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美国

证券和交易委员会

华盛顿特区 20549

表格10-Q

☒ 根据1934年证券交易法第13或15(d)条，本季度报告

截至季度结束日期的财务报告2024年9月30日

or

☐ 根据1934年证券交易法第13或15（d)条的转型报告

过渡期从__________到_____________

 

佣金文件号 001-34835

envestnet公司。

(根据其章程规定的注册人准确名称)

特拉华州						20-1409613
（国家或其他管辖区的 公司成立或组织）						（税务局雇主 唯一识别号码）

1000 Chesterbrook Boulevard, 250号套房, Berwyn, 宾夕法尼亚

19312

(主要行政办公室地址)

(邮政编码)

 注册人的电话号码，包括区号：

(312) 827-2800

根据法案第12（b）条注册的证券：

每个类别的标题			交易标的			登记的交易所名称
普通股，每股面值0.005美元			环境			纽约证券交易所

请勾选该注册机构是否(1)在前12个月内(或注册机构被要求提交这些报告的较短期间内)已提交证券交易法1934年第13或15(d)条规定要提交的所有报告，和(2)在过去90天内是否处于这些报告要求的适用范围内。是 ☒  No ☐

标记勾选，表示在过去的12个月内（或注册人所需要提交这些文件的更短时间内），注册人已经电子提交了根据Regulation S-t规则405条（本章232.405条）规定需要提交的每份交互式数据文件。×没有 o是 ý  No ☐

请在交易所法规则120.2规定的“大型加速申报人”、“加速申报人”、“小型报告公司”和“新兴成长公司”的定义中选中相应选项。

大型加速报告人

ý

加速文件申报人

☐

非加速文件提交人

☐

更小的报告公司

☐

新兴成长公司

☐

如果是新兴增长公司，请通过勾选指明注册人是否选择不使用延长过渡期以遵守根据《交易所法》第13(a)节提供的任何新的或修订的财务会计标准。是的☐无☐

请按复选标记指示是否为壳公司（根据该法规第120亿.2条款定义）。 是 ☐无☒

截至2024年11月1日，Envestnet, Inc. 已 55,345,924 股普通股未实发行。

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目录

			页面
第一部分 - 财务信息
项目1.基本报表（未经审计）
汇编的综合资产负债表			3
合并简明利润表			4
综合收益（损失）的简明综合供称负倀综合报表)			5
股东权益简明合并报表			6
简明的综合现金流量表			8
简明联合财务报表附注(未经审计)			9
项目2.财务状况与经营结果的管理讨论与分析
前瞻性声明			28
概览			28
业务运营结果			34
流动性和资本资源			54
项目 3. 关于市场风险的定量和定性披露			56
项目4. 控制与程序			56
第II部分 - 其他信息
项目1. 法律诉讼			56
项目1A ：风险因素			56
项目 2. 未注册的股权销售及资金用途			58
项目3. 针对高级证券的违约			58
项目4. 矿山安全披露			58
第5项。其他信息			58
项目 6. 陈列品和契约款项(第6页)			59
附件目录			60
术语表			61
签名			62

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envestnet公司。

汇编的综合资产负债表

（单位：千，股数和每股信息除外）

（未经审计）

						九月三十日						十二月 31,
						2024						2023
资产
流动资产：
现金和现金等价物						$	193,356					$	91,378
应收费用，净额						110,098						120,958
预付费用和其他流动资产						59,570						51,472
流动资产总额						363,024						263,808
财产和设备，净额						41,632						48,223
内部开发的软件，net						207,311						224,713
无形资产，净额						301,426						338,068
善意						690,885						806,563
经营租赁使用权资产，净额						63,600						69,154
对未合并实体的投资						93,378						56,292
其他资产						67,448						70,431
总资产						$	1,828,704					$	1,877,252
负债和权益
流动负债：
应付账款、应计费用和其他流动负债						$	261,464					$	241,424
经营租赁负债						11,768						12,909
递延收入						28,732						38,201
债务的流动部分						315,896						314,532
流动负债总额						617,860						607,066
债务，扣除流动部分						564,429						562,080
经营租赁负债，扣除流动部分						93,115						100,830
递延所得税负债，净额						15,169						16,568
其他负债						11,518						16,202
负债总额						1,302,091						1,302,746
承付款和意外开支
股东权益
优先股，面值美元0.005, 50,000,000 已获授权的股份； 不 截至 2024 年 9 月 30 日和 2023 年 12 月 31 日已发行和流通的股份						—						—
普通股，面值 $0.005, 500,000,000 已获授权的股份； 71,989,879 和 71,129,801 分别截至2024年9月30日和2023年12月31日发行的股票； 55,342,170 和 54,773,662 分别截至2024年9月30日和2023年12月31日的已发行股份						359						355
按成本计算的库存股， 16,647,709 和 16,356,139 分别截至2024年9月30日和2023年12月31日的股票						(288,420)						(272,573)
额外的实收资本						1,259,274						1,206,627
累计赤字						(436,000)						(357,651)
累计其他综合亏损						(8,600)						(8,567)
归属于Envestnet, Inc.的股东权益总额						526,613						568,191
非控股权益						—						6,315
权益总额						526,613						574,506
负债和权益总额						$	1,828,704					$	1,877,252

请参见未经审计的简明合并基本报表的附注。

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envestnet公司。

合并简明利润表

（单位：千，股数和每股信息除外）

(未经审计)

						三个月已结束												九个月已结束
						九月三十日												九月三十日
						2024						2023						2024						2023
收入：
基于资产						$	224,980					$	193,901					$	647,081					$	556,595
基于订阅						115,402						114,939						350,852						346,977
经常性收入总额						340,382						308,840						997,933						903,572
专业服务和其他收入						5,567						8,007						21,239						24,416
总收入						345,949						316,847						1,019,172						927,988
运营费用：
直接开支						136,488						120,421						407,472						354,309
员工薪酬						103,487						113,334						311,205						344,646
一般和行政						63,438						50,091						168,427						158,816
折旧和摊销						35,530						32,400						115,155						95,985
商誉减值						—						—						96,269						—
拆分的收益						—						—						(19,523)						—
运营费用总额						338,943						316,246						1,079,005						953,756
运营收入（亏损）						7,006						601						(59,833)						(25,768)
其他费用，净额						(4,277)						(2,001)						(13,446)						(12,012)
所得税准备金（收益）和权益法投资前的收益（亏损）						2,729						(1,400)						(73,279)						(37,780)
所得税准备金（福利）						2,864						(8,824)						3,717						15,363
权益法投资的亏损						(1,526)						(2,368)						(3,327)						(7,694)
净收益（亏损）						(1,661)						5,056						(80,323)						(60,837)
添加：归因于非控股权益的净亏损						—						2,035						1,974						5,284
归属于Envestnet, Inc.的净收益（亏损）						$	(1,661)					$	7,091					$	(78,349)					$	(55,553)
归属于Envestnet, Inc.的每股净收益（亏损）：
基本						$	(0.03)					$	0.13					$	(1.42)					$	(1.02)
稀释						$	(0.03)					$	0.13					$	(1.42)					$	(1.02)
已发行普通股的加权平均值：
基本						55,273,324						54,562,270						55,100,239						54,380,231
稀释						55,273,324						54,970,616						55,100,239						54,380,231

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
Net income (loss) attributable to Envestnet, Inc.						$	(1,661)					$	7,091					$	(78,349)					$	(55,553)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments						(173)						(151)						(33)						4,030
Total other comprehensive income (loss), net of tax						(173)						(151)						(33)						4,030
Comprehensive income (loss) attributable to Envestnet, Inc.						$	(1,834)					$	6,940					$	(78,382)					$	(51,523)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share information)

(unaudited)

																																				Accumulated
																														Additional						Other												Non-
						Common Stock												Treasury Stock												Paid-in						Comprehensive						Accumulated						Controlling						Total
						Shares						Amount						Shares						Amount						Capital						Loss						Deficit						Interest						Equity
Balance, December 31, 2023						71,129,801						$	355					(16,356,139)						$	(272,573)					$	1,206,627					$	(8,567)					$	(357,651)					$	6,315					$	574,506
Net income (loss)						—						—						—						—						—						—						2,513						(1,974)						539
Other comprehensive loss, net of tax						—						—						—						—						—						(4)						—						—						(4)
Stock-based compensation expense						—						—						—						—						18,572						—						—						326						18,898
Issuance of common stock, vesting of RSUs and PSUs						483,237						3						—						—						—						—						—						—						3
Net cash paid related to tax withholding for stock-based compensation						—						—						(177,932)						(8,449)						—						—						—						—						(8,449)
Proceeds from the exercise of stock options						20,033						—						—						—						71						—						—						—						71
Proceeds from capital contributions received by non-controlling interest						—						—						—						—						—						—						—						12,012						12,012
Other						—						—						—						—						—						—						—						(258)						(258)
Balance, March 31, 2024						71,633,071						358						(16,534,071)						(281,022)						1,225,270						(8,571)						(355,138)						16,421						597,318
Net loss						—						—						—						—						—						—						(79,201)						—						(79,201)
Other comprehensive income, net of tax						—						—						—						—						—						144						—						—						144
Stock-based compensation expense						—						—						—						—						17,822						—						—						—						17,822
Issuance of common stock, vesting of RSUs and PSUs						161,219						—						—						—						—						—						—						—						—
Net cash paid related to tax withholding for stock-based compensation						—						—						(54,666)						(3,706)						—						—						—						—						(3,706)
Proceeds from the exercise of stock options						16,335						—						—						—						653						—						—						—						653
Deconsolidation of non-controlling interest						—						—						—						—						—						—						—						(16,421)						(16,421)
Other						—						—						—						—						(262)												—						—						(262)
Balance, June 30, 2024						71,810,625						358						(16,588,737)						(284,728)						1,243,483						(8,427)						(434,339)						—						516,347
Net loss						—						—						—						—						—						—						(1,661)						—						(1,661)
Other comprehensive loss, net of tax						—						—						—						—						—						(173)						—						—						(173)
Stock-based compensation expense						—						—						—						—						16,484						—						—						—						16,484
Issuance of common stock, vesting of RSUs and PSUs						170,855						1						—						—						—						—						—						—						1
Net cash paid related to tax withholding for stock-based compensation						—						—						(58,972)						(3,692)						—						—						—						—						(3,692)
Proceeds from the exercise of stock options						8,399						—						—						—						357						—						—						—						357
Other						—						—						—						—						(1,050)						—						—						—						(1,050)
Balance, September 30, 2024						71,989,879						$	359					(16,647,709)						$	(288,420)					$	1,259,274					$	(8,600)					$	(436,000)					$	—					$	526,613

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																																				Accumulated
																														Additional						Other												Non-
						Common Stock												Treasury Stock												Paid-in						Comprehensive						Accumulated						Controlling						Total
						Shares						Amount						Shares						Amount						Capital						Loss						Deficit						Interest						Equity
Balance, December 31, 2022						70,025,733						$	350					(16,011,907)						$	(253,551)					$	1,135,284					$	(8,589)					$	(118,927)					$	13,037					$	767,604
Net loss						—						—						—						—						—						—						(41,228)						(1,533)						(42,761)
Other comprehensive income, net of tax						—						—						—						—						—						4,277						—						—						4,277
Stock-based compensation expense						—						—						—						—						19,345						—						—						108						19,453
Issuance of common stock, vesting of RSUs and PSUs						524,316						2						—						—						—						—						—						—						2
Net cash paid related to tax withholding for stock-based compensation						—						—						(173,612)						(10,732)						—						—						—						—						(10,732)
Proceeds from the exercise of stock options						37,454						—						—						—						367						—						—						—						367
Purchase of non-controlling units from third-party shareholders						—						—						—						—						(984)						—						—						(24)						(1,008)
Other						—						—						—						—						—						—						—						(22)						(22)
Balance, March 31, 2023						70,587,503						352						(16,185,519)						(264,283)						1,154,012						(4,312)						(160,155)						11,566						737,180
Net loss						—						—						—						—						—						—						(21,416)						(1,716)						(23,132)
Other comprehensive loss, net of tax						—						—						—						—						—						(96)						—						—						(96)
Stock-based compensation expense						—						—						—						—						21,347						—						—						43						21,390
Issuance of common stock, vesting of RSUs and PSUs						162,770						1						—						—						—						—						—						—						1
Net cash paid related to tax withholding for stock-based compensation						—						—						(55,971)						(3,042)						—						—						—						—						(3,042)
Proceeds from the exercise of stock options						2,500						—						—						—						105						—						—						—						105
Other						—						—						—						—						—						—						—						52						52
Balance, June 30, 2023						70,752,773						353						(16,241,490)						(267,325)						1,175,464						(4,408)						(181,571)						9,945						732,458
Net income (loss)						—						—						—						—						—						—						7,091						(2,035)						5,056
Other comprehensive loss, net of tax						—						—						—						—						—						(151)						—						—						(151)
Stock-based compensation expense						—						—						—						—						17,205						—						—						93						17,298
Issuance of common stock, vesting of RSUs and PSUs						184,828						1						—						—						—						—						—						—						1
Net cash paid related to tax withholding for stock-based compensation						—						—						(59,812)						(3,230)						—						—						—						—						(3,230)
Proceeds from the exercise of stock options						12,422						—						—						—						367						—						—						—						367
Other						—						—						—						—						—						—						—						2						2
Balance, September 30, 2023						70,950,023						$	354					(16,301,302)						$	(270,555)					$	1,193,036					$	(4,559)					$	(174,480)					$	8,005					$	751,801

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

						Nine Months Ended
						September 30,
						2024						2023
Cash flows from operating activities:
Net loss						$	(80,323)					$	(60,837)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization						115,155						95,985
Non-cash compensation expense						53,204						58,141
Non-cash interest expense						4,237						4,258
Non-cash goodwill impairment						96,269						—
Non-cash gain on deconsolidation						(19,523)						—
Non-cash Convertible Promissory Note impairment						3,700						—
Loss from equity method investments						3,327						7,694
Fair market value adjustments to investments in private companies						1,508						(2,804)
Lease related impairments						689						2,483
Other						(1,173)						(303)
Changes in operating assets and liabilities:
Fees receivable, net						6,578						(9,621)
Prepaid expenses and other assets						(7,944)						(17,534)
Accounts payable, accrued expenses and other liabilities						14,218						278
Deferred revenue						(3,513)						(3,974)
Net cash provided by operating activities						186,409						73,766
Cash flows from investing activities:
Purchases of property and equipment						(5,939)						(18,275)
Capitalization of internally developed software						(57,127)						(71,117)
Deconsolidation of non-controlling interest						(11,073)						—
Investments in private companies						(3,055)						(4,175)
Acquisition of proprietary technology						(4,481)						(12,000)
Issuance of loan receivable to private company						—						(20,000)
Other						—						400
Net cash used in investing activities						(81,675)						(125,167)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility						—						55,000
Payments related to Revolving Credit Facility						—						(55,000)
Payments related to Convertible Notes						—						(45,000)
Proceeds from exercise of stock options						1,081						839
Payments related to tax withholdings for stock-based compensation						(15,847)						(17,004)
Payments related to share repurchases						—						(9,289)
Proceeds from capital contributions received by non-controlling interest						12,012						—
Purchase of non-controlling units from third-party shareholders						—						(1,008)
Other						4						4
Net cash used in financing activities						(2,750)						(71,458)
Effect of exchange rate on changes on cash and cash equivalents						(6)						3,897
Net change in cash and cash equivalents						101,978						(118,962)
Cash and cash equivalents, beginning of period						91,378						162,173
Cash and cash equivalents, end of period						$	193,356					$	43,211
Supplemental disclosures of cash flow information
Net cash paid for income taxes						$	13,175					$	13,552
Cash paid for interest						$	12,487					$	12,231
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares						$	—					$	4,129
Right-of-use assets obtained in exchange for lease liabilities, net						$	753					$	359
Purchases of property and equipment included in accounts payable, accrued expenses and other liabilities						$	—					$	6,441

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that its clients can better serve their clients.

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. Financial information about each business segment is contained in “Note 18—Segment Information” to the condensed consolidated financial statements and is described in detail within the Company's Annual Report.

For a summary of commonly used industry terms and abbreviations used in this Quarterly Report, see the Glossary of Terms.

2.Summary of Significant Accounting Policies

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company as of September 30, 2024 and for the three and nine months ended September 30, 2024 and 2023 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 the Company's audited consolidated financial statements for the year ended December 31, 2023 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, 2024 and 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 revenue 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, 2024 are not necessarily indicative of the results of operations 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 SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the FASB ASC and ASUs. 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, filed with the SEC on February 28, 2024.

Plan of Merger

On July 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Pequod Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of vehicles managed or advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

The Company's Board has unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (ii) determined that the terms of Merger Agreement and the transactions contemplated

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

thereby are fair to, and in the best interests of, the Company and the Company’s shareholders, (iii) directed that the adoption of the Merger Agreement be submitted to a vote of the Company’s shareholders in accordance with the Merger Agreement, and (iv) subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s shareholders approve the adoption of the Merger Agreement and approve the Merger on the terms and subject to the conditions set forth therein.

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.005 per share, of the Company (the “Common Shares”) that is issued and outstanding as of immediately prior to the Effective Time (other than any Common Shares (i) owned by Parent (or any of its Affiliates), Merger Sub or the Company or any direct or indirect wholly owned subsidiaries of Parent (or any of its Affiliates), Merger Sub or the Company, (ii) that are Rollover Shares (as defined in the Merger Agreement), (iii) held in treasury of the Company, and (iv) as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $63.15, without interest thereon.

On September 24, 2024 the Company announced that, at a special meeting, the Company’s stockholders approved the Merger. The closing of the Merger is expected in the fourth quarter of 2024, subject to the satisfaction or waiver of the remaining customary closing conditions.

If the Merger is consummated, the Common Shares will be delisted from The New York Stock Exchange and deregistered under the Exchange Act, as promptly as practicable after the Effective Time.

Segment Reporting

On October 1, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. All segment information presented within this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.

Correction of Immaterial Errors

In July 2024, the Company identified that as a result of a clerical error an event of default had occurred pursuant to the indenture under which the Convertible Notes due 2025 had been issued, and therefore the Convertible Notes due 2025 should have been classified as current debt instead of as non-current debt as previously recorded in the condensed consolidated balance sheets. Upon identification, the Company promptly cured the technical default. Upon analysis, the Company concluded that the classification error was immaterial in prior period financial statements as the event of default was caused by a clerical error and was not reflective of noncompliance with any factors impacting the Company’s liquidity or financial covenants. If the Company had identified the technical default in the prior period and classified the debt as current, the matter would have been disclosed and promptly resolved. Therefore, amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior year reported within this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024. This adjustment resulted in an increase in Current portion of debt of $314.5 million and a corresponding decrease to Debt, net of current portion of $314.5 million in the condensed consolidated balance sheets as of December 31, 2023.

During the fourth quarter of 2023, the Company identified that the arrangement with a third-party for the use of cloud hosted virtual servers which was previously accounted for as a finance lease transaction and included as a component of property and equipment, net in the condensed consolidated balance sheets should have been recognized as a prepayment included within prepaid expenses and other current assets and other assets in the condensed consolidated balance sheets. The Company concluded that the classification of these transactions was immaterial in prior period financial statements and that amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior period reported within this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.

In the condensed consolidated statements of operations these adjustments resulted in an increase in direct expense of $0.9 million, an increase in general and administrative expense of $1.0 million and a corresponding decrease in depreciation and amortization expense of $1.9 million for the three months ended September 30, 2023 and an increase in direct expense of $2.3 million, an increase in general and administrative expense of $2.8 million and a corresponding decrease in depreciation and amortization expense of $5.1 million for the nine months ended September 30, 2023. In the condensed consolidated statements of cash flows for the nine months ended September 30, 2023, these adjustments resulted in a decrease in net cash provided by operating activities of $5.5 million and a corresponding decrease in net cash provided by (used in) financing activities of $5.5 million.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Use of Estimates

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

 Reclassifications

Certain amounts in the condensed consolidated balance sheets as of December 31, 2023, the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2023 have been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, net income (loss) attributable to Envestnet, Inc., or net change in cash and cash equivalents and did not affect the condensed consolidated statements of comprehensive income (loss) or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 3.4% 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. Revenue from the private services company totaled $2.1 million and $2.8 million for the three months ended September 30, 2024 and 2023, respectively. Revenue from the private services company totaled $6.8 million and $9.7 million for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024 and December 31, 2023, the Company recorded a net receivable from the private services company of $0.2 million and $1.7 million, respectively.

The Company has an approximate 40.0% membership interest in another private company that it accounts for using the equity method of accounting and is considered to be a related party (See "Note 9—Investments in Unconsolidated Entities").

Investments

The Company has investments in private companies for which it has significant influence that are recorded using the equity method of accounting. The Company uses the equity method of accounting because of its less than 50% ownership and/or lack of control in these companies. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records the portion of its earnings or losses in these privately held companies’ net income or loss on a one quarter lag from the actual results of operations in gain (loss) from equity method investments in the condensed consolidated statements of operations.

The Company owns equity interests in various privately held companies for which it does not have significant influence, there is no readily determinable fair value, and its investment qualifies for recognition under the measurement alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records fair value adjustments resulting from observable price changes in other income (expense), net in the condensed consolidated statements of operations.

Recently Adopted Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” This update amends ASC 842 and the accounting for leasehold improvements associated with common control leases. The Company adopted this standard as of January 1, 2024 and it did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This update amends the requirements for segment disclosures. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This update amends the requirements for income tax disclosures. This standard is effective for fiscal years beginning after December 15, 2024. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, "Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards." This update clarifies how to account for profits interest and similar awards. This standard is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In March 2024, the SEC adopted “The Enhancement and Standardization of Climate-Related Disclosures for Investors” that requires public companies to disclose information about the material impacts of climate-related risks on their business, financial condition and governance. These rules are effective, pending judicial review, starting with fiscal year 2025. The Company is analyzing the impact of these rules and has not yet determined the impact on the Company's consolidated financial statements and related disclosures.

3.Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following:

						September 30,						December 31,
						2024						2023
						(in thousands)
Prepaid technology						$	16,097					$	14,630
Income tax prepayments and receivables						16,404						9,625
Prepaid data servers						4,984						7,991
Prepaid debt issuance costs						4,353						—
Prepaid insurance						3,599						2,785
Non-income tax receivable						2,963						4,041
Other						11,170						12,400
Total prepaid expenses and other current assets						$	59,570					$	51,472

  

4.Internally Developed Software, Net

Internally developed software, net consisted of the following:

												September 30,						December 31,
						Estimated Useful Life						2024						2023
												(in thousands)
Internally developed software						5 years						$	435,224					$	405,078
Less: accumulated amortization												(227,913)						(180,365)
Internally developed software, net												$	207,311					$	224,713

Due to a change in technology needs of the business, $1.3 million and $14.2 million of net capitalized internally developed software costs, the majority of which was included within the Envestnet Wealth Solutions segment, was written off and included within depreciation and amortization expense in the condensed consolidated statements of operations during the three and nine months ended September 30, 2024, respectively.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

5.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,
						2024						2023
						(in thousands)
United States						$	246,378					$	270,381
India						2,565						2,555
Total long-lived assets, net						$	248,943					$	272,936

See “Note 14—Revenue and Direct Expense” for detail of revenue by geographic area.

6.Intangible Assets, Net 

Intangible assets, net consisted of the following:

												September 30, 2024																		December 31, 2023
												Gross												Net						Gross												Net
												Carrying						Accumulated						Carrying						Carrying						Accumulated						Carrying
												Amount						Amortization						Amount						Amount						Amortization						Amount
												(in thousands)
Customer lists												$	593,200					$	(345,423)					$	247,777					$	604,080					$	(327,042)					$	277,038
Proprietary technologies												93,956						(44,166)						49,790						93,058						(37,052)						56,006
Trade names												11,000						(7,141)						3,859						15,700						(10,676)						5,024
Total intangible assets						$	698,156					$	(396,730)					$	301,426					$	712,838					$	(374,770)					$	338,068

During the nine months ended September 30, 2024 and 2023, the Company retired fully amortized intangible assets with historical costs of $21.8 million and $40.5 million, respectively.

The estimated future amortization expense of the Company's intangible assets as of September 30, 2024 was as follows (in thousands):

Remainder of 2024						$	14,466
2025						55,393
2026						47,868
2027						39,092
2028						31,716
Thereafter						112,891
Total						$	301,426

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

7.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
Intangible asset amortization						$	14,542					$	15,124					$	43,741					$	47,784
Internally developed software amortization (1)						16,155						13,500						60,261						36,988
Property and equipment depreciation						4,833						3,776						11,153						11,213
Total depreciation and amortization						$	35,530					$	32,400					$	115,155					$	95,985

_________________________________________________________

(1) $1.3 million and $14.2 million of net capitalized internally developed software costs was written off and included within internally developed software amortization expense during the three and nine months ended September 30, 2024, respectively. See Note 4—Internally Developed Software, Net for further information.

8.Goodwill

Changes in the carrying amount of goodwill by reportable segment were as follows:

						Envestnet Wealth Solutions						Envestnet Data & Analytics						Total
						(in thousands)
Balance as of December 31, 2023						$	710,326					$	96,237					$	806,563
Deconsolidation of non-controlling interest						(19,409)						—						(19,409)
Goodwill impairment						—						(96,269)						(96,269)
Foreign currency translation and other						(32)						32						—
Balance as of September 30, 2024						$	690,885					$	—					$	690,885

Goodwill Impairment

Due to a strategic shift of business priorities for the Envestnet Data & Analytics segment, which was considered an event or change in circumstance that required an assessment of goodwill for impairment as of June 30, 2024, the Company performed a quantitative goodwill impairment analysis for the reporting unit to determine whether there was an impairment as of June 30, 2024. The impairment test identified that the carrying value of the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill of $96.3 million in the condensed consolidated statements of operations during the second quarter of 2024. Although the Company recorded this impairment charge during the second quarter of 2024, future charges may occur if certain estimates and assumptions change significantly, and such charges could be material.

9.Investments in Unconsolidated Entities

As of December 31, 2023, the Company held a controlling financial interest in a private company due to its majority representation on the company’s board and, as such, used the consolidation method of accounting to include this private company’s assets, liabilities and results of operations within the Envestnet Wealth Solutions segment of the Company’s condensed consolidated financial statements.

Effective April 1, 2024, the Company no longer had majority representation of the company's board and therefore no longer had a controlling financial interest in this private company. This resulted in the deconsolidation of this private company's assets, liabilities and results of operations and the recognition of a $19.5 million non-cash gain included within gain on deconsolidation in the condensed consolidated statements of operations during the second quarter of 2024. This transaction did not represent a strategic shift and therefore did not meet the criteria to be classified as discontinued operations. The Company applied the equity method to account for its non-controlling investment in this private company starting April 1, 2024 and the

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

fair value of the investment of $41.9 million was included within investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.

10.Other Assets

On January 31, 2023, the Company entered into a Convertible Promissory Note with a customer of the Company's business, a privately held company, whereby the Company was issued a convertible promissory note with a principal amount of $20.0 million and a stated interest rate of 8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified financing events or corporate transactions. During the three months ended September 30, 2024 and 2023, interest income related to the Convertible Promissory Note included in other expense, net in the condensed consolidated statements of operations was $0.4 million. During the nine months ended September 30, 2024 and 2023, interest income related to the Convertible Promissory Note was $1.3 million and $1.1 million, respectively.

The Company accounts for this Convertible Promissory Note as a loan receivable in accordance with ASC 310 as it is not a security and includes it in other assets in the condensed consolidated balance sheets. Credit impairment is measured as the difference between this loan receivable’s amortized cost and its estimated recoverable value, which is the present value of its expected future cash flows discounted at the effective interest rate. Due to a change in circumstance for the customer, the estimated recoverable value of the loan was reassessed during the third quarter of 2024, which resulted in the recognition of a $3.7 million non-cash impairment charge within the Envestnet Data & Analytics reporting unit in general and administrative expense in the condensed consolidated statements of operations during the three and nine months ended September 30, 2024.

11.Accounts Payable, Accrued Expenses and Other Current Liabilities

 

Accounts payable, accrued expenses and other current liabilities consisted of the following:

						September 30,						December 31,
						2024						2023
						(in thousands)
Accrued investment manager fees						$	129,277					$	106,612
Accrued compensation and related taxes						74,293						72,466
Accrued merger related costs						17,158						—
Accounts payable						16,933						35,738
Accrued professional services						9,508						14,289
Accrued interest						5,339						2,473
Accrued technology						4,200						4,151
Other accrued expenses						4,756						5,695
Total accounts payable, accrued expenses and other current liabilities						$	261,464					$	241,424

As of September 30, 2024, the Company had an ending liability balance of $4.8 million primarily in connection with a reduction in force initiative that began during the first quarter of 2023. The Company anticipates approximately $2.2 million to be paid during the remainder of 2024, $1.8 million to be paid throughout 2025, with the remaining balance paid through 2030. Expenses related to this reduction in force initiative are included in employee compensation expense in the condensed consolidated statements of operations.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The following table presents a reconciliation of the beginning and ending liability balance related to this effort, of which $3.6 million is included within accrued compensation and related taxes in the table above:

						Envestnet Wealth Solutions						Envestnet Data & Analytics						Nonsegment						Total
						(in thousands)
Balance as of December 31, 2023						$	9,793					$	486					$	—					$	10,279
Severance expense						3,161						13						4,428						7,602
Cash payments						(8,120)						(499)						(4,428)						(13,047)
Balance as of September 30, 2024						$	4,834					$	—					$	—					$	4,834

12.Debt

The following tables set forth the carrying value and estimated fair value of the Company's debt obligations as of September 30, 2024 and December 31, 2023:

						September 30, 2024
						Issuance Amount						Unamortized Issuance Costs						Carrying Value						Fair Value (Level II)
						(in thousands)
Revolving Credit Facility						$	—					$	—					$	—					$	—
Convertible Notes due 2025						317,500						(1,604)						315,896						313,214
Convertible Notes due 2027						575,000						(10,571)						564,429						609,862
Total debt						$	892,500					$	(12,175)					$	880,325					$	923,076

						December 31, 2023
						Issuance Amount						Unamortized Issuance Costs						Carrying Value						Fair Value (Level II)
						(in thousands)
Revolving Credit Facility						$	—					$	—					$	—					$	—
Convertible Notes due 2025						317,500						(2,968)						314,532						294,958
Convertible Notes due 2027						575,000						(12,920)						562,080						571,746
Total debt						$	892,500					$	(15,888)					$	876,612					$	866,704

The Company issued $517.5 million aggregate principal amount of 0.75% Convertible Notes due 2025 in August 2020. As of September 30, 2024, $317.5 million aggregate principal of the Convertible Notes due 2025 remained outstanding. Pursuant to the indenture under which the Convertible Notes due 2025 were issued, the Company was required to remove a restrictive legend on the Convertible Notes due 2025 relating to restrictions on transfer under the Securities Act of 1933, as amended, on or before September 9, 2021. Due to a clerical error, the restrictive legend was not removed until June 18, 2022. As a result of its failure to remove the legend on a timely basis, the Company was required to pay certain amounts of Additional Interest and interest thereon after February 15, 2022. Failure to pay the Additional Interest constituted an event of default under the Indenture. The event of default under the Indenture was cured with the payment of an immaterial amount of Additional Interest, as well as certain penalties, in August 2024. In addition, the event of default under the Indenture resulted in an event of default under the Revolving Credit Facility due to a cross-default provision in the Revolving Credit Facility. The resulting event of default was waived by the required lenders under the Revolving Credit Facility in August 2024. As a result, any and all existing defaults and events of default that had arisen or may have arisen therefrom were cured and the Company was in compliance with the covenants contained in the Indenture and the Revolving Credit Facility as of August 9, 2024, and continues to be in compliance as of September 30, 2024.

In connection with the Merger, on October 2, 2024, subsequent to September 30, 2024, the Company gave notice to the Trustees and holders of the Convertible Notes due 2025 and Convertible Notes due 2027 that the Merger constitutes a Fundamental Change and a Make Whole Fundamental Change under each of the indentures under which the Convertible Notes were issued and that the Convertible Notes due 2025 and Convertible Notes due 2027 may be surrendered by the holders for

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

conversion. As a result of this event, the Convertible Notes due 2027 will be reclassified from Debt, net of current portion to Current portion of debt on the condensed consolidated balance sheets during the fourth quarter of 2024.

Revolving Credit Facility

The Revolving Credit Facility provides for a $500.0 million revolving line of credit, including a sub-facility for a $20.0 million letter of credit. There were no amounts outstanding under the Revolving Credit Facility as of September 30, 2024 and December 31, 2023.

As of September 30, 2024 and December 31, 2023, debt issuance costs related to the Revolving Credit Facility included in prepaid expenses and other current assets in the condensed consolidated balance sheets were $0.7 million, and included in other assets in the condensed consolidated balance sheets were $0.9 million and $1.5 million, respectively.

The Revolving Credit Facility 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 and a minimum interest coverage ratio. The Company was in compliance with these financial covenants as of September 30, 2024.

On February 20, 2024, the Company entered into a Waiver with respect to the Revolving Credit Facility, between the Company, the Guarantors party thereto from time to time, the Lenders party thereto from time to time and Bank of Montreal, as administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and June 30, 2023.

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
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
Convertible Notes interest						$	5,664					$	4,368					$	14,402					$	13,476
Amortization of debt discount and issuance costs						1,420						1,389						4,237						4,258
Undrawn and other fees						320						312						951						936
Revolving Credit Facility interest						—						133						—						383
Total interest expense						$	7,404					$	6,202					$	19,590					$	19,053

The effective interest rate of the Convertible Notes was equal to the stated interest rate plus the amortization of the debt issuance costs and is set forth below:

						September 30,
						2024						2023
Convertible Notes due 2025						1.3		%				1.3		%
Convertible Notes due 2027						3.2		%				3.2		%

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

13.Fair Value Measurements

  

The following tables set forth the Company's financial assets and liabilities measured at fair value on a recurring basis, based on the three-tier fair value hierarchy, as described in detail within the Company's Annual Report:

						September 30, 2024
						Fair Value						Level I						Level II						Level III
						(in thousands)
Assets:
Money market funds						$	124,623					$	124,623					$	—					$	—
Assets to fund deferred compensation liability						11,984						—						—						11,984
Total assets						$	136,607					$	124,623					$	—					$	11,984
Liabilities:
Deferred compensation liability						$	9,152					$	9,152					$	—					$	—
Total liabilities						$	9,152					$	9,152					$	—					$	—

						December 31, 2023
						Fair Value						Level I						Level II						Level III
						(in thousands)
Assets:
Money market funds						$	51,653					$	51,653					$	—					$	—
Assets to fund deferred compensation liability						10,961						—						—						10,961
Total assets						$	62,614					$	51,653					$	—					$	10,961
Liabilities:
Deferred compensation liability						$	8,045					$	8,045					$	—					$	—
Total liabilities						$	8,045					$	8,045					$	—					$	—

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 cause 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 months ended September 30, 2024.

Fair Value of Assets Used to Fund the Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III):

						Fair Value of Assets Used to Fund Deferred Compensation Liability
						(in thousands)
Balance as of December 31, 2023						$	10,961
Fair value adjustments and fees						1,023
Balance as of September 30, 2024						$	11,984

The fair market value of the assets used to fund the Company's deferred compensation liability is measured using the cash surrender value of the Company's life insurance premiums and is included in other assets in the condensed consolidated balance sheets. Changes in fair value, if any, are recognized in the Company's earnings and included in general and administrative expense in the condensed consolidated statements of operations.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities as of September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, respectively (See “Note 12—Debt”).

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 as of September 30, 2024 and December 31, 2023, based upon the short-term nature of these assets and liabilities.

14.Revenue and Direct Expense

Disaggregation of Revenue

 

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

						Three Months Ended September 30,
						2024																		2023
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Total						Envestnet Wealth Solutions						Envestnet Data & Analytics						Total
						(in thousands)
Revenue:
Asset-based						$	224,980					$	—					$	224,980					$	193,901					$	—					$	193,901
Subscription-based						82,717						32,685						115,402						81,000						33,939						114,939
Total recurring revenue						307,697						32,685						340,382						274,901						33,939						308,840
Professional services and other revenue						3,826						1,741						5,567						4,342						3,665						8,007
Total revenue						$	311,523					$	34,426					$	345,949					$	279,243					$	37,604					$	316,847

						Nine Months Ended September 30,
						2024																		2023
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Total						Envestnet Wealth Solutions						Envestnet Data & Analytics						Total
						(in thousands)
Revenue:
Asset-based						$	647,081					$	—					$	647,081					$	556,595					$	—					$	556,595
Subscription-based						251,619						99,233						350,852						241,214						105,763						346,977
Total recurring revenue						898,700						99,233						997,933						797,809						105,763						903,572
Professional services and other revenue						14,741						6,498						21,239						17,907						6,509						24,416
Total revenue						$	913,441					$	105,731					$	1,019,172					$	815,716					$	112,272					$	927,988

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

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

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
United States						$	339,415					$	311,045					$	1,001,735					$	911,205
International						6,534						5,802						17,437						16,783
Total revenue						$	345,949					$	316,847					$	1,019,172					$	927,988

Remaining Performance Obligations

 

As of September 30, 2024, the Company's estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $583.1 million. The Company expects to recognize approximately 11% of this revenue during the remainder of 2024, approximately 60% throughout 2025 and 2026, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future periods.

Contract Balances

Total deferred revenue as of September 30, 2024 decreased by $10.0 million from December 31, 2023, primarily the result of timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue as of September 30, 2024 will be recognized over the course of the next twelve months.

The amount of revenue recognized for the three months ended September 30, 2024 and 2023 that was included in the opening deferred revenue balance was $6.1 million and $5.4 million, respectively. The amount of revenue recognized for the nine months ended September 30, 2024 and 2023 that was included in the opening deferred revenue balance was $31.5 million and $33.6 million, 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.

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was $10.0 million and $11.5 million as of September 30, 2024 and December 31, 2023, respectively. Amortization expense for deferred sales incentive compensation was $1.1 million for the three months ended September 30, 2024 and 2023. Amortization expense for deferred sales incentive compensation was $3.5 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively. Deferred sales incentive compensation is included in other assets in the condensed consolidated balance sheets and amortization expense is included in employee compensation expense in the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the nine months ended September 30, 2024 and 2023.

Direct Expense

The following table summarizes direct expense by revenue category:

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
Asset-based						$	127,979					$	112,938					$	376,498					$	324,093
Subscription-based						8,597						7,857						25,475						22,554
Professional services and other						(88)						(374)						5,499						7,662
Total direct expense						$	136,488					$	120,421					$	407,472					$	354,309

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

15.Stock-Based Compensation

 

On March 14, 2024, the Board of Directors approved the 2024 Plan, effective upon the approval at the 2024 annual meeting. The 2024 Plan provides for the grant of options, stock appreciation rights, Full Value Awards (as defined in the 2024 Plan agreement) and cash incentive awards to employees, consultants and non-employee directors to purchase common stock, which vest over time and have a ten-year contractual term. The maximum number of shares of common stock that may be delivered under the 2024 Plan is equal to the sum of 5,100,000 plus any shares represented by awards granted under the prior plan that are forfeited, expire or are canceled after the effective date without delivery of shares of stock.

The Company has stock options, RSUs and PSUs outstanding under the 2010 Plan, 2019 Equity Plan, and the 2024 Plan. As of September 30, 2024, the maximum number of common shares available for future issuance under the Company's plans is 5,179,830.

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

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
Stock-based compensation expense						$	16,484					$	17,298					$	53,204					$	58,141
Tax effect on stock-based compensation expense						(4,203)						(4,411)						(13,567)						(14,826)
Net effect on income (loss)						$	12,281					$	12,887					$	39,637					$	43,315

 

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, 2024 and 2023.

Stock Options

 

The following table summarizes option activity under the Company’s plans:

												Weighted						Weighted Average
												Average						Remaining						Aggregate
						Options						Exercise Price						Contractual Life						Intrinsic Value
																		(in years)						(in thousands)
Outstanding as of December 31, 2023						202,166						$	45.22
Exercised						(44,767)						$	40.79
Forfeited						(186)						$	72.52
Outstanding and exercisable as of September 30, 2024						157,213						$	46.45					0.9						$	2,543

 

As of September 30, 2024, there was no amount of unrecognized stock-based compensation expense related to stock options.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Restricted Stock Units and Performance Stock Units

 

The following table summarizes RSU and PSU activity under the Company’s plans:

						RSUs												PSUs
						Number of Shares						Weighted Average Grant Date Fair Value per Share						Number of Shares						Weighted Average Grant Date Fair Value per Share
Non-vested as of December 31, 2023						1,449,253						$	65.78					223,058						$	72.92
Granted						1,322,799						$	51.56					37,270						$	83.76
Vested						(786,988)						$	66.11					(28,323)						$	69.82
Forfeited						(201,157)						$	58.42					(91,712)						$	70.76
Non-vested as of September 30, 2024						1,783,907						$	55.92					140,293						$	77.84

As of September 30, 2024, there was $75.1 million of unrecognized stock-based compensation expense related to RSUs, which the Company expects to recognize over a weighted average period of 1.8 years. As of September 30, 2024, there was $2.4 million of unrecognized stock-based compensation expense related to PSUs, which the Company expects to recognize over a weighted average period of 1.9 years.

16. Income Taxes

The following table presents the calculation for the Company’s effective tax rate:

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands, except for effective tax rate)
Income (loss) before income tax provision (benefit) and equity method investments						$	2,729					$	(1,400)					$	(73,279)					$	(37,780)
Loss from equity method investments						(1,526)						(2,368)						(3,327)						(7,694)
Income (loss) before income tax provision (benefit)						$	1,203					$	(3,768)					$	(76,606)					$	(45,474)
Income tax provision (benefit)						$	2,864					$	(8,824)					$	3,717					$	15,363
Effective tax rate						238.1%						234.2%						(4.9)%						(33.8)%

Under ASC 740-270-25, the Company is 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 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, 2024 and 2023, 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 which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

17.Net Income (Loss) Per Share

 

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

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands, except per share and per share data)
Net income (loss) attributable to Envestnet, Inc.						$	(1,661)					$	7,091					$	(78,349)					$	(55,553)
Weighted average common shares outstanding:
Basic						55,273,324						54,562,270						55,100,239						54,380,231
Effect of dilutive shares:
Non-vested RSUs and PSUs						—						361,982						—						—
Options to purchase common stock						—						46,364						—						—
Diluted						55,273,324						54,970,616						55,100,239						54,380,231
Net income (loss) attributable to Envestnet, Inc., per share:
Basic						$	(0.03)					$	0.13					$	(1.42)					$	(1.02)
Diluted						$	(0.03)					$	0.13					$	(1.42)					$	(1.02)

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

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
Convertible Notes						10,811,884						10,811,884						10,811,884						11,176,254
Non-vested RSUs and PSUs						1,924,200						—						1,924,200						1,949,171
Options to purchase common stock						157,213						—						157,213						222,221
Total anti-dilutive securities						12,893,297						10,811,884						12,893,297						13,347,646

 

18.Segment Information

 

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. The Company's business segments are:

 

•Envestnet Wealth Solutions – a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.

•Envestnet Data & Analytics – a leading provider of financial data aggregation, analytics and digital experiences to meet the needs of financial institutions, enterprise FinTech firms and market investment research firms worldwide.

The Company also incurs expenses not directly attributable to the segments listed above. These nonsegment operating expenses primarily consist of employee compensation for certain corporate officers, certain types of professional service expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.

See “Note 14—Revenue and Direct Expense” for detail of revenue by segment.

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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,
						2024						2023						2024						2023
						(in thousands)
Envestnet Wealth Solutions						$	50,310					$	30,271					$	142,411					$	75,574
Envestnet Data & Analytics						(7,506)						(7,994)						(115,023)						(25,208)
Nonsegment operating expenses						(35,798)						(21,676)						(87,221)						(76,134)
Income (loss) from operations						7,006						601						(59,833)						(25,768)
Other expense, net						(4,277)						(2,001)						(13,446)						(12,012)
Income (loss) before income tax provision (benefit) and equity method investments						2,729						(1,400)						(73,279)						(37,780)
Income tax provision (benefit)						2,864						(8,824)						3,717						15,363
Loss from equity method investments						(1,526)						(2,368)						(3,327)						(7,694)
Net income (loss)						(1,661)						5,056						(80,323)						(60,837)
Add: Net loss attributable to non-controlling interest						—						2,035						1,974						5,284
Net income (loss) attributable to Envestnet, Inc.						$	(1,661)					$	7,091					$	(78,349)					$	(55,553)

The following table presents a summary of consolidated total assets by segment:

						September 30,						December 31,
						2024						2023
						(in thousands)
Envestnet Wealth Solutions						$	1,625,821					$	1,562,600
Envestnet Data & Analytics						202,883						314,652
Consolidated total assets						$	1,828,704					$	1,877,252

19.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.

In connection with the Redi2 acquisition, the Company has agreed to pay up to $20.0 million in performance bonuses based upon the achievement of certain performance targets or upon a change in control. These performance bonuses will be recognized as employee compensation in the condensed consolidated statements of operations. The Company recognized $1.9 million and $0.4 million related to these bonuses for the three months ended September 30, 2024 and 2023, respectively. The Company recognized $3.6 million and $1.9 million related to these bonuses for the nine months ended September 30, 2024 and 2023, respectively.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Legal Proceedings

 

The Company and its subsidiary, Yodlee, have been named as defendants in a lawsuit filed on July 17, 2019, by 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' 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' claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury 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 concluded on September 30, 2022. The parties thereafter briefed summary judgment motions and motions to exclude the presentation of expert testimony (a “Daubert Motion”). On July 25, 2023, the Magistrate Judge issued a report and recommendation that the Court grant FinancialApps’ summary judgment motion on Envestnet’s defamation counterclaim. The Magistrate Judge did not make a ruling as to Yodlee’s defamation counterclaim. On July 28, 2023, the Magistrate Judge denied Envestnet and Yodlee's Daubert motion to exclude FinancialApps' technical expert, Isaac Pflaum. On July 31, 2023, the Magistrate Judge issued a report and recommendation that the Court grant in part and deny in part Envestnet's summary judgment motion. The Magistrate Judge recommended that the motion be granted with respect to the unjust enrichment count and denied with respect to the misappropriation of trade secrets, tortious interference with prospective business opportunities and unfair competition counts. With respect to the later claims, the Magistrate Judge found that there were genuine disputes of material fact that preclude summary judgment. The reports and recommendations are not final rulings, however, and the Company has filed objections against their adoption by the District Court. Those objections are fully briefed and pending before the District Court. On August 14, 2023, the Magistrate Judge granted-in-part and denied-in-part FinancialApps' Daubert motion to exclude Envestnet and Yodlee's technical expert. On September 13, 2023, the Magistrate Judge granted-in-part and denied-in-part Envestnet and Yodlee's Daubert motion to exclude FinancialApps' damages expert. On January 18, 2024, FinancialApps filed a motion seeking sanctions for purported spoliation of evidence against Yodlee and Envestnet. Yodlee and Envestnet filed a brief opposing the motion on February 22, 2024. The motion is fully briefed and pending before the Magistrate Judge. On September 26, 2024, the District Court adopted the Magistrate Judge's recommendations over Envestnet's objections by (1) granting FinancialApps summary judgment on Envestnet's defamation counterclaim, and (2) granting Envestnet's motion for summary judgment with respect to FinancialApps' unjust enrichment claim and denied Envestnet's motion for summary judgment with respect to FinancialApps' misappropriation of trade secrets, tortious interference with prospective business opportunities and unfair competition claims. With respect to the later claims, the District Court agreed that there were genuine disputes of material fact that preclude summary judgment. The Company believes FinancialApps' allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.

The Company and Yodlee were 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

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption currently is Clark, et al., v. Yodlee, Inc. Case No. 3:20-cv-5991-SK (formerly entitled Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK). Plaintiffs alleged that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s Instant Account Verification API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleged 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.

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. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court granted Yodlee’s motion for reconsideration and dismissed one additional claim. Plaintiffs filed an amended complaint on September 19, 2023, which Yodlee answered on October 3, 2023. Discovery is closed.

On May 22, 2024, plaintiffs filed a motion for class certification. After full briefing and a hearing, the Court issued an order on September 25, 2024, denying plaintiffs’ motion for class certification in its entirety. On October 9, 2024, plaintiffs petitioned the Court of Appeals for the Ninth Circuit for permission to take an early appeal from that order under Rule 23(f). Yodlee opposed the petition on October 21, 2024, and plaintiffs sought permission to file a reply brief in support of their petition on October 28, 2024. The parties are awaiting the Ninth Circuit’s ruling on plaintiffs’ petition. The district court held a further case management conference on October 21, 2024, and set a new schedule whereby Yodlee’s pending motion for summary judgment, and any cross-motion for summary judgment by plaintiffs, will be heard by December 16, 2024. Plaintiffs have also stated their intent to file a motion by November 29, 2024, for leave to amend to add new proposed class representatives. Yodlee believes the allegations and remaining individual claims are without merit and will continue to vigorously defend itself both in the district court and in any appeal.

On August 12, 2024, the Company filed a preliminary proxy statement with the SEC in connection with the Merger Agreement by and among BCPE Pequod Buyer, Inc., BCPE Pequod Merger Sub, Inc., a direct, wholly owned subsidiary of Parent, and Envestnet, pursuant to which Merger Sub will merge with and into Envestnet, with Envestnet surviving the Merger and becoming a wholly owned subsidiary of Parent. On August 23, 2024, the Company filed the Proxy Statement with the SEC. On September 5, 2024 and September 6, 2024, respectively, two separate complaints with nearly identical claims were filed by purported stockholders in the Supreme Court of the State of New York, County of New York against the Company and its directors (i) under the caption Eric Miller v. Envestnet, Inc., et al., Case No. 654622/2024 and (ii) under the caption Kevin Turner v. Envestnet, Inc., et al., Case No. 654641/2024. The complaints allege that the Proxy Statement omitted certain purportedly material information regarding, among other things, the background of the Merger, the Company’s financial projections, and Morgan Stanley & Co., LLC’s financial analyses in violation of New York common law. The complaints seek, among other things, an injunction enjoining consummation of the Merger or, in the event that the Merger is consummated, damages resulting from the alleged violations. In addition, several purported stockholders of the Company have sent demand letters generally alleging that the preliminary proxy statement the Company filed on August 12, 2024 and/or the Proxy Statement omitted information that rendered it false and misleading or otherwise had disclosure deficiencies in violation of federal securities law. Other purported stockholders of the Company have sent demands pursuant to Section 220 of the Delaware General Corporation Law, seeking inspection of certain Company books and records, in connection with the Merger. Solely to minimize any expense and distraction, and to avoid the uncertainty, of any litigation, and without admitting any

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

liability or wrongdoing whatsoever, the Company determined to voluntarily supplement certain disclosures in the Proxy Statement by providing the additional information presented in the Current Report on Form 8-K filed on September 16, 2024.

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 any accrual for any claims as of September 30, 2024. 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. 

 

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

Forward-Looking Statements

 

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q for the quarter ended September 30, 2024 and the consolidated financial statements and related notes included on Form 10-K for the year ended December 31, 2023.

This 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 our pending merger with affiliates of vehicles managed or advised by Bain Capital Private Equity, LP., 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. 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 are set forth in Part I, Item 1A.“Risk Factors” in our Annual Report; 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 and Annual Report 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, 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.

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

Overview

 

Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can better serve their clients.

 

Envestnet's clients include more than 111,000 advisors, 17 of the 20 largest U.S. banks, 48 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs, and hundreds of FinTech companies, all of which 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 in Berwyn, Pennsylvania, as well as other locations throughout the United States, India and other international locations.

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Recent Developments

Plan of Merger

On July 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Pequod Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of vehicles managed or advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

The Company's Board has unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (ii) determined that the terms of Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, the Company and the Company’s shareholders, (iii) directed that the adoption of the Merger Agreement be submitted to a vote of the Company’s shareholders in accordance with the Merger Agreement, and (iv) subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s shareholders approve the adoption of the Merger Agreement and approve the Merger on the terms and subject to the conditions set forth therein.

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.005 per share, of the Company (the “Common Shares”) that is issued and outstanding as of immediately prior to the Effective Time (other than any Common Shares (i) owned by Parent (or any of its Affiliates), Merger Sub or the Company or any direct or indirect wholly owned subsidiaries of Parent (or any of its Affiliates), Merger Sub or the Company, (ii) that are Rollover Shares (as defined in the Merger Agreement), (iii) held in treasury of the Company, and (iv) as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $63.15, without interest thereon.

On September 24, 2024 the Company announced that, at a special meeting, the Company’s stockholders approved the Merger. The closing of the Merger is expected in the fourth quarter of 2024, subject to the satisfaction or waiver of the remaining customary closing conditions.

If the Merger is consummated, the Common Shares will be delisted from The New York Stock Exchange and deregistered under the Exchange Act, as promptly as practicable after the Effective Time.

Goodwill Impairment

Due to a strategic shift of business priorities for the Envestnet Data & Analytics segment, which was considered an event or change in circumstance that required an assessment of goodwill for impairment as of June 30, 2024, the Company performed a quantitative goodwill impairment analysis for the reporting unit to determine whether there was an impairment as of June 30, 2024. The impairment test identified that the carrying value of the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill of $96.3 million in the condensed consolidated statements of operations during the second quarter of 2024. Although the Company recorded this impairment charge during the second quarter of 2024, future charges may occur if certain estimates and assumptions change significantly, and such charges could be material.

Deconsolidation of Non-Controlling Interest

Effective April 1, 2024, the Company no longer had majority representation of a private company's board and therefore no longer had a controlling financial interest in the private company. This resulted in the deconsolidation of this private company's assets, liabilities and results of operations and the recognition of a $19.5 million non-cash gain included within gain on deconsolidation in the condensed consolidated statements of operations during the second quarter of 2024. This transaction did not represent a strategic shift and therefore did not meet the criteria to be classified as discontinued operations. The Company applied the equity method to account for its non-controlling investment in this private company starting April 1, 2024 and the fair value of the investment of $41.9 million was included within investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.

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Internally Developed Software, Net

Due to a change in technology needs of the business, $1.3 million and $14.2 million of net capitalized internally developed software costs, the majority of which was included within the Envestnet Wealth Solutions segment, was written off and included within depreciation and amortization expense in the condensed consolidated statements of operations during the three and nine months ended September 30, 2024, respectively.

Leadership Update

On January 7, 2024, the Company entered into a separation and release agreement with Mr. Crager in which it was agreed that Mr. Crager would step down as chief executive officer on March 31, 2024 and as a member of the Company’s Board of Directors promptly following Envestnet’s 2024 Annual Meeting. On April 1, 2024, Mr. Crager began serving as a senior advisor, focusing on client and partner relationships. James Fox began serving as our Interim Chief Executive Officer on April 1, 2024 and will continue to serve this role until our Board of Directors appoints a new chief executive officer. Mr. Fox has served as a member of our Board of Directors since February 2015 and Chair of the Board of Directors since March 2020.

Operating Results

Beginning in the three months ended December 31, 2021 through September 30, 2024, the Company reported a loss from operations and loss before income tax provision (benefit) in every quarter with the exception of the three months ended September 30, 2023, March 31, 2024 and September 30, 2024. We incurred these quarterly losses as a result of several factors as described below.

Revenue Factors: Throughout 2022, the financial markets experienced a broad downturn and our redemption rates were higher than our historical average, and as a result, in our Envestnet Wealth Solutions segment, our asset-based recurring revenue was materially adversely affected. Beginning in the three months ended March 31, 2023 asset-based recurring revenue has been increasing steadily. In addition, as a result of competitive pricing pressures in our Envestnet Data & Analytics segment research business, beginning in the three months ended December 31, 2022 subscription-based recurring revenue has been materially adversely affected.

Expense Factors: We have incurred certain expenses that are not recurring in nature and that are a direct result of significant, distinct enterprise-wide strategic initiatives that we have taken in order to reshape and streamline the organization, which we believe will increase our operational efficiencies and to reduce future operating expenses, while negatively impacting our operating results in the short-term. These actions include both internal and external related expenses associated with office closures announced in the second quarter of 2022, severance and office closure related expenses associated with an organizational realignment and entry into an outsourcing arrangement announced in the fourth quarter of 2022, as well as severance expense for a reduction in force initiative announced in the first quarter of 2023 which continued throughout 2023. In addition, the Company recognized a non-cash impairment charge to goodwill of $96.3 million and wrote off $14.2 million of net capitalized internally developed software costs included within depreciation and amortization expense during the nine months ended September 30, 2024.

Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets. The return to recurring positive income before income taxes, largely depends on a combination of improved industry dynamics, including overall technology and data spending by financial institutions and an improvement in capital market valuations, including asset flows and redemption rates, both of which are outside of the Company’s control, as well as a reduction in future operating expenses, as a result of the actions taken by management as discussed above.

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Segments

 

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. Financial information about each business segment is contained in "Note 18—Segment Information” to the condensed consolidated financial statements. Our business segments are as follows:

•Envestnet Wealth Solutions – a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.

•Envestnet Data & Analytics – a leading provider of financial data aggregation, analytics and digital experiences to meet the needs of financial institutions, enterprise FinTech firms and market investment research firms worldwide.

The Company also incurs expenses not directly attributable to the segments listed above. These nonsegment operating expenses primarily consist of employee compensation for certain corporate officers, certain types of professional service expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.

On October 1, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. All segment information presented within this Quarterly Report is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.

Key Metrics

Envestnet Wealth Solutions Segment

 

The following table provides information regarding the amount of assets and number of accounts and advisors supported by the Envestnet Wealth Solutions platform:

						As of
						September 30,						December 31,						March 31,						June 30,						September 30,
						2023						2023						2024						2024						2024
						(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)						$	375,408					$	416,001					$	452,464					$	471,978					$	510,453
Assets under Administration (“AUA”)						398,082						430,846						471,401						471,479						495,995
Total AUM/A						773,490						846,847						923,865						943,457						1,006,448
Subscription						4,579,248						4,959,514						5,158,180						5,327,939						5,534,404
Total Platform Assets						$	5,352,738					$	5,806,361					$	6,082,045					$	6,271,396					$	6,540,852
Platform Accounts
AUM						1,614,873						1,640,879						1,688,044						1,752,768						1,802,895
AUA						1,257,094						1,254,962						1,315,442						1,325,370						1,347,685
Total AUM/A						2,871,967						2,895,841						3,003,486						3,078,138						3,150,580
Subscription						16,072,848						16,248,598						16,641,631						16,364,088						16,705,082
Total Platform Accounts						18,944,815						19,144,439						19,645,117						19,442,226						19,855,662
Advisors
AUM/A						38,078						38,697						38,814						38,484						38,809
Subscription						69,318						69,973						70,262						71,568						72,527
Total Advisors						107,396						108,670						109,076						110,052						111,336

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The following tables summarize the changes in the amount of AUM/A assets and number of AUM/A accounts:

						Asset Rollforward - Three Months Ended September 30, 2024
						As of June 30,						Gross												Net						Market																		As of September 30,
						2024						Sales						Redemptions						Flows						Impact																		2024
						(in millions, except account data)
AUM						$	471,978					$	32,831					$	(19,239)					$	13,592					$	24,883																	$	510,453
AUA						471,479						31,382						(29,712)						1,670						22,846																		495,995
Total AUM/A						$	943,457					$	64,213					$	(48,951)					$	15,262					$	47,729																	$	1,006,448
Fee-Based Accounts						3,078,138																		72,442																								3,150,580

The above AUM/A gross sales figures for the three months ended September 30, 2024 include $13.6 billion in new client conversions. We onboarded an additional $62.6 billion in subscription conversions during the three months ended September 30, 2024 bringing total conversions for the three months ended September 30, 2024 to $76.2 billion.

						Asset Rollforward - Nine Months Ended September 30, 2024
						As of  December 31,						Gross												Net						Market																		As of September 30,
						2023						Sales						Redemptions						Flows						Impact						Reclassifications												2024
						(in millions, except account data)
AUM						$	416,001					$	97,426					$	(57,740)					$	39,686					$	51,763					$	3,003											$	510,453
AUA						430,846						109,825						(90,904)						18,921						51,561						(5,333)												495,995
Total AUM/A						$	846,847					$	207,251					$	(148,644)					$	58,607					$	103,324					$	(2,330)											$	1,006,448
Fee-Based Accounts						2,895,841																		267,305												(12,566)												3,150,580

The above AUM/A gross sales figures for the nine months ended September 30, 2024 include $61.6 billion in new client conversions. We onboarded an additional $243.3 billion in subscription conversions during the nine months ended September 30, 2024 bringing total conversions for the nine months ended September 30, 2024 to $304.9 billion.

Asset and account figures in the “Reclassifications” column for the three and nine months ended September 30, 2024 represent immaterial amounts that were reclassified between AUM, AUA and subscription to reflect updated customer billing arrangements. These reclassifications have no impact on total platform assets or accounts.

Envestnet Data & Analytics Segment

 

The following table provides information regarding the number of paid end-users and firms using the Envestnet Data & Analytics platform:

						As of
						September 30,						December 31,						March 31,						June 30,						September 30,
						2023						2023						2024						2024						2024
						(in millions, except number of firms data)
Number of paid end-users						42.3						38.3						43.8						44.3						45.2
Number of firms						1,322						1,324						1,323						1,182						1,166

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Operational Highlights

 

						Three Months Ended
						September 30,
						2024						2023						$ Change						% Change
						(in thousands, except percentages)
Revenue:
Envestnet Wealth Solutions:
Asset-based						$	224,980					$	193,901					$	31,079					16		%
Subscription-based						82,717						81,000						1,717						2		%
Total recurring revenue						307,697						274,901						32,796						12		%
Professional services and other revenue						3,826						4,342						(516)						(12)		%
Total Envestnet Wealth Solutions revenue						$	311,523					$	279,243					$	32,280					12		%
Envestnet Data & Analytics:
Subscription-based						$	32,685					$	33,939					$	(1,254)					(4)		%
Total recurring revenue						32,685						33,939						(1,254)						(4)		%
Professional services and other revenue						1,741						3,665						(1,924)						(52)		%
Total Envestnet Data & Analytics revenue						$	34,426					$	37,604					$	(3,178)					(8)		%
Total revenue						$	345,949					$	316,847					$	29,102					9		%
Net income (loss) attributable to Envestnet, Inc.						$	(1,661)					$	7,091					$	(8,752)					(123)		%
Net income (loss) attributable to Envestnet, Inc. per share - basic and diluted						$	(0.03)					$	0.13					$	(0.16)					(123)		%
Adjusted EBITDA*						$	80,541					$	65,331					$	15,210					23		%
Adjusted net income*						$	46,545					$	36,627					$	9,918					27		%
Adjusted net income per diluted share*						$	0.70					$	0.56					$	0.14					25		%

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*Non-GAAP financial measure. See "Non-GAAP Financial Measures" below for definitions and reconciliations of non-GAAP measures.

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Results of Operations

Three months ended September 30, 2024 compared to three months ended September 30, 2023

																		Three Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Asset-based																								$	224,980					65		%				$	193,901					61		%				$	31,079					16		%
Subscription-based																								115,402						33		%				114,939						36		%				463						—		%
Total recurring revenue																								340,382						98		%				308,840						97		%				31,542						10		%
Professional services and other revenue																								5,567						2		%				8,007						3		%				(2,440)						(30)		%
Total revenue																								345,949						100		%				316,847						100		%				29,102						9		%
Operating expenses:
Direct expense																								136,488						39		%				120,421						38		%				16,067						13		%
Employee compensation																								103,487						30		%				113,334						36		%				(9,847)						(9)		%
General and administrative																								63,438						18		%				50,091						16		%				13,347						27		%
Depreciation and amortization																								35,530						10		%				32,400						10		%				3,130						10		%
Total operating expenses																								338,943						98		%				316,246						100		%				22,697						7		%
Income from operations																								7,006						2		%				601						—		%				6,405						*
Other expense, net																								(4,277)						(1)		%				(2,001)						(1)		%				(2,276)						(114)		%
Income (loss) before income tax provision (benefit) and equity method investments																								2,729						1		%				(1,400)						—		%				4,129						*
Income tax provision (benefit)																								2,864						1		%				(8,824)						(3)		%				11,688						132		%
Loss from equity method investments																								(1,526)						—		%				(2,368)						(1)		%				$	842					36		%
Net income (loss)																								(1,661)						—		%				5,056						2		%				(6,717)						(133)		%
Add: Net loss attributable to non-controlling interest																								—						—		%				2,035						1		%				(2,035)						(100)		%
Net income (loss) attributable to Envestnet, Inc.																								$	(1,661)					—		%				$	7,091					2		%				$	(8,752)					(123)		%

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*Not meaningful

 

Asset-based recurring revenue

 

Asset-based recurring revenue increased $31.1 million, or 16%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 38,000 as of September 30, 2023 to approximately 39,000 as of September 30, 2024, and the number of AUM/A client accounts increased from approximately 2.9 million as of September 30, 2023 to approximately 3.2 million as of September 30, 2024.

As a percentage of total revenue, asset-based recurring revenue increased 4% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

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Subscription-based recurring revenue

 

Subscription-based recurring revenue increased $0.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to an increase of $1.7 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of $1.2 million in the Envestnet Data & Analytics segment, which is primarily attributable to a loss in access to data in the research business.

As a percentage of total revenue, subscription-based recurring revenue decreased 3% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the increase in total revenue period over period.

Professional services and other revenue

 

Professional services and other revenue decreased $2.4 million, or 30%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to timing of the completion of customer projects and deployments and a decrease in revenue recognized in the Envestnet Data & Analytics segment as a result of point in time revenue recognized on customer deployments.

Direct expense

 

Direct expense increased $16.1 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in asset-based direct expense, which directly correlates with the increase to asset-based recurring revenue during the period.

 

Employee compensation

Employee compensation decreased $9.8 million, or 9%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023, primarily due to decreases in severance expense of $8.0 million, salaries, benefits and related payroll taxes of $4.6 million and stock-based compensation of $0.8 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $3.9 million.

As a percentage of total revenue, employee compensation expense decreased 6% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the decrease in employee compensation expense coupled with the increase in total revenue period over period.

General and administrative

 

General and administrative expense increased $13.3 million, or 27%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to increases in merger related costs of $9.0 million, a Convertible Promissory Note impairment of $3.7 million, restructuring charges and transaction costs of $2.3 million, professional and legal fees of $3.3 million and litigation, regulatory and other governance related expenses of $0.6 million, partially offset by decreases in website and systems development expenses of $2.0 million, marketing expenses of $1.2 million and other immaterial decreases within general and administrative expense.

Depreciation and amortization

 

Depreciation and amortization expense increased $3.1 million, or 10%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to increases in amortization related to internally developed software of $2.7 million and depreciation related to property and equipment of $1.0 million, partially offset by a decrease in amortization related to intangible assets of $0.6 million.

Other expense, net

Other expense, net increased $2.3 million, or 114%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease of $2.9 million in fair market value adjustments to investments in private companies, partially offset by a decrease of $0.5 million in interest expense, net.

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Income tax provision (benefit)

For the three months ended September 30, 2024 and 2023, our effective tax rate of 238.1% and 234.2%, respectively, 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 which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

In December 2021, the Organization for Economic Co-Operation and Development released Model Global Anti-Base Erosion rules under Pillar Two. These rules provide for the taxation of certain large multinational corporations at a minimum rate of 15%, calculated on a jurisdictional basis. Certain countries in which we operate have enacted legislation to implement many aspects of the Pillar Two rules beginning on January 1, 2024, with certain remaining impacts to be effective from January 1, 2025. We do not currently anticipate that Pillar Two legislation will have a material impact on our consolidated financial statements, but we will continue to monitor future legislation and any additional guidance that is issued.

Loss from equity method investments

Loss from equity method investments decreased $0.8 million, or 36%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase of $1.6 million in dilution gain on equity method investee share issuances, partially offset by an increase of $0.8 million in loss allocations from equity method investments.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

																		Nine Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Asset-based																								$	647,081					63		%				$	556,595					60		%				$	90,486					16		%
Subscription-based																								350,852						34		%				346,977						37		%				3,875						1		%
Total recurring revenue																								997,933						98		%				903,572						97		%				94,361						10		%
Professional services and other revenue																								21,239						2		%				24,416						3		%				(3,177)						(13)		%
Total revenue																								1,019,172						100		%				927,988						100		%				91,184						10		%
Operating expenses:
Direct expense																								407,472						40		%				354,309						38		%				53,163						15		%
Employee compensation																								311,205						31		%				344,646						37		%				(33,441)						(10)		%
General and administrative																								168,427						17		%				158,816						17		%				9,611						6		%
Depreciation and amortization																								115,155						11		%				95,985						10		%				19,170						20		%
Goodwill impairment																								96,269						9		%				—						—		%				96,269						100		%
Gain on deconsolidation																								(19,523)						(2)		%				—						—		%				(19,523)						(100)		%
Total operating expenses																								1,079,005						106		%				953,756						103		%				125,249						13		%
Loss from operations																								(59,833)						(6)		%				(25,768)						(3)		%				(34,065)						(132)		%
Other expense, net																								(13,446)						(1)		%				(12,012)						(1)		%				(1,434)						(12)		%
Loss before income tax provision and equity method investments																								(73,279)						(7)		%				(37,780)						(4)		%				(35,499)						(94)		%
Income tax provision																								3,717						—		%				15,363						2		%				(11,646)						(76)		%
Loss from equity method investments																								(3,327)						—		%				(7,694)						(1)		%				$	4,367					57		%
Net loss																								(80,323)						(8)		%				(60,837)						(7)		%				(19,486)						(32)		%
Add: Net loss attributable to non-controlling interest																								1,974						—		%				5,284						1		%				(3,310)						(63)		%
Net loss attributable to Envestnet, Inc.																								$	(78,349)					(8)		%				$	(55,553)					(6)		%				$	(22,796)					(41)		%

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Asset-based recurring revenue

 

Asset-based recurring revenue increased $90.5 million, or 16%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 38,000 as of September 30, 2023 to approximately 39,000 as of September 30, 2024, and the number of AUM/A client accounts increased from approximately 2.9 million as of September 30, 2023 to approximately 3.2 million as of September 30, 2024.

As a percentage of total revenue, asset based recurring revenue increased 3% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

Subscription-based recurring revenue

 

Subscription-based recurring revenue increased $3.9 million, or 1%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to an increase of $10.4 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of $6.5 million in the Envestnet Data & Analytics segment, which is primarily attributable to a loss in access to data in the research business and continued impact from the regional banking crisis.

As a percentage of total revenue, subscription-based recurring revenue decreased 3% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the increase in total revenue period over period.

Professional services and other revenue

 

Professional services and other revenue decreased $3.2 million, or 13%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to timing of the completion of customer projects and deployments and a decrease in revenue recognized in the Envestnet Data & Analytics segment as a result of point in time revenue recognized on customer deployments.

Direct expense

 

Direct expense increased $53.2 million, or 15%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in asset-based direct expense, which directly correlates with the increase to asset-based recurring revenue during the period.

 

Employee compensation

Employee compensation decreased $33.4 million, or 10%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to decreases in severance expense of $18.3 million, salaries, benefits and related payroll taxes of $17.0 million and stock-based compensation of $4.9 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $8.2 million.

As a percentage of total revenue, employee compensation expense decreased 6% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the decrease in employee compensation expense coupled with the increase in total revenue period over period.

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General and administrative

 

General and administrative expense increased $9.6 million, or 6%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to increases in merger related costs of $14.1 million, a Convertible Promissory Note impairment of $3.7 million and litigation, regulatory and other governance related expenses of $1.7 million, partially offset by decreases in marketing costs of $3.6 million, restructuring and transaction costs of $3.0 million, occupancy costs of $1.3 million and other immaterial decreases within general and administrative expense.

Depreciation and amortization

 

Depreciation and amortization expense increased $19.2 million, or 20%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in amortization related to internally developed software of $23.3 million, primarily a result of writing off $14.2 million of net capitalized internally developed software costs during the nine months ended September 30, 2024, partially offset by a decrease in amortization related to intangible assets of $4.0 million.

Goodwill impairment

Goodwill impairment increased $96.3 million, or 100%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 as a result of the recognition of a non-cash impairment charge to goodwill within the Envestnet Data & Analytics segment during the nine months ended September 30, 2024.

Gain on deconsolidation

Gain on deconsolidation increased $19.5 million, or 100%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to the recognition of a non-cash gain on deconsolidation of a non-controlling financial interest during the nine months ended September 30, 2024.

Other expense, net

Other expense, net increased $1.4 million, or 12%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a an increase of $4.3 million in fair market value adjustments to investments in private companies, partially offset by a decrease of $2.7 million in interest expense, net.

Income tax provision

For the nine months ended September 30, 2024 and 2023, our effective tax rate of (4.9)% and (33.8)%, respectively, 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 which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

In December 2021, the Organization for Economic Co-Operation and Development released Model Global Anti-Base Erosion rules under Pillar Two. These rules provide for the taxation of certain large multinational corporations at a minimum rate of 15%, calculated on a jurisdictional basis. Certain countries in which we operate have enacted legislation to implement many aspects of the Pillar Two rules beginning on January 1, 2024, with certain remaining impacts to be effective from January 1, 2025. We do not currently anticipate that Pillar Two legislation will have a material impact on our consolidated financial statements, but we will continue to monitor future legislation and any additional guidance that is issued.

Loss from equity method investments

Loss from equity method investments decreased $4.4 million, or 57%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due an increase of $3.8 million in dilution gain on equity method investee share issuances and a decrease of $0.6 million in loss allocations from equity method investments.

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Segment Results

 Envestnet Wealth Solutions

Three months ended September 30, 2024 compared to three months ended September 30, 2023

																		Three Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Asset-based																								$	224,980					72		%				$	193,901					69		%				$	31,079					16		%
Subscription-based																								82,717						27		%				81,000						29		%				1,717						2		%
Total recurring revenue																								307,697						99		%				274,901						98		%				32,796						12		%
Professional services and other revenue																								3,826						1		%				4,342						2		%				(516)						(12)		%
Total revenue																								311,523						100		%				279,243						100		%				32,280						12		%
Operating expenses:
Direct expense																								129,404						42		%				114,403						41		%				15,001						13		%
Employee compensation																								76,350						25		%				78,873						28		%				(2,523)						(3)		%
General and administrative																								28,034						9		%				30,093						11		%				(2,059)						(7)		%
Depreciation and amortization																								27,425						9		%				25,603						9		%				1,822						7		%
Total operating expenses																								261,213						84		%				248,972						89		%				12,241						5		%
Income from operations																								$	50,310					16		%				$	30,271					11		%				$	20,039					66		%

Asset-based recurring revenue

Asset-based recurring revenue increased $31.1 million, or 16%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 38,000 as of September 30, 2023 to approximately 39,000 as of September 30, 2024, and the number of AUM/A client accounts increased from approximately 2.9 million as of September 30, 2023 to approximately 3.2 million as of September 30, 2024.

 

As a percentage of segment revenue, asset based recurring revenue increased 3% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

Subscription-based recurring revenue

Subscription-based recurring revenue increased $1.7 million, or 2%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to new and existing customer growth.

Professional services and other revenue

Professional services and other revenue decreased $0.5 million, or 12%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to timing of the completion of customer projects and deployments.

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Direct expense

 

Direct expense increased $15.0 million, or 13%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in asset-based direct expense, which directly correlates with the increase in asset-based recurring revenue during the period.

Employee compensation

 

Employee compensation decreased $2.5 million, or 3%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to decreases in severance expense of $4.2 million and salaries, benefits and related payroll taxes of $2.6 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $4.5 million.

As a percentage of segment revenue, employee compensation expense decreased 3% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the decrease in employee compensation coupled with the increase in segment revenue period over period.

General and administrative

General and administrative expense decreased $2.1 million, or 7%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease in website and systems development of $0.7 million and other immaterial decreases within general and administrative expense.

Depreciation and amortization

 

Depreciation and amortization expense increased $1.8 million, or 7%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to increases in depreciation related to property and equipment of $1.3 million and amortization related to internally developed software of $0.9 million, partially offset by a decrease in amortization related to intangible assets of $0.4 million.

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Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

																		Nine Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Asset-based																								$	647,081					71		%				$	556,595					68		%				$	90,486					16		%
Subscription-based																								251,619						28		%				241,214						30		%				10,405						4		%
Total recurring revenue																								898,700						98		%				797,809						98		%				100,891						13		%
Professional services and other revenue																								14,741						2		%				17,907						2		%				(3,166)						(18)		%
Total revenue																								913,441						100		%				815,716						100		%				97,725						12		%
Operating expenses:
Direct expense																								386,415						42		%				337,229						41		%				49,186						15		%
Employee compensation																								228,756						25		%				235,818						29		%				(7,062)						(3)		%
General and administrative																								82,764						9		%				90,425						11		%				(7,661)						(8)		%
Depreciation and amortization																								92,618						10		%				76,670						9		%				15,948						21		%
Gain on deconsolidation																								(19,523)						(2)		%				—						—		%				(19,523)						(100)		%
Total operating expenses																								771,030						84		%				740,142						91		%				30,888						4		%
Income from operations																								$	142,411					16		%				$	75,574					9		%				$	66,837					88		%

 Asset-based recurring revenue

Asset-based recurring revenue increased $90.5 million, or 16%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms increased from approximately 38,000 as of September 30, 2023 to approximately 39,000 as of September 30, 2024, and the number of AUM/A client accounts increased from approximately 2.9 million as of September 30, 2023 to approximately 3.2 million as of September 30, 2024.

As a percentage of segment revenue, asset based recurring revenue increased 3% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

Subscription-based recurring revenue

Subscription-based recurring revenue increased $10.4 million, or 4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to new and existing customer growth.

Professional services and other revenue

Professional services and other revenue decreased $3.2 million, or 18%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to timing of the completion of customer projects and deployments.

Direct expense

 

Direct expense increased $49.2 million, or 15%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due an increase in asset-based direct expense, which directly correlates with the increase in asset-based recurring revenue during the period.

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Employee compensation

 

Employee compensation decreased $7.1 million, or 3%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to decreases in severance expense of $7.4 million, salaries, benefits and related payroll taxes of $6.3 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $8.6 million.

As a percentage of segment revenue, employee compensation expense decreased 4% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the decrease in employee compensation coupled with the increase in segment revenue period over period.

General and administrative

General and administrative expense decreased $7.7 million, or 8%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to decreases in restructuring charges and transaction costs of $3.1 million, professional and legal fees of $1.5 million, marketing expense of $1.4 million and other immaterial decreases within general and administrative expense.

 

Depreciation and amortization

 

Depreciation and amortization expense increased $15.9 million, or 21%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to increases in amortization related to internally developed software of $18.6 million, primarily a result of writing off $13.8 million of net capitalized internally developed software costs during the nine months ended September 30, 2024, and depreciation related to property and equipment of $0.8 million, partially offset by a decrease in amortization related to intangible assets of $3.5 million.

Gain on deconsolidation

Gain on deconsolidation increased $19.5 million, or 100%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to the recognition of a non-cash gain on deconsolidation of a non-controlling financial interest during the nine months ended September 30, 2024.

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Envestnet Data & Analytics

Three months ended September 30, 2024 compared to three months ended September 30, 2023

																		Three Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Subscription-based																								$	32,685					95		%				$	33,939					90		%				$	(1,254)					(4)		%
Professional services and other revenue																								1,741						5		%				3,665						10		%				(1,924)						(52)		%
Total revenue																								34,426						100		%				37,604						100		%				(3,178)						(8)		%
Operating expenses:
Direct expense																								7,084						21		%				6,018						16		%				1,066						18		%
Employee compensation																								11,468						33		%				20,395						54		%				(8,927)						(44)		%
General and administrative																								15,275						44		%				12,388						33		%				2,887						23		%
Depreciation and amortization																								8,105						24		%				6,797						18		%				1,308						19		%
Total operating expenses																								41,932						122		%				45,598						121		%				(3,666)						(8)		%
Loss from operations																								$	(7,506)					(22)		%				$	(7,994)					(21)		%				$	488					6		%

 

Subscription-based recurring revenue

 

Subscription-based recurring revenue decreased $1.2 million, or 4%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a loss in access to data in the research business.

As a percentage of segment revenue, subscription-based recurring revenue increased 5% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a larger decrease in professional services and other revenue compared to the decrease in subscription-based revenue.

Professional services and other revenue

 

Professional services and other revenue decreased $1.9 million, or 52%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease in point in time revenue recognized on customer deployments.

As a percentage of segment revenue, professional services and other revenue decreased 5% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a larger decrease in professional services and other revenue compared to the decrease in subscription-based revenue.

Direct expense

 

Direct expense increased $1.1 million, or 18%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to increased costs related to migrating infrastructure to the cloud.

As a percentage of segment revenue, direct expense increased 5% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to a decrease in total revenue compared to the increase in direct expense.

Employee compensation

Employee compensation decreased $8.9 million, or 44%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to decreases in severance expense of $5.9 million and salaries, benefits and related payroll taxes of $2.4 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation.

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As a percentage of segment revenue, employee compensation expense decreased 21% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to the decrease in employee compensation expense period over period due to a lower number of employees in 2024 compared to the prior period.

General and administrative

General and administrative expense increased $2.9 million, or 23%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to increases in a Convertible Promissory Note impairment of $3.7 million, litigation, regulatory and other governance related expenses of $0.6 million and other immaterial increases within general and administrative expense, partially offset by decreases in website and systems development of $0.9 million and marketing expense of $0.8 million.

As a percentage of segment revenue, general and administrative expense increased 11% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in general and administrative expense and a decrease in segment revenue period over period.

Depreciation and amortization

 

Depreciation and amortization expense increased $1.3 million, or 19%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 due to an increase in amortization related to internally developed software of $1.8 million, partially offset by decreases in depreciation related to property and equipment of $0.3 million and amortization related to intangible assets of $0.2 million.

As a percentage of segment revenue, depreciation and amortization expense increased 6% points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in depreciation and amortization expense and a decrease in segment revenue period over period.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

																		Nine Months Ended September 30,
																		2024												2023
																								Amount						% of Revenue						Amount						% of Revenue						$ Change						% Change
																		(in thousands)												(in thousands)												(in thousands)
Revenue:
Subscription-based																								$	99,233					94		%				$	105,763					94		%				$	(6,530)					(6)		%
Professional services and other revenue																								6,498						6		%				6,509						6		%				(11)						—		%
Total revenue																								105,731						100		%				112,272						100		%				(6,541)						(6)		%
Operating expenses:
Direct expense																								21,057						20		%				17,080						15		%				3,977						23		%
Employee compensation																								35,032						33		%				59,476						53		%				(24,444)						(41)		%
General and administrative																								45,859						43		%				41,609						37		%				4,250						10		%
Depreciation and amortization																								22,537						21		%				19,315						17		%				3,222						17		%
Goodwill impairment																								96,269						91		%				—						—		%				96,269						100		%
Total operating expenses																								220,754						209		%				137,480						122		%				83,274						61		%
Loss from operations																								$	(115,023)					(109)		%				$	(25,208)					(22)		%				$	(89,815)					*

__________________________________________________________

*Not meaningful

Subscription-based recurring revenue

 

Subscription-based recurring revenue decreased $6.5 million, or 6%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a loss in access to data in the research business and continued impact from the regional banking crisis.

 

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Professional services and other revenue

 

Professional services and other revenue remained consistent for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the timing of in point in time revenue recognized on customer deployments.

Direct expense

 

Direct expense increased $4.0 million, or 23%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to increased costs related to migrating infrastructure to the cloud.

As a percentage of segment revenue, direct expense increased 5% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the increase in direct expense and decrease in segment revenue period over period.

Employee compensation

Employee compensation decreased $24.4 million, or 41%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to decreases in severance expense of $11.2 million, salaries, benefits and related payroll taxes of $10.3 million and stock-based compensation of $1.5 million, primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation.

As a percentage of segment revenue, employee compensation expense decreased 20% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to the decrease in employee compensation expense period over period due to a lower number of employees in 2024 compared to the prior period.

General and administrative

General and administrative expenses increased $4.3 million, or 10%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to increases in a Convertible Promissory Note impairment of $3.7 million, litigation, regulatory and other governance related expenses of $3.4 million and other immaterial increases within general and administrative expense, partially offset by decreases in marketing expense of $2.1 million and website and systems development costs of $1.5 million.

As a percentage of segment revenue, general and administrative expense increased 6% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in general and administrative expense and a decrease in segment revenue period over period.

Depreciation and amortization

 

Depreciation and amortization expense increased $3.2 million, or 17%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to an increase in amortization related to internally developed software of $4.7 million, partially offset by decreases in depreciation related to property and equipment of $0.9 million and amortization related to intangible assets of $0.6 million.

As a percentage of segment revenue, depreciation and amortization expense increased 4% points for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to an increase in depreciation and amortization expense and a decrease in segment revenue period over period.

Goodwill impairment

Goodwill impairment increased $96.3 million, or 100%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 as a result of the recognition of a non-cash impairment charge to goodwill during the nine months ended September 30, 2024.

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Nonsegment

Three months ended September 30, 2024 compared to three months ended September 30, 2023

																		Three Months Ended September 30,												$						%
																		2024						2023						Change						Change
																		(in thousands, except percentages)
Operating expenses:
Employee compensation																								$	15,669					$	14,066					$	1,603					11		%
General and administrative																								20,129						7,610						12,519						*
Nonsegment operating expenses																								$	35,798					$	21,676					$	14,122					65		%

__________________________________________________________

*Not meaningful

Employee compensation

 

Employee compensation increased $1.6 million, or 11%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to an increase in severance expense of $2.1 million and other immaterial increases within employee compensation, partially offset by a decrease in non-cash compensation of $0.6 million.

 

General and administrative

 

General and administrative expense increased $12.5 million for the three months ended September 30, 2024 compared to the three months ended September 30, 2023 primarily due to increases in merger related costs of $9.0 million, professional and legal fees of $3.5 million and restructuring charges and transaction costs of $0.9 million, partially offset by other immaterial decreases within general and administrative expense.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

																		Nine Months Ended September 30,
																		2024						2023						$ Change						% Change
																		(in thousands, except percentages)
Operating expenses:
Employee compensation																								$	47,417					$	49,352					$	(1,935)					(4)		%
General and administrative																								39,804						26,782						13,022						49		%
Nonsegment operating expenses																								$	87,221					$	76,134					$	11,087					15		%

 

Employee compensation

 

Employee compensation decreased $1.9 million, or 4%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in non-cash compensation expense of $2.5 million, partially offset by other immaterial increases within employee compensation.

 

General and administrative

 

General and administrative expense increased $13.0 million, or 49%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to increases in merger related costs of $14.1 million and professional and legal fees of $1.9 million, partially offset by decreases in litigation, regulatory and other governance related expenses of $1.7 million and other immaterial decreases within general and administrative expense.

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Non-GAAP Financial Measures

In addition to reporting results according to GAAP, we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. We believe these non-GAAP financial measures are useful supplemental metrics that provide greater transparency into our results of operations and can assist both management and investors in understanding and assessing the operational performance of our business on a consistent basis, as it removes the impact of non-cash or non-recurring items from operating results and provides an additional tool to compare our results with other companies in the industry, many of which present similar non-GAAP financial measures. Those measures include “adjusted EBITDA,” “adjusted net income,” “adjusted net income per diluted share" and "free cash flow."

“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, income tax provision (benefit), depreciation and amortization, goodwill impairment, gain on deconsolidation, non‑cash compensation expense, restructuring charges and transaction costs, merger related costs, Convertible Promissory Note impairment, severance expense, litigation, regulatory and other governance related expenses, foreign currency, non-income tax expense adjustment, fair market value adjustments to investments in private companies, (gain) loss from equity method investments and loss attributable to non‑controlling interest.

“Adjusted net income” represents net income (loss) before income tax provision (benefit), gain (loss) from equity method investments, deferred revenue fair value adjustment, non‑cash interest expense, cash interest on our Convertible Notes, amortization of acquired intangibles, goodwill impairment, gain on deconsolidation, non‑cash compensation expense, restructuring charges and transaction costs, merger related costs, Convertible Promissory Note impairment, severance expense, litigation, regulatory and other governance related expenses, foreign currency, non-income tax expense adjustment, fair market value adjustments to investments in private companies and loss attributable to non‑controlling interest. Reconciling items are presented gross of tax, and a normalized tax rate is applied to the total of all reconciling items to arrive at adjusted net income. The 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 shares outstanding. For purposes of the adjusted net income per share calculation, we assume all potential shares to be issued in connection with our Convertible Notes are dilutive.

"Free cash flow" represents net cash provided by (used in) operating activities less purchases of property and equipment and capitalization of internally developed software.

 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, Board and our management may also consider adjusted EBITDA and free cash flow, among other factors, when determining management’s incentive compensation.

We also present adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow as supplemental performance measures because we believe that they provide our Board, management and investors with additional information to assess our performance. Adjusted EBITDA, adjusted net income and adjusted net income per diluted share provide comparisons from period to period by excluding potential differences caused by changes in interest expense and interest income that are influenced by capital structure decisions and capital market conditions, income tax provision (benefit), 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, goodwill impairment, gain on deconsolidation, restructuring charges and transaction costs, merger related costs, Convertible Promissory Note impairment, severance expense, litigation, regulatory and other governance related expenses, foreign currency, non-income tax expense adjustment, fair market value adjustments to investments in private companies, (gain) loss from equity method investments and loss attributable to non‑controlling interest. Our management also believes it is useful to exclude non‑cash compensation expense from adjusted EBITDA, adjusted net income and adjusted net income per diluted share 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. Free cash flow is useful to

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analyze cash flows generated from our business and our ability to fund our ongoing operations, debt service obligations and to fund potential acquisitions or other strategic activities.

We believe adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow are useful to investors in evaluating our operating performance because securities analysts use adjusted EBITDA, adjusted net income (loss), adjusted net income (loss) per diluted share and free cash flow as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investors and analyst presentations will include adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow.

Adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow are not measurements of our financial performance under GAAP and should not be considered as an alternative to revenue, 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 EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow 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 EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

•Adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow do not reflect changes in, or cash requirements for, our working capital needs;

•Adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow do not reflect non‑cash components of employee compensation;

•Although depreciation and amortization are non‑cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;

•Due to either net losses before income tax expense or the use of federal and state net operating loss carryforwards, net cash paid for income taxes was $13.2 million and $13.6 million for the nine months ended September 30, 2024 and 2023, respectively. In the event that we 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 EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow differently than we do, limiting their usefulness as a comparative measure.

Management compensates for the inherent limitations associated with using adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow to net income (loss), net income (loss) per share and net cash provided by (used in) operating activities, the most directly comparable GAAP 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.

The following tables set forth reconciliations of GAAP financial measures to non-GAAP financial measures. See "Footnotes to GAAP to Non-GAAP Reconciliations" below for further detail on adjustments.

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The following table sets forth a reconciliation of net loss to adjusted EBITDA:

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands)
Net income (loss)						$	(1,661)					$	5,056					$	(80,323)					$	(60,837)
Add (deduct):
Deferred revenue fair value adjustment (1)						—						—						—						69
Interest income						(3,243)						(1,553)						(7,814)						(4,567)
Interest expense						7,404						6,202						19,590						19,053
Income tax provision (benefit) (2)(3)						2,864						(8,824)						3,717						15,363
Depreciation and amortization						35,530						32,400						115,155						95,985
Goodwill impairment (4)						—						—						96,269						—
Gain on deconsolidation (5)						—						—						(19,523)						—
Non-cash compensation expense (6)						16,484						17,298						53,204						58,141
Restructuring charges and transaction costs (7)						4,002						1,695						9,368						12,366
Merger related costs (8)						9,021						—						14,116						—
Convertible Promissory Note impairment (9)						3,700						—						3,700						—
Severance expense (10)						3,508						11,482						7,602						25,904
Litigation, regulatory and other governance related expenses (11)						1,253						604						7,561						5,823
Foreign currency (12)						116						223						162						330
Non-income tax expense adjustment (13)						37						(26)						(51)						(224)
Fair market value adjustments to investments in private companies (14)						—						(2,871)						1,508						(2,804)
Loss from equity method investments (15)						1,526						2,368						3,327						7,694
Loss attributable to non-controlling interest (16)						—						1,277						1,160						3,082
Adjusted EBITDA						$	80,541					$	65,331					$	228,728					$	175,378

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The following table sets forth a reconciliation of net loss to adjusted net income and adjusted net income per diluted share:

						Three Months Ended												Nine Months Ended
						September 30,												September 30,
						2024						2023						2024						2023
						(in thousands, except share and per share information)
Net income (loss)						$	(1,661)					$	5,056					$	(80,323)					$	(60,837)
Income tax provision (benefit) (2)(3)						2,864						(8,824)						3,717						15,363
Loss from equity method investments (15)						(1,526)						(2,368)						(3,327)						(7,694)
Income (loss) before income tax provision (benefit) and equity method investments						2,729						(1,400)						(73,279)						(37,780)
Add (deduct):
Deferred revenue fair value adjustment (1)						—						—						—						69
Non-cash interest expense (17)						1,420						1,389						4,237						4,258
Cash interest - Convertible Notes (18)						5,664						4,368						14,402						13,476
Amortization of acquired intangibles (19)						14,542						15,124						43,741						47,784
Goodwill impairment (4)						—						—						96,269						—
Gain on deconsolidation (5)						—						—						(19,523)						—
Non-cash compensation expense (6)						16,484						17,298						53,204						58,141
Restructuring charges and transaction costs (7)						4,002						1,695						9,368						12,366
Merger related costs (8)						9,021						—						14,116						—
Convertible Promissory Note impairment (9)						3,700						—						3,700						—
Severance expense (10)						3,508						11,482						7,602						25,904
Litigation, regulatory and other governance related expenses (11)						1,253						604						7,561						5,823
Foreign currency (12)						116						223						162						330
Non-income tax expense adjustment (13)						37						(26)						(51)						(224)
Fair market value adjustments to investments in private companies (14)						—						(2,871)						1,508						(2,804)
Loss attributable to non-controlling interest (16)						—						1,277						1,160						3,082
Adjusted net income before income tax effect						62,476						49,163						164,177						130,425
Income tax effect (20)						(15,931)						(12,536)						(41,865)						(33,258)
Adjusted net income						$	46,545					$	36,627					$	122,312					$	97,167
Basic number of weighted average shares outstanding						55,273,324						54,562,270						55,100,239						54,380,231
Effect of dilutive shares:
Convertible Notes (18)						10,811,884						10,811,884						10,811,884						11,176,254
Non-vested RSUs and PSUs						660,528						361,982						607,653						438,520
Options to purchase common stock						41,701						46,364						40,127						64,507
Diluted number of weighted average shares outstanding						66,787,437						65,782,500						66,559,903						66,059,512
Adjusted net income per diluted share						$	0.70					$	0.56					$	1.84					$	1.47

The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow:

						Nine Months Ended
						September 30,
						2024						2023
			(in thousands)
Net cash provided by operating activities						$	186,409					$	73,766
Less: Purchases of property and equipment						(5,939)						(18,275)
Less: Capitalization of internally developed software						(57,127)						(71,117)
Free cash flow						$	123,343					$	(15,626)

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The following tables set forth the reconciliations of income (loss) from operations to adjusted EBITDA for each segment for the three and nine months ended September 30, 2024 and 2023:

						Three Months Ended September 30, 2024
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Nonsegment						Total
						(in thousands)
Income (loss) from operations						$	50,310					$	(7,506)					$	(35,798)					$	7,006
Add (deduct):
Depreciation and amortization						27,425						8,105						—						35,530
Non-cash compensation expense (6)						11,048						1,823						3,613						16,484
Restructuring charges and transaction costs (7)						2,738						17						1,247						4,002
Merger related costs (8)						—						—						9,021						9,021
Convertible Promissory Note impairment (9)						—						3,700						—						3,700
Severance expense (10)						725						—						2,783						3,508
Litigation, regulatory and other governance related expenses (11)						—						1,253						—						1,253
Non-income tax expense adjustment (13)						37						—						—						37
Adjusted EBITDA						$	92,283					$	7,392					$	(19,134)					$	80,541

						Three months ended September 30, 2023
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Nonsegment						Total
						(in thousands)
Income (loss) from operations						$	30,271					$	(7,994)					$	(21,676)					$	601
Add (deduct):
Depreciation and amortization						25,603						6,797						—						32,400
Non-cash compensation expense (6)						10,955						2,175						4,168						17,298
Restructuring charges and transaction costs (7)						1,432						(98)						361						1,695
Severance expense (10)						4,901						5,902						679						11,482
Litigation, regulatory and other governance related expenses (11)						—						629						(25)						604
Non-income tax expense adjustment (13)						(26)						—						—						(26)
Loss attributable to non-controlling interest (16)						1,277						—						—						1,277
Adjusted EBITDA						$	74,413					$	7,411					$	(16,493)					$	65,331

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						Nine Months Ended September 30, 2024
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Nonsegment						Total
						(in thousands)
Income (loss) from operations						$	142,411					$	(115,023)					$	(87,221)					$	(59,833)
Add (deduct):
Depreciation and amortization						92,618						22,537						—						115,155
Goodwill impairment (4)						—						96,269						—						96,269
Gain on deconsolidation (5)						(19,523)						—						—						(19,523)
Non-cash compensation expense (6)						33,795						5,591						13,818						53,204
Restructuring charges and transaction costs (7)						4,844						756						3,768						9,368
Merger related costs (8)						—						—						14,116						14,116
Convertible Promissory Note impairment (9)						—						3,700						—						3,700
Severance expense (10)						3,161						13						4,428						7,602
Litigation, regulatory and other governance related expenses (11)						—						7,561						—						7,561
Non-income tax expense adjustment (13)						(51)						—						—						(51)
Loss attributable to non-controlling interest (16)						1,160						—						—						1,160
Adjusted EBITDA						$	258,415					$	21,404					$	(51,091)					$	228,728

						Nine months ended September 30, 2023
						Envestnet Wealth Solutions						Envestnet Data & Analytics						Nonsegment						Total
						(in thousands)
Income (loss) from operations						$	75,574					$	(25,208)					$	(76,134)					$	(25,768)
Add (deduct):
Deferred revenue fair value adjustment (1)						69						—						—						69
Depreciation and amortization						76,670						19,315						—						95,985
Non-cash compensation expense (6)						34,747						7,057						16,337						58,141
Restructuring charges and transaction costs (7)						7,985						214						4,167						12,366
Severance expense (10)						10,553						11,227						4,124						25,904
Litigation, regulatory and other governance related expenses (11)						—						4,163						1,660						5,823
Non-income tax expense adjustment (13)						(153)						(71)						—						(224)
Loss attributable to non-controlling interest (16)						3,082						—						—						3,082
Adjusted EBITDA						$	208,527					$	16,697					$	(49,846)					$	175,378

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Footnotes to GAAP to Non-GAAP Reconciliations

(1)Deferred revenue fair value adjustment represents the effect of purchase accounting on the fair value of acquired deferred revenue in accordance with ASC 606.

(2)For the three months ended September 30, 2024 and 2023, the effective tax rate computed in accordance with GAAP equaled 238.1% and 234.2%, respectively. For the nine months ended September 30, 2024 and 2023, the effective tax rate computed in accordance with GAAP equaled (4.9)% and (33.8)%, respectively.

(3)As of December 31, 2023, we had net operating loss carryforwards, before any uncertain tax position reserves, of approximately $64 million and $225 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 both the amount calculated in accordance with GAAP using the effective income tax rate and from the income tax effect amount calculated using the normalized effective tax rate.

(4)Goodwill impairment represents the recognition of a non-cash impairment charge to goodwill in the Envestnet Data & Analytics reporting unit. These charges are infrequent and outside the ordinary course of our continuing operations. We exclude these charges to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

(5)Gain on deconsolidation represents the non-cash gain on the deconsolidation of our non-controlling interest. These gains are infrequent and outside the ordinary course of our continuing operations. We exclude these gains to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

(6)Non-cash compensation expense represents expense related to stock-based awards made to employees and directors. We exclude stock-based compensation because the Company does not view it as reflective of our core operating performance as it is a non-cash expense.

(7)Restructuring charges and transaction costs represent third-party costs incurred related to significant, distinct enterprise-wide strategic initiatives such as the closure of certain offices in the United States, acquisition and transaction related expenditures, excluding merger related costs, and system integration costs related to implementation of a new Enterprise Resource Planning System. These third-party costs are infrequent and outside the ordinary course of our continuing operations. We exclude these costs to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

(8)Merger related costs represents costs incurred related to the Merger Agreement entered into on July 11, 2024 with BCPE Pequod Buyer, Inc., a Delaware corporation and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent. These costs are outside the ordinary course of our continuing operations. We exclude these costs to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

(9)Due to a change in circumstance for the Convertible Promissory Note customer, the estimated recoverable value of the loan was reassessed during the third quarter of 2024, which resulted in the recognition of non-cash impairment charge. This charge was outside the ordinary course of our continuing operations and excluded to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

(10)Severance expense represents severance and related costs associated with certain strategic initiatives that have reshaped our workforce such as an organizational realignment in the fourth quarter of 2022, post-acquisition integration activity and a reduction in force initiative in 2023. These are not reflective of future ongoing operations and affect comparability of the Company’s operational results across reporting periods.

(11)Litigation, regulatory and other governance related expenses represent certain third-party non-recurring litigation fees primarily related to litigation matters discussed in Note 19—Commitments and Contingencies as well as governance related expenses associated with activist shareholder activity. The litigation costs relate to two matters over a three-year time period and are not reoccurring expenditures.

(12)Foreign currency represents gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts. These adjustments can vary significantly from period to period and are not indicative of our core operating performance.

(13)Non-income tax expense adjustments relate to the remediation of historical sales and use tax issues and are not indicative of our core operating performance.

(14)Fair market value adjustments to investments in private companies represents non-recurring unrealized gains and losses related to the Company’s investments. These adjustments are infrequent and outside the ordinary course of our continuing operations.

(15)Gain (loss) from equity method investments represents gains and losses related to our equity method investments. These investments are not part of our core business and the ventures associated with these investments generally are start-up or early-stage businesses where we have limited influence over their operational and financial policies. The results of operations for each of these investments can vary significantly from period to period and do not represent the Company’s ongoing operations.

(16)Loss attributable to non-controlling interest represents the loss attributable to the Company’s minority economic interest in a private company excluding the impact of non-cash or non-recurring items included within other line items. Before April 1, 2024, the Company consolidated its minority interest in a private company as a result of its ability to control this private company interest through majority representation on the board, the Company has excluded loss attributable to non-controlling interest as it owns a minority economic interest in the private company. This private company is a start-up business and the results of its operations vary significantly from period to period and are not representative of the Company’s financial performance. Effective April 1, 2024, the Company no longer had majority representation of the company's board and therefore no longer had a controlling financial interest in this private company which resulted in the deconsolidation of this private company's assets, liabilities and results of operations starting April 1, 2024.

(17)Non-cash interest expense represents third-party costs incurred in securing debt and are amortized over the term of the debt. We exclude non-cash interest expense because the Company does not view this expense as reflective of our core operating performance as it is a non-cash expense.

(18)For purposes of computing adjusted net income and adjusted net income per share, the Company always assumes the convertible notes to be fully converted for all periods presented. Therefore, cash interest for convertible notes is added to adjusted net income in accordance with the if-converted method.

(19)Amortization of acquired intangibles represents non-cash amortization expense from intangible assets acquired through acquisitions. The fair value of these acquired intangible assets are estimates and the Company does not view it as reflective of our core operating performance as it is a non-cash expense.

(20)Income tax effect represents the tax effect of Non-GAAP adjustments as described above and is calculated using an estimated normalized tax rate of 25.5% for both the three and nine months ended September 30, 2024 and 2023.

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Liquidity and Capital Resources

 

Our primary sources of liquidity include cash provided by operating activities, including fluctuations in working capital, and access to external capital. Our working capital is affected by the timing of payments related to fees receivable, investment manager fees, employee compensation, income tax, our annual Advisor Summit and various other items. Historically the first quarter of the year is our lowest quarter of cash provided by operating activities primarily due to the payment of annual bonuses during the first quarter of the year following the year they were incurred and prepayments made during the first quarter of the year associated with our Advisor Summit which is held during the second quarter of the year.

We believe our existing cash and cash equivalents and cash generated in the ongoing operations of our business will be sufficient to fund our current operations, including capital expenditure needs and debt service obligations, over the next twelve months and beyond. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to borrow under our Revolving Credit Facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities.

We will continue to actively manage our cash balances by making decisions regarding the amounts, timing and manner in which cash is generated and used in order to ensure we are able to meet our cash, capital and liquidity requirements and maintain operations for both the short and long term.

The Company issued $517.5 million aggregate principal amount of 0.75% Convertible Notes due 2025 in August 2020. As of September 30, 2024, $317.5 million aggregate principal of the Convertible Notes due 2025 remained outstanding. Pursuant to the indenture under which the Convertible Notes due 2025 were issued, the Company was required to remove a restrictive legend on the Convertible Notes due 2025 relating to restrictions on transfer under the Securities Act of 1933, as amended, on or before September 9, 2021. Due to a clerical error, the restrictive legend was not removed until June 18, 2022. As a result of its failure to remove the legend on a timely basis, the Company was required to pay certain amounts of additional interest and interest thereon after February 15, 2022. Failure to pay the Additional Interest constituted an event of default under the Indenture. The event of default under the Indenture was cured with the payment of an immaterial amount of Additional Interest, as well as certain penalties, in August 2024. In addition, the event of default under the Indenture resulted in an event of default under the Revolving Credit Facility due to a cross-default provision in the Revolving Credit Facility. The resulting event of default was waived by the required lenders under the Revolving Credit Facility in August 2024. As a result, any and all existing defaults and events of default that had arisen or may have arisen therefrom were cured and the Company was in compliance with the covenants contained in the Indenture and the Revolving Credit Facility as of August 9, 2024 and continues to be in compliance as of September 30, 2024.

In connection with the Merger, on October 2, 2024, subsequent to September 30, 2024, the Company gave notice to the Trustees and holders of the Convertible Notes due 2025 and Convertible Notes due 2027 that the Merger constitutes a Fundamental Change and a Make Whole Fundamental Change under each of the indentures under which the Convertible Notes were issued and that the Convertible Notes due 2025 and Convertible Notes due 2027 may be surrendered by the holders for conversion. As a result of this event, the Convertible Notes due 2027 will be reclassified from Debt, net of current portion to Current portion of debt on the condensed consolidated balance sheets during the fourth quarter of 2024.

As of September 30, 2024, we had total cash and cash equivalents of $193.4 million, no amounts outstanding under the Revolving Credit Facility and $500.0 million available to borrow under the Revolving Credit Facility, subject to covenant compliance.

Cash Flows

 

The following table presents a summary of our cash flows:

						Nine Months Ended
						September 30,
						2024						2023
						(in thousands)
Net cash provided by operating activities						$	186,409					$	73,766
Net cash used in investing activities						(81,675)						(125,167)
Net cash used in financing activities						(2,750)						(71,458)
Effect of exchange rate on changes on cash and cash equivalents						(6)						3,897
Net change in cash and cash equivalents						$	101,978					$	(118,962)

 

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Operating Activities

 

Net cash provided by operating activities increased $112.6 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 due to an increase of $72.4 million in cash provided by our business operations and $40.2 million in cash provided due to timing of payments within our working capital accounts. Our working capital is affected by the timing of payments related to several items, including but not limited to, employee incentives, income tax payments and cash collections from our clients. For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, the increase of $40.2 million in cash provided within our working capital accounts is primarily related to timing of cash collections from our clients and cash payment timing differences within accounts payable and accrued expenses and prepaid expenses and other assets.

Investing Activities

 

Net cash used in investing activities decreased $43.5 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in cash used related to an issuance of loan receivable to a private company of $20.0 million, a decrease in capitalization of internally developed software of $14.0 million, a decrease in cash used to purchase property and equipment of $12.3 million, a decrease in cash used to acquire proprietary technology of $7.5 million and a decrease in cash used for investments in private companies of $1.1 million, partially offset by $11.1 million in cash associated with the deconsolidation of our non-controlling interest during the nine months ended September 30, 2024.

 

Financing Activities

 

Net cash used in financing activities increased $68.7 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to settling the remaining aggregate principal amount of $45.0 million on the Convertible Notes due 2023 during the nine months ended September 30, 2023, cash proceeds from capital contributions received by non-controlling interest of $12.0 million during the nine months ended September 30, 2024, a decrease in cash used for share repurchases of $9.3 million, a decrease in cash paid related to tax withholdings for stock-based compensation of $1.2 million and a decrease in cash used to purchase non-controlling units from third-party shareholders of $1.0 million.

Commitments and Off-Balance Sheet Arrangements

 

Purchase Obligations and Indemnifications

 

See “Part I, Item 1, Note 19—Commitments and Contingencies, Purchase Obligations and Indemnifications.”

Acquisition of Redi2 Technologies

See “Part I, Item 1, Note 19—Commitments and Contingencies” for details related to this transaction.

Legal Proceedings

 

See “Part I, Item 1, Note 19—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. See "Note 2—Basis of Presentation" to the consolidated financial statements in our Annual Report for 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 Annual Report include, but are not limited to, the discussion of estimates used for recognition of revenue, 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.

 

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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 Annual Report.

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, 2024. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are 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 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 this evaluation of our disclosure controls and procedures as of September 30, 2024, 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 nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

 

The information in Part I, Note 19—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 Annual Report when making investment decisions regarding our securities. Except as set forth below, the risk factors that were disclosed in our Annual Report have not materially changed since the date the Annual Report was filed.

While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could harm our business relationships, financial condition, results of operations and business.

On July 11, 2024, the Company entered into an Agreement and Plan of Merger with BCPE Pequod Buyer, Inc., a Delaware corporation, and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent. During the period prior to the closing of the Merger and pursuant to the terms of the Merger Agreement, our business is exposed to certain incremental risks and contractual restrictions that could harm our business relationships, financial condition, results of operations, and business, including:

•the proposed Merger and its announcement could have an adverse effect on our ability to retain customers and retain and hire key personnel and maintain relationships with our customers and business partners;

•the diversion of management time and attention, as well as distraction of our key personnel, from the Company’s ordinary course of business operations;

•delays or deferments of certain business decisions by our customers and business partners, who may defer decisions about working with us, move to our competitors, or seek to delay or change existing business relationships with us;

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•our inability to solicit other acquisition proposals, pursue alternative business opportunities, to freely issue securities, incur or refinance certain indebtedness, or make certain material capital expenditures without Parent’s prior approval;

•the proposed Merger and the termination fee of $90.65 million that we may be required to pay under certain circumstances if the Merger does not close may negatively impact the structure, pricing and terms proposed by a third party seeking to acquire or merge with the Company or deter such third party from making a competing acquisition proposal;

•the inability to make strategic changes to our business because the Merger Agreement requires us to use reasonable best efforts to conduct our business in the ordinary course of business and not engage in certain kinds of transactions prior to the completion of the proposed Merger without Parent’s approval;

•negative publicity as a result of significant delays in completing the Merger or the failure to complete the Merger, which, in turn, could negatively affect our relationships with business partners and could impact investor and consumer confidence in our business;

•any litigation relating to the Merger and the costs related thereto; and

•the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger.

The Merger may not be completed within the intended timeframe, or at all, and the failure to complete the Merger could adversely affect our business, results of operations, financial condition, and the market price of our common stock.

The Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Merger, including the receipt of specified consents and approvals, some of which have not yet been received may not be received at all, may not be received in a timely fashion, or may impose conditions on the completion of the Merger. We cannot assure that all of the conditions in the Merger Agreement will be satisfied or waived on a timely basis or at all. If the conditions in the Merger Agreement are not satisfied or waived on a timely basis or at all, or if Parent failed to obtain financing necessary to complete the proposed transaction, we may be unable to complete the Merger in the timeframe or manner currently anticipated or at all.

If the Merger is delayed or not completed, without realizing any of the benefits of having completed the Merger, we may be subject to a number of risks, including the following:

•the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the Merger will be completed;

•commitments of management’s time and resources to the Merger that could otherwise have been devoted to pursuing other beneficial opportunities for the Company;

•we may experience negative reactions from the financial markets or from our customers, suppliers, business partners or employees;

•any disruptions to our business resulting from the announcement and pendency of the Merger, including adverse changes in our relationships with customers, suppliers, partners and employees, may continue or intensify in the event the Merger is not consummated or is significantly delayed;

•the inability to attract and retain key personnel and recruit prospective employees, and the possibility that our current employees could be distracted, and their productivity decline as a result, due to uncertainty regarding the Merger;

•the inability to pursue alternative business opportunities or make changes to our business pending the completion of the Merger, and other restrictions on our ability to conduct our business;

•we have incurred, and expect to continue incurring, significant costs, expenses, and fees for professional services and other Merger-related costs, for which we may receive little or no benefit if the Merger is not completed, and many of these fees and costs will be payable by us even if the Merger is not completed; and

•we may be required, if the Merger Agreement is terminated in certain limited circumstances, to pay a termination fee of $90.65 million as provided in the Merger Agreement which would require us to use cash that would have otherwise been available for general corporate purposes or other uses.

If any of these or other risks materialize, they could adversely impact our ongoing business, financial condition, financial results and the price of our common stock. Similarly, delays in the completion of the Merger could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the Merger.

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Stockholder litigation could prevent or delay the closing of the Merger or otherwise negatively impact our business, operating results and financial condition.

Two actions relating to the Merger have been filed against the Company and its Board of Directors. Among other remedies, these claimants are seeking damages and/or to enjoin the Merger and the other transactions contemplated by the Merger Agreement. Additional actions relating to the Merger may be filed against the Company and its Board of Directors. The outcome of any litigation is uncertain and any such lawsuits could prevent or delay the completion of the Merger and result in significant costs. The litigation costs, including costs associated with the indemnification of obligations to our directors, and diversion of management’s attention and resources to address the claims in any litigation related to the Merger may adversely affect our business, results of operations, prospects, and financial condition. Litigation related to the Merger may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our common stock, impair our ability to recruit or retain employees, damage our relationships with our customers and business partners, or otherwise harm our operations and financial performance.

The Merger will involve substantial costs and require substantial management resources, which could adversely affect our operating results and financial condition.

In connection with the consummation of the Merger, management and financial resources have been diverted and will continue to be diverted towards the completion of the Merger. We have incurred, and expect to continue to incur substantial costs and expenses relating to, as well as the direction of management resources towards, the Merger. Such costs, fees and expenses include fees and expenses payable to financial advisors, other professional fees and expenses, fees and costs relating to regulatory filings and filings with the SEC and notices and other transaction-related costs, fees and expenses. We expect these costs could have an adverse effect on our operating results. If the Merger is not completed, we will have incurred substantial expenses and expended substantial management resources for which we will have received little or no benefit if the closing of the Merger does not occur.

In connection with the Merger, our current and prospective employees could experience uncertainty about their future with us or decide that they do not want to continue their employment. As a result, key employees may depart because of issues relating to such uncertainty or a desire not to remain with the Company following the completion of the Merger. Losses of employees could adversely affect our business, results of operations, and financial condition. Such adverse effects could also be exacerbated by a delay in the completion of the Merger for any reason, including delays associated with obtaining requisite regulatory approvals.

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

 

(c)Issuer Purchases of Equity Securities

 

In 2016, the Company announced that our Board had authorized a share repurchase program under which the Company may repurchase up to 2.0 million shares of its common stock. The timing and volume of share repurchases will be determined by the Company's management based on its ongoing assessments of the capital needs of the business, the market price of 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.

There were no purchases of equity securities made under the share repurchase program during the nine months ended September 30, 2024. As of September 30, 2024, 0.3 million shares are still available to be purchased under this program.

Item 3. Defaults Upon Senior Securities

 

None.

Item 4. Mine Safety Disclosures

 

Not applicable.

Item 5. Other Information

 

None.

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Item 6. Exhibits

 

(a)Exhibits

 

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

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INDEX TO EXHIBITS

Exhibit No.						Description
2.1**						Agreement and Plan of Merger, dated as of July 11, 2024, by and among BCP Pequod Buyer, Inc. BCPE Pequod Merger Sub. Inc. and Envestnet, Inc.
10.1						Second Amendment to Interim Executive Agreement
10.2						Form Retention Agreement
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 (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 (1)						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)

 

________________________________

(1) The material contained in Exhibit 32.1 and 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

* 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, 2024 and December 31, 2023; (iii) the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023; (iv) the Condensed Consolidated Statement of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended September 30, 2024 and 2023; (vi) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

** Certain exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of such schedules and exhibits, or any section thereof, to the SEC.

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GLOSSARY OF TERMS

The following abbreviations or acronyms used in this Quarterly Report are defined below:

Abbreviations or Acronyms						Definition
2010 Plan						2010 Long-Term Incentive Plan
2019 Equity Plan						2019 Acquisition Equity Incentive Plan
2024 Plan						2024 Long-Term Incentive Plan
Additional Interest						Additional interest and interest thereon required as a result of failure to remove the restrictive legend pursuant to the indenture under which the Convertible Notes due 2025 were issued
AETR						Annual effective tax rate
Annual Report						Form 10-K for the year ended December 31, 2023
ASC						Accounting Standards Codification™
ASC 310						Accounting Standards Codification Topic 310, Receivables
ASC 606						Accounting Standards Codification Topic 606, Revenue from Contracts with Customers
ASC 740-270						Accounting Standards Codification Topic 740, Income Taxes—Interim Reporting
ASC 842						Accounting Standards Codification Topic 842, Leases
ASU						Accounting Standards Update
Board						Board of Directors
Company						Envestnet, Inc. and its subsidiaries
Convertible Notes						Collectively the Convertible Notes due 2023, Convertible Notes due 2025 and Convertible Notes due 2027
Convertible Notes due 2023						$45.0 million of remaining aggregate principal amount of convertible notes with an interest rate of 1.75% per year that matured and were settled on June 1, 2023
Convertible Notes due 2025						$317.5 million of remaining aggregate principal amount of convertible notes with an interest rate of 0.75% per year that mature on August 15, 2025
Convertible Notes due 2027						$575.0 million aggregate principal amount of convertible notes with an interest rate of 2.625% per year that mature on December 1, 2027
Envestnet						Envestnet, Inc.
ETR						Effective tax rate
Exchange Act						Securities Exchange Act of 1934, as amended
FASB						Financial Accounting Standards Board
FinancialApps						FinancialApps, LLC
FinTech						Financial Technology
GAAP						United States Generally Accepted Accounting Principles
Indenture						Indenture under which the Convertible Notes due 2025 were issued
IRC Section 174						Internal Revenue Code of 1986, Section 174: Amortization of Research and Experimental Expenditures
PSU						Performance-based restricted stock unit
Quarterly Report						Form 10-Q for the quarter ended March 31, 2024
R&D						Research and Development.
Redi2						Redi2 Technologies Inc.
Redi2 acquisition						Stock purchase agreement between Envestnet and Redi2 Technologies, dated as of June 24, 2022
Revolving Credit Facility						Revolving credit facility of $500.0 million pursuant to the Third Amended and Restated Credit Agreement
RIAs						Registered investment advisors
RSU						Restricted stock unit
SEC						Securities and Exchange Commission
TCS						Tata Consultancy Services
Truelytics						Truelytics, Inc.
U.S.						United States
Waiver						Waiver with respect to the Revolving Credit Facility
Yodlee						Yodlee, Inc.

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SIGNATURES

 

Pursuant to the requirements 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.

 

			ENVESTNET, INC.
Date: November 8, 2024			By:			/s/ James L. Fox
						James L. Fox
						Interim Chief Executive Officer
						Principal Executive Officer
Date: November 8, 2024			By:			/s/ Joshua B. Warren
						Joshua B. Warren
						Chief Financial Officer
						Principal Financial Officer
Date: November 8, 2024			By:			/s/ Matthew J. Majoros
						Matthew J. Majoros
						Senior Vice President, Financial Reporting
						Principal Accounting Officer