notes due 2023, the Company incurred $10.0 million of issuance costs in 2018, of which $8.6 million was originally allocated~~payment to the debt component and presented net in Long-term debt and $1.4 million was originally allocated to the equity component and presented within additional paid-in capital in the condensed consolidated balance sheets. Upon adoption of ASU 2020-06, effective January 1, 2021, the costs originally allocated to the equity component are reflected within Long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due 2023.Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2023 was approximately 2.4% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021. ~~The effective interest rate of the Convertible Notes due 2023 was approximately 6% for the three and nine months ended September 30, 2020.~~ The effective interest rate of the Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance ~~costs subsequent to adoption of ASU 2020-06. Prior to the adoption of ASU 2020-06, the effective interest rate calculation also included the amortization of the original issue discount.~~costs.

Convertible Notes due 2025

~~Upon adoption~~In August 2020, the Company issued $517.5 million of ~~ASU 2020-06, effective January 1, 2021, the embedded conversion option, or equity component, is no longer separated from the host contract~~Convertible Notes due 2025 that mature on August 15, 2025. The Convertible Notes due 2025 bear interest at a rate of 0.75% per annum payable semiannually in arrears on February 15 and recognized within additional paid-in capital and is instead now accounted for as a single liability measured at amortized cost within Long-term debt in the condensed consolidated balance sheets. Accordingly, asAugust 15 of ~~September 30, 2021, the~~each year. The Convertible Notes due 2025 are ~~presented at their gross proceeds~~general unsecured obligations, subordinated in right of ~~$517.5 million less unamortized debt issuance costs of $11.4 million with no future accretion of the original issue discount necessary.~~

~~In connection with the issuance of the Convertible Notes due 2025, the Company incurred a total of $14.5 million of issuance costs in 2020, of which $12.6 million was originally allocated~~payment to the debt component and presented net in Long-term debt and $1.9 million was originally allocated to the equity component and presented within additional paid-in capital in the condensed consolidated balance sheets. Upon adoption of ASU 2020-06, effective January 1, 2021, the costs originally allocated to the equity component are reflected within Long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due 2025.Company's obligations under its Credit Agreement.

The effective interest rate of the Convertible Notes due 2025 was approximately 1.3% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021. ~~The effective interest rate of the Convertible Notes due 2025 was approximately 4.0% for the three months ended September 30, 2020.~~ The effective interest rate of the Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance ~~costs subsequent to adoption of ASU 2020-06. Prior to the adoption of ASU 2020-06, the effective interest rate calculation also included the amortization of the original issue discount.~~costs.

~~See “Note 14—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income per share.~~

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Interest Expense

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
Coupon interest	Coupon interest	$	2,479	$	1,951	$	7,439	$	4,962	Coupon interest			$	2,480	$	2,479
Amortization of issuance costs	Amortization of issuance costs	1,443		922		4,295		2,186		Amortization of issuance costs			2,060		1,423
Undrawn and other fees	Undrawn and other fees	320		191		948		477		Undrawn and other fees			313		313
Interest on revolving credit facility		—		1,259		—		5,786
Accretion of debt discount		—		3,816		—		8,496

Total interest expense	Total interest expense	$	4,242	$	8,139	$	12,682	$	21,907	Total interest expense			$	4,853	$	4,215

For each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, total interest expense related to the Convertible Notes due 2023 and the Convertible Notes due 2025 (collectively, the "Convertible Notes") was $3.7 million ~~and $11.1 million, respectively,~~ with coupon interest expense of $2.5 million and ~~$7.4 million and the~~ amortization of debt discount and issuance costs of $1.2 ~~million and $3.7 million, respectively.~~

For the three and nine months ended September 30, 2020, total interest expense related to the Convertible Notes was $6.5 million and $15.0 million, respectively, with coupon interest expense of $2.0 million and $5.0 million and the amortization of debt discount and issuance costs of $4.5 million and $10.0 million, respectively.million.

~~10.~~9.Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, based on the three-tier fair value hierarchy, as defined in ASC 820, “Fair Value Measurements and Disclosures”:


		September 30, 2021									March 31, 2022
		Fair Value		Level I		Level II		Level III			Fair Value		Level I		Level II		Level III

		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	1,720	$	1,720	$	—	$	—	Money market funds	$	2,946	$	2,946	$	—	$	—
Investment in private company		1,508		—		1,508		—

Assets to fund deferred compensation liability	Assets to fund deferred compensation liability	10,753		—		—		10,753		Assets to fund deferred compensation liability	11,201		—		—		11,201
Total assets	Total assets	$	13,981	$	1,720	$	1,508	$	10,753	Total assets	$	14,147	$	2,946	$	—	$	11,201
Liabilities:	Liabilities:									Liabilities:
Contingent consideration	Contingent consideration	$	806	$	—	$	—	$	806	Contingent consideration	$	750	$	—	$	—	$	750
Deferred compensation liability	Deferred compensation liability	9,645		9,645		—		—		Deferred compensation liability	9,515		9,515		—		—
Total liabilities	Total liabilities	$	10,451	$	9,645	$	—	$	806	Total liabilities	$	10,265	$	9,515	$	—	$	750

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~


		December 31, 2020									December 31, 2021
		Fair Value		Level I		Level II		Level III			Fair Value		Level I		Level II		Level III

		(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	84,110	$	84,110	$	—	$	—	Money market funds	$	2,684	$	2,684	$	—	$	—
Assets to fund deferred compensation liability	Assets to fund deferred compensation liability	9,961		—		—		9,961		Assets to fund deferred compensation liability	11,140		—		—		11,140
Total assets	Total assets	$	94,071	$	84,110	$	—	$	9,961	Total assets	$	13,824	$	2,684	$	—	$	11,140
Liabilities:	Liabilities:									Liabilities:
Contingent consideration	Contingent consideration	$	12,559	$	—	$	—	$	12,559	Contingent consideration	$	743	$	—	$	—	$	743
Deferred compensation liability	Deferred compensation liability	8,720		8,720		—		—		Deferred compensation liability	10,418		10,418		—		—
Total liabilities	Total liabilities	$	21,279	$	8,720	$	—	$	12,559	Total liabilities	$	11,161	$	10,418	$	—	$	743

The Company assesses the 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 when changes in circumstances 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 ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

~~Fair Value~~

Table of ~~Investment in Private Company~~

Contents

~~The Company has an investment of $1.5 million in a privately held company that it does not have the ability~~Envestnet, Inc.

Notes to exercise significant influence. The Company elected the measurement alternative for this investment as it did not have a readily determinable fair value. The investment is included in other non-current assets on the condensed consolidated balance sheets and measured at cost, less impairment, adjusted by observable price changes. Any adjustments resulting from impairment or observable price changes in orderly transactions for identical or similar investment of the same issuer are recorded within other expense, net in the condensed consolidated statements of operations and are considered to be a Level II fair value measurement. During the nine months ended September 30, 2021, the Company recorded a $0.8 million adjustment to the carrying value of the investment, resulting from observable price changes.Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Contingent Consideration Liabilities

The fair value of the contingent consideration liabilities related to certain of the Company's 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. The significant inputs in the Company's Level III fair value measurement not supported by market activity included its assessments of expected future cash flows related to these acquisitions and their ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in accordance with the terms of their respective agreements.

The Company will continue to reassess the fair values of the contingent consideration liabilities at each reporting date until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

The ~~table below presents a reconciliation of the Company's~~Company had contingent consideration liabilities ~~which were measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from~~of $0.8 million and $0.7 million as of March 31, 2022 and December 31, ~~2020 to September 30, 2021:~~


	~~Fair Value of Contingent Consideration Liabilities~~
	~~(in thousands)~~
~~Balance at December 31, 2020~~	$	~~12,559~~
~~Fair market value adjustment on contingent consideration liability~~	~~(667)~~
~~Accretion on contingent consideration~~	~~474~~
~~Payments of contingent consideration~~	~~(11,560)~~
~~Balance at September 30, 2021~~	$	~~806~~

2021, respectively, which are recorded as a component of Accrued expenses and other liabilities on the condensed consolidated balance sheets.

Fair Value of Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund ~~deferred~~ the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, ~~2020~~2021 to ~~September 30, 2021:~~March 31, 2022:


	Fair Value of Assets to Fund Deferred Compensation Liability
	(in thousands)
Balance at December 31, ~~2020~~2021	$	~~9,961~~11,140
Contributions	~~215~~649
Fair value adjustments	~~577~~ (588)
Balance at ~~September 30, 2021~~March 31, 2022	$	~~10,753~~11,201

The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which are included in other non-current assets in the condensed consolidated balance sheets, increased due to funding of the plan ~~and gains~~despite net losses on the underlying investment vehicles. These ~~gains~~losses are recognized in the Company's earnings and included in general and administration expenses in the condensed consolidated statements of operations.

Fair Value of Debt Agreements

The Company considered ~~the~~its Convertible Notes ~~due 2023 and the Convertible Notes due 2025~~ to be Level II liabilities at ~~September 30, 2021~~March 31, 2022 and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on ~~September 30, 2021~~March 31, 2022 (See “Note 9—8—Debt”).

As of ~~September 30, 2021,~~March 31, 2022, the carrying value of the Convertible Notes due 2023 equaled ~~$341.5~~$342.5 million and represented the aggregate principal amount outstanding less the unamortized debt issuance costs. As of December 31, ~~2020,~~2021, the carrying value of the Convertible Notes due 2023 equaled ~~$316.6~~$342.0 million and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the estimated fair value of the Convertible Notes due 2023 was ~~$434.7~~$418.3 million and ~~$460.8~~$439.9 million, respectively.

As of ~~September 30, 2021,~~March 31, 2022, the carrying value of the Convertible Notes due 2025 equaled ~~$506.1~~$507.6 million and represented the aggregate principal amount outstanding less the unamortized debt issuance costs. As of December 31, ~~2020,~~2021, the carrying value of the Convertible Notes due 2025 equaled ~~$439.9~~$506.8 million and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the estimated fair value of the Convertible Notes due 2025 was ~~$523.0~~$505.9 million and ~~$540.8~~$526.1 million, respectively.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Other Financial Assets and Liabilities

The Company considered the recorded value of its 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 ~~September 30,~~March 31, 2022 and December 31, 2021 based upon the short-term nature of these assets and liabilities.

~~11.~~10.Revenues and Cost of Revenues

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by major source:

Three Months Ended September 30,
2021 2020
Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
(in thousands)
Revenues:
Asset-based $ 184,008 $ — $ 184,008 $ 137,744 $ — $ 137,744
Subscription-based 66,988 46,584 113,572 62,783 45,114 107,897
Total recurring revenues 250,996 46,584 297,580 200,527 45,114 245,641
Professional services and other revenues 3,738 1,735 5,473 3,767 3,151 6,918
Total revenues $ 254,734 $ 48,319 $ 303,053 $ 204,294 $ 48,265 $ 252,559

Nine Months Ended September 30,
2021 2020
Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
(in thousands)
Revenues:
Asset-based $ 513,458 $ — $ 513,458 $ 394,801 $ — $ 394,801
Subscription-based 197,663 138,242 335,905 184,516 132,911 317,427
Total recurring revenues 711,121 138,242 849,363 579,317 132,911 712,228
Professional services and other revenues 10,320 7,213 17,533 11,082 11,101 22,183
Total revenues $ 721,441 $ 145,455 $ 866,896 $ 590,399 $ 144,012 $ 734,411

~~One customer accounted for more than 10% of the Company’s total revenues:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Fidelity 17 % 15 % 17 % 15 %

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~One customer accounted for more than 10% of the Envestnet Wealth Solutions segment’s revenues:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Fidelity 21 % 18 % 20 % 18 %

~~No single customer accounted for more than 10% of the Envestnet Data & Analytics segment’s revenue for any period presented.~~


	Three Months Ended March 31,
	2022						2021
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated

	(in thousands)
Revenues:
Asset-based	$	202,717	$	—	$	202,717	$	159,375	$	—	$	159,375
Subscription-based	68,537		46,197		114,734		64,012		45,817		109,829
Total recurring revenues	271,254		46,197		317,451		223,387		45,817		269,204
Professional services and other revenues	2,314		1,598		3,912		3,023		2,878		5,901
Total revenues	$	273,568	$	47,795	$	321,363	$	226,410	$	48,695	$	275,105

The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
United States	United States	$	298,022	$	247,692	$	851,683	$	718,246	United States			$	316,729	$	270,072
International	International	5,031		4,867		15,213		16,165		International			4,634		5,033
Total revenues	Total revenues	$	303,053	$	252,559	$	866,896	$	734,411	Total revenues			$	321,363	$	275,105

Remaining Performance Obligations

The following table includes estimated revenue expected to be recognized in the future ~~related to performance obligations that are unsatisfied (or partially unsatisfied)~~ as of ~~September 30, 2021:~~

Years ending December 31, (in thousands)
Remainder of 2021 $ 72,598
2022 236,203
2023 150,088
2024 79,617
2025 42,978
Thereafter 22,606
Total $ 604,090
March 31, 2022:

~~Only fixed consideration from significant contracts with customers is included in the amounts presented above.~~


Years ending December 31,	(in thousands)
Remainder of 2022	$	201,257
2023	178,329
2024	102,504
2025	57,142
2026	29,564
Thereafter	6,878
Total	$	575,674

The remaining performance obligations disclosed above are not indicative of revenue for future periods.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Remaining performance obligations represent the transaction price allocated to unsatisfied or partially satisfied performance obligations. The disclosure includes estimates of variable consideration. The Company ~~has applied~~applies the practical expedients and exemption ~~and therefore does~~ not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is allocated entirely to a wholly unsatisfied performance obligations or to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.

Contract Balances

Total deferred revenue as of ~~September 30, 2021 decreased~~March 31, 2022 increased by ~~$1.0~~$11.1 million ~~during the nine months ended September 30,~~from December 31, 2021, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue will be recognized over the course of the next twelve months.

The amount of revenue recognized that was included in the opening deferred revenue balance was ~~$5.3~~$15.9 million and ~~$5.2~~$16.9 million for the three months ended ~~September 30,~~March 31, 2022 and 2021, and 2020, respectively. The amount of revenue recognized that was included in the opening deferred revenue balance was $31.6 million and $31.0 million for the nine months ended September 30, 2021 and 2020, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was ~~$11.1~~$11.6 million and ~~$10.8~~$11.8 million as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Amortization expense for the deferred sales incentive compensation was ~~$1.2 million and $0.9~~$1.1 million for the three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020, respectively. Amortization expense for the deferred sales incentive compensation was $3.3 million and $2.9 million for the nine months ended September 30, 2021 and 2020, respectively.~~2021. Deferred sales incentive compensation is included in other non-current assets on the condensed consolidated balance sheets and amortization expense is included in compensation and benefits expenses on the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the periods.

The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period would have been one year or less. These costs are included in compensation and benefits expenses in the condensed consolidated statements of operations.

Cost of Revenues

The following table summarizes cost of revenues by revenue category:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
Asset-based	Asset-based	$	102,298	$	71,133	$	281,829	$	201,600	Asset-based			$	117,428	$	86,190
Subscription-based	Subscription-based	7,355		7,291		20,986		20,375		Subscription-based			7,811		6,604
Professional services and other	Professional services and other	183		121		384		352		Professional services and other			43		75
Total cost of revenues	Total cost of revenues	$	109,836	$	78,545	$	303,199	$	222,327	Total cost of revenues			$	125,282	$	92,869

~~12.~~11.Stock-Based Compensation

The Company has stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) outstanding under the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (the “2019 Equity Plan”).

As ~~approved by the Company's shareholders at the Company's 2021 Annual Meeting~~ of Shareholders, the 2010 Plan was amended whereby the maximum number of shares of common stock that may be delivered under the 2010 Plan was increased from 8,925,000 to 12,375,000. As of September 30, 2021,March 31, 2022, the maximum number of common shares available for future issuance under the Company’s plans is ~~3,747,932.~~2,423,500.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
Stock-based compensation expense	Stock-based compensation expense	$	18,512	$	15,729	$	49,934	$	42,500	Stock-based compensation expense			$	21,690	$	14,013
Tax effect on stock-based compensation expense	Tax effect on stock-based compensation expense	(4,720)		(4,011)		(12,733)		(10,837)		Tax effect on stock-based compensation expense			(5,531)		(3,573)
Net effect on income	Net effect on income	$	13,792	$	11,718	$	37,201	$	31,663	Net effect on income			$	16,159	$	10,440

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

Stock Options

The Company ~~has~~did not ~~granted~~grant any stock options ~~since January 2019.~~in the three months ended March 31, 2021 or 2022. The following table summarizes option activity under the Company’s plans:


					Weighted-Average							Weighted-Average
			Weighted-		Remaining					Weighted-		Remaining
			Average		Contractual Life	Aggregate				Average		Contractual Life	Aggregate
		Options	Exercise Price		(Years)	Intrinsic Value			Options	Exercise Price		(Years)	Intrinsic Value
						(in thousands)							(in thousands)
Outstanding as of December 31, 2020		438,040	$	36.28	4.1	$	20,156
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	365,241	$	38.61	3.3	$	14,878

Exercised	Exercised	(44,079)	20.87					Exercised	(38,681)	17.02
Forfeited	Forfeited	(1,277)	49.02					Forfeited	(260)	74.83
Outstanding as of September 30, 2021		392,684	37.97		3.6	16,601
Outstanding as of March 31, 2022								Outstanding as of March 31, 2022	326,300	41.14		3.4	10,869

Options exercisable	Options exercisable	353,781	$	36.75	3.2	$	15,384	Options exercisable	321,779	$	40.66	3.3	$	10,869

Exercise prices of stock options outstanding as of ~~September 30, 2021~~March 31, 2022 range from ~~$10.40~~$15.34 to ~~$55.29.~~$74.83. At ~~September 30, 2021,~~March 31, 2022, there was an immaterial amount of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of ~~0.3~~1.3 years.

Restricted Stock Units

The Company has granted restricted stock units and performance-based stock units to employees that are unvested. Performance-based stock units vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based stock units provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from ~~50%~~0% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.

The following is a summary of the activity for unvested restricted stock units and performance stock units granted under the Company’s plans:


		RSUs			PSUs				RSUs			PSUs
		Number of Shares	Weighted- Average Grant Date Fair Value per Share		Number of Shares	Weighted- Average Grant Date Fair Value per Share			Number of Shares	Weighted- Average Grant Date Fair Value per Share		Number of Shares	Weighted- Average Grant Date Fair Value per Share
Outstanding as of December 31, 2020		1,345,347	$	70.56	302,797	$	72.50
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	1,507,424	$	71.50	359,184	$	73.64
Granted	Granted	1,140,358	70.43		119,699	69.66		Granted	1,266,891	74.76		75,025	82.96
Vested	Vested	(696,906)	69.58		(62,524)	61.53		Vested	(458,869)	69.91		(55,450)	67.46
Forfeited	Forfeited	(170,011)	70.57		(10,954)	78.97		Forfeited	(51,484)	72.04		(1,359)	75.67
Outstanding as of September 30, 2021		1,618,788	70.89		349,018	73.28
Outstanding as of March 31, 2022								Outstanding as of March 31, 2022	2,263,962	73.63		377,400	76.39

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

At ~~September 30, 2021,~~March 31, 2022, there was ~~$97.2~~$157.6 million of unrecognized stock-based compensation expense related to unvested restricted stock units, which the Company expects to recognize over a weighted-average period of ~~2.0~~2.3 years. At ~~September 30, 2021,~~March 31, 2022, there was ~~$11.2~~$16.2 million of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units, which the Company expects to recognize over a weighted-average period of 1.9 years.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~13.~~12. Income Taxes

The following table includes the Company’s income (loss) before income tax provision (benefit), income tax provision (benefit) and effective tax rate:


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,						September 30,							March 31,
		2021			2020			2021			2020						2022			2021

		(in thousands, except for effective tax rate)														(in thousands, except for effective tax rate)
Income (loss) before income tax provision (benefit)	Income (loss) before income tax provision (benefit)	$	10,584		$	2,820		$	27,078		$	(10,499)		Income (loss) before income tax provision (benefit)			$	(12,688)		$	9,347
Income tax provision (benefit)	Income tax provision (benefit)	(854)			497			9,074			(161)			Income tax provision (benefit)			2,020			(5,588)
Effective tax rate	Effective tax rate	(8.1)		%	17.6		%	33.5		%	1.5		%	Effective tax rate			(15.9)		%	(59.8)		%

~~Under ASC 740-270-25,~~For the ~~Company~~three months ended March 31, 2022, the Company's quarterly provision for income taxes is ~~required to report income tax expense~~calculated by applying a projected annual effective tax rate ~~(“AETR”~~("ETR"), calculated separately for the US and each foreign entity, to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate (“ETR”) for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the three and nine months ended September 30, 2021 and 2020, the Company’s ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.

For the three months ended September 30, 2021, the Company’s effective tax rate differed from the statutory rate primarily due to the increase in forecasted book income for the year, the decrease in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, and the windfall from stock-based compensation.

~~For the nine months ended September 30, 2021,~~March 31, 2022, the Company’s effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets ~~including~~which includes the ~~valuation allowance~~ impact of ~~the Harvest acquisition,~~IRC Section 174, permanent book-tax differences, ~~and~~ the impact of state and local taxes offset by federal and state research and development (“("R~~&D”~~&D") ~~credits.~~credits and the windfall from stock-based compensation.

For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the Company's effective tax rate differed from the statutory rate primarily due to the ~~change~~increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, permanent book-tax differences and the impact of state and local taxes ~~partially~~ offset by the permanent book tax differences, the windfall from stock-based compensation, the impact of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") related to net operating loss ("NOL") carryback, and federal and state R&D credits.

~~14.~~13.Net Income (Loss) Per Share

Basic net income (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted net income (loss) per share, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants, restricted stock awards and restricted stock units and convertible notes, if dilutive, using either the treasury method or if-converted method as appropriate.

Prior to January 1, 2021, the Company accounted for the effect of its convertible notes using the treasury stock method since they may be settled in cash, shares or a combination thereof at the Company's option. Pursuant to the adoption of ASU 2020-06 on January 1, 2021, the Company now accounts for the effect of its convertible notes on diluted net income per share using the if-converted method (See “Note 2—Basis of Presentation” and “Note 9—Debt”).

2620

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table provides the numerators and denominators used in computing basic and diluted net income (loss) per share attributable to Envestnet, Inc.:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands, except share and per share data)										(in thousands, except share and per share data)

Net income (loss) attributable to Envestnet, Inc. (a)	Net income (loss) attributable to Envestnet, Inc. (a)	$	11,740	$	1,910	$	18,405	$	(10,350)	Net income (loss) attributable to Envestnet, Inc. (a)			$	(13,859)	$	14,946

Interest on dilutive Convertible Notes due 2025, net of tax										Interest on dilutive Convertible Notes due 2025, net of tax			—		1,252
Net income (loss) attributable to Envestnet, Inc - Diluted (b)										Net income (loss) attributable to Envestnet, Inc - Diluted (b)			$	(13,859)	$	16,198

Weighted-average common shares outstanding:	Weighted-average common shares outstanding:									Weighted-average common shares outstanding:
Basic (b)		54,547,858		53,800,048		54,400,247		53,464,101
Basic (c)										Basic (c)			54,903,677		54,208,469
Effect of dilutive shares:	Effect of dilutive shares:									Effect of dilutive shares:
Options to purchase common stock	Options to purchase common stock	201,103		331,728		207,281		—		Options to purchase common stock			—		222,387
Unvested restricted stock units	Unvested restricted stock units	570,515		610,442		614,005		—		Unvested restricted stock units			—		562,606
Convertible Notes	Convertible Notes	—		730,267		—		—		Convertible Notes			—		4,848,044
Warrants	Warrants	69,151		86,498		66,439		—		Warrants			—		76,142
Diluted (c)		55,388,627		55,558,983		55,287,972		53,464,101
Diluted (d)										Diluted (d)			54,903,677		59,917,648

Net income (loss) per share attributable to Envestnet, Inc common stock:	Net income (loss) per share attributable to Envestnet, Inc common stock:									Net income (loss) per share attributable to Envestnet, Inc common stock:
Basic (a/b)		$	0.22	$	0.04	$	0.34	$	(0.19)
Diluted (a/c)		$	0.21	$	0.03	$	0.33	$	(0.19)
Basic (a/c)										Basic (a/c)			$	(0.25)	$	0.28
Diluted (b/d)										Diluted (b/d)			$	(0.25)	$	0.27

Securities that were anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share were as follows:


							Three Months Ended
		Three Months Ended		Nine Months Ended			March 31,
		September 30,		September 30,					2022	2021
		2021	2020	2021	2020			(in thousands)
Options to purchase common stock	Options to purchase common stock	—	—	—	556,252	Options to purchase common stock			326,300	—
Unvested RSUs and PSUs	Unvested RSUs and PSUs	—	—	—	1,766,715	Unvested RSUs and PSUs			2,641,362	—
Warrants	Warrants	—	—	—	470,000	Warrants			470,000	—
Convertible Notes	Convertible Notes	9,898,549	4,848,044	9,898,549	9,898,549	Convertible Notes			9,898,549	5,050,505
Total anti-dilutive securities	Total anti-dilutive securities	9,898,549	4,848,044	9,898,549	12,691,516	Total anti-dilutive securities			13,336,211	5,050,505

~~15.~~14.Segment Information

Business segments are generally organized around the Company's business services. The Company's business segments are:

•Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower financial advisors and ~~institutions.~~institutions to enable them to deliver an intelligent financial life to their clients.

•Envestnet Data & Analytics – a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~The following table presents a reconciliation from income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(in thousands)
Envestnet Wealth Solutions $ 34,386 $ 29,683 $ 101,042 $ 60,890
Envestnet Data & Analytics 1,265 (1,238) 3,896 (6,764)
Nonsegment operating expenses (21,516) (16,789) (63,057) (46,079)
Income from operations 14,135 11,656 41,881 8,047
Other expense, net (3,551) (8,836) (14,803) (18,546)
Consolidated income (loss) before income tax benefit 10,584 2,820 27,078 (10,499)
Income tax provision (benefit) (854) 497 9,074 (161)
Consolidated net income (loss) 11,438 2,323 18,004 (10,338)
Add: Net (income) loss attributable to non-controlling interest 302 (413) 401 (12)
Consolidated net income (loss) attributable to Envestnet, Inc. $ 11,740 $ 1,910 $ 18,405 $ (10,350)

The information in the ~~above table~~following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment operating expenses may include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses. Intersegment revenues were not material for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

~~A summary~~

Table of ~~consolidated total assets follows:~~Contents

September 30, December 31,
2021 2020
(in thousands)
Envestnet Wealth Solutions $ 1,704,660 $ 1,634,153
Envestnet Data & Analytics 512,685 510,137
Consolidated total assets $ 2,217,345 $ 2,144,290
Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

See “Note ~~11—~~10—Revenues and Cost of Revenues” for detail of revenues by segment.

The following table presents a reconciliation from income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Envestnet Wealth Solutions			$	25,269	$	34,197
Envestnet Data & Analytics			(5,587)		1,289
Nonsegment operating expenses			(26,403)		(18,671)
Income (loss) from operations			(6,721)		16,815
Other expense, net			(5,967)		(7,468)
Consolidated income (loss) before income tax benefit			(12,688)		9,347
Income tax provision (benefit)			2,020		(5,588)
Consolidated net income (loss)			(14,708)		14,935
Add: Net loss attributable to non-controlling interest			849		11
Consolidated net income (loss) attributable to Envestnet, Inc.			$	(13,859)	$	14,946

~~16.~~

A summary of consolidated total assets follows:


	March 31,		December 31,
	2022		2021

	(in thousands)
Envestnet Wealth Solutions	$	1,658,134	$	1,720,779
Envestnet Data & Analytics	541,636		520,403
Consolidated total assets	$	2,199,770	$	2,241,182

15.Geographical Information

The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:


		September 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021

		(in thousands)					(in thousands)
United States	United States	$	170,812	$	140,651	United States	$	206,961	$	180,680
India	India	2,603		2,970		India	2,681		2,923
Other	Other	333		849		Other	220		271
Total long-lived assets, net	Total long-lived assets, net	$	173,748	$	144,470	Total long-lived assets, net	$	209,862	$	183,874

See “Note ~~11—~~10—Revenues and Cost of Revenues” for detail of revenues by geographic area.

2822

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

~~17.~~16.Commitments ~~and Contingencies~~

Purchase Obligations and Indemnifications

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 associated with these arrangements in the condensed consolidated balance sheets.

The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.

~~Procurement of Technology Solutions~~

Legal Proceedings

The Company and its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps, LLC (“FinancialApps”) in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief.

On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.

On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps’s claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps’s claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery is underway.

The Company believes FinancialApps’s allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.

The Company and Yodlee were also named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption is Deborah

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK. Plaintiffs allege that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleges violations of certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present. The Company believes that it is not properly named as a defendant in the lawsuit and it further believes, along with Yodlee, that plaintiffs’ claims are without merit. On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The Court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the Court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. Discovery ~~has begun~~continues on the remaining state law claims against Yodlee. On October 9,8, 2021, Yodlee filed a motion for summary judgment, ~~which~~and is ~~currently scheduled~~awaiting a schedule for ~~a hearing in late January 2022.~~the completion of briefing on this motion. Yodlee will continue to vigorously defend the claims against it.

The Company’s subsidiary, Envestnet Asset Management, Inc. (“EAM”), has been named as a defendant in two putative class action lawsuits filed on December 28, 2020 and March 4, 2021, respectively, in the United States District Court for the Northern District of Alabama. The case captions are Drake v. BBVA USA Bancshares, Inc. et al., No. 2:20-CV-02076-ACA (“Drake”) and Ferguson v. BBVA Compass Bancshares, Inc. et al, No. 2:19-CV-01135-MHH (“Ferguson”). The material allegations of both cases are identical. The plaintiff alleges that EAM, acting as investment advisor to BBVA USA Bancshares, Inc.’s Compass SmartInvestor 401(k) Plan (the “SmartInvestor Plan”), along with BBVA and others, breached its fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with the selection and maintenance of the SmartInvestor Plan’s investment options. The plaintiff seeks unspecified damages on behalf of a class of SmartInvestor Plan participants from July 17, 2013 through December 28, 2020. On August 27, 2021, the Court granted EAM’s motion to dismiss the Drake lawsuit. On September 3, 2021, the Court granted EAM’s motion to dismiss the Ferguson lawsuit.

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal 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. For litigation 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 anany accrual for any claims as of ~~September 30, 2021.~~March 31, 2022. 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 the Company's results of operations or cash flow in a particular quarter or year.

~~Table of Contents~~

~~Envestnet, Inc.~~

~~Notes to Unaudited Condensed Consolidated Financial Statements (continued)~~

~~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. As of September 30, 2021 and December 31, 2020, the Company estimated a sales and use tax liability of $3.8 million and $6.6 million, respectively, related to revenues in multiple jurisdictions. This amount is included in accrued expenses and other liabilities in the condensed consolidated balance sheets.

As of September 30, 2021 and December 31, 2020, the Company also estimated a sales and use tax receivable of $2.8 million and $2.1 million, 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 in the condensed 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.~~

~~18.~~17.Subsequent Events

~~Investment in YieldX~~Procurement of Technology Solutions

On ~~October~~April 1, ~~2021,~~2022, the Company ~~acquired~~entered into a ~~6.8% ownership interest in YieldX Inc. ("YieldX"),~~purchase agreement with a ~~Delaware corporation,~~privately held company to acquire the technology solutions being developed by this privately held company for ~~cash consideration~~a purchase price of ~~$15.0~~$9.0 million, including an advance of $4.0 million. YieldX provides an end-to-end digital platform with smart workflows, artificial intelligence powered analytics and a reimagined user experience for financial professionals and investors in the fixed income markets. The Company elected the measurement alternative for this investment as it did not have a readily determinable fair value. The investment is measured at cost, less impairment, adjusted by observable price changes.

Office Closures

In April 2022, in response to changing needs and an increase in employees working remotely, the Company decided to close 3 offices in the United States. The Company is currently exploring alternative uses for these properties, including sublease options. As a result, the Company is currently unable to provide a reasonable estimate of the amount of costs it may write off in connection with this investment, the Company also entered into a commercial agreement with YieldX to integrate the products and solutions of YieldX into the Company’s platform offering. The consideration under the commercial agreement includes a warrant and quarterly cash payments subject to the satisfaction of certain performance targets.these closures.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.

This quarterly report on Form 10-Q for the quarter ended March 31, 2022 ("Quarterly Report") contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are based on our current expectations and projections about future events and are identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this ~~quarterly report~~Quarterly Report include, but are not limited to,

•a pandemic or health crisis, including the Coronavirus Disease 2019 (“COVID-19”) ~~pandemic,~~pandemic;

•the conflict between Russia and ~~its~~Ukraine including related sanctions, and their impact on the global economy and capital ~~markets, as well as our products, clients, vendors and employees, and our results of operations, the full extent of which may be unknown;~~markets;

•the concentration of our revenues from the delivery of our solutions and services to clients in the financial services industry;

•our reliance on a limited number of clients for a material portion of our revenue;

•the renegotiation of fees by our clients;

•changes in the estimates of fair value of reporting units or of long-lived assets;

•the amount of our debt and our ability to service our debt;

•limitations on our ability to access information from third parties or charges for accessing such information;

•the targeting of some of our sales efforts at large financial institutions and large ~~internet services~~financial technology ("FinTech") companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales;

•changes in investing patterns on the assets on which we derive revenue and the freedom of investors to redeem or withdraw investments generally at any time;

•the impact of fluctuations in market conditions and interest rates on the demand for our products and services and the value of assets under management or administration;

•our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients;

•risks associated with our international operations;

•the competitiveness of our solutions and services as compared to those of others;

•liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest;

•harm to our reputation;

•our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;

•our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner;

•the failure to protect our intellectual property rights;

•our ability to introduce new solutions and services and enhancements;

•our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal information and potential liabilities for data security breaches;

•the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations on how we operate our business and the negative effects of failure to comply with these requirements;

•regulatory compliance failures;

•failure by our customers to obtain proper permissions or waivers for our use of disclosure of information;

•adverse judicial or regulatory proceedings against us;

•failure of our solutions, services or systems, or those of third parties on which we rely, to work properly;

•potential liability for use of inaccurate information by third parties provided by us;

•the occurrence of a deemed “change of control”;

•the uncertainty of the application and interpretation of certain tax laws;

•issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our existing stockholders;

•general economic conditions, political and regulatory conditions;

•global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and

•management’s response to these factors.

In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this ~~quarterly report~~Quarterly Report and documents incorporated herein by reference are qualified -in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this ~~quarterly report~~Quarterly Report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

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 ~~quarterly report~~Quarterly Report are set forth in Part I, Item 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Form 10-K”); accordingly, investors should not place undue reliance upon our forward-looking statements. We undertake no obligation to update any of the forward-looking statements after the date of this report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

You should read this ~~quarterly report on Form 10-Q~~Quarterly Report and the ~~2020~~2021 Form 10-K completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.

The following discussion and analysis should also be read along with our condensed consolidated financial statements and the related notes included elsewhere in this ~~quarterly report~~Quarterly Report and the consolidated financial statements and related notes included in our ~~2020~~2021 Form 10-K. Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

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Overview

Envestnet, through its subsidiaries, is transforming the way financial advice and ~~wellness~~insight are delivered. Our mission is to empower financial advisors and ~~financial~~ service providers with innovative technology, solutions and ~~intelligence to make financial wellness a reality for everyone.~~intelligence. Envestnet has been a leader in helping transform wealth management, working towards our goal of ~~building~~expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to ~~improve the financial lives of millions of consumers.~~their clients ("Intelligent Financial Life").

More than ~~6,000~~6,500 companies, including 1716 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIAs”), and hundreds of ~~internet services~~FinTech companies, leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients.

Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive better outcomes.

Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters based in ~~Chicago, Illinois~~Berwyn, Pennsylvania as well as other locations throughout the United States, India and other ~~countries.~~international locations.

We also operate five registered investment advisers (“RIAs”) registered with the U.S. Securities and Exchange Commission (“SEC”). We believe that our business model results in a high degree of recurring and predictable financial results.

Recent Developments

~~Acquisition of Proprietary Technology~~

~~We previously owned approximately 29% of the outstanding units in a privately held company~~Russia and accounted for it as an equity method investment. On March 11, 2021, we entered into an intellectual property purchase agreement with this privately held company to acquire all of the proprietary technology developed by the privately held company for approximately $35.5 million. Concurrent with the intellectual property purchase agreement, we also entered into a redemption agreement with the same privately held company to redeem its previously held equity interest in the privately held company for approximately $10.0 million. We accounted for these 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.

~~Acquisition of Harvest~~

On April 7, 2021, we acquired Harvest Savings & Wealth Technologies (“Harvest”), a Delaware corporation (the “Harvest Acquisition”). Harvest provides automated goals-based saving tools and wealth solutions to banks, credit unions, trust companies, and other financial institutions. Harvest has been integrated into the Envestnet Wealth Solutions segment. The acquisition optimizes our API-based financial wellness ecosystem and also helps strengthen our foothold to enable embedded finance, which we see as a key driver of the future of financial services.Ukraine Conflict

In ~~connection~~February 2022, military conflict escalated between Russia and Ukraine which continues as of the date of this quarterly report. The uncertainty over the extent and duration of the ongoing conflict continues to cause disruptions to businesses and markets worldwide. The extent of the effect on our financial performance will continue to depend on future developments, including the extent and duration of the conflict, economic sanctions imposed, further governmental and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although we are unable to estimate the overall financial effect of the conflict at this time, as the conflict continues, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. As of March 31, 2022, these condensed consolidated financial statements do not reflect any adjustments as a result of the conflict.

Credit Agreement Amendment

On February 4, 2022, we entered into a Third Amended and Restated Credit Agreement (the “Third Credit Agreement”) with a group of banks. The Third Credit Agreement amends and restates, in its entirety, our prior Amended and Restated Credit Agreement, dated as of July 18, 2017, as amended (the “Prior Credit Agreement”).

The Third Credit Agreement amended certain provisions under the ~~Harvest Acquisition, we paid estimated consideration~~Prior Credit Agreement to, among other things, (i) extend the maturity of ~~$32.8 million (of which $3.0 million is being held in escrow for 18 months after~~loans and the ~~closing date), net~~revolving credit commitments, (ii) reduce the interest rate payable on the loans and (iii) increase capacity and flexibility under certain of ~~cash acquired,~~the negative covenants.

The Third Credit Agreement provides, subject to certain ~~post-closing adjustments. We funded the acquisition~~customary conditions, for a revolving credit facility (the “Credit Facility”), in an aggregate amount of $500.0 million, with ~~cash on hand.~~a $20.0 million sub-facility for letters of credit.

~~We recorded estimated goodwill of $17.9 million, which is not deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $9.5 million.~~ The ~~tangible assets acquired and liabilities assumed were not material.~~Credit Facility matures on February 4, 2027.

~~Organizational Realignment~~Outstanding loans under the Credit Facility accrue interest, at Envestnet’s option, at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.25% to 2.75% per annum, based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement. The undrawn portion of the commitments under the Credit Facility is subject to a commitment fee at a rate ranging from 0.25% to 0.30% per annum, based upon the total net leverage ratio as calculated pursuant to the Credit Agreement.

InThe obligations of Envestnet under the ~~fourth quarter~~Third Credit Agreement are guaranteed by substantially all of ~~2020, as part~~Envestnet’s domestic subsidiaries and are secured by a first-priority lien on substantially all of ~~an organizational realignment, we entered into separation agreements with several employees. In connection with this realignment, we recognized a net credit~~the personal property (other than intellectual property) of ~~$0.1 million of severance expense in~~Envestnet and the ~~three months ended September 30, 2021. Total severance expense related~~guarantors, subject to this program for the nine months ended September 30, 2021 was $5.1 million. As of September 30, 2021, we had approximately $1.6 million in accrued compensation and related taxes associated with these separation agreements.

certain exclusions.

3427

In connection with entering the Third Credit Agreement, we capitalized $1.9 million of new issuance costs and wrote off $0.6 million of existing deferred financing charges.

Accelerated Investment Plan

In February 2021, we announced that we would be accelerating our investment in our ecosystem, ~~whereby we will be:~~to fulfill our strategy of:

•~~Enhancing and streamlining our platforms to make it easier for our customers to work with us;~~Capturing more of the addressable market;

•~~Redefining the way data is used in an effort to create better intelligence, insight and guidance for advisors to better assist their clients;~~

•~~Improving~~Modernizing the digital ~~experience in a manner that we believe will empower advisors to offer their clients a platform to make impactful decisions in ways that they haven't experienced before;~~engagement marketplace; and

•Opening the ~~platform for expansion to more solutions providers and developers.~~platform.

~~These investments, which began~~We expect to incur an additional $35 to $40 million over the remainder of 2022 as we continue to invest in our ecosystem. The majority of these charges will be recorded to compensation and benefits expense in our condensed consolidated statement of operations. For the ~~second quarter of 2021 and will increase as the year progresses, are expected to approximate $30~~three months ended March 31, 2022, we recorded approximately $11 million of ~~additional operating expenses in 2021.~~compensation and benefit expense related to this plan.

~~Uncertainties Related to COVID-19~~Procurement of Technology Solutions

On ~~March 11, 2020,~~April 1, 2022, we entered into a purchase agreement with a privately held company to acquire the ~~World Health Organization declared~~technology solutions being developed by this privately held company for a purchase price of $9.0 million, including an advance of $4.0 million.

Office Closures

In April 2022, in response to changing needs and an increase in employees working remotely, we decided to close three offices in the ~~outbreak of COVID-19,~~United States. We are currently exploring alternative uses for these properties, including sublease options. As a ~~novel strain of Coronavirus,~~result, we are currently unable to provide a ~~global pandemic. This outbreak continues to cause disruptions to businesses and markets worldwide as the virus spreads. The extent~~reasonable estimate of the ~~effect on our operational and financial performance will continue to depend on future developments, including the duration, spread and intensity~~amount of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although we are unable to estimate the overall financial effect of the pandemic at this time, as the pandemic continues,costs it ~~could have a material adverse effect on our business, results of operations, financial condition and cash flows. As of September 30, 2021,~~may write off in connection with these ~~condensed consolidated financial statements do not reflect any adjustments as a result of the pandemic.~~closures.

Segments

Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in Part I, Item 1, “Note ~~15—~~14—Segment Information” to the condensed consolidated financial statements included in Item 1 of this Quarterly ~~Report on Form 10-Q.~~Report. Our business segments are as follows:

•Envestnet Data & Analytics – a leading data aggregation and data intelligence platform powering dynamic, cloud-based innovation for digital financial services.

Envestnet Wealth Solutions Segment

Envestnet Wealth Solutions empowers financial advisors at broker-dealers, banks, and RIAs with all the tools they require to deliver holistic wealth management to their end clients, enabling them to deliver an Intelligent Financial Life to their clients. In addition, the firm provides advisors with practice management support so that they can grow their practices and operate more efficiently. By ~~September 30, 2021,~~March 31, 2022, Envestnet’s platform assets grew to more than ~~$5.4~~$5.5 trillion in approximately 1718 million accounts overseen by more than ~~108,000~~106,000 advisors.

Services provided to advisors include: financial planning, risk assessment tools, investment strategies and solutions, asset allocation models, research, portfolio construction, proposal generation and paperwork preparation, model management and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi-custodian performance reporting and communication tools, plus data analytics. We have access to a wide range of leading third-party asset custodians.

We offer these solutions principally through the following product and services suites:

•Envestnet | Enterprise provides an end-to-end open architecture wealth management platform through which advisors can construct portfolios for clients. It begins with aggregated household data, which then leads to the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to more than 22,000 investment products. Envestnet | Enterprise also sells data aggregation and reporting, data analytics and digital advice capabilities to customers.

•Envestnet | Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high-end RIAs.

•Envestnet | MoneyGuide provides leading goals-based financial planning solutions to the financial services industry. The highly adaptable software helps financial advisors add significant value for their clients using best-in-class technology with enhanced integrations to generate financial plans.

•Envestnet | Retirement Solutions (“ERS”) offers a comprehensive suite of services for advisor-sold retirement plans. Leveraging integrated technology, ERS addresses the regulatory, data, and investment needs of retirement plans and delivers the information holistically.

•Envestnet | PMC®, or Portfolio Management Consultants (“PMC”) provides research and consulting services to assist advisors in creating investment solutions for their clients. These solutions include more than 4,900 vetted third party managed account products, multi-manager portfolios, and fund strategist portfolios, as well as ~~more than~~approximately 900 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.

Key Metrics

The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and investor accounts in the periods indicated:


		As of											As of
		September 30,		December 31,		March 31,		June 30,		September 30,			March 31,		June 30,		September 30,		December 31,		March 31,
		2020		2020		2021		2021		2021			2021		2021		2021		2021		2022(1)

		(in millions, except accounts and advisors data)											(in millions, except accounts and advisors data)
Platform Assets	Platform Assets											Platform Assets
Assets under Management (“AUM”)	Assets under Management (“AUM”)	$	228,905	$	263,043	$	286,039	$	315,422	$	327,279	Assets under Management (“AUM”)	$	286,039	$	315,422	$	327,279	$	362,038	$	361,251
Assets under Administration (“AUA”)	Assets under Administration (“AUA”)	375,860		405,365		408,858		426,416		431,040		Assets under Administration (“AUA”)	408,858		426,416		431,040		456,316		432,141
Total AUM/A	Total AUM/A	604,765		668,408		694,897		741,838		758,319		Total AUM/A	694,897		741,838		758,319		818,354		793,392
Subscription	Subscription	3,498,353		3,892,814		4,132,917		4,447,733		4,670,827		Subscription	4,132,917		4,447,733		4,670,827		4,901,662		4,736,537
Total Platform Assets	Total Platform Assets	$	4,103,118	$	4,561,222	$	4,827,814	$	5,189,571	$	5,429,146	Total Platform Assets	$	4,827,814	$	5,189,571	$	5,429,146	$	5,720,016	$	5,529,929
Platform Accounts	Platform Accounts											Platform Accounts
AUM	AUM	1,018,817		1,073,122		1,138,183		1,209,761		1,276,066		AUM	1,138,183		1,209,761		1,276,066		1,345,274		1,459,093
AUA	AUA	1,318,730		1,276,975		1,192,668		1,163,991		1,193,069		AUA	1,192,668		1,163,991		1,193,069		1,217,076		1,186,180
Total AUM/A	Total AUM/A	2,337,547		2,350,097		2,330,851		2,373,752		2,469,135		Total AUM/A	2,330,851		2,373,752		2,469,135		2,562,350		2,645,273
Subscription	Subscription	10,639,399		11,079,048		11,453,434		11,712,573		14,810,664		Subscription	11,453,434		11,712,573		14,810,664		14,986,531		15,151,569
Total Platform Accounts	Total Platform Accounts	12,976,946		13,429,145		13,784,285		14,086,325		17,279,799		Total Platform Accounts	13,784,285		14,086,325		17,279,799		17,548,881		17,796,842
Advisors	Advisors											Advisors
AUM/A	AUM/A	41,450		41,206		41,177		41,259		41,696		AUM/A	41,177		41,259		41,696		39,735		39,800
Subscription	Subscription	63,862		65,104		65,724		66,597		66,489		Subscription	65,724		66,597		66,489		68,808		67,168
Total Advisors	Total Advisors	105,312		106,310		106,901		107,856		108,185		Total Advisors	106,901		107,856		108,185		108,543		106,968

(1) Certain assets and accounts have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.

3629

The following ~~tables provide~~table provides 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:


		Asset Rollforward - Three Months Ended September 30, 2021												Asset Rollforward - Three Months Ended March 31, 2022
		As of		Gross				Net		Market		As of				As of		Gross				Net		Market				As of
		6/30/2021		Sales		Redemptions		Flows		Impact		9/30/2021				12/31/2021		Sales		Redemptions		Flows		Impact		Reclassification(1)		3/31/2022

		(in millions, except account data)												(in millions, except account data)
AUM	AUM	$	315,422	$	27,197	$	(12,703)	$	14,494	$	(2,637)	$	327,279		AUM	$	362,038	$	28,699	$	(15,967)	$	12,732	$	(22,240)	$	8,721	$	361,251
AUA	AUA	426,416		32,375		(22,274)		10,101		(5,477)		431,040			AUA	456,316		28,341		(19,912)		8,429		(23,883)		(8,721)		432,141
Total AUM/A	Total AUM/A	$	741,838	$	59,572	$	(34,977)	$	24,595	$	(8,114)	$	758,319		Total AUM/A	$	818,354	$	57,040	$	(35,879)	$	21,161	$	(46,123)	$	—	$	793,392
Fee-Based Accounts	Fee-Based Accounts	2,373,752						95,383				2,469,135			Fee-Based Accounts	2,562,350						82,923				—		2,645,273

(1) Certain assets have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.

The above AUM/A gross sales figures include ~~$6.1~~$9.1 billion in new client conversions. We onboarded an additional ~~$149.5~~$32.8 billion in subscription conversions during the three months ended ~~September 30,~~March 31, 2022 bringing total conversions for the three months ended ~~September 30,~~March 31, 2022 to ~~$155.6~~$41.9 billion.

Asset Rollforward - Nine Months Ended September 30, 2021
As of Gross Net Market Reclass to As of
12/31/2020 Sales Redemptions Flows Impact Subscription 9/30/2021
(in millions, except account data)
AUM $ 263,043 $ 82,952 $ (38,353) $ 44,599 $ 19,637 $ — $ 327,279
AUA 405,365 85,798 (68,994) 16,804 22,200 (13,329) 431,040
Total AUM/A $ 668,408 $ 168,750 $ (107,347) $ 61,403 $ 41,837 $ (13,329) $ 758,319
Fee-Based Accounts 2,350,097 227,018 (107,980) 2,469,135

The above AUM/A gross sales figures include $23.7 billion in new client conversions. We onboarded an additional $266.8 billion in subscription conversions during the nine months ended September 30, 2021 bringing total conversions for the nine months ended September 30, 2021 to $290.5 billion.

Asset and account figures in the “Reclass to Subscription” columns for the nine months ended September 30, 2021 represent enterprise customers whose billing arrangements in future periods are subscription-based, rather than asset-based. Such amounts are included in Subscription metrics at the end of the quarter in which the reclassification occurred, with no impact on total platform assets or accounts. 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, which has increased our subscription-based metrics.

Envestnet Data & Analytics Segment

Envestnet Data & Analytics is a leading data aggregation and data intelligence platform. As an artificial intelligence (“AI”) and data specialist, Envestnet Data & Analytics gathers, refines and aggregates a massive set of end-user permissioned transaction level data and combines them with financial applications, reports, market research analysis and application programming interfaces (“APIs”) for its customers.

~~Over 1,500~~Approximately 1,600 financial institutions, financial technology innovators and financial advisory firms, including 1513 of the 20 largest U.S. banks, subscribe to the Envestnet Data & Analytics platform to underpin personalized financial apps and services for ~~over 30~~approximately 31 million paid subscribers.

Envestnet Data & Analytics serves two main customer groups: financial institutions (“FI”) and financial technology innovators, which we refer to as Yodlee Interactive (“YI”) customers.

•The Financial Institutions group provides customers with secure access to open APIs, end-user facing applications powered by our platform and APIs (“FinApps”), and reports. Customers receive end-user permissioned transaction data elements that we aggregate and cleanse. Envestnet Data & Analytics also enables customers to develop their own applications through its open APIs, which deliver secure data, ~~money movement~~payments solutions, and other functionality. FinApps can be subscribed to individually or in combinations that include personal financial management, wealth management, credit card, payments and small-medium business solutions. They are targeted at the retail ~~financial,~~banking, wealth management, small business, credit card, lenders, and other

financial services sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. For example, Envestnet Yodlee Expense and Income Analysis FinApp helps consumers track their spending, and a Payroll FinApp from a third party helps small businesses process their payroll. The suite of reports is designed to supplement traditional credit reports by utilizing consumer permissioned aggregated data from over 17,000 sources, including banking, investment, loan and credit card information.spending.

•The Yodlee Interactive group enables customers to develop new applications and enhance existing solutions. These customers operate in a number of sub-vertical markets, including FinTech, wealth management, personal financial management, small business accounting, small business lending and authentication. They use the Envestnet ~~Data & Analytics~~Yodlee platform to build solutions that leverage our open APIs and provide access to a large end user base. In addition to aggregated transaction-level account data elements, we provide YI customers with secure access to account aggregation, account verification, ~~money movement~~ and ~~risk assessment tools~~enriched transaction data via our APIs. We play a critical role in transferring innovation from financial technology innovators to financial institutions. For example, YI customers use Envestnet Yodlee applications to provide ~~working capital to small businesses online;~~ personalized financial management, planning and advisory services; e-commerce payment solutions; ~~and~~ online accounting systems for small ~~businesses. We provide access to our solutions across multiple channels, including web, tablet~~businesses; and ~~mobile.~~other services.

Both FI and YI channels benefit customers by improving end-user satisfaction and retention, accelerating speed to market, creating technology savings and enhancing their data analytics solutions and market 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, Envestnet ~~Data & Analytics~~Yodlee solutions provide access to critical data ~~and payments~~ solutions, faster speed to market and enhanced distribution.

We believe that our brand ~~leadership,~~recognition, innovative technology and intellectual property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to grow.

Operational Highlights

Asset-based recurring revenues increased ~~34%~~27% from ~~$137.7~~$159.4 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$184.0~~$202.7 million in the three months ended ~~September 30, 2021.~~March 31, 2022. Subscription-based recurring revenues increased 5%4% from ~~$107.9~~$109.8 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$113.6~~$114.7 million in the three months ended ~~September 30, 2021.~~March 31, 2022. Total revenues, which also includes professional services and other revenues, increased ~~20%~~17% from ~~$252.6~~$275.1 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$303.1~~$321.4 million in the three months ended ~~September 30, 2021.~~March 31, 2022.

The Envestnet Wealth Solutions segment's total revenues increased ~~25%~~21% from ~~$204.3~~$226.4 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$254.7~~$273.6 million in the three months ended ~~September 30, 2021~~March 31, 2022 primarily due to an increase in asset-based revenues of ~~$46.3~~$43.3 million and an increase in subscription-based revenues of ~~$4.2~~$4.5 million. The Envestnet Data & Analytics segment's total revenues ~~remained flat as increases in subscription-based revenues were offset by decreases in professional services and other revenues.~~

~~Asset-based recurring revenues increased 30%~~decreased 2% from ~~$394.8~~$48.7 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$513.5~~$47.8 million in the ~~nine~~three months ended September 30, 2021. Subscription-based recurring revenues increased 6% from $317.4 million in the nine months ended September 30, 2020 to $335.9 million in the nine months ended September 30, 2021. Total revenues, which also includes professional services and other revenues, increased 18% from $734.4 million in the nine months ended September 30, 2020 to $866.9 million in the nine months ended September 30, 2021.

~~The Envestnet Wealth Solutions segment's total revenues increased 22% from $590.4 million in the nine months ended September 30, 2020 to $721.4 million in the nine months ended September 30, 2021~~March 31, 2022 primarily due to an increase in asset-based revenues of $118.7 million and an increase in subscription-based revenues of $13.1 million. The Envestnet Data & Analytics segment's total revenues increased 1% from $144.0 million in the nine months ended September 30, 2020 to $145.5 million in the nine months ended September 30, 2021 primarily due to an increase in subscription-based revenues of $5.3 million, partially offset by a decrease in professional services and other revenues of ~~$3.9~~$1.3 million, partially offset by an increase in subscription-based revenues of $0.4 million.

Net ~~income~~loss attributable to Envestnet, Inc. for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$11.7~~$13.9 million, or ~~$0.21~~$0.25 per diluted share, compared to net income attributable to Envestnet, Inc. of ~~$1.9~~$14.9 million, or ~~$0.03~~$0.27 per diluted share, for the three months ended ~~September 30, 2020.~~

Net income attributable to Envestnet, Inc. for the nine months ended September 30, 2021 was $18.4 million, or $0.33 per diluted share, compared to net loss attributable to Envestnet, Inc. of $10.4 million, or $0.19 per diluted share, for the nine months ended September 30, 2020.March 31, 2021.

Adjusted revenues for the three months ended ~~September 30, 2021~~March 31, 2022 were ~~$303.1~~$321.4 million, compared to adjusted revenues of ~~$252.7~~$275.2 million in the prior year period. Adjusted EBITDA for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$66.2~~$55.7 million, compared to adjusted EBITDA of ~~$67.6~~$68.3 million in the prior year period. Adjusted net income for the three months ended ~~September 30, 2021~~March 31, 2022 was ~~$39.9~~$31.0 million, or ~~$0.61~~$0.47 per diluted share, compared to adjusted net income of ~~$40.2~~$41.9 million, or ~~$0.72 per diluted share in the prior year period.~~

Adjusted revenues for the nine months ended September 30, 2021 were $867.1 million, compared to adjusted revenues of $735.0 million in the prior year period. Adjusted EBITDA for the nine months ended September 30, 2021 was $205.5 million, compared to adjusted EBITDA of $178.0 million in the prior year period. Adjusted net income for the nine months ended September 30, 2021 was $125.3 million, or $1.92 per diluted share, compared to adjusted net income of $103.2 million, or $1.88$0.64 per diluted share in the prior year period.

Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a discussion of our non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures.

Results of Operations


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,				Percent		September 30,				Percent			March 31,			Percent
		2021		2020		Change		2021		2020		Change				2022		2021		Change

		(in thousands)						(in thousands)							(in thousands)
Revenues:	Revenues:													Revenues:
Asset-based	Asset-based	$	184,008	$	137,744	34	%	$	513,458	$	394,801	30	%	Asset-based		$	202,717	$	159,375	27	%
Subscription-based	Subscription-based	113,572		107,897		5	%	335,905		317,427		6	%	Subscription-based		114,734		109,829		4	%
Total recurring revenues	Total recurring revenues	297,580		245,641		21	%	849,363		712,228		19	%	Total recurring revenues		317,451		269,204		18	%
Professional services and other revenues	Professional services and other revenues	5,473		6,918		(21)	%	17,533		22,183		(21)	%	Professional services and other revenues		3,912		5,901		(34)	%
Total revenues	Total revenues	303,053		252,559		20	%	866,896		734,411		18	%	Total revenues		321,363		275,105		17	%
Operating expenses:	Operating expenses:													Operating expenses:
Cost of revenues	Cost of revenues	109,836		78,545		40	%	303,199		222,327		36	%	Cost of revenues		125,282		92,869		35	%
Compensation and benefits	Compensation and benefits	109,839		94,428		16	%	316,101		300,423		5	%	Compensation and benefits		126,849		100,714		26	%
General and administration	General and administration	39,393		38,979		1	%	117,463		118,537		(1)	%	General and administration		44,335		36,315		22	%
Depreciation and amortization	Depreciation and amortization	29,850		28,951		3	%	88,252		85,077		4	%	Depreciation and amortization		31,618		28,392		11	%
Total operating expenses	Total operating expenses	288,918		240,903		20	%	825,015		726,364		14	%	Total operating expenses		328,084		258,290		27	%
Income from operations		14,135		11,656		21	%	41,881		8,047		*
Income (loss) from operations														Income (loss) from operations		(6,721)		16,815		(140)	%
Other expense, net	Other expense, net	(3,551)		(8,836)		(60)	%	(14,803)		(18,546)		(20)	%	Other expense, net		(5,967)		(7,468)		(20)	%
Income (loss) before income tax provision (benefit)	Income (loss) before income tax provision (benefit)	10,584		2,820		*		27,078		(10,499)		*		Income (loss) before income tax provision (benefit)		(12,688)		9,347		*
Income tax provision (benefit)	Income tax provision (benefit)	(854)		497		*		9,074		(161)		*		Income tax provision (benefit)		2,020		(5,588)		(136)	%
Net income (loss)	Net income (loss)	11,438		2,323		*		18,004		(10,338)		*		Net income (loss)		(14,708)		14,935		*
Add: Net (income) loss attributable to non-controlling interest		302		(413)		*		401		(12)		*
Add: Net loss attributable to non-controlling interest														Add: Net loss attributable to non-controlling interest		849		11		*
Net income (loss) attributable to Envestnet, Inc.	Net income (loss) attributable to Envestnet, Inc.	$	11,740	$	1,910	*		$	18,405	$	(10,350)	*		Net income (loss) attributable to Envestnet, Inc.		$	(13,859)	$	14,946	*

*Not meaningful.

Three months ended ~~September 30, 2021~~March 31, 2022 compared to three months ended ~~September 30, 2020~~March 31, 2021

Asset-based recurring revenues

Asset-based recurring revenues increased ~~34%~~27% from ~~$137.7~~$159.4 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$184.0~~$202.7 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the three months ended ~~September 30, 2021~~March 31, 2022 compared to the three months ended ~~September 30, 2020, the impact of new account growth and positive net flows of AUM/A in the third quarter of 2021.~~

~~The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 41,000 as of September 30, 2020 to approximately 42,000 as of September 30,~~March 31, 2021, ~~and the number of AUM/A client accounts increased from approximately 2.3 million as of September 30, 2020 to approximately 2.5 million as of September 30, 2021.~~

Asset-based recurring revenues increased from 55% of total revenue in the three months ended September 30, 2020 to 61% of total revenue in the three months ended September 30, 2021, primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.

~~Subscription-based recurring revenues~~

Subscription-based recurring revenue increased 5% from $107.9 million in the three months ended September 30, 2020 to $113.6 million in the three months ended September 30, 2021. This increase was due to an increase of~~$4.2 million in theEnvestnet Wealth Solutionssegment and an increase of $1.5 million in the Envestnet Data & Analytics segment which are primarily due to new and existing customer growth.~~

~~Professional services and other revenues~~

Professional services and other revenues decreased 21% from $6.9 million in the three months ended September 30, 2020 to $5.5 million in the three months ended September 30, 2021. The decrease was due to timing of the completion of customer projects and deployments.

~~Cost of revenues~~

Cost of revenues increased 40% from $78.5 million in the three months ended September 30, 2020 to $109.8 million in the three months ended September 30, 2021. The increase was primarily due to an increase in asset-based cost of revenues of $31.2 million, which correlates directly with the increase to asset-based recurring revenues during the period. As a percentage of total revenues, cost of revenues increased from 31% in the three months ended September 30, 2020 to 36% in three months ended September 30, 2021, primarily due to shifts in pricing and product mix for asset-based revenues.

~~Compensation and benefits~~

Compensation and benefits increased 16% from $94.4 million in the three months ended September 30, 2020 to $109.8 million in the three months ended September 30, 2021. The increase was primarily due to increases in salaries, benefits and related payroll taxes of $8.8 million, incentive compensation of $5.0 million, non-cash compensation expense of $3.0 million and other immaterial increases within compensation and benefits. These increases were partially offset by a decrease in severance expense of $2.5 million. As a percentage of total revenues, compensation and benefits decreased from 37% in the three months ended September 30, 2020 to 36% in the three months ended September 30, 2021.

~~General and administration~~

General and administration expenses increased 1% from $39.0 million in the three months ended September 30, 2020 to $39.4 million in the three months ended September 30, 2021. The increase was primarily due to increases in systems development costs of $3.6 million, marketing expense of $3.0 million and other immaterial increases within general and administration. These increases were partially offset by decreases in non-income tax expense of $2.6 million, restructuring charges and transaction costs of $2.4 million and miscellaneous general and administration expense of $1.5 million. As a percentage of total revenues, general and administration expenses decreased from 15% in the three months ended September 30, 2020 to 13% in the three months ended September 30, 2021.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 3% from $29.0 million in the three months ended September 30, 2020 to $29.9 million in the three months ended September 30, 2021. The increase was primarily due to an increase in internally developed software amortization expense of $2.4 million, partially offset by a decrease in intangible asset amortization expense of $1.1 million. As a percentage of total revenues, depreciation and amortization expense decreased from 11% in the three months ended September 30, 2020 to 10% in the three months ended September 30, 2021.

~~Other expense, net~~

Other expense, net decreased from $8.8 million in the three months ended September 30, 2020 to $3.6 million in the three months ended September 30, 2021. The decrease was primarily due to decreased non-cash interest expense charges of $3.3 million primarily due to the adoption of ASU 2020-06 on January 1, 2021, as well as a one-time gain of $1.2 million related to the settlement of a liability and a one-time gain of $1.0 million related to an insurance reimbursement in the three months ended September 30, 2021.

~~Income tax provision (benefit)~~

Three Months Ended
September 30,
2021 2020
(in thousands)
Income before income tax provision (benefit) $ 10,584 $ 2,820
Income tax provision (benefit) (854) 497
Effective tax rate (8.1) % 17.6 %

Under Accounting Standards Codification (“ASC”) 740-270-25, we are required to report income tax expense by applying a projected annual effective tax rate (“AETR”) to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate (“ETR”) for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the three months ended September 30, 2021 and 2020, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.

For the three months ended September 30, 2021, our effective tax rate differed from the statutory rate primarily due to the increase in forecasted book income for the year, the decrease in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, and the windfall from stock-based compensation.

For the three months ended September 30, 2020, our effective tax rate differed from the statutory rate primarily due to the decrease in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets and the impact of state and local taxes, partially offset by permanent book-tax differences, the windfall from stock-based compensation, the impact of the CARES Act related to NOL carryback, and federal and state R&D credits.

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020~~

~~Asset-based recurring revenues~~

Asset-based recurring revenues increased 30% from $394.8 million in the nine months ended September 30, 2020 to $513.5 million in the nine months ended September 30, 2021. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, the impact of new account growth and positive net flows of AUM/A in the first ~~nine~~three months of ~~2021.~~2022.

The number of financial advisors with asset-based recurring revenue on our technology platforms ~~increased~~decreased from approximately 41,000 as of ~~September 30, 2020~~March 31, 2021 to approximately ~~42,000~~40,000 as of ~~September 30, 2021,~~March 31, 2022, and the number of AUM/A client accounts increased from approximately 2.3 million as of ~~September 30, 2020~~March 31, 2021 to approximately ~~2.5~~2.6 million as of ~~September 30, 2021.~~March 31, 2022.

Asset-based recurring revenues increased from ~~54%~~58% of total revenue in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~59%~~63% of total revenue in the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2022, primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.

Subscription-based recurring revenues

Subscription-based recurring revenue increased 6%4% from ~~$317.4~~$109.8 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$335.9~~$114.7 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. This increase was primarily due to an increase of $~~13.1~~4.5 million in the Envestnet Wealth Solutions segment and an increase of ~~$5.3~~$0.4 million in the Envestnet Data & Analytics segment, both of which can be attributed to new and existing customer growth.

Professional services and other revenues

Professional services and other revenues decreased ~~21%~~34% from ~~$22.2~~$5.9 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$17.5~~$3.9 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The decrease was due to timing of the completion of customer projects and deployments.

~~Cost of revenues~~

Cost of revenues increased 36% from $222.3 million in the nine months ended September 30, 2020 to $303.2 million in the nine months ended September 30, 2021. The increase was primarily due to an increase in asset-based cost of revenues of $80.2 million, which directly correlates with the increase to asset-based recurring revenues during the period. As a percentage of total revenues, cost of revenues increased from 30% in the nine months ended September 30, 2020 to 35% in nine months ended September 30, 2021, primarily due to shifts in pricing and product mix for asset-based revenues.

~~Compensation and benefits~~

Compensation and benefits increased 5% from $300.4 million in the nine months ended September 30, 2020 to $316.1 million in the nine months ended September 30, 2021. The increase is comprised of increases in incentive compensation of $11.6 million, salaries, benefits and related payroll taxes of $9.2 million, non-cash compensation expense of $4.6 million and other immaterial increases within compensation and benefit accounts. These increases were partially offset by decreases in severance expense of $8.1 million and miscellaneous employee expenses of $3.1 million. The decrease in severance expense is primarily related to charges incurred in connection with the Early Retirement Program during the nine months ended September 30, 2020. As a percentage of total revenues, compensation and benefits decreased from 41% in the nine months ended September 30, 2020 to 36% in the nine months ended September 30, 2021, due to a higher revenue increase compared to a lower compensation and benefits increase.

~~General and administration~~

General and administration expenses decreased 1% from $118.5 million in the nine months ended September 30, 2020 to $117.5 million in the nine months ended September 30, 2021. The decrease was primarily due to decreases in restructuring charges and transaction costs of $5.4 million, miscellaneous general and administration expense of $4.1 million, non-income tax expense of $2.4 million, travel and entertainment expense of $2.3 million, communications, research and data services of $1.1 million and other immaterial decreases within general and administration expense. These decreases were partially offset by increases in systems development costs of $7.6 million, marketing expense of $4.0 million and professional and legal fees of $3.5 million. As a percentage of total revenues, general and administration expenses decreased from 16% in the nine months ended September 30, 2020 to 14% in the nine months ended September 30, 2021.

~~Depreciation and amortization~~

Depreciation and amortization expense increased 4% from $85.1 million in the nine months ended September 30, 2020 to $88.3 million in the nine months ended September 30, 2021. The increase was primarily due to an increase in internally developed software amortization expense of $8.0 million, partially offset by a decrease in intangible asset amortization expense of $4.6 million. As a percentage of total revenues, depreciation and amortization expense decreased from 12% in the nine months ended September 30, 2020 to 10% in the nine months ended September 30, 2021.

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~~Other expense, net~~

Other expense, net decreased from $18.5 million in the nine months ended September 30, 2020 to $14.8 million in the nine months ended September 30, 2021. The decrease was primarily due to reduced interest expense of $9.2 million in the current year period primarily due to the adoption of ASU 2020-06 on January 1, 2021 and no outstanding borrowings on our revolving credit facility during fiscal year 2021. During the nine months ended September 30, 2021, we recorded a one-time gain of $1.2 million related to the settlement of a liability and a one-time gain of $1.0 million related to an insurance reimbursement. During the nine months ended September 30, 2020, we recorded a one-time gain of $4.2 million related to the remeasurement of a previously held interest in an equity method investee that we acquired the remaining outstanding equity for and a one-time gain of $2.5 million related to a fair value adjustment upon the settlement of a former Chief Executive Officer's stock options during the nine months ended September 30, 2020.

~~Income tax provision (benefit)~~

Nine Months Ended
September 30,
2021 2020
(in thousands)
Income (loss) before income tax provision (benefit) $ 27,078 $ (10,499)
Income tax provision (benefit) 9,074 (161)
Effective tax rate 33.5 % 1.5 %

Under ASC 740-270-25, we are required to report income tax expense by applying a projected AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the nine months ended September 30, 2021 and 2020, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income.

For the nine months ended September 30, 2021, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.

For the nine months ended September 30, 2020, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets and the impact of state and local taxes, partially offset by permanent book-tax differences, the windfall from stock-based compensation, the impact of the CARES Act related to NOL carryback, and federal and state R&D credits.

~~Segment Results~~

Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in “Note 15—Segment Information” to the condensed consolidated financial statements.

~~The following table reconciles income from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:~~

~~Envestnet Wealth Solutions~~

~~The following table presents income from operations for the Envestnet Wealth Solutions segment:~~

Three Months Ended Nine Months Ended
September 30, Percent September 30, Percent
2021 2020 Change 2021 2020 Change
(in thousands) (in thousands)
Revenues:
Asset-based $ 184,008 $ 137,744 34 % $ 513,458 $ 394,801 30 %
Subscription-based 66,988 62,783 7 % 197,663 184,516 7 %
Total recurring revenues 250,996 200,527 25 % 711,121 579,317 23 %
Professional services and other revenues 3,738 3,767 (1) % 10,320 11,082 (7) %
Total revenues 254,734 204,294 25 % 721,441 590,399 22 %
Operating expenses:
Cost of revenues 103,742 72,435 43 % 285,887 205,338 39 %
Compensation and benefits 67,592 59,522 14 % 195,560 194,906 — %
General and administration 26,086 22,248 17 % 71,669 69,358 3 %
Depreciation and amortization 22,928 20,406 12 % 67,283 59,907 12 %
Total operating expenses 220,348 174,611 26 % 620,399 529,509 17 %
Income from operations
$ 34,386 $ 29,683 16 % $ 101,042 $ 60,890 66 %

~~Three months ended September 30, 2021 compared to three months ended September 30, 2020 for the Envestnet Wealth Solutions segment~~

~~Asset-based recurring revenues~~

Asset-based recurring revenues increased 34% from $137.7 million in the three months ended September 30, 2020 to $184.0 million in the three months ended September 30, 2021. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the three months ended September 30, 2021 compared to the three months ended September 30, 2020, the impact of new account growth and positive net flows of AUM/A in the third quarter of 2021.

The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 41,000 as of September 30, 2020 to approximately 42,000 as of September 30, 2021, and the number of AUM/A client accounts increased from approximately 2.3 million as of September 30, 2020 to approximately 2.5 million as of September 30, 2021.

As a percentage of segment revenues, asset-based recurring revenue increased from 67% of segment revenue in the three months ended September 30, 2020 to 72% of segment revenue in the three months ended September 30, 2021, primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.

~~Subscription-based recurring revenues~~

Subscription-based recurring revenues increased 7% from $62.8 million in the three months ended September 30, 2020 to $67.0 million in the three months ended September 30, 2021, primarily due to new and existing customer growth.

~~Professional services and other revenues~~

~~Professional services and other revenues decreased 1% from $3.8 million in the three months ended September 30, 2020 to $3.7 million in the three months ended September 30, 2021.~~

Cost of revenues

Cost of revenues increased ~~43%~~35% from ~~$72.4~~$92.9 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$103.7~~$125.3 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase in asset-based cost of revenues of $31.2 million, which directly correlates with the increase to asset-based recurring revenues during the period. As a percentage of total revenues, cost of revenues increased from ~~35%~~34% in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~41%~~39% in ~~the~~ three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to shifts in pricing and product mix for asset-based ~~revenues.~~revenues in the Envestnet Wealth Solutions segment and costs incurred to migrate the Company's hosting platforms to a third-party cloud server solution in the Envestnet Data & Analytics segment.

Compensation and benefits

~~Compensation and benefits~~ increased ~~14%~~26% from ~~$59.5~~$100.7 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$67.6~~$126.8 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase is ~~primarily due to~~comprised of increases in salaries, benefits and related payroll taxes of ~~$5.7~~$16.2 million, ~~incentive~~non-cash compensation expense of ~~$2.7~~$7.7 million, miscellaneous employee expenses of $1.1 million and ~~non-cash~~other immaterial increases within compensation and benefit accounts. These increases were partially offset by a decrease in severance expense of $1.8 million. As a percentage of total revenues, compensation and benefits increased from 37% in the three months ended March 31, 2021 to 39% in the three months ended March 31, 2022.

General and administration

General and administration expenses increased 22% from $36.3 million in the three months ended March 31, 2021 to $44.3 million in the three months ended March 31, 2022. The increase was primarily due to increases in software and maintenance charges of $3.5 million, miscellaneous general and administration expense of $1.8 million, marketing expense of $1.6 million, litigation and regulatory related expenses of $1.4 million and travel and entertainment expense of $1.0 million. These increases were partially offset by a decrease in severance expense of $2.2 million. As a percentage of total revenues, compensation and benefits decreased from 29% in the three months ended September 30, 2020 to 27% in the three months ended September 30, 2021.

~~General and administration~~

General and administration expenses increased 17% from $22.2 million in the three months ended September 30, 2020 to $26.1 million in the three months ended September 30, 2021. The increase was primarily due to increases in systems development costs of $3.0 million, marketing expense of $2.6 million, restructuring charges and transaction costs of $1.1 million and bad debt expense of ~~$0.9 million. These increases were partially offset by decreases in non-income tax expense of $2.8 million and miscellaneous general and administration expenses of $1.3~~$2.0 million. As a percentage of total revenues, general and administration expenses ~~decreased~~increased from ~~11%~~13% in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~10%~~14% in the three months ended ~~September 30, 2021.~~March 31, 2022.

Depreciation and amortization

Depreciation and amortization expense increased ~~12%~~11% from ~~$20.4~~$28.4 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$22.9~~$31.6 million in the three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to increases in internally developed software amortization expense of ~~$1.7~~$2.2 million and intangible asset amortization expense of ~~$0.8~~$1.0 million. As a percentage of total revenues, depreciation and amortization expense ~~decreased from~~remained consistent at 10% in the three months ended ~~September 30, 2020 to 9%~~March 31, 2021 and 2022.

Other expense, net

Other expense, net decreased from $7.5 million in the three months ended ~~September 30, 2021.~~March 31, 2021 to $6.0 million in the three months ended March 31, 2022. The decrease was primarily due to $1.7 million in additional losses recorded in 2021 related to equity investments.

Income tax provision (benefit)


	Three Months Ended
	March 31,
	2022			2021

	(in thousands, except effective tax rate)
Income (loss) before income tax provision (benefit)	$	(12,688)		$	9,347
Income tax provision (benefit)	2,020			(5,588)
Effective tax rate	(15.9)		%	(59.8)		%

For the three months ended March 31, 2022, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D") credits, and the windfall from stock-based compensation.

4533

~~Nine~~For the three months ended ~~September 30,~~March 31, 2021, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of U.S. deferred tax assets, permanent book-tax differences, and the impact of state and local taxes offset by the federal and state R&D credits.

Segment Results

Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in “Note 14—Segment Information” to the condensed consolidated financial statements.

The following table reconciles income from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:


	Three Months Ended
	March 31,
			2022		2021

		(in thousands)
Envestnet Wealth Solutions			$	25,269	$	34,197
Envestnet Data & Analytics			(5,587)		1,289
Nonsegment operating expenses			(26,403)		(18,671)
Income (loss) from operations			(6,721)		16,815
Other expense, net			(5,967)		(7,468)
Consolidated income (loss) before income tax benefit			(12,688)		9,347
Income tax provision (benefit)			2,020		(5,588)
Consolidated net income (loss)			(14,708)		14,935
Add: Net loss attributable to non-controlling interest			849		11
Consolidated net income (loss) attributable to Envestnet, Inc.			$	(13,859)	$	14,946

Envestnet Wealth Solutions

The following table presents income from operations for the Envestnet Wealth Solutions segment:


	Three Months Ended
	March 31,			Percent
		2022		2021		Change

	(in thousands)
Revenues:
Asset-based		$	202,717	$	159,375	27	%
Subscription-based		68,537		64,012		7	%
Total recurring revenues		271,254		223,387		21	%
Professional services and other revenues		2,314		3,023		(23)	%
Total revenues		273,568		226,410		21	%
Operating expenses:
Cost of revenues		118,808		87,432		36	%
Compensation and benefits		78,644		62,854		25	%
General and administration		27,360		20,699		32	%
Depreciation and amortization		23,487		21,228		11	%
Total operating expenses		248,299		192,213		29	%
Income from operations		$	25,269	$	34,197	(26)	%

Three months ended March 31, 2022 compared to ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 for the Envestnet Wealth Solutions segment

Asset-based recurring revenues

Asset-based recurring revenues increased ~~30%~~27% from ~~$394.8~~$159.4 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$513.5~~$202.7 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 compared to the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, due to the impact of new account growth and positive net flows of AUM/A in the first ~~nine~~three months of ~~2021.~~2022.

As a percentage of segment revenues, asset-based recurring revenue increased from ~~67%~~70% of segment revenue in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~71%~~74% of segment revenue in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.

Subscription-based recurring revenues

Subscription-based recurring revenues increased 7% from ~~$184.5~~$64.0 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$197.7~~$68.5 million in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to new and existing customer ~~growth along with additional revenue from existing customers switching from an asset-based pricing model to a subscription-based pricing model.~~growth.

Professional services and other revenues

Professional services and other revenues decreased 7%23% from ~~$11.1~~$3.0 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$10.3~~$2.3 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The decrease was primarily due to timing of the completion of customer projects and deployments.

Cost of revenues

Cost of revenues increased ~~39%~~36% from ~~$205.3~~$87.4 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$285.9~~$118.8 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase in asset-based cost of revenues of ~~$80.2~~$31.2 million, which directly correlates with the increase to asset-based recurring revenues during the period. As a percentage of segment revenues, cost of revenues increased from ~~35%~~39% in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~40%~~43% in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to shifts in pricing and product mix for asset-based revenues.

Compensation and benefits

Compensation and benefits increased from ~~$194.9~~$62.9 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$195.6~~$78.6 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase is primarily due to increases in ~~incentive compensation of $6.6 million,~~ salaries, benefits and related payroll taxes of ~~$4.9 million.~~$11.5 million, non-cash compensation expense of $3.5 million and other immaterial increases within compensation and benefit accounts. These increases are partially offset by a decrease in severance expense of ~~$10.5~~$1.7 million. ~~The decrease in severance expense is primarily related to charges in connection with the Early Retirement Program during the nine months ended September 30, 2020.~~ As a percentage of segment revenues, compensation and benefits ~~decreased~~increased from ~~33%~~28% in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~27%~~29% in the ~~nine~~three months ended ~~September 30, 2021, primarily due to a higher revenue increase compared to a lower compensation and benefits increase.~~March 31, 2022.

General and administration

General and administration expenses increased 3%32% from ~~$69.4~~$20.7 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$71.7~~$27.4 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to increases in ~~systems development costs~~software and maintenance charges of ~~$6.0 million, professional and legal fees of $2.9~~$3.4 million, marketing expense of ~~$2.4~~$1.6 million and ~~occupancy costs of $1.0 million. These increases were partially offset by decreases in~~ miscellaneous general and administration expenses of ~~$4.2 million, non-income tax expense of $2.9 million, travel and entertainment expenses of $1.7 million and~~

~~various other immaterial decreases.~~$1.6 million. As a percentage of segment revenues, general and administration expenses ~~decreased~~increased from ~~12%~~9% in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to 10% in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

Depreciation and amortization

Depreciation and amortization expense increased ~~12%~~11% from ~~$59.9~~$21.2 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$67.3~~$23.5 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The increase was primarily due to an increase in internally developed software amortization expense of ~~$6.0 million.~~$1.3 million and other immaterial increases within depreciation and amortization accounts. As a percentage of segment revenues, depreciation and amortization expense ~~decreased from 10% in the nine months ended September 30, 2020 to~~remained consistent at 9% in the ~~nine~~ three

months ended ~~September 30, 2021.~~March 31, 2021 and 2022.

Envestnet Data & Analytics

The following table presents income (loss) from operations for the Envestnet Data & Analytics segment:


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,				Percent		September 30,				Percent			March 31,			Percent
		2021		2020		Change		2021		2020		Change				2022		2021		Change

		(in thousands)						(in thousands)							(in thousands)
Revenues:	Revenues:													Revenues:
Subscription-based	Subscription-based	$	46,584	$	45,114	3	%	$	138,242	$	132,911	4	%	Subscription-based		$	46,197	$	45,817	1	%
Professional services and other revenues	Professional services and other revenues	1,735		3,151		(45)	%	7,213		11,101		(35)	%	Professional services and other revenues		1,598		2,878		(44)	%
Total revenues	Total revenues	48,319		48,265		—	%	145,455		144,012		1	%	Total revenues		47,795		48,695		(2)	%
Operating expenses:	Operating expenses:													Operating expenses:
Cost of revenues	Cost of revenues	6,094		6,110		—	%	17,312		16,989		2	%	Cost of revenues		6,474		5,437		19	%
Compensation and benefits	Compensation and benefits	26,468		26,540		—	%	77,765		82,455		(6)	%	Compensation and benefits		30,166		26,289		15	%
General and administration	General and administration	7,570		8,308		(9)	%	25,513		26,162		(2)	%	General and administration		8,611		8,516		1	%
Depreciation and amortization	Depreciation and amortization	6,922		8,545		(19)	%	20,969		25,170		(17)	%	Depreciation and amortization		8,131		7,164		13	%
Total operating expenses	Total operating expenses	47,054		49,503		(5)	%	141,559		150,776		(6)	%	Total operating expenses		53,382		47,406		13	%
Income (loss) from operations	Income (loss) from operations	$	1,265	$	(1,238)	*		$	3,896	$	(6,764)	*		Income (loss) from operations		$	(5,587)	$	1,289	*

*Not meaningful.

Three months ended ~~September 30, 2021~~March 31, 2022 compared to three months ended ~~September 30, 2020~~March 31, 2021 for the Envestnet Data & Analytics segment

Subscription-based recurring revenues

Subscription-based recurring revenues increased 3%1% from ~~$45.1~~$45.8 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$46.6~~$46.2 million in the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to increases in revenue from new and existing customers.

Professional services and other revenues

Professional services and other revenues decreased ~~45%~~44% from ~~$3.2~~$2.9 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$1.7~~$1.6 million in the three months ended ~~September 30, 2021 primarily due to the timing of the completion of customer projects and deployments.~~

~~Cost of revenues~~

Cost of revenues remained consistent at $6.1 million in the three months ended September 30, 2020 and 2021. As a percentage of segment revenues, cost of revenues remained consistent at 13% in the three months ended September 30, 2020 and 2021.

~~Compensation and benefits~~

Compensation and benefits remained consistent at $26.5 million in the three months ended September 30, 2020 and 2021. As a percentage of segment revenues, compensation and benefits remained consistent at 55% in the three months ended September 30, 2020 and 2021.

~~General and administration~~

General and administration expenses decreased 9% from $8.3 million in the three months ended September 30, 2020 to $7.6 million in the three months ended September 30, 2021 as decreases from a fair market value adjustment to an outstanding contingent consideration liability and lower litigation and regulatory costs were partially offset by increases in systems development costs. As a percentage of segment revenues, general and administration expenses decreased from 17% in the three months ended September 30, 2020 to 16% in the three months ended September 30, 2021.

~~Depreciation and amortization~~

Depreciation and amortization expense decreased 19% from $8.5 million in the three months ended September 30, 2020 to $6.9 million in the three months ended September 30, 2021. The decrease is primarily due to a decrease in intangible asset amortization expense of $1.9 million, partially offset by an increase in internally developed software amortization expense of $0.6 million. As a percentage of segment revenues, depreciation and amortization expense decreased from 18% in the three months ended September 30, 2020 to 14% in the three months ended September 30, 2021. The decrease in depreciation and amortization as a percentage of segment revenues is primarily driven by a technology intangible asset becoming fully amortized in the fourth quarter of 2020.

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020 for the Envestnet Data & Analytics segment~~

~~Subscription-based recurring revenues~~

Subscription-based recurring revenues increased 4% from $132.9 million in the nine months ended September 30, 2020 to $138.2 million in the nine months ended September 30, 2021, primarily due to increases in revenue from new and existing customers.

~~Professional services and other revenues~~

~~Professional services and other revenues decreased35% from $11.1 million in the nine months ended September 30, 2020 to $7.2 million in the nine months ended September 30, 2021~~March 31, 2022 primarily due to the timing of the completion of customer projects and deployments.

Cost of revenues

Cost of revenues increased 2%19% from ~~$17.0~~$5.4 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$17.3~~$6.5 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. As a percentage of segment revenues, cost of revenues ~~remained consistent at 12%~~increased from 11% in the ~~nine~~three months ended ~~September 30, 2020 and 2021.~~March 31, 2021 to 14% in the three months ended March 31, 2022. The increase in cost of revenues as a percentage of segment revenues is primarily driven by costs incurred to migrate the Company's hosting platforms to a third-party cloud server solution.

Compensation and benefits

Compensation and benefits ~~decreased 6%~~increased 15% from ~~$82.5~~$26.3 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$77.8~~$30.2 million in the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to ~~decreases~~an increase in salaries, benefits, and related payroll taxes of ~~$3.5 million, non-cash compensation expense of $2.0~~$2.4 million and ~~miscellaneous employee expenses of $1.9 million. These decreases were partially offset by~~other immaterial increases ~~in incentive~~within compensation ~~of $1.3 million~~ and ~~severance expense of $1.0 million.~~benefit accounts. As a percentage of segment revenues, compensation and benefits ~~decreased~~increased from ~~57%~~54% in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~53%~~63% in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase in compensation and benefits as a percentage of ~~total~~segment revenues is primarily driven by ~~a decrease~~an increase in ~~overall compensation and benefits costs as a result of lower~~ headcount in the current ~~year, partially offset by an increase in revenues for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.~~year.

4836

General and administration

General and administration expenses ~~decreased 2%~~increased 1% from ~~$26.2~~$8.5 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$25.5~~$8.6 million in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 as ~~decreases~~an increase in ~~occupancy costs~~litigation and regulatory related expense of ~~$1.6~~$1.4 million ~~travel and entertainment expenses of $0.7 million and various other immaterial decreases within general and administration were primarily~~was partially offset by ~~increases~~a decrease in ~~marketing expenses~~bad debt expense of ~~$1.5 million and systems development costs of $1.4~~$1.1 million. As a percentage of segment revenues, general and administration expenses ~~remained consistent at~~increased from 17% in the three months ended March 31, 2021 to 18% in the ~~nine~~three months ended ~~September 30, 2020 and 2021.~~March 31, 2022.

Depreciation and amortization

Depreciation and amortization expense ~~decreased 17%~~increased 13% from ~~$25.2~~$7.2 million in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 to ~~$21.0~~$8.1 million in the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase is primarily due to ~~a decrease in intangible asset amortization expense of $5.7 million, partially offset by~~ an increase in internally developed software amortization ~~expense of $1.9 million.~~expense. As a percentage of segment revenues, depreciation and amortization expense ~~decreased~~increased from 15% in the three months ended March 31, 2021 to 17% in ~~the nine~~three months ended September 30, 2020 to 14% in the nine months ended September 30, 2021. The decrease in depreciation and amortization as a percentage of segment revenues is primarily driven by a technology intangible asset becoming fully amortized in the fourth quarter of 2020.March 31, 2022.

Nonsegment

The following table presents nonsegment operating expenses:


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,				Percent		September 30,				Percent			March 31,			Percent
		2021		2020		Change		2021		2020		Change				2022		2021		Change

		(in thousands)						(in thousands)							(in thousands)
Operating expenses:	Operating expenses:													Operating expenses:
Compensation and benefits	Compensation and benefits	$	15,779	$	8,366	89	%	$	42,776	$	23,062	85	%	Compensation and benefits		$	18,039	$	11,571	56	%
General and administration	General and administration	5,737		8,423		(32)	%	20,281		23,017		(12)	%	General and administration		8,364		7,100		18	%
Nonsegment operating expenses	Nonsegment operating expenses	$	21,516	$	16,789	28	%	$	63,057	$	46,079	37	%	Nonsegment operating expenses		$	26,403	$	18,671	41	%

Three months ended ~~September 30, 2021~~March 31, 2022 compared to three months ended ~~September 30, 2020~~March 31, 2021 for Nonsegment

Compensation and benefits

Compensation and benefits increased ~~89%~~56% from ~~$8.4~~$11.6 million in the three months ended ~~September 30, 2020~~March 31, 2021 to ~~$15.8~~$18.0 million in the three months ended ~~September 30, 2021,~~March 31, 2022, primarily due to increased headcount that resulted in increases in non-cash compensation expense of $3.6 million and salaries and benefits and related payroll taxes of ~~$3.2 million, non-cash compensation expense of $2.8 million and incentive compensation of $1.4~~$2.2 million.

General and administration

General and administration expenses ~~decreased 32%~~increased 18% from $7.1 million in the three months ended March 31, 2021 to $8.4 million in the three months ended ~~September 30, 2020 to $5.7 million in the three months ended September 30, 2021,~~March 31, 2022. The increase was primarily due to ~~a decrease~~an increase in restructuring charges and transaction costs of ~~$3.4 million, partially offset by various immaterial increases.~~

~~Nine months ended September 30, 2021 compared to nine months ended September 30, 2020 for Nonsegment~~

~~Compensation and benefits~~

Compensation and benefits increased 85% from $23.1 million in the nine months ended September 30, 2020 to $42.8 million in the nine months ended September 30, 2021, primarily due to increased headcount that resulted in increases in salaries, benefits and related payroll taxes of $7.8 million, non-cash compensation expense of $6.9 million and incentive compensation of $3.7$1.0 million. ~~Also contributing to the increase was an increase in severance expense of $1.3 million.~~

~~General and administration~~

General and administration expenses decreased 12% from $23.0 million in the nine months ended September 30, 2020 to $20.3 million in the nine months ended September 30, 2021. The decrease was primarily due to a decrease in restructuring charges and transaction costs of $5.1 million, partially offset by an increase in insurance and bank charges of $1.0 million as well as other immaterial increases.

Non-GAAP Financial Measures

In addition to reporting results according to U.S. generally accepted accounting principles (“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 diluted share.”

“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. ~~Under GAAP,~~On January 1, 2022, the Company adopted ASU 2021-08 whereby the Company now accounts for contract assets and contract liabilities obtained upon a business combination in accordance with ASC 606. Prior to the adoption of ASU 2021-08, we ~~record~~recorded 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~~did not reflect the full amount of revenue that would have been recorded by these entities had they remained stand-alone entities. Adjusted revenues has limitations as a financial measure, should be considered as supplemental in nature and is not meant as a substitute for revenue prepared in accordance with GAAP.

“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, ~~accretion on contingent consideration and purchase liability,~~ income tax provision (benefit), depreciation and amortization, non-cash compensation expense, restructuring

charges and transaction costs, severance, accretion on contingent consideration and purchase liability, fair market value adjustment on contingent consideration liability, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, ~~gain on acquisition of equity method investment, gain on settlement of liability, gain on insurance reimbursement, fair market value adjustment to investment in private company,~~income or loss ~~allocation~~allocations from equity method investments and ~~income~~(income) loss attributable to non-controlling interest.

“Adjusted net income” represents net income before deferred revenue fair value adjustment, ~~accretion on contingent consideration and purchase liability,~~ non-cash interest expense, cash interest on our convertible notes, ~~(subsequent to the adoption of ASU 2020-06 on January 1, 2021),~~ non-cash compensation expense, restructuring charges and transaction costs, severance, accretion on contingent consideration and purchase liability, fair market value adjustment on contingent consideration liability, amortization of acquired intangibles, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, ~~gain on acquisition of equity method investment, gain on settlement of liability, gain on insurance reimbursement, fair market value adjustment to investment in private company,~~income or loss ~~allocation~~allocations from equity method investments and ~~income~~(income) 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 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.

“Adjusted net income per diluted share” represents adjusted net income attributable to common stockholders divided by the diluted number of ~~weighted-average~~weighted average shares outstanding. Beginning January 1, 2021, the dilutive effect of our Convertible Notes are calculated using the if-converted method in accordance with the adoption of ASU 2020-06 (See Part I, “Note 2—Basis of Presentation”). As a result, 9.9 million potential shares to be issued in connection with our Convertible Notes are considered to be dilutive for purposes of the adjusted net income per share calculation beginning January 1, 2021.

Our Board and management use these non-GAAP financial measures:

•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 concerning our financial performance.

Our Compensation Committee, ~~our~~ 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 diluted share as supplemental performance measures because we believe that they provide our Board, 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 provides 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, ~~deferred revenue fair value adjustment,~~ income tax provision (benefit), ~~non-income tax expense,~~ restructuring charges and transaction costs, severance, accretion on contingent consideration and purchase liability, ~~severance,~~ fair market value adjustment on contingent consideration liability, litigation and regulatory related expenses, foreign currency, ~~gain on acquisition of equity method investment, fair market value adjustment to investment in private company,~~non-income tax expense, income or loss ~~allocation~~allocations from equity method investments, ~~(income)~~pre-tax 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 diluted 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 diluted share as supplemental measures to evaluate the overall performance of companies, and we anticipate that our ~~investor~~investors and analyst presentations will include adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share.

Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenues, net income, operating income or any other performance measures derived in accordance with 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 diluted 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 GAAP. In particular you should consider:

•Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted 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 diluted 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 diluted 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~~We paid net ~~losses before income tax expense or the use~~cash of ~~federal~~$0.7 million and ~~state net operating loss carryforwards, we made net tax payments of $5,895 and $5,349~~$1.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. In the event that we ~~begin to~~ generate taxable income and our existing net operating loss carryforwards for federal and state income taxes have been fully utilized or have expired, income tax payments will be higher; and

•Other companies in our industry may calculate adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted 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 net income and adjusted net income per diluted share through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted revenues to revenues, the most directly comparable GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net income and net income per share, the most directly comparable GAAP ~~measure.~~measures. Further, our management also reviews GAAP measures and evaluates individual measures that are not included in some or all of our non-GAAP financial measures, such as our level of capital expenditures and interest income, among other measures.

5139

The following table sets forth a reconciliation of total revenues to adjusted revenues based on our historical results:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
Total revenues	Total revenues	$	303,053	$	252,559	$	866,896	$	734,411	Total revenues			$	321,363	$	275,105
Deferred revenue fair value adjustment	Deferred revenue fair value adjustment	67		91		227		607		Deferred revenue fair value adjustment			54		80
Adjusted revenues	Adjusted revenues	$	303,120	$	252,650	$	867,123	$	735,018	Adjusted revenues			$	321,417	$	275,185

The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands)										(in thousands)
Net income (loss)	Net income (loss)	$	11,438	$	2,323	$	18,004	$	(10,338)	Net income (loss)			$	(14,708)	$	14,935
Add (deduct):	Add (deduct):									Add (deduct):
Deferred revenue fair value adjustment	Deferred revenue fair value adjustment	67		91		227		607		Deferred revenue fair value adjustment			54		80
Interest income	Interest income	(202)		(262)		(569)		(850)		Interest income			(321)		(170)
Interest expense	Interest expense	4,242		8,139		12,682		21,907		Interest expense			4,853		4,215
Income tax provision (benefit)	Income tax provision (benefit)	(854)		497		9,074		(161)		Income tax provision (benefit)			2,020		(5,588)
Depreciation and amortization	Depreciation and amortization	29,850		28,951		88,252		85,077		Depreciation and amortization			31,618		28,392
Non-cash compensation expense	Non-cash compensation expense	18,885		15,852		50,307		43,197		Non-cash compensation expense			21,814		14,137
Restructuring charges and transaction costs	Restructuring charges and transaction costs	3,403		4,993		11,215		14,461		Restructuring charges and transaction costs			2,346		2,784
Severance	Severance	207		2,715		10,498		18,566		Severance			3,106		4,914
Accretion on contingent consideration and purchase liability	Accretion on contingent consideration and purchase liability	81		398		656		1,308		Accretion on contingent consideration and purchase liability			—		388
Fair market value adjustment on contingent consideration liability	Fair market value adjustment on contingent consideration liability	(927)		(74)		(1,067)		(2,056)		Fair market value adjustment on contingent consideration liability			—		(140)
Fair market value adjustment to investment in private company		—		—		(758)		—

Litigation and regulatory related expenses	Litigation and regulatory related expenses	1,512		1,809		5,159		6,029		Litigation and regulatory related expenses			3,077		1,709
Foreign currency	Foreign currency	97		(37)		110		(68)		Foreign currency			(108)		151
Gain on acquisition of equity method investment		—		—		—		(4,230)
Gain on settlement of liability		(1,206)		—		(1,206)		—
Gain on insurance reimbursement		(968)		—		(968)		—

Non-income tax expense adjustment	Non-income tax expense adjustment	(831)		1,795		(1,102)		1,341		Non-income tax expense adjustment			24		(566)
Loss allocation from equity method investments		1,508		994		5,553		4,280
Income attributable to non-controlling interest		(114)		(603)		(554)		(1,103)
Loss allocations from equity method investments										Loss allocations from equity method investments			1,545		3,288
(Income) loss attributable to non-controlling interest										(Income) loss attributable to non-controlling interest			377		(265)
Adjusted EBITDA	Adjusted EBITDA	$	66,188	$	67,581	$	205,513	$	177,967	Adjusted EBITDA			$	55,697	$	68,264

5240

The 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:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2021		2020		2021		2020					2022		2021

		(in thousands, except share and per share information)										(in thousands, except share and per share information)
Net income (loss)	Net income (loss)	$	11,438	$	2,323	$	18,004	$	(10,338)	Net income (loss)			$	(14,708)	$	14,935
Income tax provision (benefit) (1)	Income tax provision (benefit) (1)	(854)		497		9,074		(161)		Income tax provision (benefit) (1)			2,020		(5,588)
Income (loss) before income tax provision (benefit)	Income (loss) before income tax provision (benefit)	10,584		2,820		27,078		(10,499)		Income (loss) before income tax provision (benefit)			(12,688)		9,347
Add (deduct):	Add (deduct):									Add (deduct):
Deferred revenue fair value adjustment	Deferred revenue fair value adjustment	67		91		227		607		Deferred revenue fair value adjustment			54		80
Non-cash interest expense	Non-cash interest expense	1,443		4,738		4,295		10,682		Non-cash interest expense			2,059		1,423
Cash interest - Convertible Notes (2)		2,479		—		7,439		—
Cash interest - Convertible Notes										Cash interest - Convertible Notes			2,480		2,480
Non-cash compensation expense	Non-cash compensation expense	18,885		15,852		50,307		43,197		Non-cash compensation expense			21,814		14,137
Restructuring charges and transaction costs	Restructuring charges and transaction costs	3,403		4,993		11,215		14,461		Restructuring charges and transaction costs			2,346		2,784
Severance	Severance	207		2,715		10,498		18,566		Severance			3,106		4,914
Accretion on contingent consideration and purchase liability	Accretion on contingent consideration and purchase liability	81		398		656		1,308		Accretion on contingent consideration and purchase liability			—		388
Fair market value adjustment on contingent consideration liability	Fair market value adjustment on contingent consideration liability	(927)		(74)		(1,067)		(2,056)		Fair market value adjustment on contingent consideration liability			—		(140)
Fair market value adjustment to investment in private company		—		—		(758)		—

Amortization of acquired intangibles	Amortization of acquired intangibles	17,390		18,510		51,370		56,014		Amortization of acquired intangibles			17,520		16,478
Litigation and regulatory related expenses	Litigation and regulatory related expenses	1,512		1,809		5,159		6,029		Litigation and regulatory related expenses			3,077		1,709
Foreign currency	Foreign currency	97		(37)		110		(68)		Foreign currency			(108)		151
Gain on acquisition of equity method investment		—		—		—		(4,230)
Gain on settlement of liability		(1,206)		—		(1,206)		—
Gain on insurance reimbursement		(968)		—		(968)		—

Non-income tax expense adjustment	Non-income tax expense adjustment	(831)		1,795		(1,102)		1,341		Non-income tax expense adjustment			24		(566)
Loss allocation from equity method investments		1,508		994		5,553		4,280
Income attributable to non-controlling interest		(114)		(603)		(554)		(1,103)
Loss allocations from equity method investments										Loss allocations from equity method investments			1,545		3,288
(Income) loss attributable to non-controlling interest										(Income) loss attributable to non-controlling interest			377		(265)
Adjusted net income before income tax effect	Adjusted net income before income tax effect	53,610		54,001		168,252		138,529		Adjusted net income before income tax effect			41,606		56,208
Income tax effect (3)		(13,670)		(13,772)		(42,904)		(35,325)
Income tax effect (2)										Income tax effect (2)			(10,610)		(14,333)
Adjusted net income	Adjusted net income	$	39,940	$	40,229	$	125,348	$	103,204	Adjusted net income			$	30,996	$	41,875

Basic number of weighted-average shares outstanding	Basic number of weighted-average shares outstanding	54,547,858		53,800,048		54,400,247		53,464,101		Basic number of weighted-average shares outstanding			54,903,677		54,208,469
Effect of dilutive shares:	Effect of dilutive shares:									Effect of dilutive shares:
Options to purchase common stock	Options to purchase common stock	201,103		331,728		207,281		458,232		Options to purchase common stock			156,349		222,387
Unvested restricted stock units	Unvested restricted stock units	570,515		610,442		614,005		548,858		Unvested restricted stock units			568,914		562,612
Convertible notes	Convertible notes	9,898,549		730,267		9,898,549		280,375		Convertible notes			9,898,549		9,898,549
Warrants	Warrants	69,151		86,498		66,439		46,562		Warrants			51,764		76,142
Diluted number of weighted-average shares outstanding	Diluted number of weighted-average shares outstanding	65,287,176		55,558,983		65,186,521		54,798,128		Diluted number of weighted-average shares outstanding			65,579,253		64,968,159
Adjusted net income per share - diluted	Adjusted net income per share - diluted	$	0.61	$	0.72	$	1.92	$	1.88	Adjusted net income per share - diluted			$	0.47	$	0.64

(1)For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the effective tax rate computed in accordance with GAAP equaled ~~(8.1)~~(15.9)% and ~~17.6%, respectively. For the nine months ended September 30, 2021 and 2020, the effective tax rate computed in accordance with GAAP equaled 33.5% and 1.5%~~(59.8)%, respectively.

(2)Cash interest on the Company's convertible notes included only for the three and nine months ended September 30, 2021 due to the adoption of ASU 2020-06 on January 1, 2021 (See Part I, “Note 2—Basis of Presentation”).

~~(3)~~An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for both the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020.~~2021.

Note on Income Taxes: As of December 31, ~~2020,~~2021, we had NOL carryforwards of approximately ~~$242.0~~$195 million and ~~$211.0~~$233 million 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 we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with GAAP, and from the normalized rate shown above.

5341

The 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 three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020:~~2021:

Three Months Ended September 30, 2021
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 254,734 $ 48,319 $ — $ 303,053
Deferred revenue fair value adjustment 67 — — 67
Adjusted revenues 254,801 48,319 — 303,120
Income (loss) from operations $ 34,386 $ 1,265 $ (21,516) $ 14,135
Add:
Deferred revenue fair value adjustment 67 — — 67
Depreciation and amortization 22,928 6,922 — 29,850
Non-cash compensation expense 9,661 3,667 5,557 18,885
Restructuring charges and transaction costs 2,863 (55) 595 3,403
Severance (49) 227 29 207
Accretion on contingent consideration and purchase liability 62 19 — 81
Fair market value adjustment on contingent consideration liability — (927) — (927)
Litigation and regulatory related expenses — 1,512 — 1,512
Non-income tax expense adjustment (905) 74 — (831)
Income attributable to non-controlling interest (114) — — (114)
Other (63) (9) (8) (80)
Adjusted EBITDA $ 68,836 $ 12,695 $ (15,343) $ 66,188


	Three Months Ended March 31, 2022
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Revenues	$	273,568	$	47,795	$	—	$	321,363
Deferred revenue fair value adjustment	54		—		—		54
Adjusted revenues	$	273,622	$	47,795	$	—	$	321,417

Income (loss) from operations	$	25,269	$	(5,587)	$	(26,403)	$	(6,721)
Add (deduct):
Deferred revenue fair value adjustment	54		—		—		54
Depreciation and amortization	23,487		8,131		—		31,618
Non-cash compensation expense	11,290		3,535		6,989		21,814
Restructuring charges and transaction costs	284		(3)		2,065		2,346
Severance	1,410		1,642		54		3,106


Litigation and regulatory related expenses	—		3,077		—		3,077
Non-income tax expense adjustment	107		(83)		—		24
Loss attributable to non-controlling interest	377		—		—		377
Other	—		2		—		2
Adjusted EBITDA	$	62,278	$	10,714	$	(17,295)	$	55,697


		Three Months Ended September 30, 2020									Three Months Ended March 31, 2021
		Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total			Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

		(in thousands)									(in thousands)
Revenues	Revenues	$	204,294	$	48,265	$	—	$	252,559	Revenues	$	226,410	$	48,695	$	—	$	275,105
Deferred revenue fair value adjustment	Deferred revenue fair value adjustment	91		—		—		91		Deferred revenue fair value adjustment	80		—		—		80
Adjusted revenues	Adjusted revenues	204,385		48,265		—		252,650		Adjusted revenues	$	226,490	$	48,695	$	—	$	275,185

Income (loss) from operations	Income (loss) from operations	$	29,683	$	(1,238)	$	(16,789)	$	11,656	Income (loss) from operations	$	34,197	$	1,289	$	(18,671)	$	16,815
Add:
Add (deduct):										Add (deduct):
Deferred revenue fair value adjustment	Deferred revenue fair value adjustment	91		—		—		91		Deferred revenue fair value adjustment	80		—		—		80
Depreciation and amortization	Depreciation and amortization	20,406		8,545		—		28,951		Depreciation and amortization	21,228		7,164		—		28,392
Non-cash compensation expense	Non-cash compensation expense	8,685		4,458		2,709		15,852		Non-cash compensation expense	7,829		2,841		3,467		14,137
Restructuring charges and transaction costs	Restructuring charges and transaction costs	944		33		4,016		4,993		Restructuring charges and transaction costs	1,365		147		1,272		2,784
Severance	Severance	2,154		495		66		2,715		Severance	3,087		1,720		107		4,914
Accretion on contingent consideration and purchase liability	Accretion on contingent consideration and purchase liability	341		57		—		398		Accretion on contingent consideration and purchase liability	342		46		—		388
Fair market value adjustment on contingent consideration liability	Fair market value adjustment on contingent consideration liability	—		(74)		—		(74)		Fair market value adjustment on contingent consideration liability	—		(140)		—		(140)
Litigation and regulatory related expenses	Litigation and regulatory related expenses	—		1,809		—		1,809		Litigation and regulatory related expenses	—		1,709		—		1,709
Non-income tax expense adjustment	Non-income tax expense adjustment	1,860		(65)		—		1,795		Non-income tax expense adjustment	(535)		(31)		—		(566)
Income attributable to non-controlling interest	Income attributable to non-controlling interest	(603)		—		—		(603)		Income attributable to non-controlling interest	(265)		—		—		(265)
Other	Other	(2)		—		—		(2)		Other	16		—		—		16
Adjusted EBITDA	Adjusted EBITDA	$	63,559	$	14,020	$	(9,998)	$	67,581	Adjusted EBITDA	$	67,344	$	14,745	$	(13,825)	$	68,264

Nine Months Ended September 30, 2021
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 721,441 $ 145,455 $ — $ 866,896
Deferred revenue fair value adjustment 227 — — 227
Adjusted revenues $ 721,668 $ 145,455 $ — $ 867,123
Income (loss) from operations $ 101,042 $ 3,896 $ (63,057) $ 41,881
Add:
Deferred revenue fair value adjustment 227 — — 227
Depreciation and amortization 67,283 20,969 — 88,252
Non-cash compensation expense 27,080 9,691 13,536 50,307
Restructuring charges and transaction costs 8,049 119 3,047 11,215
Severance 4,134 3,634 2,730 10,498
Accretion on contingent consideration and purchase liability 572 84 — 656
Fair market value adjustment on contingent consideration liability — (1,067) — (1,067)
Litigation and regulatory related expenses — 5,159 — 5,159
Non-income tax expense adjustment (1,335) 233 — (1,102)
Income attributable to non-controlling interest (554) — — (554)
Other 41 — — 41
Adjusted EBITDA $ 206,539 $ 42,718 $ (43,744) $ 205,513

Nine Months Ended September 30, 2020
Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
(in thousands)
Revenues $ 590,399 $ 144,012 $ — $ 734,411
Deferred revenue fair value adjustment 607 — — 607
Adjusted revenues $ 591,006 $ 144,012 $ — $ 735,018
Income (loss) from operations $ 60,890 $ (6,764) $ (46,079) $ 8,047
Add:
Deferred revenue fair value adjustment 607 — — 607
Depreciation and amortization 59,907 25,170 — 85,077
Non-cash compensation expense 27,437 11,665 6,619 45,721
Restructuring charges and transaction costs 5,864 489 8,108 14,461
Severance 14,593 2,587 1,386 18,566
Accretion on contingent consideration and purchase liability 1,087 221 — 1,308
Fair market value adjustment on contingent consideration liability — (2,056) — (2,056)
Litigation and regulatory related expenses — 6,029 — 6,029
Non-income tax expense adjustment 1,532 (191) — 1,341
Income attributable to non-controlling interest (1,103) — — (1,103)
Other (31) — — (31)
Adjusted EBITDA $ 170,783 $ 37,150 $ (29,966) $ 177,967

5542

Liquidity and Capital Resources

As of ~~September 30, 2021,~~March 31, 2022, we had total cash and cash equivalents of ~~$393.8~~$359.6 million compared to ~~$384.6~~$429.3 million as of December 31, ~~2020.~~2021. We plan to use existing cash as of ~~September 30, 2021,~~March 31, 2022, cash generated in the ongoing operations of our business and amounts under our revolving credit facility 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 revolving credit facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. As of ~~September 30, 2021,~~March 31, 2022, we had $500.0 million available to borrow under our revolving credit facility, subject to covenant compliance.

Cash Flows

The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the periods indicated:


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2021		2020			2022		2021

		(in thousands)					(in thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	169,974	$	131,679	Net cash provided by operating activities	$	3,261	$	49,809
Net cash used in investing activities	Net cash used in investing activities	(135,040)		(83,213)		Net cash used in investing activities	(46,067)		(50,175)
Net cash provided by (used in) financing activities		(25,156)		232,854
Net cash used in financing activities						Net cash used in financing activities	(26,232)		(12,170)
Effect of exchange rate on changes on cash	Effect of exchange rate on changes on cash	(544)		(1,009)		Effect of exchange rate on changes on cash	(627)		(52)
Net increase in cash, cash equivalents and restricted cash		9,234		280,311
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(69,665)		(12,588)
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	393,948		363,066		Cash, cash equivalents and restricted cash, end of period	359,763		372,126

Operating Activities

Net cash provided by operating activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$170.0~~$3.3 million compared to net cash provided by operating activities of ~~$131.7~~$49.8 million for the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease in pre-tax income period over period of ~~$37.6 million.~~$22.0 million and timing of payments within working capital items.

Investing Activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$135.0~~$46.1 million compared to net cash used in investing activities of ~~$83.2~~$50.2 million for the same period in ~~2020.~~2021. The ~~increase~~decrease was primarily due to ~~an increase~~a decrease in ~~net~~ cash disbursements ~~of $25.5 million~~ for ~~an acquisition of~~ proprietary technology ~~and the related redemption~~assets of ~~our equity interest in a privately held company,~~$10.5 million, partially offset by an additional ~~$8.8~~$6.6 million of internally developed software costs capitalized in ~~2021~~2022 as compared to the same period in 2020, $7.6 million of increased disbursements related to various acquisitions and investments in privately held companies, $7.0 million of increased purchases of property and equipment and a $3.0 million advance towards the acquisition of technology solutions being developed for us by an outside company in the current year period.2021.

Financing Activities

Net cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was ~~$25.2~~$26.2 million compared to net cash ~~provided by~~used in financing activities of ~~$232.9~~$12.2 million for the same period in ~~2020. In August 2020, we received net proceeds~~2021, primarily due to finance lease payments of approximately $503.0 million from the issuance of convertible debt. With these proceeds, we paid off the outstanding balance of our revolving credit facility. These transactions contributed to a net cash inflow related to our third party debt agreements of $243.0$12.5 million in ~~2020. Increased deferred payments related to prior acquisition activity of $7.3 million, lower proceeds from stock option exercises of $7.1 million~~2022 and ~~share repurchases of $2.1 million in the current year period also contributed to this year over year decrease. These decreases were partially offset by $3.2~~an additional $3.0 million of ~~capital contributions made by non-controlling shareholders~~taxes paid on the vesting of ~~one of our subsidiaries.~~restricted shares in 2022 as compared to the same period in 2021.

Commitments and Off-Balance Sheet Arrangements

Purchase Obligations and Indemnifications

See “Part I, Item 1, Note ~~17—~~16—Commitments, ~~and Contingencies,~~ Purchase Obligations and Indemnifications” for purchase obligations and indemnifications details.

Procurement of Technology Solutions

See “Part I, Item 1, Note ~~17—Commitments~~6—Intangible Assets, net, and ~~Contingencies,~~Note 17—Subsequent Events, Procurement of Technology Solutions” for details related to ~~this transaction.~~these transactions.

Legal Proceedings

See “Part I, Item 1, Note ~~17—~~16—Commitments, ~~and Contingencies,~~ Legal Proceedings” for legal proceedings details.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements in our ~~2020~~2021 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our ~~2020~~2021 Form 10-K include, but are not limited to, the discussion of estimates used for recognition of revenues, the determination of the period of benefit for deferred sales incentive commissions, ~~purchase accounting,~~ impairment of goodwill and acquired intangible assets and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements, and actual results could differ materially from the amounts reported.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market, foreign currency or interest rate risks as discussed in Part II, Item 7A of our ~~2020~~2021 Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2021.~~March 31, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on their evaluation of our disclosure controls and procedures as of ~~September 30, 2021,~~March 31, 2022, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes to our internal control over financial reporting during the three months ended ~~September 30, 2021,~~March 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

5744

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

The information in Part I, Note ~~17—~~16—Commitments, ~~and Contingencies,~~ Legal Proceedings is incorporated herein by reference.

Item 1A. Risk Factors

Investment in our securities involves risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our ~~2020~~2021 Form 10-K when making investment decisions regarding our securities. The risk factors that were disclosed in our ~~2020~~2021 Form 10-K have not materially changed since the date our ~~2020~~2021 Form 10-K was filed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c)Issuer Purchases of Equity Securities

On February 25, 2016, we announced that our Board had authorized a share repurchase program under which we may repurchase up to ~~2,000,000~~2.0 million shares of our common stock. There were no purchases of equity securities made under the share repurchase program in the three months ended ~~September 30, 2021.~~March 31, 2022. As of ~~September 30, 2021,~~March 31, 2022, there were ~~1,925,902~~1.9 million shares that may yet be repurchased under the program.

The timing and volume of share repurchases will be determined by our management based on ongoing assessments of the capital needs of the business, the market price of our common stock and general market conditions. No time limit has been set for the completion of the repurchase program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to purchase its common stock from time to time in the open market (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.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a)Exhibits

See the exhibit index, which is incorporated herein by reference.

5845

INDEX TO EXHIBITS


Exhibit No.						Description
10.1						~~Third Amendment to Second Amended and Restated Credit~~Form of Performance-Based Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive Plan (for awards beginning February 2022), filed herewith.**
10.2						Form of Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive Plan (for awards beginning February 2022), filed herewith.**
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline 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 following materials are formatted in Inline XBRL (Extensible Business Reporting Language): (i) the cover page; (ii) the Condensed Consolidated Balance Sheets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020;~~2021; (iii) the Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020;~~2021; (iv) the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020;~~2021; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~September 30, 2021~~March 31, 2022 and ~~2020;~~2021; (vi) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 and ~~2020;~~2021; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

** Management contract or compensation plan.

5946

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~November 8, 2021.~~May 6, 2022.


			ENVESTNET, INC.

			By:			/s/ William C. Crager
						William C. Crager
						Chief Executive Officer
						Principal Executive Officer

			By:			/s/ Peter H. D’Arrigo
						Peter H. D’Arrigo
						Chief Financial Officer
						Principal Financial Officer

			By:			/s/ Matthew J. Majoros
						Matthew J. Majoros
						Senior Vice President, Financial Reporting
						Principal Accounting Officer

6047


	Preliminary Estimate		Measurement Period Adjustments		Revised Estimate
	(in thousands)
Tangible assets acquired, net of cash(1)	$	2,032	$	3,938	$	5,970
Total liabilities assumed	(596)		54		(542)
Identifiable intangible assets	9,500		—		9,500
Goodwill	21,858		(3,992)		17,866
Total net assets acquired	$	32,794	$	—	$	32,794


	Preliminary Estimate (in thousands)		Estimated Useful Life in Years	Amortization Method
Proprietary technology	$	6,900	6	Straight-line
Customer list	2,600		14	Accelerated
Total intangible assets acquired	$	9,500


	Three Months Ended September 30,
	2021						2020
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated

	(in thousands)
Revenues:
Asset-based	$	184,008	$	—	$	184,008	$	137,744	$	—	$	137,744
Subscription-based	66,988		46,584		113,572		62,783		45,114		107,897
Total recurring revenues	250,996		46,584		297,580		200,527		45,114		245,641
Professional services and other revenues	3,738		1,735		5,473		3,767		3,151		6,918
Total revenues	$	254,734	$	48,319	$	303,053	$	204,294	$	48,265	$	252,559


	Nine Months Ended September 30,
	2021						2020
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated		Envestnet Wealth Solutions		Envestnet Data & Analytics		Consolidated

	(in thousands)
Revenues:
Asset-based	$	513,458	$	—	$	513,458	$	394,801	$	—	$	394,801
Subscription-based	197,663		138,242		335,905		184,516		132,911		317,427
Total recurring revenues	711,121		138,242		849,363		579,317		132,911		712,228
Professional services and other revenues	10,320		7,213		17,533		11,082		11,101		22,183
Total revenues	$	721,441	$	145,455	$	866,896	$	590,399	$	144,012	$	734,411


Years ending December 31,	(in thousands)
Remainder of 2021	$	72,598
2022	236,203
2023	150,088
2024	79,617
2025	42,978
Thereafter	22,606
Total	$	604,090


	Three Months Ended September 30, 2021
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Revenues	$	254,734	$	48,319	$	—	$	303,053
Deferred revenue fair value adjustment	67		—		—		67
Adjusted revenues	254,801		48,319		—		303,120

Income (loss) from operations	$	34,386	$	1,265	$	(21,516)	$	14,135
Add:
Deferred revenue fair value adjustment	67		—		—		67
Depreciation and amortization	22,928		6,922		—		29,850
Non-cash compensation expense	9,661		3,667		5,557		18,885
Restructuring charges and transaction costs	2,863		(55)		595		3,403
Severance	(49)		227		29		207
Accretion on contingent consideration and purchase liability	62		19		—		81
Fair market value adjustment on contingent consideration liability	—		(927)		—		(927)
Litigation and regulatory related expenses	—		1,512		—		1,512
Non-income tax expense adjustment	(905)		74		—		(831)
Income attributable to non-controlling interest	(114)		—		—		(114)
Other	(63)		(9)		(8)		(80)
Adjusted EBITDA	$	68,836	$	12,695	$	(15,343)	$	66,188


	Nine Months Ended September 30, 2021
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Revenues	$	721,441	$	145,455	$	—	$	866,896
Deferred revenue fair value adjustment	227		—		—		227
Adjusted revenues	$	721,668	$	145,455	$	—	$	867,123

Income (loss) from operations	$	101,042	$	3,896	$	(63,057)	$	41,881
Add:
Deferred revenue fair value adjustment	227		—		—		227
Depreciation and amortization	67,283		20,969		—		88,252
Non-cash compensation expense	27,080		9,691		13,536		50,307
Restructuring charges and transaction costs	8,049		119		3,047		11,215
Severance	4,134		3,634		2,730		10,498
Accretion on contingent consideration and purchase liability	572		84		—		656
Fair market value adjustment on contingent consideration liability	—		(1,067)		—		(1,067)
Litigation and regulatory related expenses	—		5,159		—		5,159
Non-income tax expense adjustment	(1,335)		233		—		(1,102)
Income attributable to non-controlling interest	(554)		—		—		(554)
Other	41		—		—		41
Adjusted EBITDA	$	206,539	$	42,718	$	(43,744)	$	205,513


	Nine Months Ended September 30, 2020
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Revenues	$	590,399	$	144,012	$	—	$	734,411
Deferred revenue fair value adjustment	607		—		—		607
Adjusted revenues	$	591,006	$	144,012	$	—	$	735,018

Income (loss) from operations	$	60,890	$	(6,764)	$	(46,079)	$	8,047
Add:
Deferred revenue fair value adjustment	607		—		—		607
Depreciation and amortization	59,907		25,170		—		85,077
Non-cash compensation expense	27,437		11,665		6,619		45,721
Restructuring charges and transaction costs	5,864		489		8,108		14,461
Severance	14,593		2,587		1,386		18,566
Accretion on contingent consideration and purchase liability	1,087		221		—		1,308
Fair market value adjustment on contingent consideration liability	—		(2,056)		—		(2,056)
Litigation and regulatory related expenses	—		6,029		—		6,029
Non-income tax expense adjustment	1,532		(191)		—		1,341
Income attributable to non-controlling interest	(1,103)		—		—		(1,103)
Other	(31)		—		—		(31)
Adjusted EBITDA	$	170,783	$	37,150	$	(29,966)	$	177,967