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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
 
Commission file number 001-34835
env-logo.jpg
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware20-1409613
(State or other jurisdiction of
incorporation or organization)		(I.R.S Employer
Identification No.)
1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania
19312
(Address of principal executive offices)(Zip Code)
 Registrant’s telephone number, including area code:
(312) 827-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of exchange on which registered
Common Stock, par value $0.005 per shareENVNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerý Accelerated filer☐
Non-accelerated filer☐ 
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐  No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒
As of August 2, 2024, Envestnet, Inc. had 55,236,289 shares of common stock outstanding.


TABLE OF CONTENTS
Page




Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
June 30,December 31,
20242023
Assets
Current assets:
Cash and cash equivalents$121,967 $91,378 
Fees receivable, net129,252 120,958 
Prepaid expenses and other current assets57,899 51,472 
Total current assets309,118 263,808 
Property and equipment, net45,641 48,223 
Internally developed software, net205,090 224,713 
Intangible assets, net311,868 338,068 
Goodwill690,885 806,563 
Operating lease right-of-use assets, net65,257 69,154 
Investments in unconsolidated entities96,755 56,292 
Other assets70,358 70,431 
Total assets$1,794,972 $1,877,252 
Liabilities and equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities$225,508 $241,424 
Operating lease liabilities12,149 12,909 
Deferred revenue34,567 38,201 
Current portion of debt— 314,532 
Total current liabilities272,224 607,066 
Debt, net of current portion
879,079 562,080 
Operating lease liabilities, net of current portion95,294 100,830 
Deferred tax liabilities, net15,208 16,568 
Other liabilities16,820 16,202 
Total liabilities1,278,625 1,302,746 
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of June 30, 2024 and December 31, 2023
— — 
Common stock, par value $0.005, 500,000,000 shares authorized; 71,810,625 and 71,129,801 shares issued as of June 30, 2024 and December 31, 2023, respectively; 55,221,888 and 54,773,662 shares outstanding as of June 30, 2024 and December 31, 2023, respectively
358 355 
Treasury stock at cost, 16,588,737 and 16,356,139 shares as of June 30, 2024 and December 31, 2023, respectively
(284,728)(272,573)
Additional paid-in capital1,243,483 1,206,627 
Accumulated deficit(434,339)(357,651)
Accumulated other comprehensive loss
(8,427)(8,567)
Total stockholders’ equity attributable to Envestnet, Inc.
516,347 568,191 
Non-controlling interest— 6,315 
Total equity516,347 574,506 
Total liabilities and equity$1,794,972 $1,877,252 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.


Envestnet, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)

Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
Revenue:
Asset-based$219,485 $185,762 $422,101 $362,694 
Subscription-based117,988 114,959 235,450 232,038 
Total recurring revenue337,473 300,721 657,551 594,732 
Professional services and other revenue10,800 11,713 15,672 16,409 
Total revenue348,273 312,434 673,223 611,141 
Operating expenses:
Direct expense144,351 124,209 270,984 233,888 
Employee compensation104,066 117,097 207,718 231,312 
General and administrative52,924 54,375 104,989 108,725 
Depreciation and amortization45,733 32,065 79,625 63,585 
Goodwill impairment
96,269 — 96,269 — 
Gain on deconsolidation(19,523)— (19,523)— 
Total operating expenses423,820 327,746 740,062 637,510 
Loss from operations
(75,547)(15,312)(66,839)(26,369)
Other expense, net
(4,788)(5,016)(9,169)(10,011)
Loss before income tax provision (benefit) and equity method investments
(80,335)(20,328)(76,008)(36,380)
Income tax provision (benefit)
(652)418 853 24,187 
Gain (loss) from equity method investments
482 (2,386)(1,801)(5,326)
Net loss
(79,201)(23,132)(78,662)(65,893)
Add: Net loss attributable to non-controlling interest— 1,716 1,974 3,249 
Net loss attributable to Envestnet, Inc.
$(79,201)$(21,416)$(76,688)$(62,644)
Net loss attributable to Envestnet, Inc. per share:
Basic and diluted
$(1.44)$(0.39)$(1.39)$(1.15)
Weighted average common shares outstanding:
Basic and diluted
55,143,013 54,439,733 55,013,544 54,289,443 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.


Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)
 
Three Months EndedSix Months Ended
June 30,June 30,
2024202320242023
Net loss attributable to Envestnet, Inc.
$(79,201)$(21,416)$(76,688)$(62,644)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments144 (96)140 4,181 
Total other comprehensive income (loss), net of tax144 (96)140 4,181 
Comprehensive loss attributable to Envestnet, Inc.
$(79,057)$(21,512)$(76,548)$(58,463)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.



Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share information)
(unaudited)

Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapital
Loss
DeficitInterestEquity
Balance, December 31, 202371,129,801 $355 (16,356,139)$(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 options20,033 — — — 71 — — — 71 
Proceeds from capital contributions received by non-controlling interest— — — — — — — 12,012 12,012 
Other— — — — — — — (258)(258)
Balance, March 31, 202471,633,071 358 (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 PSUs161,219 — — — — — — — — 
Net cash paid related to tax withholding for stock-based compensation— — (54,666)(3,706)— — — — (3,706)
Proceeds from the exercise of stock options16,335 — — — 653 — — — 653 
Deconsolidation of non-controlling interest— — — — — — — (16,421)(16,421)
Other— — — — (262)— — (262)
Balance, June 30, 202471,810,625 $358 (16,588,737)$(284,728)$1,243,483 $(8,427)$(434,339)$— $516,347 


Accumulated
AdditionalOtherNon-
Common StockTreasury StockPaid-inComprehensiveAccumulatedControllingTotal
SharesAmountSharesAmountCapitalLossDeficitInterestEquity
Balance, December 31, 202270,025,733 $350 (16,011,907)$(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 PSUs524,316 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 options37,454 — — — 367 — — — 367 
Purchase of non-controlling units from third-party shareholders— — — — (984)— — (24)(1,008)
Other— — — — — — — (22)(22)
Balance, March 31, 202370,587,503 352 (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 PSUs162,770 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 options2,500 — — — 105 — — — 105 
Other— — — — — — — 52 52 
Balance, June 30, 202370,752,773 $353 (16,241,490)$(267,325)$1,175,464 $(4,408)$(181,571)$9,945 $732,458 

See accompanying notes to unaudited Condensed Consolidated Financial Statements.


Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
20242023
Cash flows from operating activities:
Net loss
$(78,662)$(65,893)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization79,625 63,585 
Non-cash compensation expense36,720 40,843 
Non-cash interest expense2,817 2,251 
Non-cash goodwill impairment
96,269 — 
Non-cash gain on deconsolidation
(19,523)— 
Loss from equity method investments1,801 5,326 
Lease related impairments— 2,483 
Other2,120 (218)
Changes in operating assets and liabilities:
Fees receivable, net(12,813)(22,357)
Prepaid expenses and other assets(5,745)(6,762)
Accounts payable, accrued expenses and other liabilities(14,049)20,070 
Deferred revenue2,494 (852)
Net cash provided by operating activities91,054 38,476 
Cash flows from investing activities:
Purchases of property and equipment(5,172)(16,735)
Capitalization of internally developed software(38,751)(46,801)
Deconsolidation of non-controlling interest
(11,073)— 
Investments in private companies(3,055)(1,450)
Acquisition of proprietary technology(3,000)(12,000)
Issuance of loan receivable to private company— (20,000)
Other— 319 
Net cash used in investing activities(61,051)(96,667)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility— 40,000 
Payments related to Revolving Credit Facility— (20,000)
Payments related to Convertible Notes— (45,000)
Proceeds from exercise of stock options724 472 
Payments related to tax withholdings for stock-based compensation(12,155)(13,774)
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)
Other3 3 
Net cash provided by (used in) financing activities
584 (48,596)
Effect of exchange rate on changes on cash and cash equivalents
2 3,633 
Net change in cash and cash equivalents
30,589 (103,154)
Cash and cash equivalents, beginning of period
91,378 162,173 
Cash and cash equivalents, end of period
$121,967 $59,019 
Supplemental disclosures of cash flow information
Net cash paid for income taxes$6,098 $3,223 
Cash paid for interest$9,370 $10,600 
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares$— $4,129 
Right-of-use assets obtained in exchange for lease liabilities, net$— $380 
Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities$— $2,029 
See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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 June 30, 2024 and for the three and six months ended June 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 June 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 six months ended June 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.

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 is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 June 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.
In the condensed consolidated statements of operations these adjustments resulted in an increase in direct expense of $0.7 million, an increase in general and administrative expense of $1.1 million and a corresponding decrease in depreciation and amortization expense of $1.8 million for the three months ended June 30, 2023 and an increase in direct expense of $1.4 million, an increase in general and administrative expense of $1.8 million and a corresponding decrease in depreciation and amortization expense of $3.2 million for the six months ended June 30, 2023. In the condensed consolidated statements of cash flows for the six months ended June 30, 2023, these adjustments resulted in a decrease in net cash provided by operating activities of $0.8 million and a corresponding decrease in net cash provided by (used in) financing activities of $0.8 million.
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 six months ended June 30, 2023 and the condensed consolidated statements of cash flows for the six months ended June 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 3.7% 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 $3.3 million for the three months ended June 30, 2024 and 2023, respectively. Revenue from the private services company totaled $4.7 million and $6.9 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company recorded a net receivable from the private services company of $0.4 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").

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 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.


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
3.Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets consisted of the following:

June 30,December 31,
 20242023
(in thousands)
Prepaid technology$17,495 $14,630 
Income tax prepayments and receivables12,223 9,625 
Prepaid data servers6,132 7,991 
Non-income tax receivable4,030 4,041 
Prepaid insurance3,816 2,785 
Other14,203 12,400 
Total prepaid expenses and other current assets$57,899 $51,472 
  
4.Internally Developed Software, Net

Internally developed software, net consisted of the following:

  June 30,December 31,
 Estimated Useful Life20242023
(in thousands)
Internally developed software5 years$416,849 $405,078 
Less: accumulated amortization (211,759)(180,365)
Internally developed software, net $205,090 $224,713 

Due to a change in technology needs of the business, $12.9 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 six months ended June 30, 2024.

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:

 June 30,December 31,
 20242023
(in thousands)
United States$248,351 $270,381 
India2,380 2,555 
Total long-lived assets, net$250,731 $272,936 

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


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
6.Intangible Assets, Net 

Intangible assets, net consisted of the following:

 June 30, 2024December 31, 2023
 Gross NetGross Net
 CarryingAccumulatedCarryingCarryingAccumulatedCarrying
 AmountAmortizationAmountAmountAmortizationAmount
(in thousands)
Customer lists$593,200 $(335,834)$257,366 $604,080 $(327,042)$277,038 
Proprietary technologies89,857 (39,605)50,252 93,058 (37,052)56,006 
Trade names11,000 (6,750)4,250 15,700 (10,676)5,024 
Total intangible assets$694,057 $(382,189)$311,868 $712,838 $(374,770)$338,068 

During the six months ended June 30, 2024 and 2023, the Company retired fully amortized intangible assets with historical costs of $21.8 million and $17.5 million, respectively.

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

Remainder of 2024$28,595 
202554,573 
202647,048 
202738,272 
202830,896 
Thereafter112,484 
Total$311,868 

7.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:

Three Months EndedSix Months Ended
 June 30,June 30,
2024202320242023
(in thousands)
Intangible asset amortization$14,457 $15,720 $29,199 $32,660 
Internally developed software amortization (1)
28,238 12,398 44,106 23,488 
Property and equipment depreciation3,038 3,947 6,320 7,437 
Total depreciation and amortization$45,733 $32,065 $79,625 $63,585 
_________________________________________________________
(1) $12.9 million of net capitalized internally developed software costs was written off and included within internally developed software amortization expense during the three and six months ended June 30, 2024. See Note 4—Internally Developed Software, Net for further information.


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
8.Goodwill

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

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(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 June 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 for the three and six months ended June 30, 2024. Although the Company recorded this impairment charge in 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 three and six months ended June 30, 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 included the fair value of the investment of $41.9 million in investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 June 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 and $0.4 million, respectively. During the six months ended June 30, 2024 and 2023, interest income related to the Convertible Promissory Note was $0.8 million and $0.7 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. There was no impairment for this investment during the six months ended June 30, 2024.

11.Accounts Payable, Accrued Expenses and Other Current Liabilities
 
Accounts payable, accrued expenses and other current liabilities consisted of the following:

June 30,December 31,
 20242023
(in thousands)
Accrued investment manager fees$125,529 $106,612 
Accrued compensation and related taxes52,136 72,466 
Accounts payable19,437 35,738 
Accrued professional services17,132 14,289 
Accrued technology4,142 4,151 
Accrued interest2,473 2,473 
Other accrued expenses4,659 5,695 
Total accounts payable, accrued expenses and other current liabilities$225,508 $241,424 

As of June 30, 2024, the Company had an ending liability balance of $4.5 million primarily in connection with a reduction in force initiative that began during the first quarter of 2023. The Company anticipates approximately $1.9 million to be paid during the remainder of 2024, $1.7 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.

The following table presents a reconciliation of the beginning and ending liability balance related to this effort, of which $2.8 million is included within accrued compensation and related taxes in the table above:

 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsNonsegmentTotal
(in thousands)
Balance as of December 31, 2023$9,793 $486 $— $10,279 
Severance expense
2,436 13 1,645 4,094 
Cash payments(7,754)(499)(1,645)(9,898)
Balance as of June 30, 2024$4,475 $— $— $4,475 


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
12.Debt

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

 June 30, 2024
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$— $— $— $— 
Convertible Notes due 2025317,500 (2,060)315,440 307,778 
Convertible Notes due 2027575,000 (11,361)563,639 614,244 
Total debt$892,500 $(13,421)$879,079 $922,022 

 December 31, 2023
 Issuance AmountUnamortized Issuance CostsCarrying ValueFair Value (Level II)
(in thousands)
Revolving Credit Facility$— $— $— $— 
Convertible Notes due 2025317,500 (2,968)314,532 294,958 
Convertible Notes due 2027575,000 (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 June 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, the Company was in compliance with the covenants contained in the Indenture and the Revolving Credit Facility as of August 9, 2024 and any and all existing defaults and events of default that had arisen or may have arisen therefrom were cured.

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 June 30, 2024 and December 31, 2023.

As of June 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 $0.7 million, respectively, and included in other assets in the condensed consolidated balance sheets were $1.1 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.

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

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and June 30, 2023. The Company was in compliance with all other covenants in the Revolving Credit Facility as of June 30, 2024.

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 EndedSix Months Ended
 June 30,June 30,
 2024202320242023
(in thousands)
Convertible Notes interest$4,369 $4,543 $8,738 $9,108 
Amortization of debt discount and issuance costs1,412 1,427 2,817 2,869 
Undrawn and other fees316 311 631 624 
Revolving Credit Facility interest— 250 — 250 
 Total interest expense$6,097 $6,531 $12,186 $12,851 

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:

 June 30,
 20242023
Convertible Notes due 20251.3 %1.3 %
Convertible Notes due 20273.2 %3.2 %

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:

 June 30, 2024
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$56,680 $56,680 $— $— 
Assets to fund deferred compensation liability11,444 — — 11,444 
Total assets$68,124 $56,680 $— $11,444 
Liabilities:    
Deferred compensation liability$8,917 $8,917 $— $— 
Total liabilities$8,917 $8,917 $— $— 


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
 December 31, 2023
 Fair ValueLevel ILevel IILevel III
(in thousands)
Assets:    
Money market funds$51,653 $51,653 $— $— 
Assets to fund deferred compensation liability10,961 — — 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 six months ended June 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 fees483 
Balance as of June 30, 2024$11,444 

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.

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities as of June 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 June 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 June 30, 2024 and December 31, 2023, based upon the short-term nature of these assets and liabilities.


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 June 30,
 20242023
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotalEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Revenue:      
Asset-based$219,485 $— $219,485 $185,762 $— $185,762 
Subscription-based84,734 33,254 117,988 79,744 35,215 114,959 
Total recurring revenue304,219 33,254 337,473 265,506 35,215 300,721 
Professional services and other revenue7,889 2,911 10,800 10,318 1,395 11,713 
Total revenue$312,108 $36,165 $348,273 $275,824 $36,610 $312,434 

 Six Months Ended June 30,
 20242023
 Envestnet Wealth SolutionsEnvestnet Data & AnalyticsTotalEnvestnet Wealth SolutionsEnvestnet Data & AnalyticsTotal
(in thousands)
Revenue:      
Asset-based$422,101 $— $422,101 $362,694 $— $362,694 
Subscription-based168,902 66,548 235,450 160,214 71,824 232,038 
Total recurring revenue591,003 66,548 657,551 522,908 71,824 594,732 
Professional services and other revenue10,915 4,757 15,672 13,565 2,844 16,409 
Total revenue$601,918 $71,305 $673,223 $536,473 $74,668 $611,141 

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

 Three Months EndedSix Months Ended
 June 30,June 30,
 2024202320242023
(in thousands)
United States$342,749 $306,946 $662,320 $600,160 
International5,524 5,488 10,903 10,981 
Total revenue$348,273 $312,434 $673,223 $611,141 

Remaining Performance Obligations
 
As of June 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 $546.9 million. The Company expects to recognize approximately 22% of this revenue during the remainder of 2024, approximately 56% throughout 2025 and 2026, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future periods.


Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Contract Balances

Total deferred revenue as of June 30, 2024 decreased by $4.0 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 June 30, 2024 will be recognized over the course of the next twelve months.

The amount of revenue recognized for the three months ended June 30, 2024 and 2023 that was included in the opening deferred revenue balance was $8.0 million and $11.5 million, respectively. The amount of revenue recognized for the six months ended June 30, 2024 and 2023 that was included in the opening deferred revenue balance was $23.9 million and $28.2 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 $10.5 million and $11.5 million as of June 30, 2024 and December 31, 2023, respectively. Amortization expense for deferred sales incentive compensation was $1.2 million for the three months ended June 30, 2024 and 2023. Amortization expense for deferred sales incentive compensation was $2.4 million and $2.3 million for the six months ended June 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 six months ended June 30, 2024 and 2023.

Direct Expense

The following table summarizes direct expense by revenue category: