Envestnet
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2015 ☐☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-34835 Envestnet, Inc.(Exact name of registrant as specified in its charter) Delaware 20-1409613(State or other jurisdiction ofincorporation or organization) (I.R.S EmployerIdentification No.) 35 East Wacker Drive, Suite 2400, Chicago, IL 60601(Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code:(312) 827-2800 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class: Name of Each Exchange on Which Registered:Common stock, par value $0.005 per share NYSE Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 duringthe 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 thepast 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted 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 registrantwas required to submit and post such files). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofthe registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer☒Accelerated filer☐ Non-accelerated filer☐Smaller reporting company☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒ Aggregate market value of registrant’s common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant’s commonstock on June 30, 2015 as reported on The New York Stock Exchange on that date: $974,384,652. For purposes of this calculation, shares of common stock held by(i) persons holding more than 5% of the outstanding shares of stock, and (ii) officers and directors of the registrant, as of June 30, 2015, are excluded in that suchpersons may be deemed to be affiliates. This determination is not necessarily conclusive of affiliate status. As of February 22, 2016, 42,007,403 shares of the common stock with a par value of $0.005 per share were outstanding. Table of ContentsTABLE OF CONTENTS Page PART I Forward‑Looking Statements 3 Item 1.Business4 Item 1A.Risk Factors20 Item 1B.Unresolved Staff Comments40 Item 2.Properties40 Item 3. Legal Proceedings41 Item 4.Mine Safety Disclosures42 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities43 Item 6.Selected Financial Data45 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations46 Item 7A.Quantitative and Qualitative Disclosures About Market Risk75 Item 8.Financial Statements and Supplementary Data76 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure126 Item 9A.Controls and Procedures126 Item 9B.Other Information129 PART III Item 10.Directors, Executive Officers and Corporate Governance130 Item 11.Executive Compensation130 Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters130 Item 13.Certain Relationships and Related Transactions, and Director Independence130 Item 14.Principal Accountant Fees and Services130 PART IV Item 15.Exhibits and Financial Statement Schedules131 SIGNATURES 135 2 Table of ContentsForward‑Looking StatementsUnless the context requires otherwise, the words “Envestnet,” “the Company,” “we,” “us” and “our” arereferences to Envestnet, Inc. and its subsidiaries as a whole.This annual report on Form 10‑K contains forward‑looking statements regarding future events and our futureresults within the meaning of the Private Securities Litigation Reform Act of 1995. These forward‑looking statementsinclude, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussionand Analysis of Financial Condition and Results of Operations.” These statements are based on our current expectationsand projections about future events and are identified by terminology such as“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” orthe negative of those terms or variations of such words, and similar expressions are intended to identify suchforward‑looking statements. In addition, any statements that refer to projections of our future financial performance, ouranticipated growth and trends in our business and other characteristics of future events or circumstances areforward‑looking statements. Forward‑looking statements may include, among others, statements relating to:·difficulty in sustaining rapid revenue growth, which may place significant demands on our administrative,operational and financial resources,·fluctuations in our revenue,·the concentration of nearly all of our revenues from the delivery of our solutions and services to clients in thefinancial services industry,·the impact of market and economic conditions on revenues,·our reliance on a limited number of clients for a material portion of our revenue,·the renegotiation of fee percentages or termination of our services by our clients,·our ability to identify potential acquisition candidates, complete acquisitions and successfully integrateacquired companies,·compliance failures,·regulatory actions against us,·the failure to protect our intellectual property rights,·our inability to successfully execute the conversion of clients’ assets from their technology platform to ourtechnology platforms in a timely and accurate manner,·general economic conditions, political and regulatory conditions,·the impact of fluctuations in interest rates on our business,·market conditions and our ability to issue additional debt and equity,·our ability to expand our relationships with existing customers, grow the number of customers and deriverevenue from new offerings such as our data analytic solutions and market research services and premiumFinApps,·our financial performance,3 Table of Contents·the results of our investments in research and development, our data center and other infrastructure,·our ability to realize operating efficiencies,·the advantages of our solutions as compared to those of others,·our ability to establish and maintain intellectual property rights,·our ability to retain and hire necessary employees and appropriately staff our operations, in particular ourIndia operations, and·management’s response to these factors.In addition, there may be other factors of which we are presently unaware or that we currently deem immaterialthat could cause our actual results to be materially different from the results referenced in the forward‑looking statements.All forward‑looking statements contained in this annual report and documents incorporated herein by reference arequalified in their entirety by this cautionary statement. Forward‑looking statements speak only as of the date they are made,and we do not intend to update or otherwise revise the forward‑looking statements to reflect events or circumstances afterthe date of this annual report or to reflect the occurrence of unanticipated events, except as required by applicable law. Ifwe do update one or more forward‑looking statements, no inference should be made that we will make additional updateswith respect to those or other forward‑looking statements.Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans,intentions or expectations.These forward‑looking statements involve risks and uncertainties. Important factors that could cause actual resultsto differ materially from the forward‑looking statements we make in this annual report are set forth in Part I under “RiskFactors”; accordingly, investors should not place undue reliance upon our forward‑looking statements.You should read this annual report on Form 10‑K completely and with the understanding that our actual futureresults, levels of activity, performance and achievements may be different from what we expect and that these differencesmay be material. We qualify all of our forward‑looking statements by these cautionary statements.The following discussion and analysis should also be read along with our consolidated financial statements andthe related notes included elsewhere in this annual report. Except for the historical information contained herein, thisdiscussion contains forward‑looking statements that involve risks and uncertainties. Actual results could differ materiallyfrom those discussed below.Except where we have otherwise indicated or the context otherwise requires, dollar amounts presented in thisForm 10‑K are in thousands, except for Item 9A, Exhibits and per share amounts. Item 1. BusinessGeneralWe were founded in 1999 and through organic growth and strategic transactions we have grown to become aleading provider of financial and wealth management technology and services to financial advisors, investors and financialservice providers.Envestnet is a leading provider of unified wealth management technology and services. Our open architectureplatforms unify and fortify the wealth management process, delivering unparalleled flexibility, accuracy, performance, andvalue. As of December 31, 2015, approximately 47,000 advisors used our technology platforms, supporting approximately$851 billion of assets in approximately 3.5 million investor accounts.4 Table of ContentsOn November 19, 2015 we acquired Yodlee, Inc. (“Envestnet | Yodlee”). Envestnet | Yodlee is a leading dataanalytics platform powering dynamic, cloud-based innovation for digital financial services. Our vision for Envestnet |Yodlee is to empower lives with innovative digital financial services. Envestnet | Yodlee customers include financialinstitutions, internet services companies providing innovative financial solutions and third-party developers of financialapplications. As of December 31, 2015, more than 950 organizations in over 15 countries use the Envestnet | Yodlee platformto power their consumer-facing digital offerings and we receive subscription fees for 21.3 million of these consumers, whomwe refer to as our paid users.Our headquarters are located in Chicago, Illinois and we have offices in New York, New York; Denver, Colorado;Seattle, Washington; Sunnyvale and Redwood City, California; Boston, Massachusetts; Landis and Raleigh, North Carolina;Addison, Texas; Tucson, Arizona; Berwyn, Pennsylvania and Trivandrum and Bangalore, India.We intend to continue to selectively pursue acquisitions, investments and other relationships that we believe canenhance the attractiveness of our technology platforms or expand our client base. Given our scale of operations and record ofpast transactions and access to capital, we believe we are well‑positioned to engage in such transactions in the future. Duringthe past three years we have acquired the following entities:·In July 2013, we acquired the Wealth Management Solutions (“WMS”) division of PrudentialInvestments. WMS offers financial institutions access to an integrated wealth platform, which helpsconstruct and manage sophisticated portfolio solutions across an entire account life cycle, particularlyin the area of UMA trading.·In February 2014, we formed Envestnet Retirement Solutions, LLC (“ERS”) with various third parties.ERS offers advisory and technology enabled services to financial advisors and retirement plans.·In October 2014, we acquired Placemark Holdings, Inc. (“Placemark”). Placemark, now operating asEnvestnet | Placemark develops UMA programs and other portfolio management outsourcingsolutions, including patented portfolio overlay and tax optimization services, for banks, full‑servicebroker‑dealers and RIA firms.·In February 2015, we acquired Upside Holdings, Inc. (“Upside”). Upside helps financial advisorscompete against other digital advisors, or “robo advisors,” by leveraging technology and algorithms toadvise, manage, and serve clients who want personalized investment services.·In May 2015, we acquired Oltis Software LLC (d/b/a Finance Logix®) (“Envestnet | Finance Logix”).Finance Logix provides financial planning and wealth management software solutions to banks,broker-dealers and RIAs.·In August 2015, we acquired Castle Rock Innovations, Inc. (“Castle Rock”). Castle Rock provides dataaggregation and benchmarking solutions to retirement plan record-keepers, broker-dealers, andadvisors.·In November 2015, we acquired Yodlee, Inc. (“Envestnet | Yodlee”). Envestnet | Yodlee is a leadingdata aggregation and data analytics platform powering dynamic, cloud-based innovation for digitalfinancial services.For the year ended December 31, 2015, we earned fees of $333,700 from assets under management (“AUM”) orassets under administration (“AUA” and collectively “AUM/A”), representing a 13% increase over earned fees from AUM/Ain 2014. Asset‑based fees accounted for approximately 79%, 84% and 83% of our total revenues for the years endedDecember 31, 2015, 2014 and 2013, respectively.5 Table of ContentsFor the year ended December 31, 2015, subscription and licensing revenues were $75,300, representing a 54%increase over subscriptions and licensing in 2014. Subscription and licensing revenues accounted for 18%, 14% and 15% ofour total revenues for the years ended December 31, 2015, 2014 and 2013, respectively.For the year ended December 31, 2015, professional services and other revenues were $12,000, representing a 108%increase over professional services and other revenues in 2014.SegmentsBusiness segments are generally organized around our service offerings. Financial information about each businesssegment is contained in Note 19 to the Consolidated Financial Statements. Our business segments are as follows:Envestnet is a leading provider of unified wealth management software and services empowering financial advisorsand institutions.Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services. Envestnet SegmentOverviewEnvestnet empowers financial advisors to deliver fee‑based advice to their clients. We work with both IndependentRegistered Investment Advisors (“RIAs”), as well as advisors associated with financial institutions such as broker‑dealers andbanks. The services we offer and market to financial advisors address advisors’ ability to grow their practice as well as tooperate more efficiently—the Envestnet platforms span the various elements of the wealth management process, from theinitial meeting an advisor has with a prospective client to the ongoing day‑to‑day operations of managing an advisorypractice.Our centrally‑hosted technology platforms, which we refer to as having “open architecture” because of theirflexibility, provides financial advisors with access to a series of integrated services to help them better serve their clients.These services include risk assessment and selection of investment strategies and solutions, asset allocation models, researchand due diligence, portfolio construction, proposal generation and paperwork preparation, model management and accountrebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management andsocially responsible investing, aggregated multi‑custodian performance reporting and communication tools, as well as accessto a wide range of leading third‑party asset custodians. We offer these solutions principally through the following product and services suites:·Envestnet | Advisor Suite empowers advisors to provide better client outcomes and strengthen their practice.Our cloud based platform unifies the applications and services advisors use to manage their practice and advisetheir clients, including data aggregation; financial planning; capital markets assumptions; asset allocationguidance; research and due diligence on investment managers and funds; portfolio management, trading andrebalancing; multi‑custodial, aggregated performance reporting; and billing calculation and administration.6 TMTable of Contents·Envestnet | PMC, our Portfolio Management Consultants (“PMC”) group primarily engages in research andconsulting services aimed at providing financial advisors with additional support in addressing their clients’needs, as well as the creation of investment solutions and products. Envestnet | PMC’s investment solutions andproducts include managed account and multi‑manager portfolios, mutual fund portfolios and Exchange TradedFunds (“ETF”) portfolios. Envestnet | PMC offers Prima Premium Research, comprising institutional‑qualityresearch and due diligence on investment managers, mutual funds, ETFs and liquid alternativesfunds. Envestnet | PMC also offers Overlay Services which includes patented portfolio overlay and taxoptimization services.·Envestnet | Tamarac provides leading portfolio accounting, rebalancing, trading, performance reporting andclient relationship management (“CRM”) software, principally to high‑end RIAs.·Envestnet | Retirement Solutions (ERS) offers a comprehensive suite of services designed specifically forretirement plan professionals. With our integrated technology, ERS addresses the regulatory, data, andinvestment needs of retirement plans and delivers the information holistically.·Envestnet | Vantage provides enterprise data solutions for financial institutions, aggregates and managesinvestment data, and provides multi-custodial consolidated performance reporting and benchmarking, givingclients an in‑depth view of all holdings, and empowering advisors and institutions to better manage theirbusiness.·Envestnet | Finance Logixprovides financial planning and wealth management software solutions to banks,broker-dealers and RIAs.·Envestnet | Advisor Now now offers private-labeled investor-facing technology that enables advisors andinstitutions to deliver a complete digital wealth management experience to their clients.We believe that our business model results in a high degree of recurring and predictable financial results. Themajority of our revenue is asset‑based, meaning it is derived from fees charged as a percentage of the assets that are managedor administered on our technology platforms by financial advisors. We also generate revenues from recurring, contractuallicensing fees for providing access to our technology platforms and from professional services. For over 85% of our asset‑based fee arrangements, we bill customers at the beginning of each quarter based on themarket value of customer assets on our technology platforms as of the end of the prior quarter, providing for a high degree ofrevenue visibility in the current quarter. Inherently, revenue from quarter to quarter may fluctuate based on changes in assetvalues or fee rates on those asset values. Furthermore, our licensing fees are highly predictable because they are generallyestablished in multi‑year contracts providing longer‑term visibility regarding that portion of our total revenues.As the tables below indicate, our wealth management solutions business has experienced steady and significantgrowth over the last several years. We believe this growth is attributable to secular trends in the wealth management industryas described below, the uniqueness and comprehensiveness of our products, as well as acquisitions.7 ®TMTM TM TMTable of ContentsThe following table sets forth the AUM or AUA as of the end of the quarters indicated:Assets Under Management or Administration($ in billions)The following table sets forth the number of accounts with AUM or AUA as of the end of the quarters indicated:Accounts Under Management or Administration(in thousands)8 Table of ContentsThe following table sets forth as of the end of the years indicated the number of financial advisors that had clientaccounts on our technology platforms:Total AdvisorsMarket OpportunityThe wealth management industry has experienced significant growth in terms of assets invested by retail investorsin the past several years. According to the Federal Reserve, U.S. household financial assets are approaching $70 trillion as ofSeptember 30, 2015, representing a sizeable wealth management opportunity.In addition to experiencing significant growth in financial assets, the wealth management industry is characterizedby a number of important trends, including those described below, which we believe create a significant market opportunityfor technology‑enabled investment solutions and services like ours:·Increase in independent financial advisors; ·Increased reliance on technology among independent financial advisors; ·Increased use of financial advisors; ·Increased use of fee‑based investment solutions; and·More stringent standards applicable to financial advisors. Business ModelWe believe that a number of attractive characteristics contribute significantly to the success of our business model,including:·Being positioned to capitalize on favorable industry trends; ·Recurring and resilient revenue base; ·Strong customer retention; and·Substantial operating leverage. 9 Table of ContentsGrowth StrategyEnvestnet serves the fastest growing segments of the wealth management industry: independent financial advisors;fee‑based solutions; and outsourced investment and technology solutions. We intend to increase revenue and profitability bycontinuing to pursue the following strategies:·Increase our advisor base;·Extend the account base within a given advisor relationship;·Expand the services utilized by each advisor; ·Obtain new enterprise clients; ·Continue to invest in our technology platforms;·Continue to pursue strategic transactions and other relationships; and ·Cross market and sell the Envestnet | Yodlee product offerings to Envestnet customers.Technology PlatformsOur technology platforms feature a three‑tier architecture integrating a Web‑based user interface, an application tierthat houses the business logic for all of the platforms’ functionality and a SQL Server databases. The application tier residesbehind load balancers which distribute the workload demands across our servers. We believe our technology design allowsfor significant scalability.Envestnet undergoes an annual SSAE 16 SOC 1 Type II audit to validate the continued operation of our internalcontrols for the UMP, UMPi and Tamarac platforms. The SOC reports confirm design and operating effectiveness of internalcontrols. We maintain multiple redundancies, back up our databases and safeguard technologies and proprietary informationconsistent with industry best practices. We also maintain a comprehensive business continuity plan and company‑wide riskassessment program that is consistent with industry best practices and that complies with applicable regulatory requirements.We have historically made significant investments in platform development in order to enhance and expand ourtechnology platforms and expect to continue to make significant investments in the future. In the years ended December 31,2015, 2014 and 2013, we incurred technology development costs totaling approximately $12,600, $11,600 and $9,100,respectively. Of these costs, we capitalized approximately $5,500, $3,400 and $3,100, respectively, as internally developedsoftware. We expect to continue focusing our technology development efforts principally on adding features to increase ourmarket competitiveness, enhancements to improve operating efficiency, address regulatory demands and reduce risk, andclient‑driven requests for new capabilities.Our proprietary Web‑based platforms provide financial advisors with access to investment solutions and servicesthat address, in one unified, centrally‑hosted platform, based on our knowledge of the industry, the widest range of front‑,middle‑and back‑office needs in our industry. The “open architecture” design of our technology platforms provide financialadvisors with flexibility in terms of the investment solutions and services they access, and configurability in the manner inwhich the financial advisors utilize particular investment solutions and services. The multi‑tenant platform architectureensures that this level of flexibility and customization is achieved without requiring us to create unique applications for eachclient, thereby reducing the need for additional technology personnel and associated expenses. In addition, though ourtechnology platforms are designed to deliver a breadth of functions, financial advisors are able to select from the variousinvestment solutions and services we offer, without being required to subscribe to or purchase more than what they believe isnecessary.CustomersIndependent financial advisors that are working alone or as part of financial advisory firms. Our principal valueproposition aimed at independent financial advisors working alone or as part of financial advisory firms is that ourtechnology platforms allow them to compete effectively with financial advisors employed by large financial institutions. Weprovide independent financial advisors with access to as many or more of the investment solutions and services that aretypically available to financial advisors working at the largest firms.10 Table of ContentsEnterprise clients. We provide enterprise clients with customized, private‑labeled technology platforms that enablethem to support their affiliated financial advisors with a broad range of investment solutions and services. Our contracts withenterprise clients establish the applicable terms and conditions, including pricing terms, service level agreements and basicplatform configurations. See Item 1A, “Risk Factors” for further discussion of risks related to customer concentration.Sales and MarketingOur sales and marketing staff is organized by sales channel and product offering. Our enterprise sales team focuseson entering into agreements with enterprise clients, which enable us to sell our platform capabilities to those firms and theadvisors associated with them. Our advisory sales team sells to the individual financial advisors of dually registeredbroker‑dealer and RIA firms. The sales channels work collaboratively with the product teams to offer our additional value-added services. Envestnet | Tamarac sells rebalancing, performance reporting and CRM solutions principally to large RIAfirms. Envestnet | Vantage software aggregates and manages investment data, provides performance reporting andbenchmarking. Envestnet | PMC offers portfolio and investment management consulting services, including Prima PremiumResearch and due diligence capabilities. ERS offers a comprehensive suite of services designed specifically for retirementplan professionals. Envestnet | Finance Logix provides financial planning and wealth management software solutions tobanks, broker-dealers and RIAs.The principal aim of our marketing efforts is to create greater visibility of our company and our brands, and toprovide thought leadership to the wealth management industry. Our marketing efforts are focused on our core markets:financial advisors and enterprise clients. We use advertising and public relations to communicate our message to these targetmarkets.To implement our marketing efforts, we generally employ paid print and online advertisements in a variety ofindustry publications, as well as promotions that include e‑blast campaigns and sponsored webinars for financialadvisors. We also partner with independent broker‑dealers on direct mail campaigns targeting such firms’ financial advisorsto describe the investment solutions and services that we offer, produce brochures and presentations for financial advisors touse with their clients and we create Internet pages or sites to promote our investment solutions and services.CompetitionWe generally compete on the basis of several factors, including the breadth and quality of investment solutions andservices to which we provide access through our technology platforms, the number of custodians that are connected throughour technology platforms, the price of our investment solutions and services, the ease of use of our technology platforms andthe nature and scope of investment solutions and services that each client believes are necessary to address their needs. Ourcompetitors offer a variety of products and services that compete with one or more of the investment solutions and servicesprovided through our technology platforms, although, based on our industry experience, we believe that none offers a morecomprehensive set of products and services than we do. Our principal competitors include:·Turnkey Asset Management Platform Providers. Providers of turnkey asset management platforms, includingSEI Investments Company, AssetMark, Inc. and Lockwood Advisors (a subsidiary of BNY Mellon Corporation),typically provide financial advisors with one or more types of products and services but generally offer fewerchoices in terms of custodians, asset managers, technology features and functionality.·Providers of Specific Service Applications. A number of our competitors, including Advent Software, Inc.,provide financial advisors with a product or service designed to address one specific issue or need, such asfinancial planning or performance reporting. While our technology platforms also provide access to theseinvestment solutions or services, financial advisors may elect to utilize a single application rather than a fullyintegrated platform.11 Table of Contents·Custodians. A number of leading asset custodians, such as Pershing LLC (a subsidiary of BNY MellonCorporation) and The Charles Schwab Corporation, have expanded beyond their custodial businesses to alsooffer advisor trading tools that compete with our financial advisor‑directed solutions.Envestnet | Yodlee SegmentOverviewEnvestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services. More than 950 companies, including 12 of the 20 largest U.S. banks and hundredsof Internet services companies, subscribe to the Envestnet | Yodlee platform to power personalized financial apps andservices for millions of consumers. Envestnet | Yodlee solutions help improve the speed and delivery of financial innovation,improve digital customer experiences, and drive better outcomes for our clients and their customers.We serve two main customer groups, financial institutions (“FI”), customers and Internet services companiesproviding innovative financial solutions, which we refer to as our Yodlee Interactive (“YI”), customers. Envestnet | Yodleeprovides FI customers with access to our platform, secure, open application programming interfaces (“APIs”) and end-userfacing applications powered by our platform and APIs (“FinApps”). Our platform and APIs enable FI customers to receiveend user-permissioned transaction data elements that we aggregate and cleanse, as well as to enable our money movementsolutions. The FinApps powered by our platform and APIs can be subscribed to individually or in combinations that includepersonal financial management, wealth management, card, payments and small-medium business (“SMB”) solutions. Our YIcustomers are Internet services companies and third-party developers, who use our platform to develop new applications andenhance existing solutions. Our YI customers operate in a number of sub-vertical markets, including wealth management,personal financial management, small business accounting, small business lending and authentication. These customers usethe Envestnet | Yodlee platform to build solutions that leverage our open APIs and access to a large end user base. In additionto aggregated transaction-level account data elements, we provide YI customers with secure access to account verification,money movement and risk assessment tools via our APIs. We play a critical role in bringing innovation from Internet servicescompanies to financial institutions through the Envestnet | Yodlee platform. For example, our YI customers use our solutionsin such diverse applications as providing working capital to small businesses online; personalized financial management,planning and advisory services; ecommerce payment solutions; and online accounting systems for small businesses. Weprovide access to our solutions across multiple channels, including web, tablet and mobile.The Envestnet | Yodlee platform delivers a wide variety of FinApps and also enables our customers to develop theirown applications through our open APIs, that deliver trusted and secure data, money movement solutions, and other featurefunctionality. Our FinApps are targeted at the retail financial, wealth management, small business, card and other financialsolutions sectors. These FinApps help consumers and small businesses simplify and manage their finances, review theirfinancial accounts, track their spending, calculate their net worth, and perform a variety of other activities. Examples ofFinApps include our Expense FinApp, which helps consumers track their spending, and a Payroll FinApp from a third party,which helps small businesses process their payroll.We are a big data practitioner providing our customers with data analytics solutions and market research servicesthat enhance the value of our solutions and anonymized data derived from a massive and dynamic set of end user-permissioned transaction-level data that we gather and refine. We believe that our brand leadership, innovative technologyand intellectual property, large customer base, and unique data gathering and enrichment provide us with competitiveadvantages that have enabled us to generate strong growth.Our solutions benefit our customers and their end users in a wide variety of ways. For both our FI and YI customers,providing Envestnet | Yodlee-powered solutions improves their end user satisfaction and retention, accelerates speed tomarket, creates technology savings and enhances their data analytics solutions and market research capabilities. For ourcustomers’ end users, our solutions provide better access to their financial information and more control over their finances,leading to more informed and personalized decision making. For our customers who are members of the developercommunity, our solutions provide access to critical data and payments solutions, faster speed to market and enhanceddistribution.12 Table of ContentsMarket OpportunityThe financial services industry is undergoing a technological shift. Outdated enterprise hardware and software isbeing replaced by cloud-driven solutions that are easier and less expensive to implement, update and manage. Bankscontinue to spend heavily on IT in order to compete effectively in an increasingly competitive environment. We believe asfinancial institutions continue to spend on technology, a growing proportion of that spending will shift from outdatedinternally-developed or custom-built enterprise software to cloud-based solutions. In addition to the large opportunity thatwe have with traditional financial institutions, we believe that we also have a significant opportunity with Internet servicescompanies providing innovative financial solutions.The industry in which Envestnet | Yodlee operates has the following opportunities:·Consumers and small businesses are struggling to effectively manage their finances;·Financial institutions have challenges and opportunities to engage and retain their customers;·Emerging Internet-based financial services companies are paving the path of innovation;·Cloud-based platforms are simplifying software delivery;·Open platforms and application-level developer ecosystems are driving innovation forward;·New technology platforms are leveraging big data; and·Large addressable market. As we continue to expand our presence in the markets outlined above, the number of potential end users who useour solutions increases dramatically. Our potential end user base includes any consumer of financial services on theInternet—and this end user could be a paid user of Envestnet | Yodlee many times over across multiple customers andproducts. This multiplier effect greatly increases our addressable end user base.Business ModelWe provide subscription services on a business-to-business-to-consumer (“B2B2C”) basis to financial servicesclients, whereby our customers offer solutions based on our platform to their end users. On a business-to-business (“B2B”)basis we deliver an open platform to customers and third-party developers through our API’s. We serve two main customergroups or channels, FI and YI customers.Our FI customers encompass many of the leading FIs, including 12 of the 20 largest banks in the United States,which hold 82% of the total assets of the top 20 U.S. banks (based on total assets as of June 30, 2015). We estimate that ourcurrent network of FI customers alone reaches more than 100 million end users, representing a significant opportunity togrow our paid user base within existing customers.Our YI customers are Internet services companies providing innovative financial solutions, with an increasinglylarge and diverse base of users, and third-party developers. Third-party developers benefit from access to critical data andpayment capabilities, our faster speed to market and enhanced distribution.Our data analytics solutions and market research services enhance the value of our solutions to our customers andprovide insights derived from small, scrubbed, non-identified, and dynamic samples from a massive population of end user-permissioned, non-identified transaction-level data that we gather and refine. Our platform powers hundreds of FinApps created and made available by us, our customers and third-partydevelopers. FinApps can be sold individually or in combinations and include personal financial management, wealthmanagement, card, payments and SMB solutions. Examples of FinApps are an Expense FinApp that helps a consumer tracktheir spending, or a Payroll FinApp from a third party that can help a small business with processing its payroll. Our openAPIs enable us, our FI and YI customers and third-party developers to create new FinApps that can be made available acrossour broad end user base.13 Table of ContentsIn addition to aggregated transaction-level account data, we provide our customers with secure access to accountverification, money movement and risk assessment tools via our APIs. By using our account verification solutions, customerscan verify an end user’s account information, ownership and balance in real time, reducing risk for our customers wheninteracting with an end user’s checking account. By using our money movement solutions, end users can debit and creditconsumer and small business accounts in real time or in batches, route payments between accounts or to other people and paybills.Growth StrategyThe Envestnet | Yodlee growth strategy is currently divided into three primary areas of focus: user growth, revenueper paid user growth and cross selling of our product offerings to Envestnet customers. In addition, key elements of thisgrowth strategy include:User Growth:·Expand end user usage with existing customers·Grow the number of customers·Increase our global market presence Revenue per Paid User Growth:·Data analytics solutions and market research ·Data-driven cross-sell and digital marketing opportunities·Market research·Credit and risk analytics·FinApps Technology PlatformsEnvestnet | Yodlee Data Aggregation: Our data aggregation platform collects a wide variety of end user-permissioned transaction-level data from over14,500 sources and puts it in a common repository. Envestnet | Yodlee developed robust proprietary technology andprocesses and established relationships that allow us to curate these data sources and expand our access to new data sources.Over 74% of this data is collected through structured feeds from our FI customers and other FIs. These structured feeds, whichconsist of either batch files pushed to us or real-time access, provide this critical data efficiently and at scale. Where we donot have direct connections, we capture data using our proprietary information-gathering techniques.Beyond collecting data, our data aggregation platform performs a data refining process and augments the data withadditional information from a variety of other sources. We enrich the data with a proprietary twelve-step process, adding suchelements as categorization and merchant identification for bank or credit card account data and investment holdingidentification for investment account data. As our platform usage grows and is exposed to more users and use cases, thesystem benefits from machine learning algorithms to better normalize, categorize and process large amounts of data, allowingour network to become more effective, efficient and valuable to our customers. With this enhanced data, includingconsolidated data from within our FI customers and account data regarding accounts at other FIs, we enable our customers tooffer more personalized solutions to their end users, which provide end users insights that allow them to take better controlof, and better manage, their finances.14 Table of ContentsEnvestnet | Yodlee Money Movement: Our money movement solutions facilitate payment flows. Our customers can debit and credit consumer and smallbusiness accounts in real time or in batches and route payments between accounts (funds transfer), to billers (bill pay), or toother individuals (peer to peer). Designed to be run as a service, our money movement solutions allow us to operate thesefunctionalities in the cloud and quickly adapt to new payment systems.Our payment engine, which is a principal component of our money movement solutions, is a task-based paymentprocessing platform that controls all payment activity across cobrands, originators, processors, and billers.CustomersOur customers include financial institutions, Internet service companies providing innovative financial solutionsand third-party developers of financial applications. Our platform was used by more than 500 FIs, including 12 of the20 largest banks in the United States (based on total assets as of June 30, 2015), and more than 400 Internet servicescompanies globally as of December 31, 2015. Sales and MarketingWe have a direct sales and pre-sales team servicing the leading global FIs. The FI sales team is dividedgeographically into three regional groups: North America; Europe; Middle East/Africa and Asia-Pacific. Each regional salesand pre-sales team is responsible for acquiring new FI customers. Within the North America region we further divide ourdirect sales and pre-sales representatives into teams that focus on specific accounts, on a named-account basis, depending onsize, location, product specialization and/or brand. Our direct sales and pre-sales teams are supported by customer advocacyteams who specialize in customer account management and expansion. Together, sales, pre-sales and customer advocacyrepresentatives are responsible for growing our customer relationships in terms of account penetration (cross-sellingadditional products and services into the same or additional groups within a FI) and expanding use of existing products andservices (increasing usage). We also have a global channel partner sales team responsible for acquiring and supportingchannel partners who target sales to FIs with fewer than $20 billion in deposits or assets under management. Additionally, wehave resources that pursue our opportunities for sales of data analytics solutions and market research services.We have a direct sales and technical pre-sales team covering Internet services companies and partners in each regionin which we currently operate or intend to operate. Each regional sales and technical pre-sales team is responsible foracquiring new customers and channel partners. From time to time, we assign specific accounts based upon sales or domainexpertise. Our direct sales and technical pre-sales teams are supported by a customer success and developer relations teamwho specialize in customer API integration, and account management and expansion, including services to our channelpartners. Together, sales, technical pre-sales, customer success and developer relations representatives are responsible forgrowing our direct customer and channel partner relationships in terms of account penetration and API usage.Our marketing efforts are focused on initiatives to drive global company, brand and solutions awareness andsignificant lead generation and sales acceleration across our whole business. These initiatives include educating the marketabout Yodlee, achieving recognition as the industry leader through awards, speaking engagements, thought leadershiparticles, data trends and metrics, and high profile interviews.We employ a variety of integrated sales and marketing initiatives, including hosted demand generation webinars,sponsorship and partnership of key industry conferences, customer and developer-focused events and programs, meet-upsand hack-a-thons, and other high-profile activities designed to demonstrate thought leadership and engage new audiences inactionable and measurable ways. We employ many tools, including web and social properties, integrated creative campaignsconsisting of online advertising, digital and video content marketing, direct mail, blogs, analyst relations and mediarelations. In addition, our marketing efforts develop consumer best practices tools, case studies, and education to drivedeeper consumer activity and engagement with top customers.15 Table of ContentsCompetitionWhile we do not believe any single company in the digital financial services market offers a comprehensiveplatform with features such as ours, the following companies offer products that compete with one or more of our solutions:·for data aggregation: Intuit, Inc. and Fiserv, Inc. (CashEdge);·for personal financial management: Intuit (direct to consumer service) and internal IT departments of FIs, as well asearly-stage companies;·for online bill pay: Fiserv and FIS Global Corporation; ·for data products and services: global payment networks, credit bureaus and other institutions that have access tolarge pools of data; and·for account verification: MicroBilt Corporation and Early Warning Systems, LLC.We believe the principal competitive factors in digital financial services include the following: reputation, cloud-based delivery model, data aggregation capability, access to data through direct connectivity to FIs, scale (size of customerbase and level of user adoption), security, time to market, breadth and depth of application functionality user experience,access to third-party applications, ease of use, ease of integration, flexibility and configurability, and competitive pricing.We believe that we compete favorably with respect to all of these factors. RegulationOverviewThe financial services industry is among the most extensively regulated industries in the United States. We operateinvestment advisory, broker-dealer and mutual fund advisory businesses, each of which is subject to a specific regulatoryscheme, including regulation at the federal and state level, as well as regulation by self-regulatory organizations and non-U.S. regulatory authorities. In addition, we are subject to numerous laws and regulations of general application.Our subsidiaries Envestnet Asset Management, Inc., Portfolio Management Consultants, Inc., ERS, UpsideFinancial, LLC, and Envestnet Portfolio Solutions, Inc. (“EPS”) operate investment advisory businesses. These subsidiariesare registered with the U.S. Securities and Exchange Commission (“SEC”) as “investment advisers” under the InvestmentAdvisers Act of 1940, as amended (the “Advisers Act”), and are regulated thereunder. They may also provide fiduciaryservices as defined in Section 3(21)(A)(ii) of the Employee Retirement Income Security Act of 1974 (“ERISA”), includingacting as an “investment manager” (as defined in Section 3(38) of ERISA). As described further below, many of ourinvestment advisory programs are conducted pursuant to the non-exclusive safe harbor from the definition of an “investmentcompany” provided for under Rule 3a-4 of the Investment Company Act of 1940, as amended (the “Investment CompanyAct”). If Rule 3a-4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule isapplied, it could have a substantial effect on our business. Envestnet Asset Management, Inc. serves as the investment adviserto two mutual funds. Mutual funds are registered as “investment companies” under the Investment Company Act. TheAdvisers Act, Investment Company Act and ERISA, together with related regulations and interpretations of the SEC, imposenumerous obligations and restrictions on investment advisers and mutual funds, including recordkeeping requirements,limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, and detailed operatingrequirements, including restrictions on transactions between an adviser and its clients, and between a mutual fund and itsadvisers and affiliates. The fiduciary obligations of investment advisers to their clients require advisers to, among otherthings, consider the suitability of the investment products and advice they provide, seek “best execution” for their clients’securities transactions, conduct due diligence on third-party products offered to clients, consider the appropriateness of theadviser’s fees, and provide extensive and ongoing disclosure to clients. The application of these requirements to wrap feeprograms is particularly complex and the16 Table of ContentsSEC has in the past scrutinized firms’ compliance with these requirements. The SEC is authorized to institute proceedingsand impose fines and sanctions for violations of the Advisers Act and the Investment Company Act and has the power torestrict or prohibit an investment adviser from carrying on its business in the event that it fails to comply with applicablelaws and regulations. Although we believe we are in compliance in all material respects with the requirements of the AdvisersAct and the Investment Company Act and the rules and interpretations promulgated thereunder, our failure to comply withsuch laws, rules and interpretations could have a material adverse effect on us.Portfolio Brokerage Services, Inc., (“PBS”), our broker-dealer subsidiary, is registered as a broker-dealer with theSEC under the Securities Exchange Act of 1934, (“Exchange Act”), in all 50 states and the District of Columbia. In addition,PBS is a member of the Financial Industry Regulatory Authority (“FINRA”), the securities industry self-regulatoryorganization that supervises and regulates the conduct and activities of broker-dealers. Broker-dealers are subject toregulations that cover all aspects of their business, including sales practices, market making and trading among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure, record-keeping and the conduct of directors,officers, employees, representatives and associated persons. FINRA and the SEC conduct periodic examinations of theoperations of its members, including PBS. Violation of applicable regulations can result in the suspension or revocation of abroker-dealer’s registration, the imposition of censures or fines and the suspension or expulsion of the broker-dealer fromFINRA. PBS is subject to minimum net capital requirements under the Exchange Act, SEC and FINRA rules and conducts itsbusiness pursuant to the exemption from the SEC’s customer protection rule provided by Rule 15c3-3(k)(2)(i) under theExchange Act. As of December 31, 2015, PBS was required to maintain a minimum of $100 in net capital and its actual netcapital was $1,176.Envestnet | Yodlee’s solutions are subject to a strict set of legal and regulatory requirements intended to protectconsumers and to help detect and prevent money laundering, terrorist financing and other illicit activities. Envestnet |Yodlee is examined on a periodic basis by various regulatory agencies. For example, Envestnet | Yodlee is a supervised third-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas based onpublished guidance by the Federal Financial Institutions Examination Council. These examinations include examinations ofEnvestnet | Yodlee’s management, acquisition and development activities, support and delivery, IT, and disasterpreparedness and business recovery planning. The Office of the Comptroller of the Currency (the “OCC”) is the agency incharge of these examinations.Either as a result of direct regulation or obligations under customer agreements, our subsidiaries are required tocomply with certain provisions of the Gramm-Leach-Bliley Act, related to the privacy of consumer information and may besubject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations havebeen proposed and are still being written to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of2010 (the “Dodd-Frank Act”), for enhanced due diligence of the internal systems and processes of companies like ours bytheir financial institutions customers.Money movement services are potentially subject to regulation under a variety of federal and state laws, includingstate statutes regulating “money transmitters” and federal laws, such as the Bank Secrecy Act and the regulations thereunder,which regulate “money transmitting businesses” and “money services businesses.” Many of these statutes are broadly wordedand have not been subject to published judicial or administrative interpretation.Our subsidiaries are subject to various federal and state laws and regulations that grant supervisory agencies,including the SEC and OCC, broad administrative powers. In the event of a failure to comply with these laws and regulations,the possible sanctions that may be imposed include the suspension of individual employees, limitations on the permissibilityof our regulated subsidiaries and our other subsidiaries to engage in business for specified periods of time, censures, fines,and the revocation of registration as a broker-dealer or investment adviser, as applicable. Additionally, the securities lawsand other regulations applicable to us and our subsidiaries provide for certain private rights of action that could give rise tocivil litigation. Any litigation could have significant financial and non-financial consequences including monetaryjudgments and the requirement to take action or limit activities that could ultimately affect our business.Many of the laws and regulations to which our subsidiaries are subject are evolving, unclear and inconsistent acrossvarious jurisdictions, and ensuring compliance with them is difficult and costly. We continually develop17 Table of Contentsimprovements to our existing products and services as well as new products and services. Many of these improvements ornew products and services may implicate regulations to which we may not already be subject or with which we may not haveexperience. New laws or regulations, or changes in existing laws or regulations or interpretations of existing laws andregulations, including those relating to the activities of our investment adviser, broker-dealer and financial institutionclients, may occur that could increase our compliance and other costs of doing business, require significant changes to oursystems or solutions or substantially change the way that our clients operate their businesses. Compliance with any new orrevised regulatory requirements may divert internal resources, be expensive and time-consuming and may require increasedinvestment in compliance functions or new technologies. Failure to comply with the laws and regulations to which we andour subsidiaries are subject could result in fines, penalties or limitations on our ability to conduct our business, or federal orstate actions, any of which could significantly harm our reputation, and could materially and adversely affect our business,operating results and financial condition.Investment Advisory Program Conducted Under Rule 3a-4Under the Investment Company Act, an issuer that is engaged in the business of investing, reinvesting or trading insecurities may be deemed an “investment company,” in which case the issuer may be subject to registration requirements andregulation as an investment company under the Investment Company Act. In order to provide assurance that certaindiscretionary investment advisory programs would not be considered investment companies, the SEC adopted Rule 3a-4under the Investment Company Act, which provides a non-exclusive safe harbor from the definition of an investmentcompany for programs that meet the requirements of the rule. We conduct the following programs pursuant to the Rule 3a-4safe harbor:·Separately managed accounts;·Unified managed account portfolios;·Mutual fund portfolios and exchange-traded fund portfolios; and·Advisor as portfolio manager.We believe that, to the extent we exercise discretion over accounts in any of these programs, these programs qualifyfor the safe-harbor because all of the programs have the following characteristics, which are generally required in order for aprogram to be eligible for the Rule 3a-4 safe harbor:·Each client account is managed on the basis of the client’s financial situation, investment objectives and reasonableclient-imposed investment restrictions;·At the opening of the account, the client’s financial advisor obtains information from the client and provides us withthe client’s financial situation, investment objectives and reasonable restrictions;·On no less than an annual basis, the client’s financial advisor contacts the client to determine whether there havebeen any changes in the client’s financial situation or investment objectives, and whether the client wishes toimpose any reasonable restrictions on the management of the account or reasonably modify existing restrictions.This information is communicated to us and reflected in our management of client accounts;·On a quarterly basis, we or another designated person (in most cases this will be the client’s financial advisor) notifythe client to contact us or another designated person if there have been any changes to the client’s financial positionor investment objectives or if the client wishes to impose any reasonable restrictions on the management of theaccount;·We, the client’s financial advisor and the manager of the client’s account, all of whom are knowledgeable about theaccount and its management, are reasonably available to the client for consultation;·All of the programs allow each client to impose reasonable restrictions on the management of his or her account;·On at least a quarterly basis, the client is provided with a statement containing a description of all activity in theclient’s account during the preceding period, including all transactions made on behalf of the account, allcontributions and withdrawals made by the client, all fees and expenses charged to the account, and the value of theaccount at the beginning and end of the period; and·For all of the programs, each client retains, with respect to all securities and funds in the client’s account, the right towithdraw securities or cash, vote securities, or delegate the authority to vote securities to another18 Table of Contentsperson, receive written confirmation or other notification of each securities transaction by the client’s independentcustodian, and proceed directly as a security holder against the issuer of any security in the client’s account withoutthe obligation to include us or any other client of the program in any such action as a condition precedent toinitiating such proceeding.EmployeesAs of December 31, 2015, we had 2,665 employees, including 247 in sales and marketing, 920 in engineering andsystems, 1,268 in operations, 45 in investment management and research, and 185 in executive and corporate functions. Ofthese 2,665 employees, 1,583 were located in India. None of our employees is represented by a labor union. We have neverexperienced a work stoppage and believe our relationship with our employees is good.Executive Officers of the RegistrantThe following table summarizes information about each one of our executive officers.Name Age Position(s)Judson Bergman 59 Chairman, Chief Executive Officer, DirectorWilliam Crager 51 PresidentPeter D’Arrigo 48 Chief Financial OfficerScott Grinis 54 Chief Technology OfficerShelly O’Brien 50 Chief Legal Officer, General Counsel and Corporate SecretaryBrandon Thomas 52 Chief Investment OfficerJosh Mayer 42 Chief Operating Officer Judson Bergman, Age 59. Mr. Bergman is the founder of our company and has served as our Chairman, ChiefExecutive Officer and a director since 1999. Prior to founding our company, Mr. Bergman was Managing Director at NuveenInvestments, Inc. (“Nuveen”), a diversified investment manager. Mr. Bergman serves as a trustee of RS Investment Trust andRS Variable Products Trust, registered investment companies. Mr. Bergman received an MBA in finance and accounting fromColumbia University and a BA from Wheaton College.William Crager, Age 51. Mr. Crager has served as our President since 2002. Prior to joining us, Mr. Crager served asManaging Director of Marketing and Client Services at Rittenhouse Financial Services, Inc., an investment management firmaffiliated with Nuveen. Mr. Crager received an MA from Boston University and a BA from Fairfield University, with a dualmajor in economics and English.Peter D’Arrigo, Age 48. Mr. D’Arrigo has served as our Chief Financial Officer since 2008. Prior to joining us,Mr. D’Arrigo worked at Nuveen where he served as Treasurer since 1999, as well as holding a variety of other titles afterjoining them in 1990. Mr. D’Arrigo received an MBA from the Northwestern University Kellogg Graduate School ofManagement and an undergraduate degree in applied mathematics from Yale University.Scott Grinis, Age 54. Mr. Grinis has served as our Chief Technology Officer since 2004. Prior to joining us,Mr. Grinis co‑founded Oberon Financial Technology, Inc., our subsidiary, prior to its acquisition by us. Mr. Grinis received aBS and an MS degree in electrical engineering from Stanford University.Shelly O’Brien, Age 50. Ms. O’Brien has served as our Chief Legal Officer, General Counsel and Corporate Secretarysince 2002. Prior to joining us, Ms. O’Brien was General Counsel and Director of Legal and Compliance for ING (U.S.)Securities, Futures & Options Inc., a broker‑dealer, and futures commission merchant. Ms. O’Brien received a degree inpolitical science from Northwestern University, a JD from Hamline University School of Law, and an LLM in taxation fromJohn Marshall Law School.Brandon Thomas, Age 52. Mr. Thomas is a co‑founder of our company and has served as Chief Investment Officerand Managing Director of Portfolio Management Consultants, our internal investment management and portfolio19 Table of Contentsconsulting group, since 1999. Prior to joining us, Mr. Thomas was Director of Equity Funds for Nuveen. Mr. Thomas receivedan MBA from the University of Chicago, a JD from DePaul University and is a graduate of Brown University.Josh Mayer, Age 42. Mr. Mayer was appointed Chief Operating Officer in April 2014. Previously, he served asEnvestnet’s Executive Vice President and Director of Operations from January 2011 to April 2014, and as Envestnet’s SeniorVice President, Head of Operations from 2004 to January 2011. From 2000 to 2004, Mr. Mayer served as the Director ofOperations for Oberon Financial Technology, which was acquired by Envestnet in 2004. Mr. Mayer holds a Bachelor of Artsand Sciences from Georgetown University. Item 1A. Risk FactorsAn investment in any security involves risk. An investor or potential investor should consider the risks summarizedin this section when making investment decisions regarding our securities offerings. These risks and uncertainties include,but are not limited to, the risk factors set forth below. The risks and uncertainties described in this section are not the onlyones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial mayalso affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financialcondition and results of operations could be materially adversely affected.Risks Related to Our BusinessWe have experienced rapid revenue growth, which may be difficult to sustain and which may place significant demands onour administrative, operational and financial resources and any inability to maintain or manage our growth could have amaterial adverse effect on our results of operations, financial condition or business.Our revenues during the three years ended December 31, 2015 have grown at a compound annual growth rate of32%. We expect our growth to continue, which could place additional demands on our resources and increase our expenses.Our future growth will depend on, among other things, our ability to successfully grow our total assets under managementand administration and add additional clients. If we are unable to implement our growth strategy, develop new investmentsolutions and services and gain new clients, our results of operations, financial condition or business may be materiallyadversely affected.Sustaining growth will also require us to commit additional management, operational and financial resources and tomaintain appropriate operational and financial systems. In addition, continued growth increases the challenges involved in:·recruiting, training and retaining sufficiently skilled technical, marketing, sales and management personnel;·preserving our culture, values and entrepreneurial environment;·successfully expanding the range of investment solutions and services offered to our clients;·developing and improving our internal administrative infrastructure, particularly our financial, operational,compliance, record‑keeping, communications and other internal systems; and·maintaining high levels of satisfaction with our investment solutions and services among clients.There can be no assurance that we will be able to maintain or accelerate our growth, and any failure to do so couldadversely affect our results of operations, financial condition or business.20 Table of ContentsOur revenue can fluctuate from period to period, which could cause our share price to fluctuate.Our revenue may fluctuate from period‑to‑period in the future due to a variety of factors, many of which are beyondour control. Factors relating to our business that may contribute to these fluctuations include the following events, as well asother factors described elsewhere in this document:·a decline or slowdown of the growth in the value of financial market assets, which may reduce the value ofassets under management and administration and therefore our revenues and cash flows;·negative public perception and reputation of the financial services industry, which would reduce demand forour investment solutions and services;·unanticipated changes to economic terms in contracts with clients, including renegotiations;·downward pressure on fees we charge our clients, which would therefore reduce our revenue;·changes in laws or regulations that could impact our ability to offer investment solutions and services;·failure to obtain new clients;·cancellation or non‑renewal of existing contracts with clients;·failure to protect our proprietary technology and intellectual property rights;·unanticipated delays in connection with the conversion of client assets onto our technology platforms;·changes to or a reduction in the suite of investment solutions and services provided to or used by existingclients;·changes in our pricing policies or the pricing policies of our competitors to which we have to adapt or·fluctuations in currency exchange rates;·general economic and political conditions, both domestically and internationally, as well as economicconditions specifically affecting industries in which our customers operate; As a result of these and other factors, the results of operations for any quarterly or annual period may differmaterially from the results of operations for any prior or future quarterly or annual period and should not be relied upon asindications of our future performance.We have a significant amount of debt and servicing our debt requires a significant amount of cash, and we may not havesufficient cash flow from our business to service our debt.As of December 31, 2015, we had $150,000 of borrowings outstanding under our credit facility (the “Amended andRestated Credit Agreement”) and $172,500 of outstanding 1.75% convertible notes due in 2019 (the “Convertible Notes”).We also have an additional $100,000 available under our Amended and Restated Credit Agreement. This indebtednesscould, among other things:·make it difficult for us to pay other obligations;·make it difficult to obtain favorable terms for any necessary future financing for working capital, capitalexpenditures, debt service requirements or other purposes;21 Table of Contents·require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness,reducing the amount of cash flow available for other purposes; and·limit our flexibility in planning for and reacting to changes in our business.We operate in highly competitive industries, with many firms competing for business from financial advisors and financialinstitutions on the basis of a number of factors, including the quality and breadth of investment solutions and services,ability to innovate, reputation and the prices of services and this competition could hurt our financial performance.We compete with many different types of companies that vary in size and scope, including Pershing LLC (asubsidiary of BNY Mellon Corporation), The Charles Schwab Corporation, SEI Investments Company, AssetMark, Inc.,Advent Software, Inc., and Lockwood Advisors (a subsidiary of BNY Mellon Corporation) which are discussed in greaterdetail under “Business—Competition” included in this Form 10‑K. In addition, some of our clients have developed or maydevelop the in‑house capability to provide the technology and/or investment advisory services they have retained us toperform. These clients may also offer internally developed services to their financial advisors, obviating the need to hire us,and they may offer these services to third‑party financial advisors or financial institutions, thereby competing directly withus for that business.Many of our competitors have significantly greater resources than we do. These resources may allow our competitorsto respond more quickly to changes in demand for investment solutions and services, to devote greater resources todeveloping and promoting their services and to make more attractive offers to potential clients and strategic partners, whichcould hurt our financial performance.We may lose clients as a result of the sale or merger of a client, a change in a client’s senior management,competition from other financial advisors and financial institutions and for other reasons. We also face increased competitiondue to the current trend of industry consolidation. If large financial institutions that are not our clients are able to attractassets from our clients, our ability to grow revenues and earnings may be adversely affected.Our Envestnet | PMC group competes with other providers of investment solutions and products. These competitorsmay offer broader solutions and/or products and their solutions and/or products may have better investment returns duringone or more periods. If the investment returns on our investment products are not perceived to be competitive, we couldexperience outflows of assets from these products and face difficulty attracting new assets to these products.We compete with many companies that have greater name recognition, substantially greater financial, technical,marketing and other resources, the ability to devote greater resources to the promotion, sale and support of their solutions,more extensive customer bases and broader customer relationships, and longer operating histories than we have.Our failure to successfully compete in any of the above‑mentioned areas could have a material adverse effect on ourresults of operations, financial condition or business. Competition could also affect the revenue mix of services we provide,resulting in decreased revenues in lines of business with higher profit margins.We derive a substantial portion of our revenues from the delivery of investment solutions and services to clients in thefinancial advisory industry and our revenue could suffer if that industry experiences a downturn.A decline or lack of growth in demand for financial advisory services would adversely affect our clients and, in turn,our results of operations, financial condition and business. For example, the availability of free or low‑cost investmentinformation and resources, including research and information relating to publicly traded companies and mutual fundsavailable on the Internet or on company websites, could lead to lower demand by investors for the services provided byfinancial advisors. In addition, demand for our investment solutions and services among financial advisors could decline formany reasons. Consolidation or limited growth in the financial advisory industry could reduce the number of our clients andpotential clients. Events that adversely affect our clients’ businesses, rates of growth or the22 Table of Contentsnumbers of customers they serve, including decreased demand for our clients’ products and services, adverse conditions inour clients’ markets or adverse economic conditions generally, could decrease demand for our investment solutions andservices and thereby decrease our revenues. Any of the foregoing could have a material adverse effect on our results ofoperations, financial condition or business.Because some of our sales efforts are targeted at large financial institutions and large Internet services companies, we faceprolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our salescycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our operating results may be harmed.We target a portion of our sales efforts at large financial institutions and large Internet services companies, whichpresents challenges that are different from those we encounter with smaller customers. Because our large customers are oftenmaking an enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex customer requirements,substantial upfront sales costs, significant contract negotiations and less predictability in completing sales with thesecustomers. Our sales cycle can often last one year or more with our largest customers, who often undertake an extendedevaluation process, but is variable and difficult to predict. We anticipate that we will experience even longer sales cycles,more complex customer needs, higher upfront sales costs and less predictability in completing sales with customers locatedoutside of the United States. If our sales cycle lengthens or our upfront sales investments do not generate sufficient revenueto justify our investments in our sales efforts, our operating results may be harmed.Failure of our customers to deploy our solutions in a timely and successful manner could negatively affect our revenue andoperating results.The timing of revenue from our customers depends on a number of factors outside of our control and may vary fromperiod to period. Our customers may request customization of our solutions for their systems or engage in a prolonged,internal decision making process regarding the deployment of our solutions. Among our larger customers, deployment of oursolutions can be a complex and prolonged process and requires integration into the existing platform on our customers’systems. Any delay during the deployment process related to technical difficulties experienced by our customers or us inintegrating our solutions into our customers’ systems could further lengthen the deployment period and create additionalcosts or customer dissatisfaction. During the deployment period, we expend substantial time, effort, and financial resources toassist our customers with the deployment. We generally are not able to recognize the full potential value of our customercontracts until our customers actually deploy our solutions. Cancellation of any deployment after it has begun could result inlost time, effort, and expenses invested in the cancelled deployment process, and would adversely affect our ability torecognize revenue that we anticipated at the time of the execution of the related customer contract. If our customers do nottimely and successfully deploy our solutions, our future revenue and operating results could be negatively impacted.A limited number of clients account for a material portion of our revenue. Termination of our contracts with any of theseclients could have a material adverse effect on our results of operations, financial condition or business.For the years ended December 31, 2015, 2014 and 2013, revenues associated with our relationship with our singlelargest client, FMR LLC, an affiliate of FMR Corp., or Fidelity, accounted for 18%, 19% and 20% respectively, of our totalrevenues and our ten largest clients accounted for 42%, 48% and 46%, respectively, of our total revenues. Our licenseagreements with large financial institutions are generally multi‑year contracts that may be terminated upon the expiration ofthe contract term or prior to such time for cause, which may include breach of contract, bankruptcy, insolvency and otherreasons. The Fidelity agreement, as amended, which expires in March 2017, includes receiving ongoing platform servicesfees through the Fidelity relationship based upon asset‑based fees. A majority of our agreements with financial advisorsgenerally provides for termination at any time. If our contractual relationship with Fidelity were to terminate, or if asignificant number of our most important clients were to terminate their contracts with us and we were unable to obtain asignificant number of new clients, our results of operations, financial condition or business could be materially adverselyaffected. 23 Table of ContentsOur clients that pay us an asset‑based fee may seek to negotiate a lower fee percentage or may cease using our services,which could limit the growth of, or decrease, our revenues.A significant portion of our revenues are derived from asset‑based fees. Our clients may, for a number of reasons,seek to negotiate a lower asset‑based fee percentage. For example, an increase in the use of index‑linked investment productsby the clients of our financial advisor clients may result in lower fees being paid to our clients, and our clients may in turnseek to negotiate lower asset‑based fee percentages for our services. In addition, as competition among our clients increases,they may be required to lower the fees they charge to their clients, which could cause them to seek to decrease our feesaccordingly. Any of these factors could result in fluctuation or a decline in our asset‑based fees, which would have a materialadverse effect on our results of operations, financial condition or business.Changes in market and economic conditions could lower the value of assets on which we earn revenues and could decreasethe demand for our investment solutions and services.Asset‑based fees make up a significant portion of our revenues. Asset‑based fees represented 79%, 84% and 83% ofour total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. We expect that asset‑based fees willcontinue to represent a significant percentage of our total revenues in the future. Significant fluctuations in securities pricesmay materially affect the value of the assets managed by our clients and may also influence financial advisor and investordecisions regarding whether to invest in, or maintain an investment in, a mutual fund or other investment solution. If suchmarket fluctuation led to less investment in the securities markets, our revenues and earnings derived from asset‑based feescould be materially adversely affected. We provide our investment solutions and services to the financial services industry. The financial markets, and inturn the financial services industry, are affected by many factors, such as U.S. and foreign economic conditions and generaltrends in business and finance that are beyond our control. In the event that the U.S. or international financial markets suffer asevere or prolonged downturn, investors may choose to withdraw assets from financial advisors, which we refer to as“redemptions”, and transfer them to investments that are perceived to be more secure, such as bank deposits and Treasurysecurities. For example, in late 2007 and through the first quarter of 2009, the financial markets experienced a broad andprolonged downturn, our redemption rates were higher than our historical average, and our results of operations, financialcondition and business were materially adversely affected. Any prolonged downturn in financial markets or increased levelsof asset withdrawals could have a material adverse effect on our results of operations, financial condition or business.Investors’ decisions regarding their investment assets are affected by many factors and investors may redeem or withdrawtheir investment assets generally at any time. Significant changes in investing patterns or large‑scale withdrawal ofinvestment funds could have a material adverse effect on our results of operations, financial condition or business.The clients of our financial advisors are generally free to change financial advisors, forgo the advice and otherservices provided by financial advisors or withdraw the funds they have invested with financial advisors. These clients offinancial advisors may elect to change their investment strategies, by moving their assets away from equity securities to fixedincome or other investment options, or by withdrawing all or a portion of their assets from their accounts to avoid allsecurities markets‑related risks. These actions by investors are outside of our control and could materially adversely affect themarket value of the investment assets that our clients manage, which could materially adversely affect the asset‑based fees wereceive from our clients.Our hosting, collection, use and storage of customer information and data require the implementation of effective securitycontrols, and a data security breach could disrupt our business, result in the disclosure of confidential information, exposeus to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.We, and our customers through which our solutions are made available to end users, collect, use, transmit and storeconfidential financial information such as bank account numbers, social security numbers, non-public personally identifiableinformation, portfolio holdings, credit card data and outstanding debts and bills. The measures we take24 Table of Contentsto provide security for collection, use, storage, processing and transmission of confidential end user information may not beeffective to protect against data security breaches by third parties. We use commercially available security technologies,including hardware and software data encryption techniques and multi-layer network security measures, to protecttransactions and information. Although we encrypt data fields that typically include sensitive, confidential information,other unencrypted data fields may include similar information that could be accessible in the event of a security breach. Weuse security and business controls to limit access and use of confidential end user information. Although we require ourcustomers and third-party suppliers to implement controls similar to ours, the technologies and practices of our customersand third-party suppliers may not meet all of the requirements we include in our contracts and we may not have the ability toeffectively monitor the implementation of security measures of our customers and third-party suppliers. In a number of cases,our customers build and host their own web applications and access our solutions through our APIs. In these cases, additionalrisks reside in the customer’s system with respect to security and preventive controls. As a result, inadequacies of ourcustomers’ and third-party suppliers’ security technologies and practices may only be detected after a security breach hasoccurred. Errors in the collection, use, storage or transmission of confidential end user information may result in a breach ofprivacy or theft of assets.The risk of unauthorized circumvention of our security measures has been heightened by advances in computercapabilities and the increasing sophistication of hackers. Criminals are using increasingly sophisticated techniques toengage in illegal activities involving solutions such as ours or involving end user information, such as counterfeiting,fraudulent payment and identity theft. Because the techniques used by hackers change frequently and generally are notrecognized until launched against a target, we may be unable to anticipate these techniques or to implement adequatepreventive measures. In addition to hackers, it is possible that a customer could gain unauthorized access to our databasethrough the use of our solutions. Improper access to our systems or databases by hackers or customers intending to commitcriminal activities could result in the theft, publication, deletion or modification of confidential end user information. Anactual or perceived breach of our security may require notification under applicable data privacy regulations.A data security breach of the systems on which sensitive user data and account information are stored could lead toclaims, industry fines, or regulatory actions against us. If we are sued in connection with any data security breach, we couldbe involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to paydamages and/or change our business practices or pricing structure, any of which could have a material adverse effect on ourrevenue and profitability. Our customer contracts typically include security standards that must be complied with by us andour customers. If a data security breach occurs and we have not been in compliance with the security standards included inour applicable contracts, we could be liable for breach of contract claims brought by our customers. We could also berequired to indemnify our customers for third-party claims, fines, penalties and/or other assessments imposed on ourcustomers as a result of any data security breach and our liability could exceed our insurance coverage or ability topay. Envestnet’s Registered Investment Advisers and Broker-Dealer may face SEC, FINRA and state enforcement actions,including monetary fines, if it is determined that Envestnet had inadequate data security measures in place to prevent suchtheft.Our security procedures and technologies are regularly audited by independent security auditors engaged by us, andmany of our prospective and current customers conduct their own audits or review the results of such independent securityaudits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to which ouroperations or our customers are subject. Adverse findings in these audits or examinations, even if not accompanied by anydata security breach, could adversely affect our ability to maintain our existing customer relationships and establish newcustomer relationships.Data security breaches, acts of fraud involving our solutions, or adverse findings in security audits or examinations,could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers tocease doing business with us and/or have a significant adverse impact on our revenue and future growth prospects. Further,any of these events could lead to additional regulation and oversight by federal and state agencies, which could impose newand costly compliance obligations and may lead to the loss of our ability to make our solutions available.25 Table of ContentsWe could incur significant costs protecting the personal information we store on our technology platforms.Users of our investment solutions and services are located in the United States and around the world. As a result, wecollect and store the personal information of individuals who live in many different countries. Privacy regulators in some ofthose countries have publicly stated that foreign entities (including entities based in the United States) may renderthemselves subject to those countries’ privacy laws and the jurisdiction of such regulators by collecting or storing thepersonal data of those countries’ residents, even if such entities have no physical or legal presence there. Consequently, wemay be obligated to comply with the privacy and data security laws of such foreign countries. Our exposure to foreigncountries’ privacy and data security laws impacts our ability to collect and use personal information, increases our legalcompliance costs and may expose us to liability.We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocolsimposed by law, regulation, industry standards or contractual obligations. Increased domestic or international regulation ofdata utilization and distribution practices could require us to modify our operations and incur significant additional expense,which could have a material adverse effect on our results of operations, financial condition or business. Furthermore, even ifnot directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financialsystem.Privacy concerns could have an adverse impact on our revenue and harm our reputation and may require us to modify ouroperations.As part of our business, we use, transmit and store end user-permissioned, non-identified transaction data elements.We are subject to laws, rules and regulations relating to the collection, use, and security of end user data. For privacy orsecurity reasons, privacy groups, governmental agencies and individuals may seek to restrict or prevent our use of this data.New laws in this area have been passed by several jurisdictions, and other jurisdictions are considering imposing additionalrestrictions. These new laws may be interpreted and applied inconsistently from jurisdiction to jurisdiction and our currentdata protection policies and practices may not be consistent with those interpretations and applications. In addition, theability to execute transactions and the possession and use of personal information and data in conducting our businesssubjects us to legislative and regulatory burdens that may require notification to customers or employees of a security breach,restrict our use of personal information, hinder our ability to acquire new customers or market to existing customers, requireus to modify our operations and have an adverse effect on our business, financial condition and operating results. We haveincurred, and will continue to incur, significant expenses to comply with privacy and security standards and protocolsimposed by law, regulation, industry standards or contractual obligations. As our business continues to expand to newindustry segments that may be more highly regulated for privacy and data security, and to countries outside the United Statesthat have more strict data protection laws, our compliance requirements and costs may increase.We are subject to liability for losses that result from a breach of our fiduciary duties.Our investment advisory services involve fiduciary obligations that require us to act in the best interests of ourclients, and we may be sued and face liabilities for actual or claimed breaches of our fiduciary duties. Because we provideinvestment advisory services, both directly and indirectly, with respect to substantial assets we could face substantialliability if it is determined that we have breached our fiduciary duties. In certain circumstances, which generally depend onthe types of investment solutions and services we are providing, we may enter into client agreements jointly with advisorsand retain third‑party investment money managers on behalf of clients. As a result, we may be included as a defendant inlawsuits against financial advisors and third‑party investment money managers that involve claims of breaches of the dutiesof such persons, and we may face liabilities for the improper actions and/or omissions of such advisors and third‑partyinvestment money managers. In addition, we may face claims based on the results of our investment advisoryrecommendations, even in the absence of a breach of our fiduciary duty. Such claims and liabilities could therefore have amaterial adverse effect on our results of operations, financial condition or business.26 Table of ContentsWe are subject to liability for losses that result from potential, perceived or actual conflicts of interest.Potential, perceived and actual conflicts of interest are inherent in our existing and future business activities andcould give rise to client dissatisfaction, litigation or regulatory enforcement actions. In particular, we pay varying fees tothird‑party asset managers and custodians and our financial advisor customers, or their clients, could accuse us of directingthem toward those asset managers or custodians that charge us the lowest fees. In addition, we offer proprietary mutual fundsand portfolios of mutual funds through our internal investment management and portfolio consulting group, and financialadvisors or their clients could conclude that we favor our proprietary investment products because of their belief that we earnhigher fees when our proprietary investment products are used. Adequately addressing conflicts of interest is complex anddifficult. If we fail, or appear to fail, to adequately address potential, perceived or actual conflicts of interest, the resultingnegative public perception and reputational harm could materially adversely affect our client relations or ability to enter intocontracts with new clients and, consequently, our results of operations, financial condition and business.If our reputation is harmed, our results of operations, financial condition or business could be materially adverselyaffected.Our reputation, which depends on earning and maintaining the trust and confidence of our clients and end users, iscritical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costlyor impossible to remediate. Regulatory inquiries or investigations, data security breaches, lawsuits initiated by our clients orstockholders, employee misconduct, perceptions of conflicts of interest and rumors, among other developments, couldsubstantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that thequality of our solutions and services may not be the same or better than that of other providers, can also damage ourreputation. Any damage to our reputation could harm our ability to attract and retain clients, which would materiallyadversely affect our results of operations, financial condition and business. Attempts to repair our reputation, if damagedmay be costly and time consuming, and such efforts may not ultimately be successful.If our investment solutions and services fail to perform properly due to undetected errors or similar problems, our results ofoperations, financial condition and business could be materially adversely affected.Investment solutions and services we develop or license may contain undetected errors or defects despite testing.Such errors can exist at any point in the life cycle of our investment solutions or services, but are frequently found afterintroduction of new investment solutions and services or enhancements to existing investment solutions or services. Wecontinually introduce new investment solutions and services and new versions of our investment solutions and services.Despite internal testing and testing by current and potential clients, our current and future investment solutions and servicesmay contain serious defects or malfunctions. If we detect any errors before release, we might be required to delay the releaseof the investment solution or service for an extended period of time while we address the problem. We might not discovererrors that affect our new or current investment solutions, services or enhancements until after they are deployed, and we mayneed to provide enhancements to correct such errors. Errors may occur that could have a material adverse effect on our resultsof operations, financial condition or business and could result in harm to our reputation, lost sales, delays in commercialrelease, third‑party claims, contractual disputes, contract terminations or renegotiations, or unexpected expenses anddiversion of management and other resources to remedy errors. In addition, negative public perception and reputationaldamage caused by such claims would adversely affect our client relationships and our ability to enter into new contracts. Anyof these problems could have a material adverse effect on our results of operations, financial condition and business.We could face liability or incur costs to remediate operational errors or to address possible customer dissatisfaction.Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to,improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, businessdisruptions and inadequacies or breaches in our internal control processes. The success of our business depends on ourability to mitigate those operational risks and deliver time-sensitive services. We operate in diverse markets and are relianton the ability of our employees and systems to process large volumes of transactions often within short time frames. Ouroperations and those of third parties on whom we rely for information and transaction processing services27 Table of Contentsare vulnerable to interruption by technical breakdowns, computer hardware and software malfunctions, software viruses,infrastructure failures, fire, earthquake, power loss, telecommunications failure, terrorist attacks, wars, Internet failures andother events beyond our control. In the event of any such interruptions or improper operation of systems, human error orimproper action by employees, we could suffer financial loss, regulatory sanctions or damage to our reputation.In addition, our contracts with our customers often include stringent requirements for us to maintain certain levels ofperformance and service availability. Failure by us to meet these contractual requirements could result in a claim forsubstantial damages against us, regardless of whether we are responsible for that failure. Our customers may also delay orwithhold payment to us, elect to terminate or not to renew their contracts with us, or refuse to integrate our solutions intotheir online offerings, or we could lose future sales to new customers as a result of damage to our reputation due to suchservice downtime or interruptions. If we suffer a significant database or network facility outage, our business couldexperience disruption until we fully implement our back-up systems. The occurrence of any such disruptions in our solutionscould materially and adversely affect our business.Furthermore, there may be circumstances when our customers are dissatisfied with our investment solutions andservices, even in the absence of an operational error. In such circumstances, we may elect to make payments or otherwiseincur increased costs or lower revenues in order to maintain a strong customer relationship. In any of the forgoingcircumstances, our results of operations, financial condition or business could be materially adversely affected.We may become subject to liability based on the use of our investment solutions and services by our clients.Our investment solutions and services support the investment processes of our clients, which, in the aggregate,manage billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potentialliability claims brought by our clients or third parties based on the use of our investment solutions and services. However,these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state,foreign or local laws. Use of our products as part of the investment process creates the risk that clients, or the parties whoseassets are managed by our clients, may pursue claims against us for very significant dollar amounts. Any such claim, even ifthe outcome were to be ultimately favorable to us, would involve a significant commitment of our management, personnel,financial and other resources and could have a negative impact on our reputation. Such claims and lawsuits could thereforehave a material adverse effect on our results of operations, financial condition or business.Furthermore, our clients may use our investment solutions and services together with software, data or products fromother companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when ourinvestment solutions and services do not cause these problems, the existence of these errors might cause us to incursignificant costs and divert the attention of our management and technical personnel, any of which could materiallyadversely affect our results of operations, financial condition or business.Our business relies heavily on computer equipment, electronic delivery systems and the Internet. Any failures or disruptionsin such technologies could result in reduced revenues, increased costs and the loss of customers.Our business relies heavily on our computer equipment (including our servers), electronic delivery systems and theInternet, but these technologies are vulnerable to disruptions, failures or slowdowns caused by fire, earthquake, power loss,telecommunications failure, terrorist attacks, wars, Internet failures, computer viruses and other events beyond our control.We derive our subscription revenue from licenses to a single software platform, and related support and professionalservices. As such, any factor adversely affecting subscriptions to that single software platform, including those describedelsewhere under “Risk Factors” or in other portions of this Form 10-K, would harm our business and operatingresults. Furthermore, we rely on agreements with our suppliers, such as our current data hosting and service provider, toprovide us with access to certain computer equipment, electric delivery systems and the Internet. We are unable to predictwhether a future contractual dispute may arise with one of our suppliers that could cause a disruption in service, or whetherour agreements with our suppliers can be obtained or renewed on acceptable terms, or at all. An unanticipated disruption,failure or slowdown affecting our key technologies or facilities may have significant ramifications, such as data‑loss, datacorruption, damaged software codes or inaccurate processing of transactions. We maintain off‑ site back‑up facilities for ourelectronic information and computer equipment, but these facilities could be28 Table of Contentssubject to the same interruptions that may affect our primary facilities. Any significant disruptions, failures, slowdowns,data‑loss or data corruption could have a material adverse effect on our results of operations, financial condition or businessand result in the loss of customers.Our insurance coverage and contractual liability limitations may fail to provide adequate protections,We maintain general liability insurance coverage, including coverage for errors or omissions; however, thiscoverage may not continue to be available on reasonable terms or may be insufficient to cover one or more large claims. Aninsurer might disclaim coverage as to any future claim. A successful assertion of one or more large claims against us thatexceeds our available insurance coverage or changes in our insurance policies, including premium increases or theimposition of a large deductible or co-insurance requirement, could harm our operating results and financialcondition. Additionally, although we attempt to limit our contractual liability in delivering our solutions, these limitationson liability may be unenforceable in some cases, or may be insufficient to protect us from liability for damages.If we fail to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities,our revenue and earnings may be harmed.Envestnet | Yodlee processes a significant volume and dollar value of transactions on a daily basis using its moneymovement solutions. Effective processing systems and controls are essential to ensure that transactions are handledappropriately. Despite our efforts, it is possible that we may make errors or that funds may be misappropriated due to fraud. Ifwe are unable to effectively manage our systems and processes we may be unable to process money movement transactions inan accurate, reliable and timely manner, which may harm our business. In addition, if we do not detect suspected fraudulentor non-sufficient fund transactions within agreed-upon timelines, we may be required to reimburse our customers for thetransactions and such reimbursements may exceed the amount of the reserves we have established to make such payments.The online payments industry has been experiencing an increasing amount of fraudulent activities by third parties.Although we do not believe that any of this activity is uniquely targeted at our business, this type of fraudulent activity mayadversely impact us. In addition to any direct damages and potential fines that may result from such fraud, which may besubstantial, a loss of confidence in our controls may seriously harm our business and damage our reputation. We mayimplement risk control mechanisms that could make it more difficult for legitimate end users to use our solutions, whichcould result in lost revenue and negatively impact our operating results.If we are unable to maintain our payment network with third-party service providers, or if our disbursement partnersencounter business difficulties, our business could be harmed.Envestnet | Yodlee’s payment network consists of a single Originating Deposit Financial Institution (“ODFI”), and asmall number of bill payment processors. Our ODFI clears and processes the funds from the customer. In the instance of fundstransfers, the ODFI also processes funds to the end user’s destination institution. For bill payment, funds are sent to the billpay processors for disbursement to biller sites.While we have entered into an agreement with our ODFI and each of our bill payment processors, these partnerscould choose to terminate or not renew their agreements with us. If we are unable to maintain our agreements with our currentpartners, or our current partners are unable to handle increased transaction volumes, our ability to disburse transactions andour revenue and business may be harmed. If we are unable to sign new payment processors and/or ODFIs under termsconsistent with, or better than, those currently in place, our revenue and business may be harmed.Payment processors and ODFI partners also engage in a variety of activities in addition to providing our servicesand may encounter business difficulties unrelated to our services. Such activities or difficulties could cause the affectedpartner to reduce the services provided, cease to do business with us, or cease doing business altogether. This could lead toour inability to move funds on a timely basis as required to settle transactions. In addition, because we offer next dayautomated clearing house transactions in certain cases, if a disbursement partner experiences insufficient29 Table of Contentsliquidity or ceases to do business, we may not be able to recover funds that are held with that disbursement partner whichcould harm our financial condition and operating results.We may also be forced to cease doing business with payment processors and/or ODFIs if rules governing electronicfunds transfers change or are reinterpreted to make it difficult or impossible for us to operate our money movement solutions.If sources from which we obtain information limit our access to such information or charge us fees for accessing suchinformation, our business could be materially and adversely harmed.Our Envestnet | Yodlee aggregation solutions require certain data that we obtain from thousands of sources,including banks, other financial institutions, retail businesses and other organizations, some of which are not our currentcustomers. As of December 31, 2015, we receive over 74% of this data through structured data feeds that are provided underthe terms of our contracts with most of our financial institution, or FI, customers. Although all of the information we currentlygather is end user-permissioned, non-identified data and, currently, we generally have free, unrestricted access to, or ability touse, such information, one or more of our current customers could decide to limit or block our access to the data feeds wecurrently have in place with these customers due to factors outside of our control such as more burdensome regulation of ouror our customers’ industry, increased compliance requirements or changes in business strategy. If the sources from which weobtain information that is important to our solutions limit or restrict our ability to access or use such information, we may berequired to attempt to obtain the information, if at all, through end user-permissioned data scraping or other means that couldbe more costly and time-consuming, and less effective or efficient. In the past, a limited number of third parties, primarilyairline and international sites, have either blocked our access to their websites or requested that we cease employing datascraping of their websites to gather information, and we could receive similar, additional requests in the future. Any suchlimitation or restriction may also preclude us from providing our solutions on a timely basis, if at all. In addition, if in thefuture one or more third parties challenge our right to access information from these sources, we may be required to negotiatewith these sources for access to their information or to discontinue certain services currently provided by our solutions. Thelegal environment surrounding data scraping and similar means of obtaining access to information on third-party websites isnot completely clear and is evolving, and one or more third parties could assert claims against us seeking damages or toprevent us from accessing information in that manner. In the event sources from which we obtain this information begin tocharge us fees for accessing such information, we may be forced to increase the fees that we charge our customers, whichcould make our solutions less attractive, or our gross margins and other financial results could suffer.Failure by our customers to obtain proper permissions and waivers might result in claims against us or may limit orprevent our use of data, which could harm our business.For some of our solutions we require our customers to provide necessary notices and to obtain necessary permissionsand waivers for use and disclosure of information through our solutions. Our contracts with our customers for these servicesinclude assurances from them that they have done so and will do so, but we do not audit our customers to ensure that theyhave acted, and continue to act, consistent with such assurances. If, despite these requirements and contractual obligations,our customers do not obtain necessary permissions and waivers, then our use and disclosure of information that we receivefrom them or on their behalf might be limited or prohibited by federal, state or foreign privacy laws or other laws. Such afailure to obtain proper permissions and waivers could impair our functions, processes and databases that reflect, contain, orare based upon such data and might prevent use of such data. In addition, such a failure could interfere with, or preventcreation or use of, rules, analyses, or other data-driven activities that benefit us and our business. Moreover, we might besubject to claims or liability for use or disclosure of information by reason of lack of valid notices, agreements, permissionsor waivers. These claims or liabilities could subject us to unexpected costs and adversely affect our operating results.We could face liability for certain information we provide, including information based on data we obtain from otherparties.We may be subject to claims for securities law violations, negligence, breach of fiduciary duties or other claimsrelating to the information we provide. For example, individuals may take legal action against us if they rely on30 Table of Contentsinformation we have provided and it contains an error. In addition, we could be subject to claims based upon the content thatis accessible from our website through links to other websites. Moreover, we could face liability based on inaccurateinformation provided to us by others. Defending any such claims could be expensive and time‑consuming, and any suchclaim could materially adversely affect our results of operations, financial condition or business.We depend on our senior management team and other key personnel and the loss of their services could have a materialadverse effect on our results of operations, financial condition or business.We depend on the efforts, relationships and reputations of our senior management team and other key personnel,including Judson Bergman, our Chief Executive Officer, William Crager, our President, Anil Arora, Vice Chairman, and ScottGrinis, our Chief Technology Officer, in order to successfully manage our business. We believe that success in our businesswill continue to be based upon the strength of our intellectual capital. The loss of the services of any member of our seniormanagement team or of other key personnel could have a material adverse effect on our results of operations, financialcondition or business.Our operations are subject to extensive government regulation, and compliance failures or regulatory action against uscould adversely affect our results of operations, financial condition or business.The financial services industry is among the most extensively regulated industries in the United States. We operateinvestment advisory, broker‑dealer, and mutual fund lines of business, each of which is subject to a specific and extensiveregulatory scheme. In addition, we are subject to numerous laws and regulations of general application. It is very difficult topredict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses.Certain of our subsidiaries are registered as “investment advisers” with the SEC under the Advisers Act and areregulated thereunder. In addition, many of our investment advisory services are conducted pursuant to the non‑exclusive safeharbor from the definition of an “investment company” provided under Rule 3a‑4 under the Investment Company Act. IfRule 3a‑4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule is applied,our business could be adversely affected. Certain of our registered investment adviser subsidiaries provide advice to mutualfund clients. Mutual funds are registered as “investment companies” under the Investment Company Act. Our advisorysubsidiaries provide advice on assets subject to the Employee Retirement Income Security Act of 1974 (“ERISA”). TheAdvisers Act, Investment Company Act and ERISA, together with related regulations and interpretations of the SEC and theDepartment of Labor, impose numerous obligations and restrictions on investment advisers and mutual funds, includingrequirements relating to the safekeeping of client funds and securities, limitations on advertising, disclosure and reportingobligations, prohibitions on fraudulent activities, restrictions on transactions between an adviser and its clients, and betweena mutual fund and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciaryobligations.In addition, PBS, our broker‑dealer subsidiary, is registered as a broker‑dealer with the SEC and with all 50 statesand the District of Columbia, and is a member of FINRA, a securities industry self‑regulatory organization that supervises andregulates the conduct and activities of its members. Broker‑dealers are subject to regulations that cover all aspects of theirbusiness, including sales practices, market making and trading among broker‑dealers, use and safekeeping of customer fundsand securities, capital structure, recordkeeping and the conduct of directors, officers, employees, representatives andassociated persons. FINRA conducts periodic examinations of the operations of its members, including PBS. As abroker‑dealer, PBS is also subject to certain minimum net capital requirements under SEC and FINRA rules. Compliance withthe net capital rules may limit our ability to withdraw capital from PBS.Envestnet | Yodlee is examined on a periodic basis by various regulatory agencies. For example, it is a supervisedthird-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas based onpublished guidance by the Federal Financial Institutions Examination Council. These examinations include examinations ofour management, acquisition and development activities, support and delivery, IT, and disaster preparedness and businessrecovery planning. The Office of the Comptroller of the Currency (the “OCC”) is the agency in charge of these examinations.If deficiencies are identified, customers may choose to terminate or reduce their relationships with us.31 Table of ContentsEither as a result of direct regulation or obligations under customer agreements, many of our subsidiaries arerequired to comply with certain provisions of the Gramm-Leach-Bliley Act (“GLBA”), related to the privacy of consumerinformation and may be subject to other privacy and data security laws because of the solutions we provide. In addition,numerous regulations have been proposed and are still being written to implement the Dodd-Frank Act for enhanced duediligence of the internal systems and processes of companies like ours by their regulated customers. If we are required tomake changes to our internal processes and solutions as result of this heightened scrutiny, we could be required to investsubstantial additional time and funds and divert time and resources from other corporate purposes to remedy any identifieddeficiency.Envestnet | Yodlee’s, money movement services are potentially subject to regulation under a variety of federal andstate laws, including state statutes regulating “money transmitters” and federal laws, such as the Bank Secrecy Act and theregulations thereunder, which regulate “money transmitting businesses” and “money services businesses.” Many of thesestatutes are broadly worded and have not been subject to published judicial or administrative interpretation. While webelieve that our money movement solutions comply with, or are exempt from, all applicable laws, as we conduct theseservices on behalf of regulated financial institutions, it is possible that one or more regulatory agencies could take theposition that we are not in compliance or that we are required to register as a money transmitter in order to provide our moneymovement solutions. In addition, new laws or regulations, or interpretations of existing laws or regulations, could subject usto additional regulatory requirements. If we were prevented from operating our money movement solutions in one or morestates, our ability to provide our money movement solutions would suffer as our customers generally require that our moneymovement solutions handle payments in all states. Moreover, if we were required to be licensed in one or more states, thelicensing process could be time-consuming and expensive.All of the foregoing laws and regulations are complex, evolving, unclear and inconsistent across variousjurisdictions and we are required to expend significant resources in order to maintain our monitoring of, and compliancewith, such laws and regulations. We continually develop improvements to our existing products and services as well as newproducts and services. Many of these improvements or new products and services may implicate regulations to which wemay not already be subject or with which we may not have experience. Any failure on our part to comply with these andother applicable laws and regulations could result in decreasing the demand for these products and services, increasing ourpotential liability or increase or costs, regulatory fines, suspensions of personnel or other sanctions, including revocation ofour subsidiaries as an investment adviser or broker‑dealer, as the case may be, which could, among other things, requirechanges to our business practices and scope of operations or harm our reputation. Any of the foregoing could have a materialadverse effect on our results of operations, financial condition or business.Changes to the laws or regulations applicable to us or to our clients could adversely affect our results of operations,financial condition or business.We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC or otherU.S. or foreign governmental regulatory authorities or self‑regulatory organizations that supervise the financial marketsaround the world. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing lawsand rules by these governmental authorities and self‑regulatory organizations. It is impossible to determine the extent of theimpact of any new laws, regulations or initiatives that may be proposed, or whether any current proposals will become law,and it is difficult to predict how any changes or potential changes could affect our business. Changes to laws or regulationscould increase our potential liability in connection with the investment solutions and other services that we provide. Theintroduction of any new laws or regulations could make our ability to comply with applicable laws and regulations moredifficult and expensive. Any of the foregoing could have a material adverse effect on our results of operations, financialcondition or business.A deemed “change of control” of our company could require us to obtain the consent of our clients and a failure to do soproperly could adversely affect our results of operations, financial condition or business.Under the Advisers Act, the investment advisory agreements entered into by our investment adviser subsidiariesmay not be assigned without the client’s consent. Under the Investment Company Act, advisory agreements with registeredfunds terminate automatically upon assignment and, any assignment of an advisory agreement must be approved by theboard of directors and the shareholders of the registered fund. Under the Advisers Act and the32 Table of ContentsInvestment Company Act, such an assignment may be deemed to occur upon a change of control of the Company. A changeof control includes either gaining or losing a “controlling person.” Whether someone is a controlling person for thesepurposes depends significantly on the specific facts and circumstances. There can be no assurance that if we undergo achange of control, we would be successful in obtaining all necessary consents or that the method by which we obtain suchconsents could not be challenged at a later time. If we are unable to obtain all necessary consents or if such a challenge wereto be successful it could have a material adverse effect on our results of operations, financial condition or business.We rely on exemptions from certain laws and if for any reason these exemptions were to become unavailable to us, wecould become subject to regulatory action or third‑party claims and our business could be materially and adverselyaffected.We regularly rely on exemptions from various requirements of the Exchange Act, the Investment Company Act andERISA in conducting our activities. These exemptions are sometimes highly complex and may in certain circumstancesdepend on compliance by third parties whom we do not control. If for any reason these exemptions were to becomeunavailable to us, we could become subject to regulatory action or third‑party claims and our business could be materiallyand adversely affected.If government regulation of the Internet or other areas of our business changes, or if consumer attitudes toward use of theInternet change, we may need to change the manner in which we conduct our business or incur greater operating expenses.The adoption, modification or interpretation of laws or regulations relating to the Internet or other areas of ourbusiness could adversely affect the manner in which we conduct our business. Such laws and regulations may cover salespractices, taxes, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumerprotection, broadband residential Internet access and the characteristics and quality of services. Moreover, it is not clear howexisting laws governing these matters apply to the Internet. If we are required to comply with new regulations or legislationor new interpretations of existing regulations or legislation, we may be required to incur additional expenses or alter ourbusiness model, either of which could have a material adverse effect on our results of operations, financial condition orbusiness.We are substantially dependent on our intellectual property rights, and a failure to protect these rights could adverselyaffect our results of operations, financial condition or business.We have made substantial investments in software and other intellectual property on which our business is highlydependent. We rely on a combination of patent, trade secret, trademark and copyright laws, confidentiality and nondisclosureagreements and other contractual and technical security measures to protect our proprietary technology, all of which provideonly limited protection. As of December 31, 2015, we had approximately 76 issued patents in the U.S. and foreignjurisdictions as well as additional pending patent applications in the U.S. and foreign jurisdictions. Some of these patentsrelate to technology that is included in our data aggregation platform and expire beginning in 2018. Any loss of ourintellectual property rights, or any significant claim of infringement or indemnity for violation of the intellectual propertyrights of others, could have a material adverse effect on our results of operations, financial condition or business.Many of our key technologies, investment solutions or services are not covered by any copyright registration,issued patent or patent application. We are the owner of certain patent rights, registered trademarks in the United States,including “ENVESTNET,” and we claim common law rights in other trademarks that are not registered. We cannot guaranteethat:·our intellectual property rights will provide competitive advantages to us;·our ability to assert our intellectual property rights against potential competitors or to settle current or futuredisputes will not be limited by our agreements with third parties;33 Table of Contents·our intellectual property rights will be enforced in jurisdictions where competition may be intense or wherelegal protection may be weak;·any of the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ inour business will not lapse or be invalidated, circumvented, challenged or abandoned;·our trademark applications will lead to registered trademarks; or·competitors will not design around our intellectual property rights or develop similar technologies, investmentsolutions or products; or that we will not lose the ability to assert our intellectual property rights against others.We are also a party to a number of third‑party intellectual property license agreements. Some of these licenseagreements require us to make one‑time payments or ongoing subscription payments. We cannot guarantee that thethird‑party intellectual property we license will not be licensed to our competitors or others in our industry. In the future, wemay need to obtain additional licenses or renew existing license agreements. We are unable to predict whether these licenseagreements can be obtained or renewed on acceptable terms, or at all. In addition, we have granted our customers certainrights to use our intellectual property in the ordinary course of our business. Some of our customer agreements restrict ourability to license or develop certain customized technology or services within certain markets or to certain competitors of ourcustomers. For example, our agreement with Fidelity restricts our ability to develop an enterprise‑level integration orcombination of products and services substantially similar to the technology platform we have developed for Fidelity. Someof our customer agreements grant our customers ownership rights with respect to the portion of the intellectual property wehave developed or customized for our customers. In addition, some of our customer agreements require us to deposit thesource code to the customized technology and investment solutions with a source code escrow agent, which source code maybe released in the event we enter into bankruptcy or are unable to provide support and maintenance of the technology orinvestment solutions we have licensed to our customers. These provisions in our agreements may limit our ability to growour business in the future.Third parties may sue us for intellectual property infringement or misappropriation which, if successful, could require us topay significant damages or make changes to the investment solutions or services that we offer.We cannot be certain that our internally developed or acquired technologies, investment solutions or services donot and will not infringe the intellectual property rights of others. In addition, we license content, software and otherintellectual property rights from third parties and may be subject to claims of infringement if such parties do not possess thenecessary intellectual property rights to the products they license to us. The risk of infringement claims against us willincrease if more of our competitors are able to obtain patents for investment solutions or services or business processes. Inaddition, we face additional risk of infringement or misappropriation claims if we hire an employee who possesses third partyproprietary information who decides to use such information in connection with our investment solutions, services orbusiness processes without such third‑party’s authorization. We have in the past been and may in the future be subject tolegal proceedings and claims that we have infringed or misappropriated the intellectual property rights of a third party. Theseclaims sometimes involve patent holding companies who have no relevant product revenues and against whom our ownproprietary technology may therefore provide little or no deterrence. In addition, third parties may in the future assertintellectual property infringement claims against our customers, which, in certain circumstances, we have agreed toindemnify. Any intellectual property related infringement or misappropriation claims, whether or not meritorious, couldresult in costly litigation and could divert management resources and attention. Moreover, should we be found liable forinfringement or misappropriation, we may be required to enter into licensing agreements, if available on acceptable terms orat all, pay substantial damages or make changes to the investment solutions and services that we offer. Any of the foregoingcould prevent us from competing effectively, result in substantial costs to us, divert management’s attention and ourresources away from our operations and otherwise harm our reputation.34 Table of ContentsIf our intellectual property and proprietary technology are not adequately protected to prevent use or appropriation by ourcompetitors, our business and competitive position would suffer.Our future success and competitive position depend in part on our ability to protect our intellectual property rights.The steps we have taken to protect our intellectual property rights may be inadequate to prevent the misappropriation of ourproprietary technology. There can be no assurance that others will not develop or patent similar or superior technologies,investment solutions or services. Unauthorized copying or other misappropriation of our proprietary technologies couldenable third parties to benefit from our intellectual property rights without paying us for doing so, which could harm ourbusiness. Policing unauthorized use of proprietary technology is difficult and expensive and our monitoring and policingactivities may not be sufficient to identify any misappropriation and protect our proprietary technology. In addition, thirdparties may knowingly or unknowingly infringe our trademarks and other intellectual property rights, and litigation may benecessary to protect and enforce our intellectual property rights. If litigation is necessary to protect and enforce ourintellectual property rights, any such litigation could be very costly and could divert management attention and resources. Ifwe are unable to protect our intellectual property rights or if third parties independently develop or gain access to our orsimilar technologies, investment solutions or services, our results of operations, financial condition and business could bematerially adversely affected.The use of “open source code” in investment solutions may expose us to additional risks and harm our intellectualproperty rights.To a limited extent, we rely on open source code to develop our platform, investment and other solutions andsupport for our internal systems and infrastructure. While we monitor our use of open source code to attempt to avoidsubjecting our solutions to conditions we do not intend, such use could inadvertently occur. Additionally, if a third‑partysoftware provider has incorporated certain types of open source code into software we license from such third party for oursolutions, we could, under certain circumstances, be required to disclose the source code for our solutions. This could harmour intellectual property position and have a material adverse effect on our results of operations, financial condition andbusiness.Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secretsand other proprietary information.We have devoted substantial resources to the development of our proprietary technologies, investment solutionsand services. In order to protect our proprietary rights, we enter into confidentiality agreements with our employees,consultants and independent contractors. These agreements may not effectively prevent unauthorized disclosure ofconfidential information or unauthorized parties from copying aspects of our technologies, investment solutions or productsor obtaining and using information that we regard as proprietary. Moreover, these agreements may not provide an adequateremedy in the event of such unauthorized disclosures of confidential information and we cannot assure you that our rightsunder such agreements will be enforceable. In addition, others may independently discover trade secrets and proprietaryinformation, and in such cases we could not assert any trade secret rights against such parties. Costly and time‑consuminglitigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintaintrade secret protection could reduce any competitive advantage we have developed and cause us to lose customers orotherwise harm our business.Our failure to successfully integrate acquisitions could strain our resources. In addition, there are significant risksassociated with growth through acquisitions, which may materially adversely affect our results of operations, financialcondition or business.We expect to grow our business by, among other things, making acquisitions. Over the past four years we havecompleted five significant acquisitions. Acquisitions involve a number of risks. They can be time‑consuming and may divertmanagement’s attention from day‑to‑day operations. Financing an acquisition could result in dilution from issuing equitysecurities or a weaker balance sheet from using cash or incurring debt. Acquisitions might also result in losing keyemployees. In addition, we may fail to successfully integrate acquisitions. We may also fail to generate enough revenues orprofits from an acquisition to earn a return on the associated purchase price.35 Table of ContentsTo the extent we grow our business through acquisitions, any such future acquisitions could present a number ofother risks, including:·incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions orother synergies expected to be realized as a result of acquiring operations or assets;·failure to integrate the operations or management of any acquired operations or assets successfully and on atimely and cost effective basis;·insufficient knowledge of the operations and markets of acquired businesses;·loss of key personnel;·failure to obtain necessary customer consents or retain key customers;·diversion of management’s attention from existing operations or other priorities;·increased costs or liabilities as a result of historical, undetected or undisclosed legal, regulatory or financialissues related to acquired operations or assets; and·inability to secure, on terms we find acceptable, sufficient financing that may be required for any suchacquisition or investment.In addition, if we are unsuccessful in completing acquisitions of other businesses, operations or assets or if suchopportunities for expansion do not arise, our results of operations, financial condition or business could be materiallyadversely affected.Our failure to successfully execute the conversion of our clients’ assets from their technology platform to our platforms in atimely and accurate manner could have a material adverse effect on our results of operations, financial condition orbusiness.When we begin working with a new client, or acquire new client assets through an acquisition or other transaction,we are often required to convert all or a significant portion of assets from the clients’ technology platform to our technologyplatforms. These conversions present significant technological and operational challenges that can be time‑consuming andmay divert management’s attention from other operational activities. If we fail to successfully complete our conversions in atimely and accurate manner, we may be required to expend more time and resources than anticipated, which could erode theprofitability of the client relationship. In addition, any such failure may harm our reputation and may make it less likely thatprospective clients will commit to working with us. Any of these risks could materially adversely affect our results ofoperations, financial condition or business.Our business will suffer if we do not keep up with rapid technological change, evolving industry standards or changingrequirements of clients.We expect technological developments to continue at a rapid pace in our industry. Our success will depend, in part,on our ability to:·continue to develop our technology expertise;·recruit and retain skilled technology professionals;·enhance our current investment solutions and services;·develop new investment solutions and services that meet changing client needs;36 Table of Contents·implement changes to our investment solutions and services to meet changing regulatory requirements;·advertise and market our investment solutions and services;·protect our proprietary technology and intellectual property rights; or·influence and respond to emerging industry standards and other technological changes.We must accomplish these tasks in a timely and cost‑effective manner and our failure to do so could materiallyadversely affect our results of operations, financial condition or business.We must continue to introduce new investment solutions and services and investment solution and service enhancements toaddress our clients’ changing needs, market changes, regulations, and technological developments and failure to do socould have a material adverse effect on our results of operations, financial condition or business.The market for our investment solutions and services is characterized by shifting client demands, evolving marketpractices, new and evolving regulations, and for some of our investment solutions and services, rapid technological change.Changing client demands, new market rules and practices, or new technologies can render existing investment solutions andservices obsolete and unmarketable. As a result, our future success will continue to depend upon our ability to develop newinvestment solutions and services and investment solution and service enhancements that address the future needs of ourtarget markets and respond to technological and market changes. We incurred technology development expenditures of$12,600, $11,600 and $9,100 in the years ended December, 31, 2015, 2014 and 2013, respectively. We expect that ourtechnology development expenditures will continue at this level or they may increase in the future. We may not be able toaccurately estimate the impact of new investment solutions and services on our business or how their benefits will beperceived by our clients. Further, we may not be successful in developing, introducing, marketing and licensing our newinvestment solutions or services or investment solution or service enhancements on a timely and cost effective basis, or at all,and our new investment solutions and services and enhancements may not adequately meet the requirements of themarketplace or achieve market acceptance. In addition, clients may delay purchases in anticipation of new investmentsolutions or services or enhancements. Any of these factors could materially adversely affect our results of operations,financial condition or business.We are a multinational organization faced with increasingly complex tax issues in several jurisdictions, and we could beobligated to pay additional taxes in various jurisdictions.As a multinational organization, we may be subject to taxation in several jurisdictions around the world withincreasingly complex tax laws, the application of which can be uncertain. The amount of taxes we pay in these jurisdictionscould increase substantially as a result of changes in the applicable tax principles, including increased tax rates, new tax lawsor revised interpretations of existing tax laws and precedents, which could have a material adverse effect on our liquidity andoperating results. In addition, the authorities in these jurisdictions could review our tax returns and impose additional tax,interest and penalties, and the authorities could claim that various withholding requirements apply to us or our subsidiariesor assert that benefits of tax treaties are not available to us or our subsidiaries, any of which could have a material impact onus and the results of our operations. For example, the taxing authorities of India and other jurisdictions in which we operatemay challenge our methodologies for allocating income and expense under our intercompany arrangements, including ourtransfer pricing, or determine that the manner in which we operate our business is not consistent with the manner in which wereport our income to the jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could berequired to pay additional taxes, interest and penalties, resulting in higher effective tax rates, reduced cash flows and higherexpenses.We may be subject to additional obligations to collect and remit sales tax and other taxes, and we may be subject to taxliability for past sales, which could adversely harm our business.State, local and foreign jurisdictions have differing rules and regulations governing sales, use, value added andother taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, theapplicability of such taxes to our subscription cloud-based software platform in various jurisdictions is37 Table of Contentsunclear. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could facethe possibility of tax assessments and audits, and our liability for these taxes and associated penalties could exceed ouroriginal estimates. A successful assertion that we should be collecting additional sales, use, value added or other taxes inthose jurisdictions where we have not historically done so and do not accrue for such taxes could result in substantial taxliabilities and related penalties for past sales, discourage customers from purchasing our services or otherwise harm ourbusiness and operating results.We face exposure to foreign currency exchange rate fluctuations.We have costs denominated in foreign currencies, primarily the Indian Rupee, and our revenue is primarilydenominated in the U.S. dollar. This exposes us to the risk of fluctuations in foreign currency exchange rates. Accordingly,changes in exchange rates, and in particular a weakening of the U.S. dollar, would negatively affect our expenses and otheroperating results as expressed in U.S. dollars. We manage a portion of our exposure to fluctuations in the Indian Rupee byentering into forward contracts to cover a portion of our projected expenditures paid in the Indian Rupee. These contractsgenerally have a term of less than 12 months. The use of such forward contracts, or other hedging activities in which we mayengage in the future, may not offset any or more than a portion of the adverse financial effects of unfavorable movements inforeign exchange rates over the limited time the hedges are in place.If we are unable to effectively manage certain risks and challenges related to our India operations, our business could beharmed.Our India operations are a key factor to our success. We believe that our significant presence in India providescertain important advantages for our business, such as direct access to a large pool of skilled professionals and assistance ingrowing our business internationally. However, it also creates certain risks that we must effectively manage. As of December31, 2015, approximately 1,500 of our total employees were based in India. Wage costs in India for skilled professionals arecurrently lower than in the United States for comparably skilled professionals. However, wages in India are increasing at afaster rate than in the United States, which could result in us incurring increased costs for technical professionals and reducedmargins. There is intense competition in India for skilled technical professionals, and we expect such competition toincrease. As a result, we may be unable to cost-effectively retain our current employee base in India or hire additional newtalent. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of foreignexchange. India also has experienced civil unrest and terrorism and, in the past, has been involved in conflicts withneighboring countries. The occurrence of any of these circumstances could result in disruptions to our India operations,which, if continued for an extended period of time, could have a material adverse effect on our business. If we are unable toeffectively manage any of the foregoing risks related to our India operations, our development efforts could be impaired, ourgrowth could be slowed, and our operating results could be negatively impacted.As a global organization, our business is susceptible to risks associated with our international operations and sales.We currently maintain international operations in India, the United Kingdom, Canada and Australia, lease space inother jurisdictions outside of the United States for the purpose of gathering data, and have customers located around theglobe. Managing a global organization and conducting sales outside of the United States is difficult and time-consumingand introduces risks that we may not face with our operations and sales in the United States. These risks include:·the burdens of complying with a wide variety of foreign regulations, laws and legal standards, includingprivacy, data security, tax and employment, some of which may be more stringent than those of the UnitedStates;·regional data privacy laws that apply to the transmission of data across international borders;·lack of familiarity with, and unexpected changes in, foreign regulatory requirements;·customers’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impactour business operations in their jurisdictions;38 Table of Contents·negative, local perception of industries and customers that we may pursue;·laws and business practices favoring local competitors;·localization of our solutions, including unanticipated costs related to translation into foreign languages andadaptation for local practices and regulatory requirements;·different pricing environments and longer sales cycles;·longer accounts receivable payment cycles and difficulties in collecting accounts receivable;·difficulties in managing and staffing international operations;·reduced or varied protection for intellectual property rights in some countries;·compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act,the U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and otherregulatory or contractual limitations on our ability to sell our solutions in certain foreign markets, and the risksand costs of compliance;·fluctuations in currency exchange rates;·potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficultyin interpreting international tax laws and restrictions on the repatriation of earnings;·increased financial accounting and reporting burdens and complexities; and·political, social and economic instability abroad, terrorist attacks and security concerns in general.Operating in international markets also requires significant management attention and financial resources. Acomponent of our growth strategy involves the further expansion of our operations and the development of new customerrelationships internationally. As we seek to expand internationally, we will need to develop relationships with additionalpartners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements andrisks associated with our international operations. The investment we make and additional resources we use to expand ouroperations, target new international customers, expand our presence globally within our existing customers and manageoperational and sales growth in other countries may not produce desired levels of revenue or profitability, which couldadversely affect our business and operating results.Certain provisions in our charter documents and agreements and Delaware law may inhibit potential acquisition bids forour company and prevent changes in our management.Our certificate of incorporation and bylaws contains provisions that could depress the trading price of our commonstock by acting to discourage, delay or prevent a change of control of our company or changes in management that ourstockholders might deem advantageous. As a result of these provisions in our certificate of incorporation, the price investorsmay be willing to pay for shares of our common stock may be limited.In addition, we are subject to Section 203 of the Delaware General Corporation Law, which imposes certainrestrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock.39 Table of ContentsWe do not currently intend to pay dividends on our common stock for the foreseeable future and, consequently, your abilityto achieve a return on your investment will depend on appreciation in the price of our common stock.We do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future.Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as theonly way to realize any gains on their investment. Investors seeking cash dividends should not purchase our common stock.The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition andoperating results.In the event the conditional conversion feature of the Convertible Notes is triggered, holders of the ConvertibleNotes will be entitled to convert their Convertible Notes at any time during specified periods at their option. If one or moreholders elect to convert their Convertible Notes, unless we satisfy our conversion obligation by delivering solely shares ofour common stock (other than cash in lieu of any fractional share), we would be required to settle all or a portion of ourconversion obligation through the payment of cash, which could adversely affect our liquidity. We may, at any time prior tothe final settlement method election date, irrevocably elect to satisfy our conversion obligation with respect to eachsubsequent conversion date in cash or in a combination of cash and shares of our common stock, if any, with a particularspecified dollar amount, as defined in the prospectus supplement dated December 9, 2014, in which case we will no longer bepermitted to settle the corresponding portion of our conversion obligation in shares of our common stock. Furthermore, evenif holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules toreclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long‑term liability,which would result in a material reduction of our net working capital.We may not have the ability to raise the funds necessary to settle conversions of the Convertible Notes or purchase theConvertible Notes as required upon a fundamental change, and our existing debt contains, and our future debt maycontain, limitations on our ability to pay cash upon conversion or purchase of the Convertible Notes.Following a fundamental change, holders of Convertible Notes will have the right to require us to purchase theirConvertible Notes for cash. A fundamental change may also constitute an event of default or prepayment under, and result inthe acceleration of the maturity of, our then‑existing indebtedness. In addition, upon conversion of the Convertible Notes,unless we settle our conversion obligation solely in shares of our common stock (other than cash in lieu of any fractionalshare), we will be required to make cash payments in respect of the Convertible Notes being surrendered for conversion. Wemay not have sufficient financial resources, or will be able to arrange financing, to pay the fundamental change purchaseprice in cash with respect to any Convertible Notes surrendered by holders for purchase upon a fundamental change or makecash payments upon conversions. In addition, restrictions in our Credit Agreement or future credit facilities or otherindebtedness, if any, may not allow us to purchase the Convertible Notes upon a fundamental change or make cash paymentsupon conversions of the Convertible Notes. Our failure to purchase the Convertible Notes upon a fundamental change ormake cash payments upon conversions thereof when required would result in an event of default with respect to theConvertible Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If therepayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not havesufficient funds to repay the indebtedness and purchase the Convertible Notes or make cash payments upon conversionsthereof. Item 1B. Unresolved Staff CommentsNone. Item 2. PropertiesOur headquarters are located in Chicago, Illinois, and consist of approximately 43,000 square feet of leased space.We also lease office space in Denver, Colorado; New York, New York; Sunnyvale and Redwood City, California; Boston,Massachusetts; Seattle, Washington; Landis and Raleigh, North Carolina; Addison, Texas; Tucson, Arizona, Berwyn,Pennsylvania and Trivandrum and Bangalore, India. We believe that our office facilities are adequate for our40 Table of Contentsimmediate needs and that additional or substitute space is available if needed to accommodate the foreseeable growth of ouroperations. Item 3. Legal ProceedingsFrom time to time, we may become subject to legal proceedings, claims and litigation arising in the ordinary courseof business. In addition, we are currently involved in the following matters:Plaid LitigationOn December 2, 2014, Yodlee filed a complaint in the United States District Court for the District of Delawarealleging that Plaid Technologies Inc. (“Plaid”) has and is continuing to infringe on seven of its U.S. patents. The complaintseeks unspecified monetary damages, enhanced damages, interest, fees, expenses, costs and injunctive relief against Plaid. OnJanuary 23, 2015, in lieu of filing an answer to the complaint, Plaid filed a motion to dismiss, alleging that Yodlee’s patentsdo not claim patent eligible subject matter. Yodlee filed its answering brief to the motion to dismiss on February 20,2015. Plaid filed its reply brief on March 6, 2015. At the outset of the litigation, the judge presiding over the litigationreferred certain matters to be handled by the assigned magistrate judge, including case scheduling, and any motions todismiss. The magistrate judge has entered a trial date of March 13, 2017. Discovery is proceeding while the motion to dismissis pending. On January 15, 2016, the Court issued a ruling on claim construction in which the Court specified theinterpretation of certain words and phrases in the patents claims which were disputed between both parties. On February 3,2016, the parties jointly submitted a letter to the court in which Plaid requested that the Court stay the litigation pending theresolution of the motion to dismiss, or in the alternative defer all discovery deadlines and dispositive motion deadlines. Inthat same letter, Yodlee presented its opposition to that request, noting that the Court had previously denied an earliermotion to stay discovery brought by Plaid. Plaid also informed the Court that it is preparing a formal motion to stay andYodlee informed the Court that it intends to oppose that motion (which had not been filed as February 16, 2016). In theFebruary 3, 2016 letter, the parties also informed the Court that if the current case schedule remains in place, including theMarch 13, 2017 trial date, they had agreed to certain changes in the deadlines for certain discovery and pre-trial events. TheCourt has not yet taken any action in response to the February 3, 2016 letter. It is too early to predict the outcome of theselegal proceedings. Yodlee intends to vigorously prosecute its infringement claims. Yodlee believes Plaid’s allegationsregarding Yodlee’s patents are without merit and intends to vigorously defend against these allegations.On December 2, 2015 and December 3, 2015, Plaid filed petitions for Inter-Parties Review (“IPR”) before the PatentOffice’s Board of Patent Trials and Appeals (“PTAB”) against two of the seven Yodlee patents that are the subject of thelawsuit described in the immediately preceding paragraph. In these petitions, Plaid seeks to have the PTAB find the twopatents invalid in light of specific prior art raised by Plaid in the petition. If the PTAB decides to initiate the IPR proceeding,it will set a schedule for both parties’ submissions and will set a date for a trial before the PTAB. The schedule for theproceeding has not been set but, based on the statutory deadlines, a final decision would likely be rendered in June, 2017.Either party may appeal the result of the PTAB final decision to the United States Court of Appeals for the Federal Circuit.Once all appeals are exhausted, a final judgment of invalidity becomes binding on the District Court hearing the Plaidlitigation. A judgment confirming validity by the PTAB is not binding on the District Court but it has significant estoppelconsequences that will preclude Plaid from relying on certain kinds of prior art in the District Court proceedings. Plaid hasalso informed Yodlee’s counsel that it intends to file a different kind of petition challenging one or more of the patents thatare the subject of the lawsuit described in the immediately preceding paragraph. Since Plaid has not yet filed any suchdifferent petitions, the timing, substance, or impact of those petitions cannot be determined at the present time.Merger LitigationEnvestnet, Merger Sub, Yodlee, and all members of Yodlee’s board of directors at the time of the Merger have beennamed as defendants in two putative class actions challenging the Merger. The suits are captioned Suman Inala v. Yodlee,Inc., et al. (Case No. 11461) (filed September 2, 2015 and amended on October 14, 2015) and Guillaume Wieland-Paquet v.Yodlee, Inc., et al. (Case No. 11611) (filed October 14, 2015) and are pending in the Court of Chancery of the State ofDelaware. The complaints allege, among other things, that the Yodlee directors breached their41 Table of Contentsfiduciary duties by agreeing to sell Yodlee through a conflicted process and by failing to ensure that Yodlee’s stockholdersreceived adequate and fair value for their shares. The complaints also allege that the Form S-4 Registration Statement filedby the Envestnet, which contained Yodlee’s proxy statement, failed to disclose material information to Yodlee’sstockholder. The complaints also allege that Envestnet and Merger Sub aided and abetted these breaches of fiduciary duties.The plaintiffs sought as relief, among other things, an injunction against the merger, rescission of the Merger Agreement tothe extent it was already implemented, an award of damages and attorneys’ fees.On October 16, 2015, plaintiffs moved for expedited proceedings and discovery, so as to be in a position to seekinjunctive relief preventing Yodlee’s shareholders from voting on the proposed Merger. On October 28, 2015, the Courtdenied plaintiff’s motion and on November 19, 2015, the Merger was completed. Plaintiffs have since advised that they willnot pursue claims for rescission of the merger agreement or monetary damages, but rather will consent to a dismissal of theirclaims without prejudice. Plaintiffs do intend, however, to seek an as yet unspecified award of fees for purportedlycompelling Yodlee to supplement its proxy statement in order to moot certain of plaintiffs’ claims. Appraisal DemandTwo former shareholders of Yodlee, Blueblade Capital Opportunities LLC and Blueblade Capital OpportunitiesLLC II (collectively, “Blueblade”), have exercised their statutory right to not accept the merger consideration, consisting of$11.51 in cash and 0.1889 of a share of Envestnet common stock per Yodlee share (which combination, based upon thevolume weighted average price per share of Envestnet common stock for the 10 consecutive trading days ending on (andincluding) November 17, 2015, the second trading day immediately prior to completion of the Merger, had a value of $17.49per share) and have demanded an appraisal of the “fair value” of the 577,829 shares of Yodlee common stock in whichBlueblade claims to hold a beneficial interest (“Blueblade’s shares”). Blueblade has until March 18, 2016 to commence anappraisal proceeding by filing a petition in the Court of Chancery of the State of Delaware demanding a determination by theCourt of the fair value of Blueblade’s shares. In addition, unless the Court determines otherwise, interest on any award of fairvalue will be payable at 5% over the Federal Reserve discount rate, compounded quarterly, from the effective date of theMerger through the date of payment. Envestnet believes that the “fair value” of Blueblade’s shares does not exceed theconsideration paid pursuant to the Merger Agreement and intends to vigorously oppose any petition Blueblade might file. Item 4. Mine Safety DisclosuresThis section is not applicable.42 Table of ContentsPART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities(a)Market InformationOur common stock is listed on the New York Stock Exchange under the symbol (ENV).The following table sets forth, for the periods indicated, the high and low closing sale prices of our common stock,for each of the periods presented below as reported in the consolidated reporting system for the New York Stock ExchangeComposite Transactions. 2015 High Low Quarter ended March 31, 2015 $57.37 $47.02 Quarter ended June 30, 2015 $55.70 $40.43 Quarter ended September 30, 2015 $46.12 $29.33 Quarter ended December 31, 2015 $33.49 $28.41 2014 High Low Quarter ended March 31, 2014 $47.87 $38.98 Quarter ended June 30, 2014 $49.64 $34.14 Quarter ended September 30, 2014 $48.88 $43.44 Quarter ended December 31, 2014 $54.50 $38.94 (b)HoldersThe approximate number of holders of record of our common stock was 238 as of February 22, 2016.(c)DividendsWe have not paid dividends for the most recent two years.Common StockAs of December 31, 2015, we had 500,000,000 common shares authorized at a par value of $0.005, of which41,979,126 shares were outstanding.Preferred StockAs of December 31, 2015, we had 50,000,000 preferred shares authorized at a par value of $0.005, of which noshares were outstanding.(d)Securities Authorized for Issuance Under Equity Compensation PlanFor a description of securities authorized under our equity compensation plans, see Note 13 to the notes toconsolidated financial statements in Part II, Item 8.(e)Stock Performance GraphThe following graph compares the cumulative return to stockholders on our common stock relative to thecumulative total returns of the Russell 2000 Index and The S&P North American Technology‑Services Index from theeffective date of our initial public offering on July 28, 2010 through December 31, 2015. In calculating total annualstockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative purposes43 ®TM$Table of Contentsonly. This graph is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference inany of our filings under the Securities Act of 1933, as amended, or the Exchange Act, as amended, whether made before orafter the date hereof and irrespective of any general incorporation language in any such filing.5 YEAR STOCK PERFORMANCE GRAPH 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 Envestnet, Inc. $100.00 $70.11 $81.77 $236.23 $288.04 $174.97 Russell 2000 Index 100.00 95.09 110.59 156.71 164.81 157.54 S&P North American Technology-Services Index 100.00 112.30 136.44 193.46 211.62 233.05 The stock price performance included in this graph is not necessarily indicative of future stock price performance.(f)Recent Sales of Unregistered SecuritiesNone(g)Issuer Purchases of Equity Securities Maximum number (or Total number of approximate dollar shares purchased value) of shares Total number Average as part of publicly that may yet be of shares price paid announced plans purchased under the purchased per share or programs plans or programs October 1, 2015 through October 31, 2015 11,110 29.58 — — November 1, 2015 through November 30, 2015 3,164 31.68 — — December 1, 2015 through December 31, 2015 5,742 30.65 — — 44 ®TMTable of ContentsItem 6. Selected Financial DataConsolidated Statements of Operations Year Ended December 31, 2015 2014 2013 2012 2011 (in thousands, except for share and per share information) Total revenues $420,919 $348,748 $242,535 $157,266 $123,178 Operating expenses: Cost of revenues 161,309 150,067 98,970 56,119 42,831 Compensation and benefits 139,756 104,457 77,442 54,973 40,305 General and administration 72,227 54,321 44,808 30,617 21,856 Depreciation and amortization 27,962 18,651 15,329 12,400 6,376 Restructuring charges 673 — 474 115 434 Total operating expenses 401,927 327,496 237,023 154,224 111,802 Income from operations 18,992 21,252 5,512 3,042 11,376 Other income (expense), net (10,004) 1,255 200 26 (796) Income before income tax provision 8,988 22,507 5,712 3,068 10,580 Income tax provision 4,552 8,528 2,052 2,603 2,975 Net income 4,436 13,979 3,660 465 7,605 Add: Net loss attributable to non-controlling interest — 195 — — — Income attributable to commonshareholders $4,436 $14,174 $3,660 $465 $7,605 Net income per share attributable tocommon stockholders Basic $0.12 $0.41 $0.11 $0.01 $0.24 Diluted $0.12 $0.38 $0.10 $0.01 $0.23 Weighted average common sharesoutstanding: Basic 36,500,843 34,559,558 33,191,088 32,162,672 31,643,390 Diluted 38,386,873 36,877,599 35,666,575 33,341,615 32,863,834 Consolidated Balance Sheet Data December 31, 2015 2014 2013 2012 2011 (in thousands) Cash and cash equivalents $51,718 $209,754 $49,942 $29,983 $64,909 Working capital 2,192 172,661 23,892 12,696 62,339 Goodwill and intangible assets 713,948 163,630 110,033 92,794 33,559 Total assets 885,565 439,358 221,242 162,399 137,702 Long-term debt 300,133 145,203 — — — Stockholders’ equity 439,529 201,435 147,772 125,996 115,639 45 Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsExcept where we have otherwise indicated or the context otherwise requires, dollar amounts presented in thisForm 10‑K are in thousands, except for Item 9A, Exhibits and per share amounts.OverviewWe are a leading provider of unified wealth management software and services to financial advisors and institutions.By integrating a wide range of investment solutions and services, our Web‑based platforms provide financial advisors withthe flexibility to address their clients’ needs.With our recent acquisition of Yodlee, Inc., now operating as Envestnet | Yodlee, we now offer a leading dataaggregation and data analytics platform powering dynamic, cloud-based innovation for digital financial services. Ourcustomers for this service include financial institutions, Internet services companies providing innovative financial solutionsand third-party developers of financial applications.Envestnet empowers financial advisors to deliver fee‑based advice to their clients. We work with both independentadvisors as well as advisors associated with financial institutions (broker‑dealers, banks). The services we offer and market tofinancial advisors address advisors’ ability to grow their practice as well as operate more efficiently—the Envestnet platformsspan from the initial meeting an advisor has with a prospective client to the ongoing day‑to‑day operations of managing anadvisory practice.Our financial institution customers subscribe to the Envestnet | Yodlee platform to power offerings that improveconsumer satisfaction and enhance engagement, while capturing cross-sell and up-sell opportunities. We estimate that ourcurrent network of financial institution customers alone reaches more than 100 million end users as of December 31, 2015,representing a significant opportunity to grow our paid user base within existing customers. Our customers that are Internetservice companies have an increasingly large and diverse base of users that also provides additional growth opportunities.Our centrally‑hosted technology platforms, which we refer to as having “open architecture” because of theirflexibility, provide financial advisors with access to a series of integrated services to help them better serve their clients.These services include risk assessment and selection of investment strategies and solutions, asset allocation models, researchand due diligence, portfolio construction, proposal generation and paperwork preparation, model management and accountrebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management andsocially responsible investing, aggregated multi‑custodian performance reporting and communication tools, as well as accessto a wide range of leading third‑party asset custodians.Our Envestnet | Yodlee technology platform infrastructure is designed to provide a highly available and securemulti-tenant cloud-based platform across hundreds of customers and millions of end users. Our solutions use a single codebase for all customers and are globally accessible across multiple digital channels. Our multi-tenancy model uses a commondata model for all customers but isolates data with logical controls and separate encryption keys for each customer. Ourarchitecture utilizes state-of-the-art technologies to achieve enhanced availability, scalability and security.The services delivered through our software are enabled and supported by our employees. In addition to theU.S.‑based employees that provide operations, investment management and research, and other support services to ouradvisor clients, we maintain a presence in India where our employees provide back‑ office support, including overnight datareconciliation services, as well as quality control, technology operations support and software development.46 Table of ContentsWe offer these solutions principally through the following product and services suites:·Envestnet | Advisor Suite empowers advisors to provide better client outcomes and strengthen their practice.Our cloud based platform unifies the applications and services advisors use to manage their practice andadvise their clients, including data aggregation; financial planning; capital markets assumptions; assetallocation guidance; research and due diligence on investment managers and funds; portfolio management,trading and rebalancing; multi‑custodial, aggregated performance reporting; and billing calculation andadministration.·Envestnet | PMC, our Portfolio Management Consultants (“PMC”) group primarily engages in research andconsulting services aimed at providing financial advisors with additional support in addressing their clients’needs, as well as the creation of investment solutions and products. Envestnet | PMC’s investment solutionsand products include managed account and multi‑manager portfolios, mutual fund portfolios and ExchangeTraded Funds (“ETF”) portfolios. Envestnet | PMC offers Prima Premium Research, comprisinginstitutional‑quality research and due diligence on investment managers, mutual funds, ETFs and liquidalternatives funds. Envestnet | PMC also offers Overlay Services which includes patented portfolio overlayand tax optimization services.·Envestnet | Tamarac provides leading portfolio accounting, rebalancing, trading, performance reporting andclient relationship management (“CRM”) software, principally to high‑end RIAs.·Envestnet | Retirement Solutions (ERS) offers a comprehensive suite of services designed specifically forretirement plan professionals. With our integrated technology, ERS addresses the regulatory, data, andinvestment needs of retirement plans and delivers the information holistically.·Envestnet | Vantage provides enterprise data solutions for financial institutions, aggregates and managesinvestment data, and provides multi-custodial consolidated performance reporting and benchmarking, givingclients an in‑depth view of all holdings, and empowering advisors and institutions to better manage theirbusiness.·Envestnet | Finance Logixprovides financial planning and wealth management software solutions to banks,broker-dealers and RIAs.·Envestnet | Advisor Now offers private-labeled investor-facing technology that enables advisors andinstitutions to deliver a complete digital wealth management experience to their clients.·Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services.We believe that our business model results in a high degree of recurring and predictable financial results.Recent DevelopmentsUpside Holdings, Inc.On February 24, 2015, Envestnet acquired all of the stock of Upside Holdings, Inc. (including its subsidiaries“Upside”) for consideration totaling $2,641.Upside is a technology company that is registered as an Internet Investment Adviser under Rule 203A-2(f) of theAdvisers Act. Upside helps financial advisors compete against other digital advisors, or “robo advisors,” by leveragingtechnology and algorithms to advise, manage, and serve clients who want personalized investment services.47 TM®TMTM TM TMTMTable of ContentsEnvestnet acquired Upside to integrate its technology within our unified wealth management platform, which willallow advisors to compete more aggressively to engage their clients online and reach a new class of investors.AlphaHedge Capital Partners, LLCOn April 1, 2015, Envestnet purchased 150,000 Class B units representing 10.34% of the outstanding membershipinterests of AlphaHedge Capital Partners, LLC, (“AlphaHedge”) a Delaware limited liability company for cash considerationof $1,500. AlphaHedge is a liquid alternatives platform providing access to strategies from a select group of long/shortequity managers in a custodian agnostic, separately managed account format. Envestnet uses the equity method ofaccounting to record its portion of the AlphaHedge net income or loss on a one quarter lag from AlphaHedge’s actual resultsof operations. Envestnet’s proportionate share in the loss of AlphaHedge was $84 during the year ended December 31, 2015.Oltis Software LLCOn May 6, 2015, Envestnet acquired all of the issued and outstanding membership interests of Oltis Software LLC(d/b/a Finance Logix®), an Arizona limited liability company (“Finance Logix”). Finance Logix provides financial planningand wealth management software solutions to banks, broker-dealers and RIAs.Under the terms of the Agreement, Envestnet paid upfront consideration of $20,595 in cash, purchase considerationliability of $3,000, 123,410 in shares of Envestnet common stock with a fair value of $6,388 and 123,410 stock options toacquire Envestnet common stock at $52.67 per share, with an estimated fair value of $2,542. Envestnet has also agreed to payan earn-out (in a mix of cash, stock and options) over a three year period, subject to Finance Logix meeting certain financialtargets and other customary conditions as discussed below. See Note 3 to the notes to the consolidated financial statements.Castle Rock Innovations, Inc.On August 30, 2015, Envestnet acquired all of the outstanding shares of capital stock of Castle Rock Innovations,Inc., a Delaware corporation (“Castle Rock”). Castle Rock provides data aggregation and plan benchmark solutions toretirement plan record-keepers, broker-dealers, and advisors.Envestnet acquired Castle Rock with plans to combine the Castle Rock offering into ERS. Castle Rock’s AXISRetirement Plan Analytics Platform enables retirement plan fiduciaries to comply with 408(b)(2) and 404a-5 regulatory feedisclosure reporting requirements. AXIS offers a single web-based interface and data repository to service the reporting needsof all types of retirement plans, and can be integrated with all record-keeping systems. AXIS also includes features for editingand generating reports for filings, reporting plan expenses, and comparing retirement plans and participants to those of theirpeers by industry, company size, and other characteristics.In connection with the acquisition of Castle Rock, the Company is required to pay contingent consideration of 40%of the first annual post-closing period revenues minus $100, 35% of the second annual post-closing period revenue minus$100 and 30% of the third annual post-closing period revenue minus $100. The Company recorded a preliminary estimatedliability as of the date of acquisition of $1,500, which represented the estimated fair value of contingent consideration on thedate of acquisition and is considered a Level 3 fair value measurement as described in Note 8.On September 1, 2015, ERS accepted the subscription of certain former owners of Castle Rock (the “Castle RockParties”) to purchase a 6.5% ownership interest of ERS for $900. The Castle Rock Parties have the right to require ERS torepurchase units issued pursuant to the subscription in approximately 36 months after September 1, 2015 for the amount of$900. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in the condensedconsolidated balance sheet. Subsequent to the subscription of the Castle Rock Parties, the Company’s ownership interest inERS is 54.8%.48 Table of ContentsYodlee, Inc.On November 19, 2015, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated August 10,2015, among Yodlee, Envestnet and Yale Merger Corp. (“Merger Sub”), a wholly owned subsidiary of Envestnet, Merger Subwas merged (the “Merger”) with and into Yodlee with Yodlee continuing as a wholly owned subsidiary of Envestnet.Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services. Envestnet | Yodlee powers digital financial solutions for over 20 million paidsubscribers and over 950 financial institutions and financial technology innovators. Founded in 1999, Yodlee has built anetwork of over 14,500 data sources and been awarded approximately 76 patents.Under the terms of the Merger Agreement, Yodlee stockholders received $11.51 in cash and 0.1889 of a share ofEnvestnet common stock per Yodlee share. Based upon the volume weighted average price per share of Envestnet commonstock for the ten consecutive trading days ending on (and including) November 17, 2015, the second trading dayimmediately prior to completion of the Merger, Yodlee stockholders received total consideration with a value of $17.49 pershare.Net cash consideration totaled approximately $300,723 and Envestnet issued approximately 5,974,000 shares ofEnvestnet common stock to Yodlee stockholders in the Merger. Additionally, there were approximately 1,052,000 shares ofEnvestnet restricted stock awards issued in connection with unvested Yodlee employee equity awards. Holders of 577,829shares of Yodlee common stock have exercised their statutory appraisal rights under Delaware law. For purposes ofcalculating the total consideration paid for Yodlee, we have assumed that we will pay such stockholders $17.49 in cash foreach share of Yodlee common stock held by them. The ultimate amount actually paid for such shares, which could includeinterest from the effective date of the Merger through the date of payment at the statutory rate of 5% over the Federal Reservediscount rate, compounded quarterly, could exceed $17.49 per share of Yodlee common stock.Credit AgreementIn connection with the acquisition of Yodlee, the Original Credit Agreement was amended and restated in itsentirety through the execution of the Amended and Restated Credit Agreement on November 19, 2015. Pursuant to theAmended and Restated Credit Agreement, the continuing lenders and a series of new lenders agree to extend credit facilitiesin the form of (i) term loans borrowed on the closing date in the aggregate principal amount of $160,000 and (ii) revolvingcredit commitments in the aggregate amount of up to $100,000. Additionally, the term of the facilities was extended fromDecember 8, 2017 to November 19, 2018. As of December 31, 2015, there was $150,000 of Term Notes outstanding and noamount outstanding under the revolving credit commitment under the Amended and Restated Credit Agreement.Subsequent EventsFinaConnect, Inc.On February 1, 2016 Envestnet acquired all of the outstanding shares of capital stock of FinaConnect, Inc.(“FinaConnect”). FinaConnect provides reporting and practice management capabilities to financial professional servicingthe retirement plan market and is the technology platform supporting the ERS service offering. In connection with the acquisition of FinaConnect, the Company paid upfront cash consideration of $6,435 andCompany is required to pay contingent consideration of four times the incremental revenue on a certain book of business forthe next two years, not to exceed a total amount of $3,500.Share repurchase authorizationThe Board of Directors of Envestnet has authorized a share repurchase program under which Envestnet mayrepurchase up to 2,000,000 shares of its common stock. The timing and volume of share repurchases will be determined49 Table of Contentsby Envestnet's management based on its ongoing assessments of the capital needs of the business, the market price of itscommon stock and general market conditions. No time limit has been set for the completion of the repurchase program, andthe program may be suspended or discontinued at any time. The repurchase program authorizes the company to purchase itscommon stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block transactions, inprivately negotiated transactions, through accelerated stock repurchase programs, through option or other forwardtransactions or otherwise, all in compliance with applicable laws and other restrictions.Key MetricsEnvestnetThe following table provides information regarding the amount of assets utilizing our platform technology, investoraccounts and financial advisors in the periods indicated. As of December 31, 2015 2014 2013 (in millions except accounts and advisors data) Platform Assets Assets Under Management (AUM) $92,559 $72,120 $45,706 Assets Under Administration (AUA) 197,177 174,249 132,215 Subtotal AUM/A 289,736 246,369 177,921 Licensing 561,699 466,982 358,919 Total Platform Assets $851,435 $713,351 $536,840 Platform Accounts AUM 490,471 310,351 211,039 AUA 807,708 667,274 524,806 Subtotal AUM/A 1,298,179 977,625 735,845 Licensing 2,176,068 1,881,352 1,508,254 Total Platform Accounts 3,474,247 2,858,977 2,244,099 Advisors AUM/A 33,775 28,605 22,838 Licensing 13,553 11,632 7,794 Total Advisors 47,328 40,237 30,632 The following table provides information regarding the degree to which gross sales, redemptions, net flows andchanges in the market values of assets contributed to changes in AUM or AUA in the periods indicated. Asset Rollforward—2015 Gross Net Market Reclass (to)from 12/31/2014 Sales Redemptions Flows Impact Licensing 12/31/2015 (in millions except account data)Assets underManagement (AUM) $72,120 $35,995 $(18,170) $17,825 $(4,340) $6,954 $92,559Assets underAdministration (AUA) 174,249 78,944 (41,347) 37,597 (4,577) (10,092) 197,177Total AUM/A $246,369 $114,939 $(59,517) $55,422 $(8,917) $(3,138) $289,736Fee-Based Accounts 977,625 330,361 (9,807) 1,298,179 50 Table of ContentsThe above AUM/A gross sales figures include $31.9 billion in new client conversions. The Company onboarded anadditional $98.5 billion in licensing conversions during 2015, bringing total conversions for the year to $130.4 billion. Asset Rollforward—2014 Gross Net Market Reclass to 12/31/2013 Placemark Sales Redemptions Flows Impact Licensing 12/31/2014 (in millions except account data) Assets underManagement(AUM) $45,706 $15,404 $22,355 $(12,414) $9,941 $1,069 $ — $72,120 Assets underAdministration(AUA) 132,215 — 77,514 (37,424) 40,090 5,102 (3,158) 174,249 Total AUM/A $177,921 $15,404 $99,869 $(49,838) $50,031 $6,171 $(3,158) $246,369 Fee-BasedAccounts 735,845 45,187 220,003 (23,410) 977,625 The above AUM/A gross sales figures include $28.2 billion in new client conversions. The Company onboarded anadditional $66.9 billion in licensing conversions during 2014, bringing total conversions for the year to $95.1 billion.The mix of assets under management and assets under administration was as follows as of the dates indicated: December 31, 2015 2014 2013 Assets under management (AUM) 32% 29% 26%Assets under administration (AUA) 68% 71% 74% 100% 100% 100% We expect the percentage of AUM and AUA will fluctuate in future periods. The nature and type of servicesrequested by our customers are the key drivers in determining whether customer assets are classified as AUM or AUA.Therefore, we do not have direct control over the mix of AUM and AUA.Envestnet | Yodlee Paid UsersA paid user is defined as a user of an application or service provided to our customer using the Yodlee platformwhose status corresponds to a billable activity under the associated customer contract. We believe that our ability to increasethe number of paid users is an indicator of our market penetration, the growth of our business, and our potential futurebusiness opportunities.Paid users increased to 21.3 million as of December 31, 2015 from 18.4 million as of December 31, 2014 andfrom 14.3 million as of December 31, 2013, as a result of an increase in our number of customers as well as expansion of userbase within certain existing customers.RevenuesOverviewWe earn revenues primarily under three pricing models. First, a majority of our revenues is derived from fees chargedas a percentage of the assets that are managed or administered on our technology platforms by financial advisors. Theserevenues are recorded under revenues from assets under management (“AUM”) or administration51 Table of Contents(“AUA”) or collectively (“AUM/A”). Our asset‑based fees vary based on the types of investment solutions and services thatfinancial advisors utilize. Asset‑based fees accounted for approximately 79%, 84% and 83% of our total revenues for theyears ended December 31, 2015, 2014 and 2013, respectively. In future periods, the percentage of our total revenuesattributable to asset‑based fees is expected to vary based on fluctuations in securities markets, whether we enter intosignificant license agreements, the mix of AUM or AUA, and other factors. As of December 31, 2015, approximately 47,000advisors used our technology platforms, supporting approximately $851 billion of assets in approximately 3.5 millioninvestor accounts.We generate revenues from recurring, contractual licensing fees for providing access to our technology platforms. Inaddition, we derive subscription revenue related to the Envestnet | Yodlee and Envestnet | Tamarac platforms. Thissubscription revenue includes both contractual minimum payments and usage-based fees and is driven primarily by thenumber of customers, including new customers as well as customers who renew their existing subscription contracts, and thenumber of paid users. These revenues are recorded under revenues from licensing and subscriptions. Licensing fees aregenerally fixed in nature for the contract term and are based on the level of investment solutions and services provided, ratherthan on the amount of client assets on our technology platforms. Subscription and licensing fees accounted for 18%, 14%and 15% of our total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. As a result of the Yodleeacquisition, we expect the subscription and licensing fees as a percentage of our total revenues to increase in 2016 as revenuerelated to the Envestnet | Yodlee segment will be included for a full year.We also generate revenues from fees received in connection with professional services and other revenue accountedfor the remainder of our revenues.Revenues from assets under management or administrationWe generally charge our customers fees based on a higher percentage of the market value of AUM than the fees wecharge on the market value of AUA, because we provide fiduciary oversight and/or act as the investment advisor inconnection with assets we categorize as AUM. The level of fees varies based on the nature of the investment solutions andservices we provide, as well as the specific investment manager, fund and/or custodian chosen by the financial advisor. Aportion of our revenues from assets under management or administration include costs paid by us to third parties forsub‑advisory, clearing, custody and brokerage services. These expenses are recorded under cost of revenues. We do not havefiduciary responsibility in connection with AUA and, therefore, generally charge lower fees on these assets. Our fees for AUAvary based on the nature of the investment solutions and services we provide.For over 85% of our revenues from assets under management or administration, we bill customers at the beginningof each quarter based on the market value of customer assets on our platforms as of the end of the prior quarter. For example,revenues from assets under management or administration recognized during the fourth quarter of 2015 were primarily basedon the market value of assets as of September 30, 2015. Our revenues from assets under management or administration aregenerally recognized ratably throughout the quarter based on the number of days in the quarter.Our revenues from assets under management or administration are affected by the amount of new assets that areadded to existing and new client accounts, which we refer to as gross sales. Gross sales, from time to time, also includeconversions of client assets to our technology platforms. The amount of assets that are withdrawn from client accounts arereferred to as redemptions. We refer to the difference between gross sales and redemptions as net flows. Positive net flowsindicate that the market value of assets added to client accounts exceeds the market value of assets that have been withdrawnfrom client accounts.Our revenues from assets under management or administration are also affected by changes in the market values ofsecurities held in client accounts due to fluctuations in the securities markets. Certain types of securities have historicallyexperienced greater market price fluctuations, such as equity securities, than other securities, such as fixed income securities,though in any given period the type of securities that experience the greatest fluctuations may vary.52 Table of ContentsAs a result of the market decline in the fourth quarter of 2015 and in the first two months of 2016, our revenue fromassets under management or administration may decline in 2016.Revenues from subscription and licensing feesOur revenues received under license agreements are recognized over the contractual term. Subscription revenue isrecognized ratably over the contracted term of each respective subscription agreement, commencing on the date the service isprovisioned to the customer, provided all applicable revenue recognition criteria have been satisfied. As part of thesubscription contracts, our customers generally commit to a minimum level of paid users from which a minimum level ofnon-refundable subscription revenue is derived. As paid users in excess of the guaranteed minimum level access theEnvestnet | Yodlee platform, the customer is then required to pay additional usage fees calculated based upon a contractedper-paid-user fee. No refunds or credits are given if fewer paid users access the Envestnet | Yodlee platform than thecontracted minimum level. Usage-based revenue is recognized as earned, provided all applicable revenue recognition criteriahave been satisfied.Revenues from professional services and otherTo a lesser degree we also receive revenues from professional services fees by providing customers with certaintechnology platform software development and implementation services. These revenues are recognized with whencompleted, under a proportional‑performance model utilizing an output‑based approach or on a straight‑line basis over theestimated life of the customer relationship. Our contracts generally have fixed prices, and generally specify or quantifyinterim deliverables.ExpensesThe following is a description of our principal expense items.Cost of revenuesCost of revenues primarily includes expenses related to our receipt of sub‑ advisory and clearing, custody andbrokerage services from third parties. The largest component of cost of revenues is paid to third party investment managers.Clearing, custody and brokerage services are performed by third‑party providers. These expenses are typically calculatedbased upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of eachfiscal quarter and are recognized ratably throughout the quarter based on the number of days in the quarter. Also included incost of revenues are vendor specific expenses related to the direct support of revenues associated with the Envestnet |Tamarac products and Envestnet | Yodlee products.Compensation and benefitsCompensation and benefits expenses primarily relate to employee compensation, including salaries, short termincentive compensation, non‑cash stock‑based compensation, incentive compensation, benefits and employer‑related taxes.General and administrationGeneral and administration expenses include occupancy costs and expenses relating to communications services,research and data services, website and system development, marketing, professional and legal services and travel andentertainment.Depreciation and amortizationDepreciation and amortization expenses include depreciation and amortization related to:·fixed assets, including computer equipment and software, leasehold improvements, office furniture andfixtures and other office equipment;53 Table of Contents·internally developed software; and·intangible assets, primarily related to customer lists, proprietary technology and trade names, the value ofwhich are capitalized in connection with our acquisitions.Furniture and equipment are depreciated using the straight‑line method based on the estimated useful lives of thedepreciable assets. Leasehold improvements are amortized using the straight‑line method over their estimated economicuseful lives or the remaining lease term, whichever is shorter. Improvements are capitalized, while repairs and maintenancecosts are recorded as expenses in the period they are incurred. Assets are tested for recoverability whenever events orcircumstances indicate that the carrying value of the assets may not be recoverable.Internally developed software is amortized on a straight‑line basis over its estimated useful life. We evaluate theuseful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur thatcould impact the recoverability of these assets.Intangible assets are depreciated using an accelerated or straight‑line basis over their estimated economic usefullives and are reviewed for possible impairment whenever events or changes in circumstances occur that could impact therecoverability of these assets.Interest expenseInterest expense includes coupon interest, discount amortization, and issuance cost amortization related to theConvertible Notes as well as amortization of upfront fees and monthly fees related to the Credit Agreement. The discount,issuance costs, and upfront fees are amortized over the term of the related agreements.Other income (expense), netOther income (expense), net includes foreign exchange gains or loss and gain or loss on foreign currency forwardcontracts as well as other miscellaneous revenue or expense items as appropriate.Critical Accounting PoliciesOur consolidated financial statements are prepared in conformity with accounting principles generally accepted inthe United States, or (“U.S. GAAP”). The accounting policies described below require management to apply significantjudgment in connection with the preparation of our consolidated financial statements. In particular, judgment is applied todetermine the appropriate assumptions to be used in calculating estimates that affect certain reported amounts in ourconsolidated financial statements. These estimates and assumptions are based on historical experience and on various otherfactors that we believe to be reasonable under the circumstances. If different estimates or assumptions were used, our resultsof operations, financial condition and cash flows could have been materially different than those reflected in ourconsolidated financial statements. For additional information regarding our critical accounting policies, see Note 2 to thenotes to consolidated financial statements.Revenue recognitionWe recognize revenues when all four of the following criteria have been met:·Persuasive evidence of an arrangement exists;·The product has been delivered or the service has been performed;·The fee is fixed or determinable; and·Collectability is reasonably assured.54 Table of ContentsTypes of revenuesWe generate revenues from assets under management or administration and from licensing, subscriptions andprofessional service fees. Revenues from assets under management or administration are generated from fees based on acontractual percentage of assets under management or administration valued at each quarter‑end. These fees are generallycollected at the beginning of a quarter in advance based upon the previous quarter‑end values. In less than 15% of ourcontracts, fees are collected at the end of the quarter based upon the average daily balance. The contractual fee percentagesvary based upon the level and type of services we provide to our customers. Pursuant to the contracts with our customers, wecalculate our fees based on the asset values, without making any judgment or estimates. None of our fees is earned pursuantto performance‑based or other incentive‑based arrangements.Subscription revenue is primarily derived from customers accessing the Envestnet | Yodlee platform or theEnvestnet | Tamarac platform and include subscription, support, and usage-based fees. Subscription revenue is recognizedratably over the contracted term of each respective subscription agreement, commencing on the date the service isprovisioned to the customer, provided the four revenue recognition criteria have been satisfied. Usage-based revenue arerecognized as earned, provided the four revenue recognition criteria have been satisfied.We generate revenues from licensing fees pursuant to recurring contractual fixed‑fee agreements. Our licensing feesvary based on the type of services we provide.We also generate revenues from professional service fees by providing customers with customized technologyplatform software development and implementation services. These revenues are received pursuant to contracts thatgenerally detail the nature of the services to be provided by us, the estimated number of hours such work will require and thetotal contract fee amount.Recognition of revenuesApplication of the applicable accounting principles of U.S. GAAP requires us to make judgments and estimates inconnection with the measurement and recognition of certain revenues. Revenues are recognized in the period in which therelated services are provided. In certain cases, management is required to determine whether revenues should be recognizedin an amount equal to the gross fees we receive or net of payments of expenses to third‑parties, such as third party investmentmanagers and custodians, that perform services for us in connection with certain of our financial advisors’ client accounts.Generally, when fees are collected for investment management, clearing, custody or brokerage services in circumstanceswhere we do not have a direct contract with the third‑party provider, the fees are recorded as revenue on a net basis. Fees wereceived in advance of the performance of services are recorded as deferred revenues on our consolidated balance sheet andare recognized as revenues when earned, generally over three months.The Company derives subscription and licensing fees from recurring contractual fixed fee contracts with largerfinancial institutions or enterprise clients. Licensing contracts allow the customer to provide a unique configuration ofplatform features and investment solutions for their advisors. The licensing fees vary based on the type of services providedand our revenues received under license agreements are recognized over the contractual term. The Company’s licenseagreements do not generally provide its customers the ability to take possession of the software or host the software on thecustomers’ own systems or through a hosting arrangement with an unrelated party.When the Company enters into arrangements with multiple deliverables, exclusive of arrangements with softwaredeliverables, it applies the FASB’s guidance for revenue arrangements with multiple deliverables and evaluates eachdeliverable to determine whether it represents a separate unit of accounting based on the following criteria: (i) whether thedelivered item has value to the customer on a stand‑alone basis, and (ii) if the contract includes a general right of returnrelative to the delivered item, delivery or performance of the undelivered item(s) is considered probable and substantially inthe control of the Company. Revenue is allocated to each unit of accounting or element based on relative selling prices. TheCompany determines relative selling prices by using either (a) vendor‑specific objective evidence (“VSOE”) if it exists; or(b) third‑party evidence (“TPE”) of selling price. When neither VSOE nor TPE of selling price exists for a deliverable, theCompany uses its best estimate of the selling price for that deliverable.55 Table of ContentsAfter determining which deliverables represent a separate unit of accounting, each unit is then accounted for underthe applicable revenue recognition guidance. In cases where elements cannot be treated as separate units of accounting, theelements are combined into a single unit of accounting for revenue recognition purposes. If one of the elements that arecombined into a single unit of accounting is fees from professional services, including implementation related services orcustomized service platform software development, the professional service fees are recognized over the course of theexpected customer relationship. We have estimated the life of the customer relationship by considering both the historicalretention rate of our customers while not exceeding the number of years over which we can accurately forecast futurerevenues. We currently estimate this term to be five years.The Company also derives professional service fees from providing contractual customized platform softwaredevelopment and implementation services, which are recognized under a proportional‑performance model utilizing anoutput‑based approach. The Company’s contracts generally have fixed prices, and generally specify or quantify deliverables.Our revenue recognition is also affected by our judgment in determining whether collectability is reasonablyassured. With regard to allowances for uncollectible receivables, we consider customer‑specific information related todelinquent accounts and past loss experience, as well as current economic conditions in establishing the amount of theallowance.Purchase accountingAssigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requiresknowledge of current market values, and the values of assets in use, and often requires the application of judgment regardingestimates and assumptions. While the ultimate responsibility resides with management, for material acquisitions, we retainthe services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumedliabilities, including intangible assets and contingent consideration.Acquired intangible assets, excluding goodwill, are valued using a discounted cash flow methodology based onfuture cash flows specific to the type of intangible asset purchased. This methodology incorporates various estimates andassumptions, the most significant being projected revenue growth rates, margins, and forecasted cash flows based on thediscount rate and terminal growth rate. Management projects revenue growth rates, margins and cash flows based on thehistorical operating results of the acquired entity adjusted for synergies anticipated to be achieved through integration,expected future performance, operational strategies, and the general macroeconomic environment. We review finite‑livedintangible assets for triggering events such as significant changes in operations, customers or future revenue that mightindicate the need to impair the assets acquired or change the useful lives of the assets acquired. There was no impairment orchange in useful lives recognized on other intangible assets in 2015, 2014 or 2013.Assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumedobligations, including contractual liabilities assumed, which require the exercise of professional judgment.Assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition date. Suchvaluation is subject to management judgment regarding the evaluation and interpretation of contract terms in relation toother economic circumstances, such as the market rates for office space leases.If we assume a performance obligation to customers as of the acquisition date, a deferred revenue obligation isrecognized. Judgment is required to evaluate whether a future performance obligation exists and to assign a value to theperformance obligation.Estimation of working capital settlement amounts, if not resolved prior to the first reporting period after anacquisition, but before the end of the purchase measurement period, requires exercise of management judgment. We measurethese amounts at the acquisition date fair value, if their fair value can be determined during the measurement period. If theseestimated working capital settlement amounts are not resolved prior to the first reporting period after acquisition, werecognize the asset or liability if it can be reasonably estimated. Subsequent adjustments to these56 Table of Contentsprovisional working capital settlement amounts are evaluated by management to determine the proper accounting treatmentunder relevant authoritative guidance.Assumed acquired tax liabilities for uncertain tax positions are dependent on assessing the past practices of theacquisition target based on our review of actual tax filings and information obtained through due diligence procedures.Evaluation of the validity of tax positions taken by the acquisition target are subject to management judgment.The Company determines the fair value of contingent acquisition consideration payable on the acquisition dateusing a discounted cash flow approach utilizing an appropriate discount rate. Each reporting period thereafter, the Companyrevalues these obligations and records increases or decreases in their fair value as adjustments to fair market value adjustmenton contingent consideration in the Company’s consolidated statements of operations. Changes in the fair value of thecontingent acquisition consideration payable can result from adjustments to the estimated revenue forecasts included in thecontingent payment calculations.Internally developed softwareCosts relating to internally developed software that are incurred in the preliminary stages of development areexpensed as incurred. Management determines when projects have met the criteria of the application development stage.This typically occurs when the conceptual formulation and evaluation of software functionality are finalized.Once work on a software application has passed the preliminary stages, internal and external costs, if direct andincremental, are capitalized until the software application is substantially complete and ready for its intended use. Thesecosts include expenditures related to software design, technical specifications, coding, and parallel testing. We ceasecapitalizing these costs upon completion of all substantial testing of the software application.We also capitalize costs related to specific upgrades and enhancements of our internally developed software whenwe conclude that it is probable that the expenditures will result in additional functionality. Our maintenance and trainingcosts are expensed as incurred.Internally developed software is amortized on a straight‑line basis over its estimated useful life. We evaluate theuseful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur thatcould impact the recoverability of these assets. There were no impairments to internally developed software during the yearsended December 31, 2015, 2014 and 2013.Non‑cash stock‑based compensation expenseNon‑cash stock‑based compensation expense for stock options and restricted stock grants is estimated at the grantdate based on each grant’s fair value, calculated using the Black‑Scholes option‑pricing model for stock options, andintrinsic value for restricted stock. Compensation and benefits expenses are recognized over the vesting period for eachgrant. The fair value of our stock options and the resulting expenses are based on various assumptions, including theexpected volatility of our stock price, the expected term of the stock options, estimated forfeiture rates and the risk‑freeinterest rate. The use of different assumptions would result in different fair values and compensation and benefits expensesfor our option grants.We use the “simplified” method in developing an estimate of expected term of stock options. We base the risk‑freeinterest rate on zero‑coupon yields implied from U.S. Treasury issues with remaining terms similar to the expected term onthe options. We estimate expected volatility based on historical volatility of Envestnet’s common stock and that ofcomparable companies from a representative peer group based on industry and market capitalization data. We do notanticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in theoption‑pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequentperiods if actual forfeitures differ from those estimates. If we use different assumptions for estimating stock‑basedcompensation expense in future periods or if actual forfeitures differ materially from our estimated forfeitures, futurestock‑based compensation expense may differ significantly from what we have recorded in the current period and couldmaterially affect our operating income, net income and net income per share.57 Table of ContentsIncome taxesWe are subject to income taxes in the United States, Australia, Canada, India, and the United Kingdom. Significantjudgment is required in evaluating our tax positions and determining our provision for income taxes.We use the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognizedfor the future tax consequences attributable to differences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases, and for net operating loss carryforwards. Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences areexpected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inthe Company’s income tax provision in the period that includes the enactment date. We record a valuation allowance toreduce deferred tax assets to an amount that we determine is more-likely-than-not to be realized in the future.In our ordinary course of business, we may enter into transactions for which the ultimate tax determination isuncertain. In such cases, we establish reserves for tax-related uncertainties based on our estimates of whether, and the extentto which, additional taxes will be due. The reserves are established when we believe that certain positions are likely to bechallenged and may not be fully sustained on review by tax authorities. We adjust these reserves in light of changing factsand circumstances, such as the closing of a tax audit or refinement of an estimate. Although we believe our reserves arereasonable, no assurance can be given that the final outcome of these matters will not be different from that which is reflectedin our historical income tax provisions and accruals. To the extent that the final tax outcome of these matters is different thanthe amounts recorded, such differences will be reflected in our provision for income taxes. The provision for income taxesincludes the impact of reserve provisions and changes to reserves that are considered appropriate.The amount of income tax we pay is subject to audits by federal, state and foreign tax authorities, which may resultin proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We believethat we have adequately provided for the foreseeable outcome related to these matters. However, our future results mayinclude favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made orresolved, audits are closed or when statutes of limitations on potential assessments expire. Additionally, the jurisdictions inwhich our earnings or deductions are realized may differ from our current estimates. As a result, our effective tax rate mayfluctuate significantly on a quarterly basis.Judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessingthe need for a valuation allowance, we consider all available evidence, including past operating results, estimates of futuretaxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the amountof deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to theprovision for income taxes in the period in which such determination is made.Our effective tax rates differ from the statutory rates primarily due to state taxes, permanent differences, thegeneration of research and development tax credits, unrecognized tax benefits, prior period true-ups, changes in valuationallowances, and changes in rates. Our provision for income taxes varies based on, among other things, changes in thevaluation of our deferred tax assets and liabilities, the tax effects of non-cash stock-based compensation or changes inapplicable tax laws, regulations and accounting principles or interpretations thereof.We are subject to examination of our income tax returns by the U.S. Internal Revenue Service and other taxauthorities. We assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy ofour provision for income taxes. There can be no assurance that the outcomes from these examinations will not have a materialadverse effect on our results of operations, financial condition and cash flows.58 Table of ContentsOur Indian subsidiaries are currently under examination by the India Tax Authority for the fiscal year ended March31, 2005 through March 31, 2012. Based on the outcome of examinations of our subsidiary or the result of the expiration ofstatutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those recordedin the consolidated balance sheet. It is possible that one or more of these audits may be finalized within the next twelvemonths.Results of Operations As of December 31, 2015 2014 PercentChange 2013 PercentChange (in thousands) (in thousands) Revenues: Assets under management or administration $333,684 $294,223 13% $200,568 47%Subscription and licensing 75,280 48,787 54% 36,876 32%Professional services and other 11,955 5,738 108% 5,091 13%Total revenues 420,919 348,748 21% 242,535 44%Operating expenses: Cost of revenues 161,309 150,067 7% 98,970 52%Compensation and benefits 139,756 104,457 34% 77,442 35%General and administration 72,227 54,321 33% 44,808 21%Depreciation and amortization 27,962 18,651 50% 15,329 22%Restructuring charges 673 — * 474 (100)%Total operating expenses 401,927 327,496 23% 237,023 38%Income from operations 18,992 21,252 (11)% 5,512 286%Other income: Interest income 338 139 143% 18 * Interest expense (10,271) (626) * — * Other income (expense), net (71) 1,742 * 182 * Total other income (expense) (10,004) 1,255 * 200 * Income before income tax provision 8,988 22,507 (60)% 5,712 294%Income tax provision 4,552 8,528 (47)% 2,052 * Net income 4,436 13,979 (68)% 3,660 282%Add: Net loss attributable to non-controlling interest — 195 (100)% — * Net income attributable to Envestnet, Inc. $4,436 $14,174 (69)% $3,660 287%*Not meaningfulYear ended December 31, 2015 compared to year ended December 31, 2014RevenuesTotal revenues increased 21% from $348,748 in 2014 to $420,919 in 2015. The increase was primarily due to anincrease in revenues from assets under management or administration of $39,461. Revenues from assets under management oradministration comprised 79% and 84% of total revenues in 2015 and 2014, respectively. As a result of the Yodleeacquisition, we expect the revenues from assets under management or administration to decrease as a percentage of totalrevenues in 2016.Assets under management or administrationRevenues earned from assets under management or administration increased 13% from $294,223 in 2014 to$333,684 in 2015. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles59 Table of Contentsin 2015, relative to the corresponding period in 2014. In 2015, revenues were positively affected by new account growth,market appreciation and positive net flows of AUM or AUA during 2014 and 2015, as well as an increase in revenues relatedto the October 1, 2014 acquisition of Placemark.The number of financial advisors with AUM or AUA on our technology platforms increased from 28,605 as ofDecember 31, 2014 to 33,775 as of December 31, 2015 and the number of AUM or AUA client accounts increased fromapproximately 978,000 as of December 31, 2014 to approximately 1,298,000 as of December 31, 2015.Subscription and licensingSubscription and licensing revenues increased 54% from $48,787 in 2014 to $75,280 in 2015. This increase wasprimarily due to an increase in Envestnet | Tamarac related revenue of $11,182 and Envestnet | Yodlee contributing anadditional $11,561.Professional services and otherProfessional services and other revenues increased 108% from $5,738 in 2014 to $11,955 in 2015. This increase wasprimarily due to an increase in Envestnet | Tamarac related revenue of $1,396 and Envestnet | Yodlee contributing anadditional $2,520.Cost of revenuesCost of revenues increased 7% from $150,067 in 2014 to $161,309 in 2015, primarily due to the correspondingincrease in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues decreased from 43% in 2014 to38% in 2015. The decrease in cost of revenues as a percentage of total revenue is primarily due to an in increase insubscription and licensing revenue as well as increase in professional services and other revenue which generally have lowercost of revenues.Compensation and benefitsCompensation and benefits increased 34% from $104,457 in 2014 to $139,756 in 2015, primarily due to an increasein salaries, benefits and other compensation expense of $27,484 related to an increase in headcount, an increase in incentivecompensation of $2,294 and an increase in non‑cash compensation expense of $3,738. Headcount increased from an averageof 1,103 in 2014 to an average of 1,419 in 2015, primarily to support the growth of our operations, as well as increase inheadcount as a result of the Yodlee acquisition. As a percentage of total revenues, compensation and benefits increased from30% in 2014 to 33% in 2015.General and administrationGeneral and administration expenses increased 33% from $54,321 in 2014 to $72,227 in 2015, primarily due toyear‑over‑year increases in transaction related costs of $10,131, website and systems development costs of $1,199,professional and legal fees of $2,855, travel and entertainment of $1,916, occupancy costs of $1,470, and communication,research and data services costs of $1,877, offset by decreases in fair value of contingent consideration adjustments of$2,721. As a percentage of total revenues, general and administration expenses increased from 16% in 2014 to 17% in 2015.Depreciation and amortizationDepreciation and amortization expense increased 50% from $18,651 in 2014 to $27,962 in 2015, primarily due toan increase in intangible asset amortization of $6,995 as a result of intangible assets recorded in purchase accounting relatedto the Placemark, Upside, Finance Logix, Castle Rock and Yodlee acquisitions (see Note 3 to the notes to consolidatedfinancial statements). The increase in depreciation and amortization expense was also due to increases in capitalizedcomputer equipment and software to support the growth of our operations. As a percentage of total revenues,60 Table of Contentsdepreciation and amortization increased from 5% in 2014 to 7% in 2015. As a result of the Yodlee acquisition, we expectdepreciation and amortization to continue to increase as a percentage of total revenues in 2016.Restructuring chargesIn 2015, we incurred restructuring charges of $673 primarily due to the abandonment of our lease in Wellesley, MA.Interest expenseInterest expense increased from $626 in 2014 to $10,271 in 2015 as a result of the issuance of $172,500 inConvertible Notes in the fourth quarter of 2014 as well as the issuance of $160,000 in Term Notes under the Amended andRestated Credit Agreement during the fourth quarter of 2015. Interest expense includes coupon interest, discountamortization, and issuance cost amortization related to the Convertible Notes as well as interest and amortization of upfrontfees and monthly fees related to the Amended and Restated Credit Agreement. The discount, issuance costs, and upfront feesare amortized over the term of the related agreements.Other income (expense), netThe change in other income (expense) was primarily a result of an agreement reached in 2014 with a vendorregarding the recovery of certain expenses totaling $1,825.Income tax provision Year Ended December 31, 2015 2014 (in thousands) Income tax provision $4,552 $8,528 Effective tax rate 50.6% 37.9% Our 2015 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, non-deductibletransaction costs, unremitted foreign earnings true-up, changes in valuation allowances, and changes in our statutory blendedtax rates. Our 2014 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, permanentdifferences, the generation of research and development tax credits, the carryforward period expiration of capital losscarryforwards, the change in the valuation allowance, and net operating loss adjustments resulting from a recently completedSection 382 study.Year ended December 31, 2014 compared to year ended December 31, 2013RevenuesTotal revenues increased 44% from $242,535 in 2013 to $348,748 in 2014. The increase was primarily due to anincrease in revenues from assets under management or administration of $93,655. Revenues from assets under management oradministration comprised 84% and 83% of total revenues in 2014 and 2013, respectively.Assets under management or administrationRevenues earned from assets under management or administration increased 47% from $200,568 in 2013 to$294,223 in 2014. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in2014, relative to the corresponding period in 2013. In 2014, revenues were positively affected by new account growth,61 Table of Contentsmarket appreciation and positive net flows of AUM or AUA during 2013 and 2014, as well as an increase in revenues relatedto the July 1, 2013 acquisition of WMS, and the October 1, 2014 acquisition of Placemark.The number of financial advisors with AUM or AUA on our technology platforms increased from 22,838 as ofDecember 31, 2013 to 28,605 as of December 31, 2014 and the number of AUM or AUA client accounts increased fromapproximately 736,000 as of December 31, 2013 to approximately 978,000 as of December 31, 2014.Subscription and licensingSubscription and licensing revenues increased 32% from $36,876 in 2013 to $48,787 in 2014. This increase wasprimarily due to an increase in Tamarac related revenue of $9,800.Professional services and otherProfessional services and other revenues increased 13% from $5,091 in 2013 to $5,738 in 2014. This increase wasprimarily due to Advisor Summit revenues in 2014 of $1,757 offset by a decrease in professional service revenue.Cost of revenuesCost of revenues increased 52% from $98,970 in 2013 to $150,067 in 2014, primarily due to the correspondingincrease in revenues from AUM or AUA, inclusive of an increase related to the WMS acquisition. As a percentage of totalrevenues, cost of revenues increased from 41% in 2013 to 43% in 2014.Compensation and benefitsCompensation and benefits increased 35% from $77,442 in 2013 to $104,457 in 2014, primarily due to an increasein salaries, benefits and other compensation expense of $20,335 related to an increase in headcount, an increase in incentivecompensation of $3,529 and an increase in non‑cash compensation expense of $2,685. Headcount increased from an averageof 857 in 2013 to an average of 1,103 in 2014, primarily to support the growth of our operations, as well as increasedheadcount from the WMS and Placemark acquisitions. As a percentage of total revenues, compensation and benefitsdecreased from 32% in 2013 to 30% in 2014.General and administrationGeneral and administration expenses increased 21% from $44,808 in 2013 to $54,321 in 2014, primarily due toyear‑over‑year increases in website and systems development costs of $2,801, professional and legal fees of $3,049, traveland entertainment of $1,945, occupancy costs of $2,346, and communication, research and data services costs of $1,740,offset by decreases in fair value of contingent consideration adjustments of $1,933 and re‑audit related expenses of $3,110.As a percentage of total revenues, general and administration expenses decreased from 18% in 2013 to 16% in 2014.Depreciation and amortizationDepreciation and amortization expense increased 22% from $15,329 in 2013 to $18,651 in 2014, primarily due toan increase in intangible asset amortization of $2,188 as a result of intangible assets recorded in purchase accounting relatedto the WMS and Placemark acquisitions (see Note 3 to the notes to consolidated financial statements). The increase indepreciation and amortization expense was also due to increases in capitalized computer equipment and software to supportthe growth of our operations. As a percentage of total revenues, depreciation and amortization decreased from 6% in 2013 to5% in 2014.Restructuring chargesIn 2013, we incurred restructuring charges of $474 due to lease termination penalties incurred to terminate theDenver and Raleigh leases.62 Table of ContentsInterest expenseInterest expense increased from $0 in 2013 to $626 in 2014 as a result of the issuance of the Convertible Notes aswell as the borrowing of $30,000 on the Credit Agreement during the fourth quarter of 2014. Interest expense includescoupon interest, discount amortization, and issuance cost amortization related to the Convertible Notes as well asamortization of upfront fees and monthly fees related to the Credit Agreement. The discount, issuance costs, and upfront feesare amortized over the term of the related agreement.Other income, netOther income, net increased by $1,560, primarily as a result of an agreement reached with a vendor regarding therecovery of certain expenses totaling $1,825, which we incurred in 2013.Income tax provision Year Ended December 31, 2014 2013 (in thousands) Income tax provision $8,528 $2,052 Effective tax rate 37.9% 35.9% Our 2014 effective tax rate differs from the statutory rate primarily due to the effect of state taxes, permanentdifferences, the generation of research and development tax credits, the carryforward period expiration of capital losscarryforwards, the change in the valuation allowance, and net operating loss adjustments resulting from a recently completedSection 382 study.Our 2013 effective tax rate differs from the statutory rate primarily as a result of non‑deductible transaction costs,unrecognized tax benefits in the U.S., the benefit of foreign tax credits, as well as the benefit of research and development taxcredits. The non‑deductible transaction costs relate to a secondary offering of our common stock completed in the fourthquarter. The unrecognized tax benefits are a result of positions taken on prior year tax returns and the research anddevelopment tax credits are a result of a comprehensive study completed by the Company for tax years 2007‑2013.Business SegmentsPrior to the acquisition of Yodlee on November 19, 2015, the Company only reported one segment. As a result ofthe Yodlee acquisition as discussed in Note 3 to the consolidated financial statements, the Company has re-examined itsreporting and operating structure and has determined it has two segments as described below: Envestnet is a leading provider of unified wealth management software and services empowering financial advisorsand institutions. Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services. The following table presents income (loss) by segment: Year Ended December 31, 2015 2014 2013 (in thousands)Envestnet $43,278 $32,854 $18,312Envestnet | Yodlee (2,984) — — Total segment income from operations 40,294 32,854 18,31263 Table of ContentsNonsegment operating expenses (21,302) (11,602) (12,800)Interest income (expense), net (9,933) (487) 18Other income (expense), net (71) 1,742 182Consolidated income before income taxes 8,988 22,507 5,712Income tax provision 4,552 8,528 2,052Consolidated net income 4,436 13,979 3,660 Add: Net loss attributable to non-controlling interest — 195 —Consolidated net income attributable to Envestnet, Inc. $4,436 $14,174 $3,660 The following table presents income from operations for the Envestnet segment: As of December 31, 2015 2014 PercentChange 2013 PercentChange (in thousands) (in thousands) Envestnet: Revenues: Assets under management or administration $333,684 $294,223 13% $200,568 47%Subscription and licensing 63,719 48,787 31% 36,876 32%Professional services and other 9,435 5,738 64% 5,091 13%Total revenues 406,838 348,748 17% 242,535 44% Operating expenses: Cost of revenues 160,489 150,067 7% 98,970 52%Compensation and benefits 125,585 99,854 26% 74,340 34%General and administration 53,445 47,322 13% 35,110 35%Depreciation and amortization 23,368 18,651 25% 15,329 22%Restructuring charges 673 — * 474 (100)%Total operating expenses 363,560 315,894 15% 224,223 41%Income from operations $43,278 $32,854 32% $18,312 79%*Not meaningfulYear ended December 31, 2015 compared to year ended December 31, 2014 for the Envestnet segmentRevenuesAssets under management or administrationRevenues earned from assets under management or administration increased 13% from $294,223 in 2014 to$333,684 in 2015. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in2015, relative to the corresponding period in 2014. In 2015, revenues were positively affected by new account growth,market appreciation and positive net flows of AUM or AUA during 2014 and 2015, as well as an increase in revenues relatedto the October 1, 2014 acquisition of Placemark.The number of financial advisors with AUM or AUA on our technology platforms increased from 28,605 as ofDecember 31, 2014 to 33,775 as of December 31, 2015 and the number of AUM or AUA client accounts increased fromapproximately 978,000 as of December 31, 2014 to approximately 1,298,000 as of December 31, 2015.Subscription and licensingSubscription and licensing revenues increased 31% from $48,787 in 2014 to $63,719 in 2015. This increase wasprimarily due to an increase in Envestnet | Tamarac related professional services revenue of $11,182.64 Table of ContentsProfessional services and otherProfessional services and other revenues increased 64% from $5,738 in 2014 to $9,435 in 2015. This increase wasprimarily due to an increase in Envestnet | Tamarac related revenue of $1,396.Cost of revenuesCost of revenues increased 7% from $150,067 in 2014 to $160,489 in 2015, primarily due to the correspondingincrease in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues decreased from 43% in 2014 to39% in 2015.Compensation and benefitsCompensation and benefits increased 26% from $99,854 in 2014 to $125,586 in 2015, primarily due to an increasein salaries, benefits and other compensation expense of $22,705 related to an increase in headcount, an increase in incentivecompensation of $1,460 and an increase in non‑cash compensation expense of $1,569. As a percentage of total revenues,compensation and benefits increased from 29% in 2014 to 31% in 2015.General and administrationGeneral and administration expenses increased 13% from $47,322 in 2014 to $53,445 in 2015, primarily due toyear‑over‑year increases in website and systems development costs of $571, professional and legal fees of $1,624, travel andentertainment of $1,480, occupancy costs of $940 and communication, research and data services costs of $1,279. As apercentage of total revenues, general and administration expenses decreased from 14% in 2014 to 13% in 2015.Depreciation and amortizationDepreciation and amortization expense increased 25% from $18,651 in 2014 to $23,369 in 2015, primarily due toan increase in intangible asset amortization of $3,042 as a result of intangible assets recorded in purchase accounting relatedto the Placemark, Upside, Finance Logix and Castle Rock acquisitions (see Note 3 to the notes to consolidated financialstatements). The increase in depreciation and amortization expense was also due to increases in capitalized computerequipment and software to support the growth of our operations. As a percentage of total revenues, depreciation andamortization increased from 5% in 2014 to 6% in 2015.Restructuring chargesIn 2015, we incurred restructuring charges of $673 primarily due to the abandonment of our lease in Wellesley, MA.Year ended December 31, 2014 compared to year ended December 31, 2013 for the Envestnet segmentRevenuesAssets under management or administrationRevenues earned from assets under management or administration increased 47% from $200,568 in 2013 to$294,223 in 2014. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in2014, relative to the corresponding period in 2013. In 2014, revenues were positively affected by new account growth,market appreciation and positive net flows of AUM or AUA during 2013 and 2014, as well as an increase in revenues relatedto the July 1, 2013 acquisition of WMS, and the October 1, 2014 acquisition of Placemark.The number of financial advisors with AUM or AUA on our technology platforms increased from 22,838 as ofDecember 31, 2013 to 28,605 as of December 31, 2014 and the number of AUM or AUA client accounts increased fromapproximately 736,000 as of December 31, 2013 to approximately 978,000 as of December 31, 2014.65 Table of ContentsSubscription and licensingSubscription and licensing revenues increased 32% from $36,876 in 2013 to $48,787 in 2014. This increase wasprimarily due to an increase in Envestnet | Tamarac related revenue of $9,800.Professional services and otherProfessional services and other revenues increased 13% from $5,091 in 2013 to $5,738 in 2014. This increase wasprimarily due to Advisor Summit revenues in 2014 of $1,757 offset by a decrease in professional service revenue.Cost of revenuesCost of revenues increased 52% from $98,970 in 2013 to $150,067 in 2014, primarily due to the correspondingincrease in revenues from AUM or AUA, inclusive of an increase related to the WMS acquisition. As a percentage of totalrevenues, cost of revenues decreased from 41% in 2013 to 43% in 2014.Compensation and benefitsCompensation and benefits increased 34% from $74,340 in 2013 to $99,854 in 2014, primarily due to an increase in salaries,benefits and other compensation expense of $20,519 related to an increase in headcount, an increase in incentivecompensation of $3,074 and an increase in non‑cash compensation expense of $2,104. As a percentage of total revenues,compensation and benefits decreased from 31% in 2013 to 29% in 2014. General and administrationGeneral and administration expenses increased 35% from $35,110 in 2013 to $47,322 in 2014, primarily due toyear‑over‑year increases in website and systems development costs of $2,801, professional and legal fees of $1,841, traveland entertainment of $1,691, occupancy costs of $2,324, and communication, research and data services costs of $1,740. Asa percentage of total revenues, general and administration expenses was 14% in 2013 and 2014. Depreciation and amortizationDepreciation and amortization expense increased 22% from $15,329 in 2013 to $18,651 in 2014, primarily due toan increase in intangible asset amortization of $2,189 as a result of intangible assets recorded in purchase accounting relatedto the WMS and Placemark acquisitions (see Note 3 to the notes to consolidated financial statements). The increase indepreciation and amortization expense was also due to increases in capitalized computer equipment and software to supportthe growth of our operations. As a percentage of total revenues, depreciation and amortization decreased from 6% in 2013 to5% in 2014.Restructuring chargesIn 2013, we incurred restructuring charges of $474 due to lease termination penalties incurred to terminate theDenver and Raleigh leases.66 Table of ContentsThe following table presents income from operations for the Envestnet | Yodlee segment: As of December 31, 2015 2014 PercentChange 2013 PercentChange (in thousands) (in thousands) Envestnet | Yodlee: Revenues: Subscription and licensing $11,561 $ — * $ — *Professional services and other 2,520 — * — *Total revenues 14,081 — * — * Operating expenses: Cost of revenues 820 — * — *Compensation and benefits 8,777 — * — *General and administration 2,874 — * — *Depreciation and amortization 4,594 — * — *Total operating expenses 17,065 — * — *Loss from operations $(2,984) $ — * $ — **Not meaningfulThere are no amounts in 2014 or 2013, as all revenue and expenses related to the Envestnet |Yodlee segment in2015 were derived from Envestnet |Yodlee results in operations for the period November 20, 2015 to December 31, 2015. For additional information pertaining to our business segments, see Note 19 to the notes to the consolidated financialstatements.Nonsegment expenses increased 84% from $11,602 in 2014 to $21,302 in 2015, primarily due to an increase inrestructuring charges and transaction related expenses of $10,804. Nonsegment expenses decreased 9% from $12,800 in2013 to $11,602 in 2014, primarily due to a decrease in nonsegment general and administration expense of $2,699 offset byan increase in nonsegment compensation and benefits of $1,501.Non‑GAAP Financial Measures Year Ended December 31, 2015 2014 2013 (in thousands) Adjusted revenues $421,241 $348,748 $242,695 Adjusted EBITDA 76,070 55,938 38,594 Adjusted net income 37,695 29,537 19,094 Adjusted net income per share 0.98 0.80 0.54 “Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue.Under U.S. GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities wereacquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the fullamount of revenue that would have been recorded by these entities had they remained stand‑alone entities.“Adjusted EBITDA” represents net income before deferred revenue fair value adjustment, interest income, interestexpense, income tax provision, depreciation and amortization, non‑cash compensation expense, restructuring charges andtransaction costs, re‑audit related expenses, severance, accretion on contingent consideration, fair market value adjustmenton contingent consideration, litigation‑related expense, other income (expense), and pre‑tax loss attributable tonon‑controlling interest.“Adjusted net income” represents net income before deferred revenue fair value adjustment, non‑cash interestexpense, non‑cash compensation expense, restructuring charges and transaction costs, re‑audit related expenses,67 Table of Contentsseverance, accretion on contingent consideration, fair‑market value adjustment on contingent consideration, litigationrelated expense, amortization of acquired intangibles, other income (expense) and net loss attributable to non‑controllinginterest. Reconciling items, excluding non-recurring tax item and non‑deductible transaction costs, are tax effected using theincome tax rates in effect on the applicable date.“Adjusted net income per share” represents adjusted net income attributable to common stockholders divided by thediluted number of weighted‑average shares outstanding.Our Board of Directors and our management use adjusted revenues, adjusted EBITDA, adjusted net income andadjusted net income per share:·As measures of operating performance;·For planning purposes, including the preparation of annual budgets;·To allocate resources to enhance the financial performance of our business;·To evaluate the effectiveness of our business strategies; and·In communications with our Board of Directors concerning our financial performance.Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, amongother factors, when determining management’s incentive compensation.We also present adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share assupplemental performance measures because we believe that they provide our Board of Directors, management and investorswith additional information to assess our performance. Adjusted revenues provide comparisons from period to period byexcluding the effect of purchase accounting on the fair value of acquired deferred revenue. Adjusted EBITDA providecomparisons from period to period by excluding potential differences caused by variations in the age and book depreciationof fixed assets affecting relative depreciation expense and amortization of internally developed software, amortization ofacquired intangible assets, litigation‑related expense, income tax provision, restructuring charges and transaction costs,re‑audit related expenses, imputed interest on contingent consideration, fair market value adjustments on contingentconsideration, other income, severance, pre‑tax loss attributable to non‑controlling interest, and changes in interest expenseand interest income that are influenced by capital structure decisions and capital market conditions. Our management alsobelieves it is useful to exclude non‑cash stock‑based compensation expense from adjusted EBITDA and adjusted net incomebecause non‑cash equity grants made at a certain price and point in time do not necessarily reflect how our business isperforming at any particular time.We believe adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are usefulto investors in evaluating our operating performance because securities analysts use adjusted revenues, adjusted EBITDA,adjusted net income and adjusted net income per share as supplemental measures to evaluate the overall performance ofcompanies, and we anticipate that our investor and analyst presentations will include adjusted revenues, adjusted EBITDA,adjusted net income and adjusted net income per share.Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are not measurementsof our financial performance under U.S. GAAP and should not be considered as an alternative to revenues, net income,operating income or any other performance measures derived in accordance with U.S. GAAP, or as an alternative to cashflows from operating activities as a measure of our profitability or liquidity.We understand that, although adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net incomeper share are frequently used by securities analysts and others in their evaluation of companies, these measures68 Table of Contentshave limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of ourresults as reported under U.S. GAAP. In particular you should consider:·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflectour cash expenditures, or future requirements for capital expenditures or contractual commitments;·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflectchanges in, or cash requirements for, our working capital needs;·Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflectnon‑cash components of employee compensation;·Although depreciation and amortization are non‑cash charges, the assets being depreciated and amortizedoften will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements forsuch replacements;·Due to either net losses before income tax expenses or the use of federal and state net operating losscarryforwards in 2015, 2014 and 2013, we had cash income tax payments, net of refunds, of $1,700, $2,131and $4,708 in the years ended December 31, 2015, 2014 and 2013, respectively. Income tax payments will behigher if we continue to generate taxable income and our existing net operating loss carryforwards for federaland state income taxes have been fully utilized or have expired; and·Other companies in our industry may calculate adjusted revenues, adjusted EBITDA, adjusted net income andadjusted net income per share differently than we do, limiting their usefulness as a comparative measure.Management compensates for the inherent limitations associated with using adjusted revenues, adjusted EBITDA,adjusted operating income, adjusted net income and adjusted net income per share through disclosure of such limitations,presentation of our financial statements in accordance with U.S. GAAP and reconciliation of adjusted revenues to revenues,the most directly comparable U.S. GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income pershare to net income and net income per share, the most directly comparable U.S. GAAP measure. Further, our managementalso reviews U.S. GAAP measures and evaluates individual measures that are not included in some or all of ournon‑U.S. GAAP financial measures, such as our level of capital expenditures and interest income, among other measures.The following table sets forth a reconciliation of total revenues to adjusted revenues based on our historical results: Year Ended December 31, 2015 2014 2013 (in thousands) Total revenues $420,919 $348,748 $242,535 Deferred revenue fair value adjustment 322 — 160 Adjusted revenues $421,241 $348,748 $242,695 The following table sets forth the reconciliation of net income to adjusted EBITDA based on our historical results: Year Ended December 31, 2015 2014 2013 (in thousands) Net income $4,436 $13,979 $3,660 Add (deduct): Deferred revenue fair value adjustment 322 — 160 69 Table of ContentsInterest income (338) (139) (18) Interest expense 10,271 626 — Income tax provision 4,552 8,528 2,052 Depreciation and amortization 27,962 18,651 15,329 Non-cash compensation expense 15,160 11,423 8,919 Restructuring charges and transaction costs 13,495 2,672 3,297 Re-audit related expense — — 3,110 Severance 1,695 735 790 Accretion on contingent consideration 888 1,472 787 Fair market value adjustment on contingent consideration (4,153) (1,432) 501 Litigation related expense 65 18 7 Other income (expense) 72 (1,825) — Pre-tax loss attributable to non-controlling interest 1,643 1,230 — Adjusted EBITDA $76,070 $55,938 $38,594 The following table sets forth the reconciliation of net income to adjusted net income and adjusted net income pershare based on our historical results: Year Ended December 31, 2015* 2014* 2013* (in thousands) Net income $4,436 $13,979 $3,660 Add (deduct): Deferred revenue fair value adjustment 193 — 93 Non-cash interest expense 3,837 195 — Non-cash compensation expense 9,097 6,854 5,173 Restructuring charges and transaction costs 9,428 2,025 2,252 Re-audit related expenses — — 1,804 Severance 1,017 440 458 Accretion on contingent consideration 533 883 456 Fair market value adjustment on contingent consideration (2,492) (859) 291 Litigation related expense 39 11 4 Amortization of acquired intangibles 10,581 6,385 4,903 Other income (expense) 40 (1,095) — Net loss attributable to non-controlling interest 986 719 — Adjusted net income $37,695 $29,537 $19,094 Diluted number of weighted-average shares outstanding 38,386,873 36,877,599 35,666,575 Adjusted net income per share - diluted $0.98 $0.80 $0.54 *Adjustments, excluding non‑recurring tax items and non‑deductible transaction costs, are tax‑effected using incometax rates as follows: 40% for 2015, 40% for 2014, and 42% for 2013. Pre-tax loss attributable to non-controllinginterest assumes losses are allocated to ERS members pro-rata based on ownership percentage.The following tables set forth the reconciliation of revenues to adjusted revenues and net income to adjustedEBITDA based on our historical results for each segment for the years ended December 31, 2015, 2014 and 2013: For the Year Ended December 31, 2015 Envestnet Envestnet | Yodlee Nonsegment Total (in thousands)Revenues$406,838 $14,081 $ - $420,919 Deferred revenue fair value adjustment 117 205 - 322Adjusted revenues$406,955 $14,286 $ - $421,241 70 Table of ContentsIncome (loss) from operations$43,255 $(2,963) $(21,300) $18,992Add (deduct): Deferred revenue fair value adjustment 117 205 - 322 Accretion on contingent consideration 888 - - 888 Depreciation and amortization 23,369 4,592 - 27,961 Non-cash compensation expense 12,141 1,569 1,451 15,161 Restructuring charges and transaction costs - - 13,495 13,495 Severance 1,681 14 - 1,695 Fair market value adjustment on contingent consideration - - (4,152) (4,152) Litigation related expense - - 65 65 Pre-tax loss attributable to non-controlling interest 1,643 - - 1,643Adjusted EBITDA$83,094 $3,417 $(10,441) $76,070 For the Year Ended December 31, 2014 Envestnet Envestnet | Yodlee Nonsegment Total (in thousands)Revenues $348,748 $ - $ - $348,748 Deferred revenue fair value adjustment - - - -Adjusted revenues $348,748 $ - $ - $348,748 Income (loss) from operations $32,854 $ - $(11,602) $21,252Add (deduct): Deferred revenue fair value adjustment - - - - Accretion on contingent consideration 1,472 - - 1,472 Depreciation and amortization 18,651 - - 18,651 Non-cash compensation expense 10,572 - 851 11,423 Restructuring charges and transaction costs - - 2,672 2,672 Severance 735 - - 735 Fair market value adjustment on contingent consideration - - (1,432) (1,432) Litigation related expense - - 18 18 Other - - (83) (83) Pre-tax loss attributable to non-controlling interest 1,230 - - 1,230Adjusted EBITDA $65,514 $ - $(9,576) $55,938 71 Table of Contents For the Year Ended December 31, 2013 Envestnet Envestnet | Yodlee Nonsegment Total (in thousands)Revenues $242,535 $ - $ - $242,535 Deferred revenue fair value adjustment 160 - - 160Adjusted revenues $242,695 $ - $ - $242,695 Income (loss) from operations $18,312 $ - $(12,800) $5,512Add (deduct): Deferred revenue fair value adjustment 160 - - 160 Accretion on contingent consideration 787 - - 787 Depreciation and amortization 15,329 - - 15,329 Non-cash compensation expense 8,648 - 271 8,919 Restructuring charges and transaction costs - - 3,297 3,297 Re-audit related expense 3,110 - - 3,110 Severance 790 - - 790 Fair market value adjustment on contingent consideration - - 501 501 Litigation related expense - - 7 7 Other - - 182 182Adjusted EBITDA $47,136 $ - $(8,542) $38,594 Liquidity and Capital ResourcesAs of December 31, 2015, we had total cash and cash equivalents of $51,718, compared to $209,754 as ofDecember 31, 2014. We plan to use existing cash as of December 31, 2015 and cash generated in the ongoing operations ofour business to fund our current operations, capital expenditures and possible acquisitions or other strategic activity. Inaddition, in 2016, we may be required to borrow against the Amended and Restated Credit Agreement to fund our ongoingoperations or to fund potential acquisitions or other strategic activities.Cash FlowsThe following table presents information regarding our cash flows and cash and cash equivalents for the periodsindicated: Year Ended December 31, 2015 2014 2013 (in thousands) Net cash provided by operating activities $24,713 $55,997 $28,857 Net cash used in investing activities (344,906) (69,129) (18,260) Net cash provided by financing activities 162,157 172,944 9,362 Net increase (decrease) in cash and cash equivalents (158,036) 159,812 19,959 Cash and cash equivalents, end of period 51,718 209,754 49,942 Operating ActivitiesNet cash provided by operating activities in 2015 decreased by $31,569 compared to 2014, primarily due to andecrease in net income of $9,543 in 2015 compared to the prior year period and an decrease in the change in operating assetsand liabilities totaling $28,493 offset by an increase in non‑cash adjustments totaling $6,467.Net cash provided by operating activities in 2014 increased by $27,140 compared to 2013, primarily due to anincrease in net income of $10,319 in 2014 compared to the prior year period and an increase in the change in operating assetsand liabilities totaling $18,559 offset by a decrease in non-cash adjustments totaling $2,364.72 Table of ContentsInvesting ActivitiesNet cash used in investing activities in 2015 increased by $275,492 compared to 2014, primarily due to the increasein cash used in acquisitions of $268,735. In 2015, the Company acquired Upside, Finance Logix, Castle Rock and Yodlee fornet cash totaling $2,026, $19,686, $5,870, and $300,723, respectively. In 2014, the Company acquired Placemark and Kleinfor net cash totaling $58,282 and $1,288, respectively (see Note 3 to the notes to consolidated financial statements).Net cash used in investing activities in 2014 increased by $50,869 compared to 2013, primarily due to the increasein cash used in acquisitions of $50,578. In 2014, the Company acquired Placemark and Klein for net cash totaling $58,282and $1,288, respectively, and in 2013, the Company acquired WMS for net cash totaling $8,992 (see Note 3 to the notes toconsolidated financial statements).Financing ActivitiesNet cash provided by financing activities in 2015 decreased by $10,787 compared to 2014, primarily a result of adecrease in net proceeds from issuance of convertible debt of $172,500, an increase in payments made against the TermNotes of $10,000 and an increase in the treasury stock purchases of $5,350 offset by an increase in proceeds from issuance ofTerm Notes of $160,000, an increase in the excess tax benefits from stock‑based compensation of $8,759 and a decrease inconvertible notes issuance costs of $5,533.Net cash provided by financing activities in 2014 increased by $163,582 compared to 2013, primarily a result of anincrease in net proceeds from issuance of convertible debt of $166,967 and an increase in the excess tax benefits fromstock‑based compensation of $5,269, offset by an increase in payment of contingent consideration of $6,000, an increase intreasury stock purchases of $1,440 and an decrease in the proceeds from exercise of stock options of $1,210.BacklogWe sell subscriptions to our solutions through contracts that are generally one to three years in length, although termscan extend to as long as five years. Our subscription agreements with our customers generally contain scheduled minimumsubscription fees, and usage-based fees which depend on the extent their customers or end users use our platform. Weconsider the unpaid contractual minimum payments under our subscription agreements to be our backlog. Due to theinherent volatility of backlog measured using contractual minimums, and the fact that contractual minimums are becomingincreasingly less important to our business, we do not utilize backlog as a key management metric internally and we do notbelieve that it is a meaningful measurement of our future revenues.We expect that the amount of backlog relative to the total value of our subscription agreements will change from year toyear for several reasons, including the timing of contract renewals, the proportion of total subscription revenue representedby contractual minimum payments and the average non-cancellable terms of our subscription agreements. The change inbacklog that results from these events may not be an indicator of the likelihood of renewal or expected future revenues.We also expect that as our customer base continues to mature and customer deployments scale usage, renewals over timewill increasingly have fewer contractual minimum fees because such fees are intended to decrease the timing risk associatedwith initial deployment commitments.In addition, because revenue for any period is a function of revenue recognized from deferred revenue under contracts inexistence at the beginning of the period, as well as contracts that are renewed and new customer contracts that are enteredinto during the period, backlog at the beginning of any period is not necessarily indicative of future performance.73 Table of ContentsCommitmentsThe following table sets forth information regarding our contractual obligations as of December 31, 2015: Payments Due by Period Less than 1 - 3 3 - 5 More than Total 1 year years years 5 years (in thousands) Operating leases(1) $76,089 $11,494 $29,573 $16,842 $18,180 Capital leases 1,243 845 398 — — Convertible Notes 172,500 — — 172,500 — Term Notes 150,000 8,000 142,000 — — Convertible notes coupon interest payments 11,949 3,018 6,038 2,893 — Undrawn credit facility fees 5,602 1,936 3,666 — — Estimated undiscounted contingent considerationpayments 4,252 3,374 878 — — Purchase obligations 11,189 4,897 6,005 287 — Total $432,824 $33,564 $188,558 $192,522 $18,180 (1)We lease facilities under non‑cancelable operating leases expiring at various dates through 2028.The table above does not reflect the following:·Amounts estimated for uncertain tax positions since the timing and likelihood of such payments cannot bereasonably estimated.·Voluntary employer matching contributions to our defined contribution benefit plans since the amount cannotbe reasonably estimated. For the years ended December 31, 2014, 2013 and 2012, we made voluntary employermatching contributions of $1,521, $1,176 and $891, respectively.The Company includes various types of indemnification and guarantee clauses in certain arrangements. Theseindemnifications 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 certaincustomers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature ofeach arrangement. The Company has experienced no previous claims and cannot determine the maximum amount ofpotential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it isunlikely it will have to make material payments under these arrangements and therefore has not recorded a contingentliability in the consolidated balance sheets.Off‑Balance Sheet ArrangementsOther than operating leases as indicated above, we do not have any other off‑balance sheet arrangements.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, “Revenue from Contractswith Customers,” which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based onprinciples that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferredto customers.The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its firstquarter of 2017. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective dateas well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company mayadopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied74 Table of Contentsretrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date ofadoption. The Company is currently evaluating the timing of its adoption and the impact of adopting the new revenuestandard on its condensed consolidated financial statements.In February 2015, the FASB issued ASU 2015-02, ”Amendments to the Consolidation Analysis,” which amends theconsolidation requirements in ASC 810. These changes become effective for the Company’s fiscal year beginning January 1,2016. The Company does believe the adoption of this standard will have a material impact on its consolidated financialstatements.In April 2015, the FASB issued ASU 2015-03, ”Simplifying the Presentation of Debt Issuance Costs,” whichrequires that debt issuance costs related to a recognized debt liability be presented as a reduction to the carrying amount ofthat debt liability, not as an asset. The updated guidance became effective under early adoption for the Company’s fiscal yearbeginning January 1, 2015, and resulted in a reclassification of amounts from Other Non-current Assets to Debt in the currentand prior periods.In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” whichrequires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. The updatedguidance became effective under early adoption for the Company’s fiscal year beginning January 1, 2015, and resulted in areclassification of $4,654 from current deferred tax assets to non-current deferred tax assets in the prior period. Item 7A. Quantitative and Qualitative Disclosures About Market RiskMarket riskOur exposure to market risk is directly related to revenues from asset management or administration earned basedupon a contractual percentage of AUM or AUA. In the years ended December 31, 2015, 2014 and 2013, 79%, 84% and 83%of our revenues, respectively, were derived from revenues based on the market value of AUM or AUA. We expect thispercentage to decline in 2016 due to the impact of the acquisition of Yodlee and it will otherwise vary over time. A decreasein the aggregate value of AUM or AUA may cause our revenue and income to decline. We do not use derivative financialinstruments for speculative, hedging or trading purposes, other than as described below.Foreign currency riskThe expenses of our India subsidiary, which primarily consist of expenditures related to compensation and benefits,are paid using the Indian Rupee. We are directly exposed to changes in foreign currency exchange rates through thetranslation of these monthly expenditures into U.S. dollars. As of December 31, 2015, we estimate that a hypothetical 10%increase in the value of the Indian Rupee to the U.S. dollar would result in a decrease of $430 to pre‑tax earnings and ahypothetical 10% decrease in the value of the Indian Rupee to the U.S. dollar would result in an increase of $350 to pre‑taxearnings.We manage our exposure to fluctuations in the Indian Rupee by entering into forward contracts to cover a portion ofour projected expenditures paid in local currency. These contracts generally have a term of less than 12 months. The notionalamount of our forward contracts was $11,870 at December 31, 2015. A sensitivity analysis performed on our hedging portfolio indicated that a hypothetical 10% appreciation of the U.S.dollar from its value at December 31, 2015 would decrease the fair value of our foreign currency contracts by $1,100. Ahypothetical 10% depreciation of the U.S. dollar from its value at December 31, 2015 would increase the fair value of ourforeign currency contracts by $1,300.Interest rate riskWe are subject to market risk from changes in interest rates. The Company has a revolving credit facility that bearsinterest at LIBOR plus an applicable margin between 1.50 percent and 3.25 percent. As the LIBOR rates fluctuate,75 Table of Contentsso too will the interest expense on amounts borrowed under the Amended and Restated Credit Agreement. As of December31, 2015, there was $150,000 of Term Notes and no revolving credit amounts outstanding under the Amended and RestatedCredit Agreement. The Company incurred interest expense of $1,376 for the year ended December 31, 2015 related to theCredit Agreement and the Amended and Restated Credit Agreement. A sensitivity analysis performed on the interest expenseindicated that a hypothetical 0.25% increase or decrease in our interest rate would increase or decrease interest expense on anannual basis by approximately $375. Item 8. Financial Statements and Supplementary Data 76 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersEnvestnet, Inc.:We have audited the accompanying consolidated balance sheets of Envestnet, Inc. and subsidiaries (the Company) as ofDecember 31, 2015 and 2014, and the related consolidated statements of operations, other comprehensive income,stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2015. Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of Envestnet, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and theircash flows for each of the years in the three‑year period ended December 31, 2015, in conformity with U.S. generallyaccepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),the Company’s internal control over financial reporting as of December 31, 2015, based on the criteria established in InternalControl – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of the Company’sinternal control over financial reporting. /s/ KPMG LLPChicago, IllinoisFebruary 29, 2016 77 Table of ContentsEnvestnet, Inc.Consolidated Balance Sheets(in thousands, except share information) December 31, 2015 2014 Assets Current assets: Cash and cash equivalents $51,718 $209,754 Fees and other receivables, net 46,756 20,345 Prepaid expenses and other current assets 15,175 7,242 Total current assets 113,649 237,341 Property and equipment, net 28,681 16,629 Internally developed software, net 9,897 7,023 Intangible assets, net 292,675 58,654 Goodwill 421,273 104,976 Deferred tax assets, net 2,688 5,219 Other non-current assets 16,702 9,516 Total assets $885,565 $439,358 Liabilities and Equity Current liabilities: Accrued expenses and other liabilities $83,411 $48,247 Accounts payable 10,420 4,869 Contingent consideration 2,537 6,405 Deferred revenue 15,089 5,159 Total current liabilities 111,457 64,680 Convertible notes 150,133 145,203 Term notes 150,000 — Contingent consideration 1,506 7,462 Deferred revenue 14,378 6,954 Deferred rent 5,548 3,588 Lease incentive 5,428 5,550 Other non-current liabilities 6,288 2,430 Total liabilities 444,738 235,867 Commitments and contingencies Redeemable units in ERS 900 1,500 Equity: Stockholders’ equity: Preferred stock, par value $0.005, 50,000,000 shares authorized — — Common stock, par value $0.005, 500,000,000 shares authorized; and 53,925,415 shares issued asof December 31, 2015 and December 31, 2014, respectively; 41,979,126 and 34,544,653 sharesoutstanding as of December 31, 2015 and December 31, 2014, respectively 270 232 Additional paid-in capital 474,726 233,888 Accumulated deficit (15,007) (19,443) Treasury stock at cost, 11,946,289 and 11,800,723 shares as of December 31, 2015 and December31, 2014, respectively (20,654) (13,242) Accumulated other comprehensive income 194 — Total stockholders’ equity 439,529 201,435 Non-controlling interest 398 556 Total equity 439,927 201,991 Total liabilities and equity $885,565 $439,358 See accompanying notes to Consolidated Financial Statements. 78 Table of ContentsEnvestnet, Inc.Consolidated Statements of Operations(in thousands, except share and per share information) December 31, 2015 2014 2013 Revenues: Assets under management or administration $333,684 $294,223 $200,568 Subscription and licensing 75,280 48,787 36,876 Professional services and other 11,955 5,738 5,091 Total revenues 420,919 348,748 242,535 Operating expenses: Cost of revenues 161,309 150,067 98,970 Compensation and benefits 139,756 104,457 77,442 General and administration 72,227 54,321 44,808 Depreciation and amortization 27,962 18,651 15,329 Restructuring charges 673 — 474 Total operating expenses 401,927 327,496 237,023 Income from operations 18,992 21,252 5,512 Other income: Interest income 338 139 18 Interest expense (10,271) (626) — Other income (expense), net (71) 1,742 182 Total other income (expense) (10,004) 1,255 200 Income before income tax provision 8,988 22,507 5,712 Income tax provision 4,552 8,528 2,052 Net income 4,436 13,979 3,660 Add: Net loss attributable to non-controlling interest — 195 — Net income attributable to Envestnet, Inc. $4,436 $14,174 $3,660 Net income per share attributable to Envestnet, Inc.: Basic $0.12 $0.41 $0.11 Diluted $0.12 $0.38 $0.10 Weighted average common shares outstanding: Basic 36,500,843 34,559,558 33,191,088 Diluted 38,386,873 36,877,599 35,666,575 See accompanying notes to Consolidated Financial Statements. 79 Table of ContentsEnvestnet, Inc.Consolidated Statements of Other Comprehensive Income(in thousands) Year Ended December 2015 2014 2013Net income attributable to Envestnet, Inc. $4,436 $ — $ —Other comprehensive loss, net of taxes Foreign currency translation loss (2) — —Unrealized gain on foreign currency contracts designated as cash flowhedges 196 — —Total other comprehensive income 194 — —Comprehensive income $4,630 $ — $ — 80 Table of ContentsEnvestnet, Inc.Consolidated Statements of Stockholders’ Equity(in thousands, except share information) Accumulated Common Stock Treasury Stock Additional Other Non- Total Common Paid-in Comprehensive Accumulated controlling Stockholders’ Shares Amount Shares Amount Capital Income Deficit Interest Equity Balance, December31, 2012 44,071,564 $220 (11,715,889) $(10,558) $173,611 $ — $(37,277) $ — $125,996 Exercise of stockoptions 721,050 3 — — 6,397 — — — 6,400 Issuance ofcommon stock -vesting ofrestricted stock 74,298 1 — — — — — — 1 Exercise ofwarrants 761,902 4 — — — — — — 4 Stock-basedcompensationexpense — — — — 8,738 — — — 8,738 Excess tax benefitfrom stock-basedcompensationexpense — — — — 3,579 — — — 3,579 Reversal of stateuncertain taxpositions — — — — 16 — — — 16 Purchase oftreasury stock forstock-basedminimum taxwithholdings — — (36,905) (622) — — — — (622) Net income — — — — — — 3,660 — 3,660 Balance, December31, 2013 45,628,814 228 (11,752,794) (11,180) 192,341 — (33,617) — 147,772 Exercise of stockoptions 573,298 3 — — 5,187 — — — 5,190 Issuance ofcommon stock -vesting ofrestricted stockunits 143,264 1 — — — — — — 1 Stock-basedcompensationexpense — — — — 11,228 — — 195 11,423 Excess tax benefitsfrom stock-basedcompensationexpense — — — — 8,848 — — — 8,848 Purchase oftreasury stock forstock-basedminimum taxwithholdings — — (47,929) (2,062) — — — — (2,062) Issuance ofmembershipinterest in ERS — — — — — — — 556 556 Issuance ofconvertible notes,net of tax andoffering costs — — — — 16,284 — — — 16,284 Net income (loss) — — — — — — 14,174 (195) 13,979 Balance, December31, 2014 46,345,376 232 (11,800,723) (13,242) 233,888 — (19,443) 556 201,991 Exercise of stockoptions 1,047,911 5 — — 8,274 — — — 8,279 Issuance ofcommon stock -vesting ofrestricted stockunits 434,292 2 — — — — — — 2 Acquisition ofbusinesses 6,097,836 31 — — 195,420 — — — 195,451 Acquisition ofbusiness -attribution of thefair market valueof replacementawards — — — — 4,318 — — — 4,318 Stock-basedcompensationexpense — — — — 15,161 — — — 15,161 Excess tax benefitsfrom stock-basedcompensationexpense — — — — 17,607 — — — 17,607 Purchase oftreasury stock forstock-basedminimum taxwithholdings — — (145,566) (7,412) — — — — (7,412) Purchase of ERSunits — — — — 58 — — (158) (100) Foreign currencytranslation loss — — — — — (2) — — (2) Unrealized gain onforeign currencycontractsdesignated asaccountinghedges — — — — — 196 — — 196 Net income — — — — — — 4,436 — 4,436 Balance, December31, 2015 53,925,415 $270 (11,946,289) $(20,654) $474,726 $194 $(15,007) $398 $439,927 See accompanying notes to Consolidated Financial Statements. 81 Table of ContentsEnvestnet, Inc.Consolidated Statements of Cash Flows(in thousands) Year Ended December 31, 2015 2014 2013 OPERATING ACTIVITIES: Net income $4,436 $13,979 $3,660 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 27,962 18,651 15,329 Deferred rent and lease incentive 1,819 275 (483) Provision for doubtful accounts 176 15 203 Impairment of long-lived assets — — 330 Deferred income taxes (10,508) (4,640) (2,546) Stock-based compensation expense 15,161 11,423 8,738 Excess tax benefits from stock-based compensation (17,607) (8,848) (3,579) Interest expense 10,271 626 — Accretion on contingent consideration 888 1,472 787 Fair market value adjustment on contingent consideration (4,153) (1,432) 501 Changes in operating assets and liabilities, net of acquisitions: Fees and other receivables (9,297) 1,788 (9,566) Prepaid expenses and other current assets 14,716 9,733 (1,075) Other non-current assets (6,025) (873) (1,444) Accrued expenses and other liabilities (13,653) 9,784 12,389 Accounts payable 3,128 (659) 2,914 Deferred revenue 10,906 4,677 1,625 Other non-current liabilities (3,792) 26 1,074 Net cash provided by operating activities 24,428 55,997 28,857 INVESTING ACTIVITIES: Purchase of property and equipment (9,184) (6,177) (6,125) Capitalization of internally developed software (5,532) (3,382) (3,143) Investment in private company (1,500) — — Purchase of ERS units (100) — — Acquisition of businesses, net of cash acquired (328,305) (59,570) (8,992) Net cash used in investing activities (344,621) (69,129) (18,260) FINANCING ACTIVITIES: Proceeds from issuance of convertible notes — 172,500 — Convertible notes issuance costs — (5,533) — Proceeds from issuance of term notes 160,000 — — Payment of term notes (10,000) — — Proceeds from borrowings on revolving credit facility 10,000 30,000 — Payment on revolving credit facility (10,000) (30,000) — Payments of contingent consideration (7,219) (6,000) — Payment of promissory note — (1,500) — Issuance of redeemable units in ERS 900 1,500 — Proceeds from exercise of stock options 8,279 5,190 6,400 Excess tax benefits from stock-based compensation expense 17,607 8,848 3,579 Purchase of treasury stock for stock-based minimum tax withholdings (7,412) (2,062) (622) Issuance of restricted stock units 2 1 1 Proceeds from exercise of warrants — — 4 Net cash provided by financing activities 162,157 172,944 9,362 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (158,036) 159,812 19,959 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 209,754 49,942 29,983 CASH AND CASH EQUIVALENTS, END OF PERIOD $51,718 $209,754 $49,942 . Supplemental disclosure of cash flow information - cash paid during the period for income taxes, net of refunds $1,700 $2,131 $4,708 Supplemental disclosure of cash flow information - cash paid during the period for interest 3,877 299 — Supplemental disclosure of non-cash operating, investing and financing activities: Common stock issued in business acquisitions 195,451 — — Attribution of the fair market value of replacement awards 4,318 — — Purchase consideration liabilities included in accrued expenses and other liabilities 13,676 — — Contingent consideration issued in a business acquisition 1,500 2,800 16,017 Issuance of promissory note for acquisition — 1,500 — Leasehold improvements funded by lease incentive 330 2,865 1,693 Settlement of contingent consideration liability upon issuance of ERS, LLC membership interest — 158 — See accompanying notes to Consolidated Financial Statements. 82 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements(in thousands, except share and per share amounts) 1. Organization and Description of Business Envestnet, Inc. (“Envestnet”) and its subsidiaries (collectively, the “Company”) provide open-architecture wealthmanagement services and technology to independent financial advisors and financial institutions. These services and relatedtechnology are provided via Envestnet’s wealth management software, Envestnet | PMC®, Envestnet | Tamarac™, VantageReporting Solution™, Envestnet | WMS™, Envestnet | Placemark™, Envestnet | Retirement Solutions, Envestnet | Yodlee™and Envestnet | Finance Logix™ We offer these solutions principally through the following product and services suites:·Envestnet | Advisor Suite empowers advisors to better manage client outcomes and strengthen their practice.Our software unifies the applications and services advisors use to manage their practice and advise their clients,including data aggregation; financial planning; capital markets assumptions; asset allocation guidance;research and due diligence on investment managers and funds; portfolio management, trading and rebalancing;multi‑custodial, aggregated performance reporting; and billing calculation and administration.·Envestnet | PMC, our Portfolio Management Consultants group primarily engages in consulting servicesaimed at providing financial advisors with additional support in addressing their clients’ needs, as well as thecreation of investment solutions and products. Envestnet | PMC’s investment solutions and products includemanaged account and multi‑manager portfolios, mutual fund portfolios and Exchange Traded Funds (“ETF”)portfolios. Envestnet | PMC offers Prima Premium Research, comprising institutional‑quality research and duediligence on investment managers, mutual funds, ETFs and liquid alternatives funds. Envestnet | PMC alsooffers Placemark Overlay Services which includes patented portfolio overlay and tax optimization services.·Envestnet | Vantage software aggregates and manages investment data, provides performance reporting andbenchmarking, giving advisors an in‑depth view of clients’ various investments, empowering advisors to giveholistic, personalized advice and consulting.·Envestnet | Advisor Now offers a private-labeled investor engagement technology enabling advisors todeliver a compelling digital wealth management experience to their clients.·Envestnet | Finance Logix provides financial planning and wealth management software solutions to banks,broker-dealers and RIAs.·Envestnet | Tamarac provides leading portfolio accounting, rebalancing, trading, performance reporting andclient relationship management (“CRM”) software, principally to high‑end RIAs.·Envestnet | Retirement Solutions (ERS) offers a comprehensive suite of services designed specifically forretirement plan professionals. With our integrated technology, ERS addresses the regulatory, data, andinvestment needs of retirement plans and delivers the information holistically.·Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services.Through these platform and service offerings, the Company provides open-architecture support for a wide range ofinvestment products (separately managed accounts, multi-manager accounts, mutual funds, exchange-traded funds,83 TM®TM TM TMTM TMTable of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) stock baskets, alternative investments, and other fee-based investment solutions) from Envestnet | PMC and other leadinginvestment providers via multiple custodians, and also account administration and reporting services. Envestnet operates five RIAs and a registered broker-dealer. The RIAs are registered with the Securities and ExchangeCommission (“SEC”). The broker-dealer is registered with the SEC, all 50 states and the District of Columbia and is a memberof the Financial Industry Regulatory Authority (“FINRA”). 2. Summary of Significant Accounting Policies The Company follows accounting standards established by the Financial Accounting Standards Board (“FASB”) toensure consistent reporting of financial condition, results of operations and cash flows. References to Generally AcceptedAccounting Principles (“GAAP”) in these footnotes are to the FASB Accounting Standards CodificationTM, sometimesreferred to as the codification or ASC. Principles of Consolidation—The consolidated financial statements include the accounts of Envestnet and itssubsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Accountsdenominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Management Estimates—Management of the Company has made certain estimates and assumptions relating to thereporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare theseconsolidated financial statements in conformity with GAAP. Areas requiring the use of management estimates relate toestimating uncollectible receivables, revenue recognition, valuations and assumptions used for impairment testing ofgoodwill, intangible and other long-lived assets, fair value of restricted stock and stock options issued, fair value ofcontingent consideration, realization of deferred tax assets, uncertain tax positions fair value of the liability portion of theconvertible debt and assumptions used to allocate purchase prices in business combinations. Actual results could differmaterially from these estimates under different assumptions or conditions. Revenue Recognition—The Company recognizes revenue from services related to asset management andadministration, licensing and professional services fees. The Company recognizes revenue when all of the followingconditions are satisfied: (i) there is persuasive evidence of an arrangement, (ii) the service or product has been provided to thecustomer and no uncertainties exist surrounding product acceptances (iii) the amount of fees to be paid by the customer isfixed or determinable; and (iv) the collection of fees is reasonably assured. ·Asset management and administration fees — The Company derives revenues from fees charged as a percentageof the assets that are managed or administered on its technology platform by financial advisors, financialinstitutions, and their clients (collectively “customers”) and for services the Company provides to its customers.Such services include investment manager due diligence and research, portfolio diagnostics, proposalgeneration, investment model management, rebalancing and trading, portfolio performance reporting andmonitoring solutions, billing, and back office and middle-office operations and administration. Investmentdecisions for assets under management or administration are made by our customers. The asset management andadministration fees the Company earns are generally based upon a contractual percentage of assets managed oradministered on our platform based on preceding quarter-end values. The contractual fee percentages varybased on the level and type of services the Company provides to its customers. Fees related to assets undermanagement or administration increase or decrease based on values of existing customer accounts. The valuesare affected by inflows or outflows of customer funds and market fluctuations. 84 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) ·Subscription and licensing — Subscription— Subscription revenue is primarily derived from customers accessing the SaaStechnology platform and includes subscription, support, and usage-based fees. Subscription revenue isrecognized ratably over the contracted term of each respective subscription agreement, commencing on thedate the service is provisioned to the customer, provided the four revenue recognition criteria have beensatisfied. Usage-based revenue is recognized as earned, provided the four revenue recognition criteria havebeen satisfied. Licensing— The Company derives licensing fees from recurring contractual fixed fee contracts withlarger financial institutions or enterprise clients. Licensing contracts allow the customer to provide a uniqueconfiguration of platform features and investment solutions for their advisors. The licensing fees vary based onthe type of services provided and our revenues received under license agreements are recognized over thecontractual term. The Company’s license agreements do not generally provide its customers the ability to takepossession of the software or host the software on the customers’ own systems or through a hosting arrangementwith an unrelated party. ·Professional services and other — The Company derives professional services fees from providing contractual customized serviceplatform software development as well as implementation fees, which are recognized under a proportionalperformance model utilizing an output-based approach or are deferred and amortized over the estimated life ofthe customer relationship. The Company’s contracts generally have fixed prices, and generally specify orquantify deliverables. Cash received by the Company in advance of the performance of services is deferred and recognized as revenue whenearned. Certain portions of the Company’s revenues require management’s consideration of the nature of the clientrelationship in determining whether to recognize as revenue the gross amount billed or net amount retained after paymentsare made to providers for certain services related to the product or service offering. The Company uses the following factors to determine whether to record revenue on a gross or net basis: ·the Company has a direct contract with the third party service provider; ·the Company has discretion in establishing fees paid by the customer and fees due to the third party serviceprovider; and ·the Company has credit risk When customer fees include charges for third party service providers where the Company has a direct contract withsuch third party service providers, gross revenue recognized by the Company equals the fee paid by the customer. The cost ofrevenues recognized by the Company is the amount due to the third party service provider. In instances where the Company does not have a direct contract with the third party service provider, the Companycannot exercise discretion in establishing fees paid by the customer and fees due to the third party service provider, and theCompany does not have credit risk, the Company records the revenue on a net basis. Multiple Element Arrangements—When the Company enters into arrangements with multiple deliverables,exclusive of arrangements with software deliverables, it applies the FASB’s guidance for revenue arrangements with85 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) multiple deliverables and evaluates each deliverable to determine whether it represents a separate unit of accounting basedon the following criteria: (i) whether the delivered item has value to the customer on a stand-alone basis, and (ii) if thecontract includes a general right of return relative to the delivered item, delivery or performance of the undelivered item(s) isconsidered probable and substantially in the control of the Company. Revenue is allocated to each unit of accounting orelement based on relative selling prices. The Company determines relative selling prices by using either (a) vendor-specificobjective evidence (“VSOE”) if it exists; or (b) third-party evidence (“TPE”) of selling price. When neither VSOE nor TPE ofselling price exists for a deliverable, the Company uses its best estimate of the selling price for that deliverable. After determining which deliverables represent a separate unit of accounting, each unit is then accounted for underthe applicable revenue recognition guidance. In cases where elements cannot be treated as separate units of accounting, theelements are combined into a single unit of accounting for revenue recognition purposes. If one of the elements that arecombined into a single unit of accounting is fees from professional services, including implementation related services orcustomized service platform software development, the professional service fees are recognized over the course of theexpected customer relationship. We have estimated the life of the customer relationship by considering both the historicalretention rate of our customers while not exceeding the number of years over which we can accurately forecast futurerevenues. We currently estimate this term to be five years. Deferred Revenue—Deferred revenue primarily consists of implementation and set up fees, professional services, andlicense fee payments received in advance from customers. For subscription agreements, the Company typically invoices itscustomers in monthly or annual fixed installments. Accordingly, the deferred revenue balance does not represent the totalcontract value of these multi-year subscription agreements. Deferred revenue also includes certain deferred professionalservices fees, which are recognized in accordance with the Company’s revenue recognition policy. Cost of Revenues—Cost of revenues primarily include expenses related to third party investment management andclearing, custody and brokerage services. Generally, these expenses are calculated based upon a contractual percentage of themarket value of assets held in customer accounts measured as of the end of each quarter and are recognized ratablythroughout the quarter based on the number of days in the quarter. Allowance for Doubtful Accounts—The Company evaluates the need for an allowance for doubtful accounts forpotentially uncollectible fees receivable. In establishing the amount of the allowance, if any, customer-specific informationis considered related to delinquent accounts, including historical loss experience and current economic conditions. As ofDecember 31, 2015 and 2014, the Company’s allowance for doubtful accounts was $221 and $76, respectively. Thefollowing table summarizes the changes to the allowance for doubtful accounts: 2015 2014 2013Balance, beginning of year $76 $203 $ —Add: Provisions for doubtful accounts 176 15 203Less: Write-offs (31) (142) —Balance, end of year $221 $76 $203 Segments—The Company’s chief operating decision maker is its chief executive officer, who reviews financialinformation presented on a consolidated basis. Historically, the Company has determined that it has a single reportingsegment and operating unit structure. As a result of the Yodlee acquisition as discussed in Note 3, the Company has re-examined its reporting and operating structure and has determined it has two segments as described below: Envestnet – provider of unified wealth management software and services to financial advisors and institutions. 86 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Envestnet |Yodlee – a global leader in cloud-based innovation for digital financial services.Financial information about each business segment is contained in Note 19 to the Consolidated FinancialStatements.Fair Value of Financial Instruments—The carrying amounts of financial instruments, net of any allowances,including cash equivalents, fees receivable, accounts payable and accrued expenses and other liabilities are considered to bereasonable estimates of their fair values due to their short-term nature. Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an originalmaturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximatesfair value. The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cashand cash equivalents. The Company maintains its cash accounts at financial institutions in excess of amounts insured by theFederal Deposit Insurance Corporation (“FDIC”). The Company monitors such credit risk and has not experienced any lossesrelated to such risk. Restricted Cash— As required by the lease agreement for the Company’s facilities in Redwood City, California, theCompany provided a certificate of deposit as collateral for a letter of credit issued for the benefit of the landlord in lieu of asecurity deposit. The letter of credit expires on July 31, 2022. The restricted certificate of deposit of $148 is included in othernon-current assets in the accompanying consolidated balance sheet. The Company has restrictions as to the withdrawal orusage of its restricted cash until the completion of the contract term. Investments— Investments are recorded at cost and reviewed for impairment. Investments are included in “Other non-current assets” on the consolidated balance sheets and consist of non-marketable investments in privately held companies, aswell as other alternative investments. The Company reviews these investments on a regular basis to evaluate the carryingamount and economic viability of these investments. This policy includes, but is not limited to, reviewing each of theinvestee’s cash position, financing needs, earnings/revenue outlook, operational performance, management/ownershipchanges and competition. The evaluation process is based on information that the Company requests from these investees.This information is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basisfor these evaluations is subject to the timing and accuracy of the data received from these investees. The Company’s investments are assessed for impairment when a review of the investee’s operations indicates thatthere is a decline in value of the investment and the decline is other than temporary. Such indicators include, but are notlimited to, limited capital resources, limited prospects of receiving additional financing, and prospects for liquidity of therelated securities. Impaired investments are written down to estimated fair value. The Company estimates fair value using avariety of valuation methodologies, including comparing the investee with publicly traded companies in similar lines ofbusiness, applying valuation multiples to estimated future operating results and estimated discounted future cash flows.There were impairments to investments of $0, $0 and $47 during the years ended December 31, 2015, 2014 and 2013,respectively. Property and Equipment—Property and equipment are stated at cost less accumulated depreciation and amortization.Depreciation of furniture and equipment is computed using the straight-line method based on estimated useful lives of thedepreciable assets. Leasehold improvements are amortized on a straight-line basis over their estimated economic useful livesor the remaining lease term, whichever is shorter. Improvements are capitalized, while repairs and maintenance costs arecharged to operations as incurred. Assets are reviewed for recoverability whenever events or circumstances indicate thecarrying value may not be recoverable. 87 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Internally Developed Software—Costs incurred in the preliminary stages of development are expensed as incurred.Once an application has reached the development stage, internal and external costs, if direct and incremental, are capitalizeduntil the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of allsubstantial testing. The Company also capitalizes costs related to specific upgrades and enhancements when it is probablethe expenditures will result in additional functionality. Maintenance and training costs are expensed as incurred. Internallydeveloped software is amortized on a straight-line basis over its estimated useful life. Management evaluates the useful livesof these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that couldimpact the recoverability of these assets. There were no impairments of internally developed software during the years endedDecember 31, 2015, 2014 and 2013. Goodwill and Intangible Assets—Goodwill consists of the excess of the purchase price over the fair value ofidentifiable net assets of businesses acquired. Goodwill is reviewed for impairment each year using a two-step process that isperformed at least annually or whenever events or circumstances indicate that impairment may have occurred. In 2015, theCompany has changed the date of the annual impairment analysis from December 31 to October 31 in order to givemanagement time to complete the analysis prior to year-end. The Company has concluded that it has a single reporting unit.Subsequent to the acquisition of Yodlee, the Company now has two reporting units. The first step is a comparison of the fairvalue of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds itscarrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carryingvalue of the reporting unit exceeds its fair value, a second test is performed to measure the amount of impairment bycomparing the carrying amount of the goodwill to a determination of the implied fair value of the goodwill. If the carryingamount of the goodwill is greater than the implied value, an impairment loss is recognized for the difference. The impliedvalue of the goodwill is determined as of the test date by performing a purchase price allocation, as if the reporting unit hadjust been acquired, using currently estimated fair values of the individual assets and liabilities of the reporting unit, togetherwith an estimate of the fair value of the reporting unit taken as a whole. The estimate of the fair value of the reporting unit isbased upon information available regarding prices of similar groups of assets, or other valuation techniques includingpresent value techniques based upon estimates of future cash flows. No impairment charges have been recorded for the yearsended December 31, 2015, 2014 and 2013. Intangible assets are recorded at cost less accumulated amortization. Intangible assets are reviewed for impairmentwhenever events or changes in circumstances may affect the recoverability of the net assets. Such reviews include an analysisof current results and take into consideration the undiscounted value of projected operating cash flows. Operating and Capital Leases—In certain circumstances, the Company enters into leases with free rent periods, rentescalations or lease incentives over the term of the lease. In such cases, the Company calculates the total payments over theterm of the lease and records them ratably as rent expense over that term. The Company acquired certain software licenses and server and network equipment classified as capital leases. TheCompany’s server and networking equipment leases typically are accounted for as capital leases as they meet one or more ofthe four capital lease classification criteria. Assets acquired under capital leases are amortized over their estimated useful lifeof three years. The original term of the capital leases ranges from three to four years. The portion of the future paymentsdesignated as principal repayment was classified as other non-current liability on the consolidated balance sheets. Income Taxes—The Company uses the asset and liability method to account for income taxes. Deferred tax assets andliabilities are recognized for the future tax consequences attributable to differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred taxassets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and88 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Companyrecords a valuation allowance to reduce deferred tax assets to an amount that is more likely than not to be realized. The Company follows authoritative guidance related to how uncertain tax positions should be recognized, measured,disclosed and presented in the consolidated financial statements. This requires the evaluation of tax positions taken orexpected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained “when challenged” or “when examined” by the applicable tax authority. The taxbenefits recognized in the consolidated financial statements from tax positions are measured based on the largest benefit thathas a greater than 50% likelihood of being realized upon ultimate settlement. Advertising Costs—The Company expenses all advertising costs as incurred and they are classified within generaland administration expenses. Advertising costs totaled approximately $645, $675 and $1,028 for the years endedDecember 31, 2015, 2014 and 2013, respectively. Research and Development—The Company intends to continue to invest in its technology platforms and softwareand service offerings to provide financial advisors with access to investment solutions and services that address the widestrange of financial advisors’ front-, middle-and back-office needs. In the years ended December 31, 2015, 2014 and 2013, ourtechnology development expenses totaled $10,346, $8,178, and $5,998, respectively, exclusive of capitalization ofinternally developed software and related amortization. Business Combinations—The Company accounts for business combinations under the acquisition method. The costof an acquired company is assigned to the tangible and intangible assets acquired and the liabilities assumed on the basis oftheir fair values at the date of acquisition. The determination of fair values of assets acquired and liabilities assumed requiresmanagement to make estimates and use valuation techniques when market values are not readily available. Any excess ofpurchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Transaction costsassociated with business combinations are expensed as incurred. The Company determines the fair value of contingentacquisition consideration payable on the acquisition date using a discounted cash flow approach utilizing an appropriatediscount rate. Each reporting period thereafter, the Company revalues these obligations and records increases or decreases intheir fair value as adjustments to fair market value adjustment on contingent consideration in the Company’s consolidatedstatements of operations. Changes in the fair value of the contingent acquisition consideration payable can result fromadjustments to the estimated revenue forecasts included in the contingent payment calculations. Stock-Based Compensation—Compensation cost relating to stock-based awards made to employees and directors isrecognized in the consolidated financial statements using the Black-Scholes option-pricing model in the case of non-qualified stock option awards, and intrinsic value in the case of restricted stock awards. The Company measures the cost ofsuch awards based on the estimated fair value of the award measured at the grant date and recognizes the expense on astraight-line basis over the requisite service period, which is the vesting period. Determining the fair value of stock options requires the Company to make several estimates, including the volatilityof its stock price, the expected life of the option, forfeiture rate, dividend yield and interest rates. Prior to July 28, 2010, theCompany was not a publicly traded company. Accordingly, the Company had limited historical information on the price ofits stock as well as employees’ stock option exercise behavior. Because of this limitation, the Company cannot rely on itshistorical experience alone to develop assumptions for stock-price volatility and the expected life of its options. TheCompany estimates the expected life of its options using the “Simplified Method.” The Company estimates stock-pricevolatility with reference to a peer group of publicly traded companies. Determining the companies to include in this peergroup involves judgment. The Company utilizes a risk-free interest rate, which is based on the yield of U.S. zero couponsecurities with a maturity equal to the expected life of the options. The Company has not and does not expect to paydividends on its common shares.89 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The Company is required to estimate expected forfeitures of stock-based awards at the grant date and recognizecompensation cost only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actualforfeiture rate. Therefore, changes in the forfeiture assumptions may impact the total amount of expense ultimatelyrecognized over the vesting period. Estimated forfeitures will be reassessed in subsequent periods and may change based onnew facts and circumstances. Convertible Notes—On December 15, 2014, the Company issued $172,500 of 1.75% convertible notes due December2019 (the “Convertible Notes”). The Convertible Notes are accounted for in accordance with ASC 470-20. The Companyhas determined that the embedded conversion options in the Convertible Notes are not required to be separately accountedfor as a derivative under GAAP. The Company separately accounts for the liability and equity components of ConvertibleNotes that can be settled in cash by allocating the proceeds from issuance between the liability component and theembedded conversion option, or equity component, in accordance with accounting for convertible debt instruments that maybe settled in cash (including partial cash settlement) upon conversion. The value of the equity component is calculated byfirst measuring the fair value of the liability component, using the interest rate of a similar liability that does not have aconversion feature, as of the issuance date. The difference between the proceeds from the convertible debt issuance and theamount measured as the liability component is recorded as the equity component with a corresponding discount recorded onthe debt. The Company recognizes the accretion of the resulting discount using the effective interest method as part ofinterest expense in its consolidated statements of operations. Term Notes—On November 19, 2015, the Company borrowed $160,000 of term notes (“Term Notes”) under theAmended and Restated Credit Agreement in connection with the completion of the acquisition of Yodlee. In December2015, the Company repaid $10,000 of the Term Notes. The Term Notes are payable in quarterly installments of $2,000 perinstallment, commencing in March 2016, with the final payment of all remaining Term Note principal due and payable onthe scheduled maturity date.Foreign Currency—The assets and liabilities of the foreign subsidiary, where the local currency is the functionalcurrency, are translated into U.S. dollars at the exchange rate in effect at the consolidated balance sheet date. Income andexpense amounts are translated at average rates during the period. The resulting foreign currency translation adjustment isrecorded in accumulated other comprehensive income (loss) (“AOCI”) in stockholders’ equity (deficit) in the accompanyingconsolidated balance sheets. The Company is also subject to gains and losses from foreign currency denominatedtransactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included inother income (expense), net in the accompanying consolidated statements of operations.Derivative Financial Instruments—The Company uses foreign currency forward contracts to reduce its exposure toforeign currency exchange rate changes of the Indian Rupee on certain forecasted operating expenses and on certain existingassets and liabilities. The contracts typically mature within 12 months, and they are not held for trading purposes. The Company maydesignate certain of its foreign currency forward contracts as hedging instruments subject to hedge accounting treatment. TheCompany records all of its derivative instruments at their gross fair value on the consolidated balance sheet, at each balancesheet date. The accounting for changes in the fair value of a derivative instrument depends on whether the instrument has beendesignated and qualifies as a cash flow hedge for accounting purposes. For foreign currency forward contracts that aredesignated and qualify as hedging instruments, the effective portion of the gain or loss on the derivative instrument isreported as a component of accumulated other comprehensive loss in stockholders’ equity/(deficit) and reclassified intooperating expenses and cost of revenue in the same period during which the hedged transaction affects earnings. Theineffective portion of the gain or loss on the derivative instrument, if any, is recognized in other income (expense), net in theaccompanying consolidated statements of operations. To receive hedge accounting treatment, cash flow hedges must90 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) be highly effective in offsetting changes to expected future cash flows on hedged transactions. The changes in the time valueare excluded from the assessment of hedge effectiveness and are recognized in other income (expense), net in theaccompanying consolidated statements of operations. Gains and losses related to derivative instruments that do not qualify for hedge accounting treatment are recognizedin other income (expense), net in the accompanying consolidated statements of operations. The Company classifies its cash flows from the derivative instruments as operating activities. Other Income—On June 18, 2014, the Company reached an agreement with a vendor regarding the recovery of certainexpenses the Company incurred in 2013. Under the terms of the agreement, the vendor agreed to pay the Company $1,825.The Company recognized a pre-tax gain of $1,825 resulting from the agreement, which is included in other income net in theconsolidated statements of operations for the year ended December 31, 2014. Non-controlling Interest—Effective February 1, 2014, the Company formed Envestnet Retirement Solutions, LLC(“ERS”) with various third parties. ERS offers advisory and technology enabled services to financial advisors and retirementplans. In exchange for a 64.5% ownership interest in ERS, the Company contributed certain assets and has agreed to fund acertain amount of the operating expenses of ERS. As described in Note 3, due to the issuance of units related to theacquisitions of Castle Rock Innovations, Inc. (“Castle Rock”) and Klein Decisions, Inc. (“Klein”) the Company’s ownershipin ERS is 54.8% as of December 31, 2015. The allocation of gains and losses to the members of ERS is based on a hypothetical liquidation book value methodin accordance with the ERS operating agreement. Losses of $0 and $195 for the years ended December 31, 2015 and 2014,respectively, are reflected as non-controlling interest in the consolidated statements of operations. Recent Accounting Pronouncements—In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU2014-09, “Revenue from Contracts with Customers,” which amends the existing accounting standards for revenuerecognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to beentitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required the Company to adopt beginning in its firstquarter of 2017. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective dateas well as providing the option to early adopt the standard on the original effective date. Accordingly, the Company mayadopt the standard in either its first quarter of 2017 or 2018. The new revenue standard may be applied retrospectively toeach prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Companyis currently evaluating the impact of the adoption of the new revenue standard on its consolidated financial statements. In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which amends theconsolidation requirements in ASC 810. These changes become effective for the Company’s fiscal year beginning January 1,2016. The Company does believe the adoption of this standard will have a material impact on its consolidated financialstatements. In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” whichrequires that debt issuance costs related to a recognized debt liability be presented as a reduction to the carrying amount ofthat debt liability, not as an asset. The Company will adopt this guidance for the Company’s fiscal year beginning January 1,2016. 91 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes,” whichrequires entities with a classified balance sheet to present all deferred tax assets and liabilities as non-current. The updatedguidance became effective under early adoption for the Company’s fiscal year beginning January 1, 2015, and resulted in areclassification of $4,654 from current deferred tax assets to non-current deferred tax assets in the prior period. 3. Business Acquisitions The following acquisitions are included within the Envestnet segment, except for Yodlee, which comprises theEnvestnet | Yodlee segment. Wealth Management Solutions On July 1, 2013, the Company acquired the Wealth Management Solutions (“WMS”) division of PrudentialInvestments LLC. In accordance with the purchase agreement, the Company acquired substantially all of the assets andassumed certain liabilities of WMS for total consideration of $24,730. WMS is a provider of technology solutions thatenables financial services firms to develop and enhance their wealth management offerings. The Company acquired WMS tobetter serve the wealth management needs of the bank channel, deepen the Company’s practice management capabilities,and benefit from the operational leverage resulting from consolidating WMS’s business onto the Company’s unified wealthmanagement platform. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarilyrelated to an increase in future revenues as a result of potential cross selling opportunities, as well as lower future operatingexpenses, including a reduction in headcount from pre-acquisition levels and lower technology platform-related costs due tothe migration of WMS’s clients to the Company’s platform. The goodwill is also related to the knowledge and experience ofthe workforce in place. The goodwill is deductible for income tax purposes. The consideration in the acquisition was as follows: Cash paid to owners $8,992 Contingent consideration 15,738 $24,730 In connection with the acquisition of WMS, the Company is required to pay Prudential Investments contingentconsideration of $6,000 per year for three years, based upon WMS’s annualized net revenue relative to a target of $28,000per year, with lower payments for performance below the target and higher payments for performance above the target,subject to an aggregate maximum of $23,000. The Company recorded a liability as of the date of acquisition of $15,738,which represented the estimated fair value of contingent consideration on the date of acquisition and is considered a Level 3fair value measurement as described in Note 8. The estimated fair value of contingent consideration as of December 31, 2015 was $2,535. This amount is the presentvalue of an undiscounted liability of $2,659, applying a discount rate of 10%. Payments will be made at the end of threetwelve month closing periods. The first undiscounted payment of $6,000 was paid on August 12, 2014. The secondundiscounted payment of $6,989 was paid on August 19, 2015. The third undiscounted payment is anticipated to be $2,659and will be paid in August 2016. Changes to the estimated fair value of the contingent consideration are recognized inearnings of the Company. During the year ended December 31, 2015, the Company recorded fair value adjustments todecrease the contingent consideration liability by $2,914 as a result of a decrease in the revenue assumptions for years 2 and3. These adjustments are included in general and administration expense in the consolidated statements of operations. 92 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition: Total tangible assets acquired $1,296Total liabilities assumed (2,257)Identifiable intangible assets 17,000Goodwill 8,691Total net assets acquired $24,730 A summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Amortization Amount Useful Life in Years MethodCustomer list $14,000 12 AcceleratedProprietary technology 3,000 2.5 AcceleratedTotal $17,000 The results of WMS operations are included in the consolidated statement of operations beginning July 1, 2013.WMS’s revenues and pre-tax net loss for the six-month period ended December 31, 2013 totaled $33,517 and ($1,056),respectively. The loss includes acquired intangible asset amortization of $2,164, imputed interest expense on contingentconsideration of $787 and an estimated fair value adjustment on contingent consideration of $501. Klein Decisions, Inc. On July 1, 2014, ERS completed the acquisition of Klein Decisions, Inc. (“Klein”). In accordance with the stockpurchase agreement, ERS acquired all of the outstanding shares of Klein for cash consideration of approximately $1,288, apromissory note in the amount of $1,500, and estimated fair value of $2,800 in contingent consideration (with a minimumguaranteed amount of $1,175), to be paid over three years. The promissory note was paid by ERS on July 31, 2014. Kleindevelops dynamic decision systems that incorporate investor preferences, goals, and priorities into the investment process.ERS acquired Klein for its capabilities in delivering personal participant solutions, as well as its personnel to further buildout ERS’s business of serving advisors who support the small retirement plan market. The goodwill arising from theacquisition represents the expected synergistic benefits of the transaction, which relate to an increase in future ERS revenuesas a result of leveraging Klein’s systems and expertise of its employees. The goodwill is not deductible for income taxpurposes. The consideration in the acquisition was as follows: Cash paid to owners $1,288 Promissory note 1,500 Contingent consideration 2,800 $5,588 The contingent consideration liability of $2,800 is the present value of an undiscounted liability of $3,520, applyinga discount rate of 9% and is considered a Level 3 fair value measurement as described in Note 8. The first undiscountedpayment of $230 was paid on September 2, 2015. Changes to the estimated fair value of the contingent consideration arerecognized in earnings of the Company. 93 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) For the year ended December 31, 2015, the Company recognized imputed interest expense on contingentconsideration of $117 and a decrease in the fair value of contingent consideration of $1,231, which are included in generaland administration expense in the consolidated statement of operations. The following table summarizes the fair values of the assets acquired and liabilities assumed at the date ofacquisition: Total tangible assets acquired $53 Total liabilities assumed (396) Identifiable intangible assets 2,900 Goodwill 3,031 Total net assets acquired $5,588 A summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Amortization Amount Useful Life in Years Method Customer list $2,200 10 Accelerated Proprietary technology 700 3 Straight-line Total $2,900 The results of Klein’s operations are included in the consolidated statement of operations beginning July 1, 2014.Klein’s revenues and pre-tax net loss for the six-month period ended December 31, 2014 totaled $468 and ($926),respectively. The loss includes acquired intangible asset amortization of $286, imputed interest expense on contingentconsideration of $75 and an estimated fair value adjustment to decrease the contingent consideration liability by $675. On July 9, 2014, the former owners of Klein (the “Klein Parties”) purchased an 11.7% ownership interest in ERS for$1,500. The Klein Parties have the right to require ERS to repurchase units issued anytime between 18 and approximately 36months after July 1, 2014 for the amount of $1,500. In December of 2015, the Klein Parties exercised their right to require ERS to repurchase their units in the amount of$1,500. In addition, the Company reached a settlement agreement with the Klein Parties and agreed to pay the minimumguaranteed contingent consideration payment of $1,175 and a payment of $1,825 to eliminate all future claims. All amountsare included in accrued expenses and other liabilities on the consolidated balance sheet and an expense totaling $2,160 isrecorded in general and administration in the consolidated statements of operations for the year ended December 31, 2015. Placemark Holdings, Inc. On October 1, 2014, Envestnet, Inc. completed the acquisition (the “Acquisition”) of Placemark Holdings, Inc., aDelaware corporation (“Placemark”). Under the terms of the Acquisition, total consideration was $58,282 for all of theoutstanding capital stock of Placemark. Envestnet funded the Acquisition with available cash and borrowings under itsCredit Agreement (see Note 11). Placemark develops UMA programs and other portfolio management outsourcing solutions, including patentedportfolio overlay and tax optimization services, for banks, full-service broker-dealers and RIA firms. Envestnet acquiredPlacemark for its UMA and overlay capabilities, to strengthen the Company’s position as a leading provider of UMAofferings, and to expand its presence in the full-service broker-dealer and RIA markets. The goodwill arising from theacquisition represents the expected synergistic benefits of the transaction, which relate to an increase in future Envestnet94 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) revenues as a result of leveraging Placemark’s systems and expertise of its employees, and lower future operating expensesand technology platform-related costs due to the migration of Placemark’s clients to the Envestnet technology platform. Thegoodwill is not deductible for income tax purposes. The consideration in the acquisition was as follows: Cash paid to owners $66,000 Cash acquired (8,419) Receivable from working capital settlement 701 $58,282 The following table summarizes the fair values of the assets acquired and liabilities assumed at the date ofacquisition: Total tangible assets acquired $4,608 Total liabilities assumed (3,118) Identifiable intangible assets 30,000 Goodwill 27,362 Total net assets acquired $58,852 A summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Useful Amortization Amount Life in Years Method Customer list $24,000 11 Accelerated Proprietary technology 5,000 5 Straight-line Trade names 1,000 5 Straight-line Total $30,000 The results of Placemark’s operations are included in the consolidated statement of operations beginning October 1,2014. Placemark’s revenues and pre-tax income for the three-month period ended December 31, 2014 totaled $6,157 and$209, respectively. The loss includes acquired intangible asset amortization of $1,254. Upside Holdings, Inc. On February 24, 2015, Envestnet, Inc. (the “Company”) acquired all of the stock of Upside Holdings, Inc. (includingits subsidiaries “Upside”) for consideration totaling $2,641. Upside is a technology company that is registered as an Internet Investment Adviser under Rule 203A-2(f) of theInvestment Advisers Act of 1940 (“Advisers Act”). Upside helps financial advisors compete against other digital advisors, or“robo advisors,” by leveraging technology and algorithms to advise, manage, and serve clients who want personalizedinvestment services. The Company acquired Upside to integrate its technology within the Company’s unified wealth managementplatform, which will allow advisors to compete more aggressively to engage their clients online and reach a new class ofinvestors. The goodwill arising from the acquisition represents the advantage of this integrated technology, the expectedsynergistic benefits of the transaction and the knowledge and experience of the workforce in place. The goodwill is notdeductible for income tax purposes.95 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) As a result of the acquisition of Upside, the Company provided for the future grant of unvested restrictedstock unit awards to Upside employees at the end of each year in 2015, 2016 and 2017 upon Upside meeting certainperformance conditions and then a subsequent two-year service condition (Note 14). If 100 percent of the awards are earnedfor 2015, 2016 and 2017, the maximum number of units that could be granted for 2015, 2016 and 2017 equals 22,064, 44,128 and 66,192 units, respectively. Each unit represents the right to receive one share of common stock of the Company,subject to the terms and conditions of the award. The Company has determined the payments to be categorized ascompensation expense. As of December 31, 2015, no amounts have been recognized as the performance targets were notattained in 2015. The consideration transferred in the acquisition was as follows: Cash consideration $2,040 Purchase consideration liability 615 Cash acquired (14) Total $2,641 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date ofacquisition: Total tangible assets acquired $88 Total liabilities assumed (404) Identifiable intangible assets 1,450 Goodwill 1,507 Total net assets acquired $2,641 The estimated useful life and amortization method of the intangible asset acquired is as follows: Weighted Average Amortization Amount Useful Life in Years Method Proprietary technology $1,450 4 Straight-line The results of Upside’s operations are included in the condensed consolidated statement of operations beginningFebruary 24, 2015, and are not material to the Company’s results of operations. For the year ended December 31, 2015, acquisition related costs for Upside totaled $230 and are included in generaland administration expenses. Oltis Software LLC On May 6, 2015, the Company acquired all of the issued and outstanding membership interests of Oltis SoftwareLLC (d/b/a Finance Logix®), an Arizona limited liability company (“Finance Logix”). Finance Logix provides financialplanning and wealth management software solutions to banks, broker-dealers and RIAs. The Company paid upfront consideration of $20,595 in cash, purchase consideration liability of $3,000, 123,410 inshares of Envestnet common stock with a fair value of $6,388 and 123,410 stock options to acquire Envestnet common stockat $52.67 per share with an estimated fair value of $2,542. 96 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The Company acquired Finance Logix to integrate its technology within the Company’s unified wealthmanagement platform, which will allow advisors to offer financial planning that flows seamlessly into portfolio constructionand ongoing management on a single platform. Finance Logix allows the Company to deliver that capability and increasethe breadth of our platform and the functionality gap between our platform and competing platforms. The goodwill arisingfrom the acquisition represents cross-selling opportunities, the expected synergistic benefits of the transaction and theknowledge and experience of the workforce in place. The goodwill is deductible for income tax purposes. In connection with the acquisition of Finance Logix, the Company is required to pay the former owner of FinanceLogix future payments in a mix of cash, stock and stock options, based on Finance Logix meeting annual net revenue targetsof $5,000, $10,000 and $16,000 for calendar years 2015, 2016 and 2017, respectively, with lower payments for performancebelow the three yearly targets and a higher payment in 2017 for performance above the target. The Company has determinedthe first payment related to the 2015 target to be categorized as compensation expense and the payments, if any, related to2016 and 2017 targets, to be categorized as contingent consideration. The Company did not record compensation expense asof December 31, 2015 and has not recorded a contingent consideration liability as payment is not expected to occur at thistime. Changes to the estimated fair value of the contingent consideration, if any, will be recognized in earnings of theCompany. The estimated consideration transferred in the acquisition was as follows: Cash consideration $20,595 Stock and stock option consideration 8,930 Purchase consideration liability 3,000 Cash acquired (909) Total $31,616 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date ofacquisition: Total tangible assets acquired $952 Total liabilities assumed (2,628) Identifiable intangible assets 9,800 Goodwill 23,492 Total net assets acquired $31,616 A summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Amortization Amount Useful Life inYears Method Customer list $8,300 12 Accelerated Proprietary technology 1,000 4 Straight-line Trade names and domains 500 5 Straight-line Total $9,800 The results of Finance Logix’s operations are included in the consolidated statement of operations beginning May6, 2015. Finance Logix’s revenues for the period ended December 31, 2015 totaled $1,892. Finance Logix’s net97 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) loss for the period ended December 31, 2015 totaled $999. The net loss for the period ended December 31, 2015 includesestimated acquired intangible asset amortization of $974. For the period ended December 31, 2015, acquisition related costs for Finance Logix totaled $465, and are includedin general and administration expenses. The Company may incur additional acquisition related costs during the first quarterof 2016. Castle Rock Innovations, Inc. On August 30, 2015, the Company acquired all of the outstanding shares of capital stock of Castle RockInnovations, Inc., a Delaware corporation (“Castle Rock”). Castle Rock provides data aggregation and plan benchmarksolutions to retirement plan record-keepers, broker-dealers, and advisors. The Company acquired Castle Rock with plans to combine the Castle Rock offering into ERS. Castle Rock’s AXISRetirement Plan Analytics Platform enables retirement plan fiduciaries to comply with 408(b)(2) and 404a-5 regulatory feedisclosure reporting requirements. The AXIS platform offers a single web-based interface and data repository to service thereporting needs of all types of retirement plans, and can be integrated with all record-keeping systems. AXIS also includesfeatures for editing and generating reports for filings, reporting plan expenses, and comparing retirement plans andparticipants to those of their peers by industry, company size, and other characteristics. The goodwill arising from theacquisition represents the expected synergistic benefits of the transaction and the knowledge and experience of theworkforce in place. The goodwill is not deductible for income tax purposes. The preliminary estimated consideration transferred in the acquisition was as follows: Cash consideration $6,190Contingent consideration liability 1,500Cash acquired (320)Total $7,370 In connection with the acquisition of Castle Rock, the Company is required to pay contingent consideration of 40%of the first annual post-closing period revenues minus $100, 35% of the second annual post-closing period revenue minus$100 and 30% of the third annual post-closing period revenue minus $100. The Company recorded a preliminary estimatedliability as of the date of acquisition of $1,500, which represented the estimated fair value of contingent consideration on thedate of acquisition and is considered a Level 3 fair value measurement as described in Note 8. The preliminary estimated fair value of contingent consideration as of December 31, 2015 was $1,500. This amountis the present value of an undiscounted liability of $1,600, applying a discount rate of 2.7%, 3.0%, and 3.3% to the first,second, and third post-closing periods, respectively. The first, second and third undiscounted payments are anticipated to be$714 on September 30, 2016, $603 on September 30, 2017, and $275 on September 30, 2018. Changes to the estimated fairvalue of the contingent consideration, if any, will be recognized in earnings of the Company. The estimated fair values of certain working capital balances, contingent consideration, deferred revenue, deferredincome taxes, unrecognized tax benefits, identifiable intangible assets and goodwill are provisional and are based on theinformation that was available as of the acquisition date. The estimated fair values of these provisional items are based oncertain valuation and other studies and are in progress and not yet at the point where there is sufficient information for adefinitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating thefair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore,provisional measurements of fair values reflected are subject to change and such changes could be significant. The Companyexpects to finalize the valuation of contingent consideration, deferred revenue, deferred98 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) income taxes and intangible assets, and complete the acquisition accounting as soon as practicable but no later than August30, 2016. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed atthe date of acquisition: Total tangible assets acquired $255Total liabilities assumed (1,254)Identifiable intangible assets 3,400Goodwill 4,969Total net assets acquired $7,370 A summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Amortization Amount Useful Life inYears Method Customer list $2,500 12 Accelerated Proprietary technology 800 5 Straight-line Trade names and domains 100 4 Straight-line Total $3,400 The results of Castle Rock’s operations are included in the consolidated statement of operations beginningSeptember 1, 2015. Castle Rock’s revenues and net income for the period ended December 31, 2015 totaled $1,011 and$109, respectively. The net income includes estimated acquired intangible asset amortization of $178. For the period ended December 31, 2015, acquisition related costs for Castle Rock totaled $170, and are included ingeneral and administration expenses. The Company may incur additional acquisition related costs during 2016. On September 1, 2015, ERS accepted the subscription of certain former owners of Castle Rock (the “Castle RockParties”) to purchase a 6.5% ownership interest of ERS for $900. The Castle Rock Parties have the right to require ERS torepurchase units issued pursuant to the subscription in approximately 36 months after September 1, 2015 for the amount of$900. This purchase obligation is guaranteed by the Company and is reflected outside of permanent equity in theconsolidated balance sheet. Subsequent to the subscription of the Castle Rock Parties, the Company’s ownership interest inERS is 54.8% Yodlee, Inc. On November 19, 2015, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated August 10,2015, among Yodlee, the Company and Yale Merger Corp. (“Merger Sub”), a wholly owned subsidiary of Envestnet, MergerSub was merged (the “Merger”) with and into Yodlee with Yodlee continuing as a wholly owned subsidiary of Envestnet. Yodlee, operating as Envestnet | Yodlee is a leading data aggregation and data analytics platform poweringdynamic, cloud-based innovation for digital financial services. Yodlee powers digital financial solutions for over 20 millionpaid subscribers and over 950 financial institutions and financial technology innovators. Founded in 1999, the company hasbuilt a network of over 14,500 data sources and been awarded approximately 76 patents. 99 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Under the terms of the Merger Agreement, Yodlee stockholders received $11.51 in cash and 0.1889 of a share ofEnvestnet common stock per Yodlee share. Based upon the volume weighted average price per share of Envestnet commonstock for the ten consecutive trading days ending on (and including) November 17, 2015, the second trading dayimmediately prior to completion of the Merger, Yodlee stockholders received total consideration with a value of $17.49 pershare. Net cash consideration totaled approximately $300,723 and the Company issued approximately 5,974,000 shares ofEnvestnet common stock to Yodlee stockholders in the Merger. Holders of 577,829 shares of Yodlee common stock haveexercised their statutory appraisal rights under Delaware law. For purposes of preparing the following pro forma financialstatements, the Company has assumed that it will pay such stockholders $17.49 in cash for each share of Yodlee commonstock held by them. The ultimate amount actually paid for such shares, which could include interest from the effective dateof the Merger through the date of payment at the statutory rate of 5% over the Federal Reserve discount rate, compoundedquarterly, could exceed $17.49 per share of Yodlee common stock. The Company acquired Yodlee to enhance the Company’s wealth management solutions with a deeply integrateddata aggregation capability, expand the Company’s addressable market by delivering the Company’s wealth managementsolutions to Yodlee’s clients and partners, and benefit from the revenue potential resulting from Yodlee’s fast growing dataanalytics solutions. The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarilyrelated to an increase in future revenues as a result of potential cross selling opportunities and new lines of business, as wellas lower future operating expenses. The goodwill is also related to the knowledge and experience of the workforce in place.The goodwill is not deductible for income tax purposes. The preliminary estimated consideration transferred in the acquisition was as follows: Cash consideration $363,957Stock consideration 186,522Purchase consideration liability 10,061Attribution of the fair market value of replacement awards 4,318Cash acquired (63,234) $501,624 In connection with the Yodlee merger, the Company issued 1,052,000 shares of Envestnet restricted stock awards(“replacement awards”) issued in connection with unvested Yodlee employee equity awards. The Yodlee unvested stockoptions and unvested restricted stock units were canceled and exchanged for the replacement awards. In accordance withASC 805, these awards are considered to be replacement awards. Exchanges of share options or other share-based paymentawards in conjunction with a business combination are modifications of share-based payment awards in accordance withASC Topic 718. As a result, a portion of the fair-value-based measure of Envestnet’s replacement awards, are included inmeasuring the consideration transferred in the business combination. To determine the portion of the replacement award thatis part of consideration transferred to acquire Yodlee, we have measured both the replacement awards granted by Envestnetand the historical Yodlee awards as of November 19, 2015 in accordance with ASC 718. The portion of the fair-value-basedmeasure of the replacement award that is part of the consideration transferred in exchange for the acquisition of Yodlee,equals the portion of the Yodlee award that is attributable to pre combination service. Envestnet is attributing a portion ofthe replacement awards to post combination service as these awards require post combination service. The fair value of thereplacement awards was estimated to be $32,836 of which $4,318 was attributable to pre-acquisition services. The remainingfair value of $28,518 will be amortized over a period of 43 months subsequent to the acquisition date.100 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The estimated fair values of certain working capital balances, property and equipment, deferred revenue, deferredincome taxes, unrecognized tax benefits, attribution of the fair market value of replacement awards, identifiable intangibleassets and goodwill are provisional and are based on the information that was available as of the acquisition date. Theestimated fair values of these provisional items are based on certain valuation and other studies and are in progress and notyet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminaryinformation provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additionalinformation necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject tochange and such changes could be significant. The Company expects to finalize the valuation of property and equipment,net, deferred revenue, deferred income taxes and identifiable intangible assets, and complete the acquisition accounting assoon as practicable but no later than September 30, 2016. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed atthe date of acquisition: Total tangible assets acquired $33,815Total liabilities assumed (55,240)Identifiable intangible assets 237,000Goodwill 286,049Total net assets acquired $501,624 A preliminary summary of intangible assets acquired, estimated useful lives and amortization method is as follows: Weighted Average Amortization Amount Useful Life inYears Method Customer list $178,000 12 Accelerated Backlog 11,000 4 Accelerated Proprietary technology 35,000 5 Straight-line Trade names 13,000 6 Straight-line Total $237,000 The results of Envestnet | Yodlee’s operations are included in the consolidated statement of operations beginningNovember 20, 2015. Envestnet | Yodlee’s revenues and net loss for the period ended December 31, 2015 totaled $14,081 and$5,963, respectively. The net loss includes estimated acquired intangible asset amortization of $3,953. For the period ended December 31, 2015, acquisition related costs for Yodlee totaled $6,624, and are included ingeneral and administration expenses. The Company may incur additional acquisition related costs during 2016. Acquisition related costs for all acquisitions, totaled $9,792, $2,430 and $946 for the years ended December 31,2015, 2014, and 2013, respectively and are included in general and administration expenses in the consolidated statementsof operations. 101 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Unaudited pro forma results for Envestnet, Inc. giving effect to the Placemark, Finance Logix, Castle Rock andYodlee acquisitions The following unaudited pro forma financial information presents the combined results of operations of Envestnet,Finance Logix, Castle Rock, and Yodlee for the year ended December 31, 2015 and Envestnet, Placemark, Finance Logix,Castle Rock and Yodlee for the year ended December 31, 2014. The unaudited pro forma financial information presents theresults as if the acquisitions had occurred as of the beginning of 2014. The results of Upside and Klein are not included inthe pro forma financial information presented below as these acquisitions were not material to the Company’s results ofoperations. The unaudited pro forma results presented primarily include adjustments for amortization charges for acquiredintangible assets and stock-based compensation expense, and the elimination of intercompany transactions, imputed interestexpense, and transaction-related expenses and the related tax effect on the aforementioned items. Pro forma financial information is presented for informational purposes and is not indicative of the results ofoperations that would have been achieved if the acquisitions had taken place as of the beginning of 2014. At December 31, 2015 2014 Revenues $517,891 $457,972 Net loss (48,973) (26,846) Net loss per share: Basic (1.15) (0.66) Diluted (1.15) (0.66) 4. Property and Equipment Property and equipment consists of the following: At December 31, Estimated Useful Life 2015 2014 Cost: Computer equipment and software 3years $44,470 $18,540 Office furniture and fixtures 7years 5,785 4,993 Leasehold improvements Shorter of the lease term or useful life of the asset 15,123 10,805 Other office equipment 5years 683 144 66,061 34,482 Less accumulated depreciation andamortization (37,380) (17,853) Property and equipment, net $28,681 $16,629 102 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) During 2015, the Company retired fully depreciated property and equipment that were no longer in service in theamount of $5,944. See below for the cost amounts and related accumulated depreciation written off by category: Accumulated Cost Depreciation Computer equipment and software $5,749 $(5,749) Office furniture and fixtures 106 (106) Other office equipment 68 (68) Leasehold improvements 21 (21) Total property and equipment retirements $5,944 $(5,944) During 2014, the Company retired fully depreciated property and equipment that were no longer in service in theamount of $18,207. See below for the cost amounts and related accumulated depreciation written off by category: Accumulated Cost DepreciationComputer equipment and software $15,455 $(15,455)Leasehold improvements 1,435 (1,435)Office furniture and fixtures 721 (721)Other office equipment 596 (596)Total property and equipment retirements $18,207 $(18,207) Depreciation and amortization expense was as follows: Year Ended December 31, 2015 2014 2013 Depreciation and amortization expense $7,668 $5,910 $5,151 5. Internally Developed Software Internally developed software consists of the following: At December 31, Estimated Useful Life 2015 2014 Internally developed software 5years $25,109 $19,577 Less accumulated amortization (15,212) (12,554) Internally developed software, net $9,897 $7,023 Amortization expense was as follows: Year Ended December 31, 2015 2014 2013Amortization expense $2,658 $1,920 $1,726 103 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) 6. Goodwill and Intangible Assets Changes in the carrying amount of goodwill were as follows: Envestnet Envestnet |Yodlee TotalBalance at December 31, 2013 $74,335 $ — $74,335Klein acquisition 3,031 — 3,031Placemark acquisition 27,077 — 27,077Other 533 — 533Balance at December 31, 2014 $104,976 $ — $104,976Upside acquisition 1,507 — 1,507Finance Logix acquisition 23,492 — 23,492Castle Rock acquisition 4,969 — 4,969Yodlee acquisition — 286,049 286,049Purchase accounting adjustment - Placemark 280 — 280Balance at December 31, 2015 $135,224 $286,049 $421,273 Intangible assets consist of the following: December 31, 2015 December 31, 2014 Gross Net Gross Net Carrying Accumulated Carrying Carrying Accumulated Carrying Useful Life Amount Amortization Amount Amount Amortization Amount Customer lists 4-12years $257,410 $(33,668) $223,742 $68,603 $(21,699) $46,904 Backlog 4years 11,000 (703) 10,297 — — — Proprietary technologies 2.5-8years 53,928 (9,833) 44,095 15,678 (5,808) 9,870 Trade names 2-6years 16,690 (2,149) 14,541 3,090 (1,210) 1,880 Total intangible assets $339,028 $(46,353) $292,675 $87,371 $(28,717) $58,654 Amortization expense was as follows: Year Ended December 31, 2015 2014 2013 Amortization expense $17,636 $10,642 $8,452 Future amortization expense of the intangible assets as of December 31, 2015, is expected to be as follows: Years ending December 31: 2016 $46,8942017 42,2872018 36,2042019 32,5192020 28,694Thereafter 106,077 $292,675 104 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) 7. Other Non-Current Assets Other non-current assets consist of the following: At December 31, 2015 2014 Investment in private companies $2,666 $1,250 Deposits: Lease 3,198 1,811 Other 515 436 Unamortized debt issuance costs 7,380 4,716 Other 2,943 1,303 $16,702 $9,516 The Company owns 1,250,000 Preferred A Units in a privately held company at a historical purchase price of $1,250.The Preferred A Units are entitled to a preferred distribution at a cumulative rate of 8% per annum of unreturned capitalcontributions, as defined in the agreement. The Company uses the cost method of accounting for this investment. On April 1, 2015, the Company purchased 150,000 Class B units representing 10.34% of the outstandingmembership interests of AlphaHedge Capital Partners, LLC, (“AlphaHedge”) a Delaware limited liability company for cashconsideration of $1,500 which is included in investments in private companies. The Company’s interest in the net assets ofAlphaHedge is reflected in other non-current assets on the condensed consolidated balance sheet and its interest in theearnings of AlphaHedge is reflected in other income on the condensed consolidated statement of operations. AlphaHedge is a liquid alternatives platform providing access to strategies from a select group of long/short equitymanagers in a custodian agnostic, separately managed account format. The Company uses the equity method of accountingto record its portion of the AlphaHedge net income or loss on a one quarter lag from AlphaHedge’s actual results ofoperations. The Company uses the equity method of accounting because of its less than 50 percent ownership. TheCompany’s proportionate share in the loss of AlphaHedge was $84 during the year ended December 31, 2015. See Note 11 for more information on the unamortized convertible debt issuance costs. 8. Fair Value Measurements The Company follows ASC 825-10, Financial Instruments, which provides companies the option to report selectedfinancial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designedto facilitate comparisons between companies that choose different measurement attributes for similar types of assets andliabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 alsorequires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Companyhas not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value. 105 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Financial assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon afair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the followinglevels: Level I: Inputs based on quoted market prices in active markets for identical assets or liabilitiesat the measurement date. Level II: Quoted prices for similar assets or liabilities in active markets; quoted prices foridentical or similar assets and liabilities in markets that are not active; or inputs that areobservable and can be corroborated by observable market data. LevelIII:: Inputs reflect management’s best estimates and assumptions of what market participantswould use in pricing the asset or liability at the measurement date. The inputs areunobservable in the market and significant to the valuation of the instruments. Fair Value on a Recurring Basis: The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair valueon a recurring basis as of December 31, 2015 and 2014, based on the three-tier fair value hierarchy. As of December 31, 2015 Fair Value Level I Level II Level IIIAssets Money market funds(1)$24,422 $24,422 $— $—Liabilities 2019 Convertible Notes (principal amount outstanding of$172,500)(2)$152,878 $152,878 $— $—Term Notes 150,000 150,000 — —Contingent consideration — — — 4,043Foreign currency forward contracts(3) 140 — 140 —Total liabilities$303,018 $302,878 $140 $4,043 As of December 31, 2014 Fair Value Level I Level II Level IIIAssets Money market funds(1)$70,760 $70,760 $— $—Liabilities 2019 Convertible Notes (principal amount outstanding of$172,500)(2)$180,392 $180,392 $— $13,867Contingent consideration — — — —Total liabilities$180,392 $180,392 $0 $13,867(1)The fair values of the Company’s investments in money-market funds are based on the daily quoted market prices for thenet asset value of the various money market funds.106 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) (2)As of December 31, 2015 and 2014, the carrying value of the 2019 convertible note equaled $150,133 and $145,203,respectively, and represents the aggregate principle amount outstanding less the unaccreted discount.(3)Included in prepaid and other current assets in the consolidated balance sheet. Level I assets and liabilities include money-market funds not insured by the FDIC, and 2019 ConvertibleNotes. The Company periodically invests excess cash in money-market funds not insured by the FDIC. The Companybelieves that the investments in money market funds are on deposit with creditworthy financial institutions and that thefunds are highly liquid. These money-market funds are considered Level 1 and are included in cash and cash equivalents inthe consolidated balance sheets. The fair value of the 2019 Convertible Notes was calculated using observable market data Level II assets and liabilities consist of unrealized gain or loss on forward currency contracts, which are measuredusing the difference between the market quotes of trading currencies adjusted for forward points and the executed contractrate. For further details on the Company’s derivative financial instruments, refer to Note 21. Level III assets and liabilities consist of the estimated fair value of contingent consideration. The fair value of the contingent consideration liabilities related to the WMS, Klein and Castle Rock acquisitionswere estimated using a discounted cash flow method with significant inputs that are not observable in the market and thusrepresents a Level III fair value measurement as defined in ASC 820, Fair Value Measurements and Disclosures. Thesignificant inputs in the Level III measurement not supported by market activity included our assessments of expected futurecash flows related to our acquisitions of WMS, Klein, and Castle Rock during the subsequent three years from the date ofacquisition, appropriately discounted considering the uncertainties associated with the obligation, and calculated inaccordance with the terms of the agreement. The Company utilized a discounted cash flow method with expected future performance of WMS, Klein and CastleRock, and their ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fairvalues of their respective contingent consideration. The Company will continue to reassess the fair value of the contingentconsideration for each acquisition at each reporting date until settlement. Changes to the estimated fair values of thecontingent consideration will be recognized in earnings of the Company and included in general and administrative expenseon the condensed consolidated statement of operations. The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on arecurring basis using significant unobservable inputs (Level III) for the period from December 31, 2014 to December 31,2015: Fair Value of Contingent Consideration Liabilities Balance at December 31, 2014 $13,867 Settlement of contingent consideration liabilities (7,219) Castle Rock acquisition 1,500 Fair market value adjustments (4,153) Fair value of other liabilities (840) Accretion on contingent consideration 888 Balance at December 31, 2015 $4,043 The Company assesses categorization of assets and liabilities by level at each measurement date, and transfersbetween levels are recognized on the actual date of the event or change in circumstances that caused the transfer, in107 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair valuehierarchy. There were no transfers between Levels I, II and III during the year. 9. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consist of the following: At December 31, 2015 2014 Accrued investment manager fees $28,179 $25,195 Accrued compensation and related taxes 29,493 18,344 Accrued professional services 1,201 536 Purchase consideration liabilities 13,676 — Accrued restructuring charges 513 — Other accrued expenses 10,349 4,172 $83,411 $48,247 The Company incurred restructuring charges of $474 (see Note 15), net of deferred rent adjustment, in the year endedDecember 31, 2014, due to lease termination penalties incurred to terminate the Denver, CO and Raleigh, NC leases. TheCompany incurred restructuring charges of $673, net of deferred rent adjustment, in the year ended December 31, 2015,primarily due to estimated lease abandonment loss for the Wellesley, MA lease. 10. Income Taxes Income before income tax provision was generated in the following jurisdictions: Year Ended December 31, 2015 2014 2013 Domestic $7,059 $21,437 $4,074 Foreign 1,929 1,070 1,638 Total $8,988 $22,507 $5,712 108 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The components of the income tax provision charged to operations are summarized as follows: Year Ended December 31, 2015 2014 2013 Current: Federal $12,731 $11,244 $3,432 State 1,644 1,389 699 Foreign 685 535 468 15,060 13,168 4,599 Deferred: Federal $(9,384) (3,662) (2,059) State (1,288) (858) (492) Foreign 164 (120) 4 (10,508) (4,640) (2,547) Total $4,552 $8,528 $2,052 Net deferred tax assets (liabilities) consist of the following: At December 31, 2015 2014 Deferred revenue $4,140 $440 Prepaid expenses and accruals 544 95 Deferred rent and lease incentives 3,521 3,412 Net operating loss and tax credit carryforwards 101,762 22,963 Property and equipment and intangible assets (104,017) (20,033) Stock-based compensation expense 10,716 8,175 Convertible notes (8,284) (10,255) Other (2,201) 422 Total deferred tax assets 6,181 5,219 Less valuation allowance (3,493) — Net deferred tax assets$2,688$5,219 The valuation allowance for net deferred tax assets as of December 31, 2015 and 2014 was $3,493 and $0,respectively. The valuation allowance as of December 31, 2015 was related to state/federal net operating losses and foreigntax credits. In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not thatsome or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periodsin which net operating losses and temporary differences are deductible. Management considers the scheduled reversal ofdeferred tax assets and liabilities (including the impact of available carryback and carryforward periods), projected taxableincome, and tax-planning strategies in making this assessment. In order to fully realize the deferred tax assets, the Companywill need to generate future taxable income before the expiration of the deferred tax assets governed by the tax code. Basedon the level of taxable income and projections for future taxable income over the periods for which the net operating lossesare available and deferred tax assets are deductible, management believes that it is more-likely-than-not that, inconsideration of its recorded valuation allowance, it will realize the benefits of the net operating losses and any otherdeferred tax assets. The amount of the deferred tax assets considered realizable however, could be reduced in the near term ifestimates of future taxable income during the carryforward period are reduced.109 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Upon exercise of stock options, the Company recognizes any difference between GAAP compensation expense andcompensation expense for income tax purposes as a tax windfall or shortfall. The difference is charged to equity in the case ofa windfall. When the exercise results in a windfall and the windfall results in a net operating loss (“NOL”), or the windfallincreases an NOL carryforward, no windfall is recognized until the deduction reduces income taxes payable. For GAAPpurposes, the Company has recognized all previously suspended windfall tax benefits because they were utilized on theCompany’s 2012 and 2013 tax return to reduce taxes payable. The Company’s current windfall tax benefit is partially beingrecognized due to certain state NOLs being carried forward. The benefits for the recognized windfall tax benefit wererecorded in stockholders’ equity, and as such, do not impact the Company’s effective tax rate. The expected tax provision calculated at the statutory federal rate differs from the actual provision as follows: Year Ended December 31, 2015 2014 2013 Tax provision, at U.S. federal statutory tax rate $3,056 $7,878 $1,942 State income tax, net of federal tax benefit 247 648 149 Effect of permanent items 1,899 552 581 Effects of return to provision adjustment 118 (127) (733) Change in valuation allowance 841 (2,085) — Capital loss write-off due to carryforward period expiration — 2,085 — Effect of change in federal and state income tax rate 283 (54) — Uncertain tax positions (859) 138 1,016 Foreign income taxes — — (328) Effect of repatriation of foreign earnings — — 582 Research and development credits (1,914) (1,564) (1,246) Federal and state NOL adjustments net of valuation allowance impact — 745 — Other 881 312 89 Income tax provision $4,552 $8,528 $2,052 As of December 31, 2015 we had NOL carryforwards for state income tax purposes of $149,893, available to reducefuture income subject to income taxes. At December 31, 2015, the Company had NOL carryforwards (before any uncertaintax position reserves) for federal income tax purposes of $272,804 which are available to offset future federal taxable income,if any, and expire through 2035. The state NOL carryforwards expire through 2035. In addition, the Company has alternative minimum tax credit carryforwards of approximately $943 for federal and$22 for California, which are available to reduce future federal regular income taxes, if any, over an indefinite period. TheCompany also has research and development credit carryforwards of approximately $6,567 for federal and $5,914 forCalifornia. The Company also has foreign tax credits of $1,915. 110 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows: Year Ended December 31, 2015 2014 2013 Unrecognized tax benefits balance at beginning of year $2,092 $2,058 $1,097 Additions based on tax positions related to the current year 576 365 181 Additions based on tax positions related to prior years — 142 1,045 Additions based on tax positions for acquired entities 12,780 — — Reductions for settlements with taxing authorities (1,120) (261) (56) Reductions for lapses of statute of limitations (199) (212) (209) Unrecognized tax benefits balance at end of year $14,129 $2,092 $2,058 At December 31, 2015, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate,if recognized, was $13,701. The Company estimates it is reasonably possible that there will be not be a material change tothe liability for unrecognized tax benefits in the next twelve months. The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense.For the years ended December 31, 2015, 2014 and 2013, income tax expense includes ($158), ($41) and $33, respectively, ofpotential interest and penalties related to unrecognized tax benefits. The Company had accrued interest and penalties of$3,448 and $594 as of December 31, 2015 and 2014, respectively. The Company files a consolidated federal income tax return and separate tax returns with various states. Additionally,foreign subsidiaries of the Company file tax returns in foreign jurisdictions. The Company’s tax returns for the calendar yearsended December 31, 2014, 2013, and 2012 remain open to examination by the Internal Revenue Service in their entirety.With respect to state taxing jurisdictions, the Company’s tax returns for calendar years ended December 31, 2010 through2014 remain open to examination by various state revenue services. The Company’s Indian subsidiary is currently under examination by the India Tax Authority for the fiscal yearsended March 31, 2005 and forward. Based on the outcome of examinations of our subsidiary or the result of the expiration ofstatutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those recordedin the consolidated balance sheet. 11. Debt The Company’s outstanding debt obligations as of December 31, 2015 and 2014 were as follows: December 31, 2015 2014 Convertible Notes $172,500 $172,500 Unaccreted discount on Convertible Notes (22,367) (27,297) $150,133 $145,203 Term Notes $150,000 $ — Credit Agreement On June 19, 2014, Envestnet and certain of its subsidiaries entered into a credit agreement (the “Original CreditAgreement”) with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent, pursuant towhich the Banks agreed to provide an unsecured revolving credit facility of $70,000 with a sublimit for the111 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) issuance of letters of credit of $5,000. Subject to certain conditions, Envestnet had the right to increase the facility by up to$25,000. The Original Credit Agreement was scheduled to terminate on June 19, 2017, at which time any aggregate principalamount of borrowings outstanding would become payable in full. Any borrowings made under the Original CreditAgreement accrued interest at rates between 1.25 percent and 1.75 percent above LIBOR based on the Company’s totalleverage ratio. There was also a commitment fee equal to 0.25 percent per annum on the daily unused portion of the facility. On December 8, 2014, Envestnet and certain of its subsidiaries entered into a first amendment to the Original Creditagreement (collectively with the Original Credit Agreement, the “Credit Agreement”) dated June 19, 2014. Pursuant to theCredit Agreement, the amount of the unsecured revolving credit facility was increased from $70,000 to $100,000 with asublimit for the issuance of letters of credit of $5,000. Any borrowings made under the Credit Agreement accrued interest atrates between 1.50 percent and 3.25 percent above LIBOR based on the Company’s total leverage ratio. There is also acommitment fee equal to 0.25 percent per annum on the daily unused portion of the facility. Subject to certain conditions,Envestnet has the right to increase the facility by up to $25,000. The Credit Agreement First Amendment is scheduled tomature on December 8, 2017. On November 19, 2015, the Company and certain of its subsidiaries entered into an Amended and Restated CreditAgreement (the “Amended and Restated Credit Agreement”) with a group of banks (the “Banks”), for which Bank ofMontreal is acting as administrative agent (the “Administrative Agent”). The Amended and Restated Credit Agreementamends and restates the Credit Agreement, dated as of June 19, 2014, as amended, among the Company, the guarantors partythereto, the lenders party thereto and Bank of Montreal, as administrative agent. Pursuant to the Amended and RestatedCredit Agreement, the Banks agreed to provide (i) term loans (“Term Notes”) to be borrowed as of the closing of the Mergerin the aggregate principal amount of $160,000, which were used to fund a portion of the cash consideration paid by theCompany in connection with the acquisition of Yodlee, and (ii) revolving credit commitments in the aggregate amount of upto $100,000, which includes a $5,000 subfacility for the issuance of letters of credit. Obligations under the Amended and Restated Credit Agreement are guaranteed by substantially all of Envestnet’sU.S. subsidiaries, including Envestnet | Yodlee. In accordance with the terms of the Security Agreement, dated November 19,2015 (the “Security Agreement”), among the Company, the Debtors party thereto, the Banks and the Administrative Agent,obligations under the Amended and Restated Credit Agreement are secured by substantially all of the Company’s domesticassets and the Company’s pledge of 66% of the voting equity and 100% of the non-voting equity of certain of its first-tierforeign subsidiaries, including Envestnet | Yodlee and its relevant subsidiaries. In addition to funding a portion of the cashconsideration paid by the Company in connection with the acquisition of Yodlee, proceeds under the Amended and RestatedCredit Agreement may be used to finance capital expenditures, working capital, permitted acquisitions and for generalcorporate purposes. Envestnet will pay interest on borrowings made under the Amended and Restated Credit Agreement at rates between1.50 percent and 3.25 percent above LIBOR based on the Company’s total leverage ratio. Borrowings under the Amendedand Restated Credit Agreement are scheduled to mature on November 19, 2018. The Term Notes are payable in quarterlyinstallments of $2,000 per installment, commencing in March 2016, with the final payment of all remaining term loanprincipal due and payable on the scheduled maturity date. The Amended and Restated Credit Agreement contains customary conditions, representations and warranties,affirmative and negative covenants and events of default. The covenants include certain financial covenants requiringEnvestnet to maintain compliance with a maximum senior leverage ratio, a maximum total leverage ratio, a minimum interestcoverage ratio and minimum adjusted EBITDA, and provisions that limit the ability of Envestnet and its subsidiaries to incurdebt, make investments, sell assets, create liens, engage in transactions with affiliates, engage in mergers and acquisitions,pay dividends and other restricted payments, grant negative pledges and change their business112 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) activities. As of December 31, 2015, there was $150,000 of Term Notes and no revolving credit amounts outstanding underthe Amended and Restated Credit Agreement. The Company was in compliance with all covenants of the Credit Agreementas of December 31, 2015. Convertible Notes On December 15, 2014, the Company issued $172,500 of Convertible Notes. Net proceeds from the offering were$166,967. The Convertible Notes bear interest at a rate of 1.75 percent per annum payable semiannually in arrears on June 15and December 15 of each year, beginning on June 15, 2015. The Convertible Notes are general unsecured obligations, subordinated in right of payment to our obligations underour Credit Agreement. The Convertible Notes rank equally in right of payment with all of the Company’s existing and futuresenior indebtedness and will be senior in right of payment to any of the Company’s future subordinated indebtedness. TheConvertible Notes will be structurally subordinated to the indebtedness and other liabilities of any of our subsidiaries, otherthan to the extent the Convertible Notes are guaranteed in the future by our subsidiaries as described in the indenture andwill be effectively subordinated to and future secured indebtedness to the extent of the value of the assets securing suchindebtedness. Certain of our subsidiaries guarantee our obligations under our Credit Agreement. Upon the occurrence of a “fundamental change”, as defined in the indenture, the holders may require the Company torepurchase all or a portion of the Convertible Notes for cash at 100% of the principal amount of the Convertible Notes beingpurchased, plus any accrued and unpaid interest. The Convertible Notes are convertible into shares of the Company’s common stock under certain circumstances priorto maturity at a conversion rate of 15.9022 shares per $1,000 principal amount of the Convertible Notes, which represents aconversion price of $62.88 per share, subject to adjustment under certain conditions. Holders may convert their ConvertibleNotes at their option at any time prior to the close of business on the business day immediately preceding July 1, 2019, onlyunder the following circumstances: (a) during any calendar quarter commencing after the calendar quarter ending on March31, 2015 (and only during such calendar quarter), if the last reported sale price of our common stock, for at least 20 tradingdays (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendarquarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversionprice of the Convertible Notes in effect on each applicable trading day; (b) during the five consecutive business-day periodfollowing any five consecutive trading-day period in which the trading price per $1,000 principal amount of the ConvertibleNotes for each such trading day was less than 98% of the last reported sale price of our common stock on such datemultiplied by the then-current conversion rate; or (c) upon the occurrence of specified corporate events as defined in theindenture. Upon conversion, the Company may pay cash, shares of the Company’s common stock or a combination of cash andstock, as determined by the Company in its discretion. The Company has separately accounted for the liability and equity components of the Convertible Notes byallocating the proceeds from issuance of the Convertible Notes between the liability component and the embeddedconversion option, or equity component. This allocation was done by first estimating an interest rate at the time of issuancefor similar notes that do not include the embedded conversion option. The Company allocated $26,618 to the equitycomponent, net of offering costs of $882. The Company recorded a discount on the Convertible Notes of $27,500 which willbe accreted and recorded as additional interest expense over the life of the Convertible Notes. During 2015 and 2014, theCompany recognized $4,932 and $203, respectively, in accretion related to the discount. The effective interest rate of theliability component of the Convertible Notes is equal to the stated interest rate plus the accretion of113 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) original issue discount. The effective interest rate on the liability component of the Convertible Notes for the year endedDecember 31, 2015 was 6%. In connection with the issuance of the Convertible Notes, the Company incurred $4,651 of issuance costs in 2014,which are recorded in other non-current assets (see Note 7). These costs are being amortized and are recorded as additionalinterest expense over the life of the Notes. Interest expense on the Convertible Notes and the Credit and Amended and Restated Credit agreements wascomprised of the following: December 31, 2015 2014 Coupon interest $3,019 $126 Amortization of issuance costs 1,462 79 Accretion of debt discount 4,932 242 Undrawn and other fees 858 179 $10,271 $626 See Note 14 for further discussion of the effect of conversion on net income per common share. 12. Stockholders’ Equity On October 11, 2013, the Company completed a public offering of common shares on behalf of selling stockholders.A total of 5,801,997 shares were sold, including an overallotment option exercised by the underwriters, at a public offeringprice of $29.25 per share. The Company did not receive any proceeds from the sale of shares by the selling stockholders. TheCompany incurred costs of $1,089 during the year ended December 31, 2013 in relation to the public offering and thisamount is included in general and administration expenses in the consolidated statement of operations. On May 6, 2015, in connection with the acquisition of Finance Logix, the Company issued 123,410 in shares ofEnvestnet common stock with a fair value of $6,388 and 123,410 stock options to acquire Envestnet common stockat $52.67 per share with an estimated fair value of $2,542. On November 19, 2015 in connection with the merger of Yodlee, Envestnet issued approximately 5,974,000 sharesof Envestnet common stock with a fair value of $186,522 to Yodlee stockholders in the Merger. 13. Stock-Based Compensation On December 31, 2004, the Company adopted a stock incentive plan (the “2004 Plan”). The 2004 Plan provided forthe grant of options to employees, consultants, and non-employee directors to purchase common stock, which vest over timeand have a ten -year contractual term. To satisfy options granted under the 2004 Plan, the Company made common stockavailable from authorized but unissued shares or shares held in treasury, if any, by the Company. Stock options granted underthe 2004 Plan were non-stock options, as defined in the 2004 Plan agreement. Stock options were granted with an exerciseprice no less than the fair-market-value price of the common stock at the date of the grant. The 2004 Plan has a change in control provision whereby if a change in control occurs and the participant’s awardsare not equitably adjusted, such awards shall become fully vested and exercisable and all forfeiture restrictions on suchawards shall lapse. Based on the terms of the 2004 Plan, the Company’s initial public offering in 2010 did not114 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) trigger the change in control provision and did not result in any modifications to the outstanding equity awards under the2004 Plan. On June 22, 2010, the Board of Directors approved the 2010 Long-Term Incentive Plan (“2010 Plan”), effectiveupon the closing of the Company’s initial public offering. The 2010 Plan provides for the grant of options, stockappreciation rights, Full Value Awards (as defined in the 2010 Plan) and cash incentive awards to employees, consultants,and non-employee directors to purchase common stock, which vest over time and have a ten-year contractual term. Themaximum number of shares of common stock that may be delivered under the 2010 Plan is equal to the sum of 2,700,000plus the number of shares of common stock that are subject to outstanding awards under the 2004 Plan which are forfeited,expire or are cancelled after the effective date of the Company’s initial public offering. Stock options and stock appreciationrights are granted with an exercise price no less than the fair-market-value price of the common stock at the date of the grant.On May 13, 2015, the shareholders approved the 2010 Long-Term Incentive Plan as Amended. The amendment increased thenumber of common shares of the Company reserved for delivery under the 2010 Plan by 2,700,000 shares. As a result of the merger between Envestnet and Tamarac (see Note 3), the Company adopted the Envestnet, Inc.Management Incentive Plan for Envestnet | Tamarac Management Employees (the “2012 Plan”). The 2012 Plan provides forthe grant of restricted common stock, stock options and the purchase of common stock for certain Envestnet | Tamaracemployees. The maximum number of shares of stock which may be issued with respect to awards under the 2012 Plan is1,023,851. The 2012 Plan provides for the grant of up to 559,551 shares of unvested common stock (“Target IncentiveAwards”). The Target Incentive Awards vest based upon Tamarac meeting certain performance conditions and then asubsequent two-year service condition. The Company measured the cost of these awards based on the estimated fair value ofthe award as of the market closing price on the day before the acquisition closed. The Company is recognizing the estimatedexpense on a graded-vesting method over a requisite service period of three to five years, which is the estimated vestingperiod. The Company estimates the expected vesting amount and recognizes compensation expense only for those awardsexpected to vest. This estimate is reassessed by management each reporting period and may change based upon new facts andcircumstances. Changes in the assumptions impact the total amount of expense and are recognized over the vesting period.As of December 31, 2015, all 559,551 shares of unvested restricted stock have been performance vested and are subject to thesubsequent two-year service condition. On April 11, 2013, the Company amended the 2012 Plan. The purpose of the amendment was to amend themethodology for determining the vesting requirements of performance awards granted under the 2012 Plan, as well as togrant awards to additional Envestnet | Tamarac employees eligible to participate in the 2012 Plan. The amendment to the2012 Plan was treated as a modification. As a result, 113,249 performance awards were valued as of the date of themodification. Concurrent with the amendment, 103,521 performance awards were voluntarily forfeited by certain participantsin the 2012 Plan and immediately reallocated to other participants in the 2012 Plan. As of December 31, 2015, the maximum number of options and restricted stock available for future issuance underthe Company’s plans is 1,219,887. 115 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Employee stock-based compensation expense was as follows: Year Ended December 31, 2015 2014 2013 Employee stock-based compensation expense $15,161 $11,423 $8,738 Tax effect on employee stock-based compensation expense (7,678) (4,434) (3,196) Net effect on income $7,483 $6,989 $5,542 Stock Options The following weighted average assumptions were used to value options granted during the periods indicated: Year Ended December 31, 2015 2014 2013 Grant date fair value of options $19.06 $16.81 $6.11 Volatility 37.8% 37.3% 40.4% Risk-free interest rate 1.8% 1.9% 1.0% Dividend yield 0.0% 0.0% 0.0% Expected term (in years) 6.0 6.0 6.0 The following table summarizes option activity under the Company’s plans: Weighted-Average Weighted- Remaining Average Contractual Life Aggregate Options Exercise Price (Years) Intrinsic Value Outstanding as of December 31, 2012 5,277,412 $8.86 6.3 $26,885 Granted 190,413 15.34 Exercised (721,050) 8.86 Forfeited (109,304) 12.33 Outstanding as of December 31, 2013 4,637,471 9.04 5.4 31,877 Granted 214,253 42.92 Exercised (573,298) 9.05 Forfeited (13,089) 18.12 Outstanding as of December 31, 2014 4,265,337 10.73 4.7 163,830 Granted 358,087 19.06 Exercised (1,047,911) 48.38 Forfeited (41,722) 7.90 Outstanding as of December 31, 2015 3,533,791 41.10 4.7 61,199 Options exercisable 3,126,162 15.03 4.1 60,364 The aggregate intrinsic values in the table below represent the total pre-tax intrinsic value (the aggregate differencebetween the fair value of the Company’s common stock on December 31, 2015, 2014 and 2013 of $29.85, $49.14 and$40.30, respectively, and the exercise price of in-the-money options) that would have been received by the option holdershad all option holders exercised their options as of that date. Exercise prices of stock options outstanding as of December 31,2015 range from $0.11 to $55.29. 116 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Other information is as follows: Year Ended December 31, 2015 2014 2013 Total intrinsic value of options exercised $37,879 $20,867 $13,745 Cash received from exercises of stock options 8,279 5,190 6,400 Cash received from issuance of restricted stock 2 1 1 At December 31, 2015, there was $4,729 of unrecognized compensation expense related to unvested stock options,which the Company expects to recognize over a weighted-average period of 2.2 years. Restricted Stock Units Periodically, the Company grants restricted stock unit awards under the 2010 Plan to employees that vest one-thirdon each of the first three anniversaries of the grant date. The Company also granted restricted stock unit awards under the2012 Plan that vest upon Tamarac meeting certain performance conditions and then a subsequent two-year service condition(as described above). The following is a summary of the activity for unvested restricted stock unit awards granted under the Company’splans: Weighted- Average Grant Number of Date Fair Value Shares per Share Outstanding as of December 31, 2012 758,990 $12.49 Granted 386,245 19.54 Vested (74,298) — Forfeited (169,386) 12.69 Outstanding as of December 31, 2013 901,551 16.50 Granted 360,834 41.99 Vested (143,264) — Forfeited (20,447) 28.39 Outstanding as of December 31, 2014 1,098,674 33.72 Granted 1,508,796 34.55 Vested (434,292) 29.26 Forfeited (19,967) 38.58 Outstanding as of December 31, 2015 2,153,211 35.63 At December 31, 2015, there was $49,550 of unrecognized compensation expense related to unvested restrictedstock unit awards, which the Company expects to recognize over a weighted-average period of 2.5 years. At December 31, 2015, there was an additional $707 of unrecognized stock compensation expense related tounvested restricted stock unit awards granted under the 2012 Plan that vests based upon Envestnet Tamarac meeting thesubsequent two-year service condition, which the Company expects to recognize, if earned, over the remaining estimatedvesting period of 0.3 to 1.3 years. In connection with the Yodlee merger, on November 19, 2015, the Company issued 1,052,000 shares of Envestnetrestricted stock unit awards (“replacement awards”) issued in connection with unvested Yodlee employee equity awards. TheYodlee unvested stock options and unvested restricted stock units were canceled and exchanged for117 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) the replacement awards. In accordance with ASC 805, these awards are considered to be replacement awards. Exchanges ofshare options or other share-based payment awards in conjunction with a business combination are modifications of share-based payment awards in accordance with ASC Topic 718. As a result, a portion of the fair-value-based measure of thereplacement awards, are included in measuring the consideration transferred in the Yodlee business combination. Todetermine the portion of the replacement award that is part of consideration transferred to acquire Yodlee, we have measuredboth the replacement awards granted by Envestnet and the historical Yodlee awards as of November 19, 2015 in accordancewith ASC 718. The portion of the fair-value-based measure of the replacement award that is part of the considerationtransferred in exchange for the acquisition of Yodlee, equals the portion of the Yodlee award that is attributable to pre-combination service. Envestnet is attributing a portion of the replacement awards to post combination service as these awardsrequire post combination service. The fair value of the rollover consideration was estimated to be $32,836 of which $4,318was attributable to pre-acquisition services. The remaining fair value of $28,518 will be amortized over a period of 43months subsequent to the acquisition date. 14. Earnings per Share Basic net income per common share is computed by dividing net income available to common stockholders by theweighted average number of shares of common stock outstanding for the period. For the calculation of diluted earnings pershare, the basic weighted average number of shares is increased by the dilutive effect of stock options, common warrants,restricted stock and Convertible Notes using the treasury stock method. The Company accounts for the effect of the Convertible Notes on diluted net income per share using the treasurystock method since they may be settled in cash, shares or a combination thereof at the Company’s option. As a result, theConvertible Notes have no effect on diluted net loss per share until the Company’s stock price exceeds the conversion priceof $62.88 per share, or if the trading price of the Convertible Notes meet certain criteria as described in Note 11. In the periodof conversion, the Convertible Notes will have no impact on diluted net income if the Convertible Notes are settled in cashand will have an impact on dilutive net income per share if the Convertible Notes are settled in shares upon conversion. 118 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) The following table provides a reconciliation of the numerators and denominators used in computing basic anddiluted net income per share attributable to common stockholders: Year Ended December 31, 2015 2014 2013 Basic income per share calculation: Net income attributable to Envestnet, Inc. $4,436 $14,174 $3,660 Basic number of weighted-average shares outstanding 36,500,843 34,559,558 33,191,088 Basic net income per share $0.12 $0.41 $0.11 Diluted income per share calculation: Net income attributable to Envestnet, Inc. $4,436 $14,174 $3,660 Basic number of weighted-average shares outstanding 36,500,843 34,559,558 33,191,088 Effect of dilutive shares: Options to purchase common stock 1,700,248 2,165,808 1,979,474 Common warrants — — 378,282 Unvested restricted stock units 185,782 152,233 117,731 Diluted number of weighted-average shares outstanding 38,386,873 36,877,599 35,666,575 Diluted net income per share $0.12 $0.38 $0.10 Common share equivalents for securities that were anti-dilutive and therefore excluded from the computation ofdiluted earnings per share are as follows: Year Ended December 31, 2015 2014 2013 Options to purchase common stock 297,343 — — Unvested restricted stock units 210,233 90,792 432,272 Ungranted unvested restricted stock units related to Upside 132,384 — — Convertible debt 2,743,321 2,743,321 — Total 3,383,281 2,834,113 432,272 15. Commitments and Contingencies Leases The Company rents office space under leases that expire at various dates through 2028. In 2013, the Companyexercised its right to early terminate the Denver and Raleigh office leases in accordance with the provisions of the leases. Thetotal termination fees were $1,142, of which approximately $551 was paid during 2013. The remainder of the fee was paid in2014. During the year ended December 31, 2013, the Company recorded $474 (see Note 9) of restructuring charges, net ofdeferred rent adjustment, in the consolidated statement of operations related to these lease termination fees. During the yearended December 31, 2015, the Company incurred restructuring charges of $673, net of deferred rent adjustment due toestimated lease abandonment loss for the Wellesley lease. 119 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Future annual minimum lease commitments under operating leases were as follows: Years ending December 31: 2016 $11,4942017 10,3992018 9,7982019 9,3762020 8,975Thereafter 26,047Total $76,089 Rent expense for all operating leases totaled: Year Ended December 31, 2015 2014 2013 Rent expense $8,893 $7,488 $5,103 The Company acquired certain software licenses and server and network equipment classified as capital leases. Theoriginal term of the capital leases unpaid as of December 31, 2015 ranges from three to four years. The portion of the futurepayments designated as principal repayment was classified as a capital lease obligation on the consolidated balance sheets.Future payments under the capital leases, as of December 31, 2015, are as follows: Years ending December 31: 2016 $8452017 398Total $1,243 Interest expense recognized in years ended December 31, 2015 and 2014, is immaterial in relation to these capitallease arrangements. Purchase Obligations and Indemnifications The Company includes various types of indemnification and guarantee clauses in certain arrangements. Theseindemnifications 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 certaincustomers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature ofeach arrangement. The Company has experienced no previous claims and cannot determine the maximum amount ofpotential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it isunlikely it will have to make material payments under these arrangements and therefore has not recorded a contingentliability in the consolidated balance sheets. The Company enters into unconditional purchase obligations arrangements for certain of its services that it receivesin the normal course of business. As of December 31, 2015, the Company estimated future minimum unconditional purchaseobligations are $11,189. Litigation The Company is involved in litigation arising in the ordinary course of its business. Legal fees and other costsassociated with such actions are expensed as incurred. The Company will record a provision for these claims when it is120 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonablyestimated. 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. Litigation accruals are recorded whenand if it is determined that a loss is both probable and reasonably estimable. For litigation matters where a loss may bereasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matteris material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, arenot probable, and therefore has not recorded any accrual for any claims as of December 31, 2015. Further, while any possiblerange of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of theseproceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on itsfinancial condition or business, although an adverse resolution of litigation could have a material adverse effect onEnvestnet’s results of operations or cash flow in a particular quarter or year. 16. Major Customers One customer accounted for the following percentage of the Company’s revenues: December 31, 2015 2014 2013 Fidelity 18%19%20% 17. Benefit Plan The Company sponsors a profit sharing and savings plan under Section 401(k) of the Internal Revenue Code,covering substantially all domestic employees. The Company made voluntary employer matching contributions as follows: Year Ended December 31, 2015 2014 2013 Voluntary employer matching contributions $1,521 $1,176 $891 18. Net Capital Requirements Portfolio Brokerage Services, Inc. (“PBS”) is a broker-dealer subject to the SEC Uniform Net Capital Rule (SECRule 15c3-1), which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness tonet capital (“net capital ratio”), both as defined, shall not exceed 15 to 1. SEC Rule 15c3-1 also provides that equity capitalmay not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. At December 31, 2015,the Company had net capital of $1,176, which was $1,076 in excess of its required net capital of $100. At December 31,2015, the Company’s net capital ratio was .08 to 1. Additionally, PBS is subject to net capital requirements of certain self-regulatory organizations and at December 31,2015, PBS was in compliance with such requirements. 19. Segment Information Business segments are generally organized around our business services. Our business segments are: Envestnet is a leading provider of unified wealth management software and services empowering financial advisorsand institutions.121 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) Envestnet | Yodlee is a leading data aggregation and data analytics platform powering dynamic, cloud-basedinnovation for digital financial services. The information in the following tables is derived from the Company’s internal financial reporting used forcorporate management purposes. Nonsegment expenses include salary and benefits for certain corporate officers, certaintypes of professional service expenses and insurance, acquisition related transaction costs, restructuring charges,, and othernon-recurring and/or non-operationally related expenses. There are no inter-segment revenues for the year ended December31, 2015. The accounting policies of the reportable business segments are the same as those described in Note 2. The following table presents revenue by segment: Year Ended December 31, 2015 2014 2013Revenue: Envestnet $406,838 $348,748 $242,535Envestnet | Yodlee 14,081 — —Consolidated revenue $420,919 $348,748 $242,535 Fidelity revenue as a percentage of Envestnet revenue: 18% 19% 20% No single customer amounts for Envestnet | Yodlee exceeded 10% of the segment total. The following table presents a reconciliation from income from operations by segment to consolidated net incomeattributable to Envestnet, Inc.: Year Ended December 31, 2015 2014 2013Envestnet $43,278 $32,854 $18,312Envestnet | Yodlee (2,984) — — Total segment income from operations 40,294 32,854 18,312Nonsegment operating expenses (21,302) (11,602) (12,800)Interest income (expense), net (9,933) (487) 18Other income (expense), net (71) 1,742 182Consolidated income before income taxes 8,988 22,507 5,712Income tax provision 4,552 8,528 2,052Consolidated net income 4,436 13,979 3,660 Add: Net loss attributable to non-controlling interest — 195 —Consolidated net income attributable to Envestnet, Inc. $4,436 $14,174 $3,660 Segment assets consist of cash, accounts receivable, prepaid expenses and other current assets, property, plant andequipment goodwill, and other intangibles, net, deferred tax assets and other non-current assets. 122 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capitalexpenditures follows: December 31, 2015 2014 2013Segment assets: Envestnet $332,608 $439,358 $221,242Envestnet | Yodlee 552,957 — —Consolidated total assets $885,565 $439,358 $221,242 Year Ended December 31, 2015 2014 2013Segment depreciation and amortization: Envestnet $23,369 $18,651 $15,329Envestnet | Yodlee 4,593 — —Consolidated depreciation and amortization $27,962 $18,651 $15,329 Year Ended December 31, 2015 2014 2013Segment capital expenditures: Envestnet $13,682 $9,559 $9,268Envestnet | Yodlee 1,034 — —Consolidated capital expenditures $14,716 $9,559 $9,268 20.Geographical Information20. Geographical Information Revenue by geography is based on the billing address of the customer. The following table sets forth revenue bygeographic area: Year Ended December 31, 2015 2014 2013United States $388,098 $318,342 $229,935International (1) 32,821 30,406 12,600Total 420,919 348,748 242,535(1)No foreign country accounted for more than 10% of total revenue. The following table sets forth property, plant, and equipment, net by geographic area: December 31, 2015 2014 2013United States $24,423 $15,414 $11,163India 3,687 1,215 1,603Other 571 — —Total $28,681 $16,629 $12,766 123 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) 21. Derivative Financial Instruments Derivative instruments measured at fair value and their classification on the consolidated balance sheets arepresented in the following tables: December 31, 2015 Notional Fair Amount ValueDerivative instruments included in accrued liabilities: Derivatives designated as hedging instruments $9,702 $(114)Derivatives not designated as hedging instruments 2,168 (26)Total $11,870 $(140) As of December 31, 2015, the Company estimated that the entire net unrealized gain of $196 included in AOCI willbe reclassified into earnings within the next 12 months. 22. Subsequent Events FinaConnect, Inc. On February 1, 2016, Envestnet acquired all of the outstanding shares of capital stock of FinaConnect, Inc.(“FinaConnect”). FinaConnect provides reporting and practice management capabilities to financial professional servicingthe retirement plan market and is the technology platform supporting the ERS service offering. In connection with the acquisition of FinaConnect, the Company paid upfront cash consideration of $6,425 andCompany is required to pay contingent consideration of four times the incremental revenue on a certain book of business forthe next two years, not to exceed a total amount of $3,500. The pro forma results of the operations of FinaConnect are notmaterial to Envestnet. Share Repurchase Authorization The Board of Directors of the Company has authorized a share repurchase program under which the Company mayrepurchase up to 2,000,000 shares of the Company's common stock. The timing and volume of share repurchases will bedetermined by the Company's management based on the Company's ongoing assessments of the capital needs of thebusiness, the market price of the Company's common stock and general market conditions. No time limit has been set for thecompletion of the repurchase program, and the program may be suspended or discontinued at any time. The repurchaseprogram authorizes the company to purchase the Company's common stock from time to time in the open market (includingpursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stockrepurchase programs, through option or other forward transactions or otherwise, all in compliance with applicable laws andother restrictions. 124 Table of ContentsEnvestnet, Inc. Notes to Consolidated Financial Statements (continued)(in thousands, except share and per share amounts) 23. Quarterly Financial Data (Unaudited) Quarterly results for the years ended December 31, 2015 and 2014 were as follows: 2015 First Second Third Fourth Total revenues $96,454 $102,663 $103,367 $118,435 Income (loss) from operations 6,682 6,466 8,328 (2,484) Net income (loss) attributable to Envestnet, Inc. 2,511 2,536 3,302 (3,913) Net income (loss) per share Basic* 0.07 0.07 0.09 (0.10) Diluted 0.07 0.07 0.09 (0.10) 2014 First Second Third Fourth Total revenues $78,539 $84,829 $88,577 $96,803 Income from operations 4,071 4,166 5,952 7,063 Net income attributable to Envestnet, Inc. 2,994 3,719 3,768 3,693 Net income per share Basic* 0.09 0.11 0.11 0.11 Diluted* 0.08 0.10 0.10 0.10 *Numbers may not sum to full year totals due to rounding. 125 Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A. Controls and Proceduresa. Evaluation of Disclosure Controls and ProceduresOur management, with the participation of our chief executive officer and chief financial officer, evaluated theeffectiveness of our disclosure controls and procedures as of December 31, 2015. The term “disclosure controls andprocedures,” as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act, means controls and other procedures of acompany that are designed to ensure that information required to be disclosed by a company in the reports that it files orsubmits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the Company’s management, including its principal executive and principal financialofficers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controlsand procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving theirobjectives, and management necessarily applies its judgment in evaluating the cost‑benefit relationship of possible controlsand procedures.Based on their evaluation of our disclosure controls and procedures as of December 31, 2015, our chief executiveofficer and chief financial officer concluded that our disclosure controls and procedures were effective.b. Management’s Report on Internal Control Over Financial ReportingOn May 14, 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued anupdated version of its Internal Control - Integrated Framework (the 2013 Framework). Originally issued in 1992 (the 1992Framework), the framework helps organizations design, implement and evaluate the effectiveness of internal control conceptsand simplify their use and application. As of December 31, 2015, management assessed the effectiveness of our internalcontrol over financial reporting based on the 2013 Framework criteria for effective internal control over financial reporting.Based on the assessment, management determined that the Company maintained effective internal control over financialreporting as of December 31, 2015.Internal control over financial reporting is defined in Rule 13a‑15(f) and 15d‑15(f) promulgated under the ExchangeAct, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officersand effected by the Company’s board of directors, management and other personnel, to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles, and includes those policies and procedures that:·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company;·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, and that receipts and expenditures ofthe company are being made in accordance with authorizations of management and directors of the company;and·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use ordisposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detectmisstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may126 Table of Contentsbecome inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures maydeteriorate.Management has excluded Upside Holdings, Inc., Oltis Software LLC, Castle Rock Innovations, Inc. and Yodlee,Inc., collectively (the “Acquired Entities”), from its assessment of internal control over financial reporting as of December 31,2015, because these Acquired Entities were acquired by the Company in multiple business combinations during 2015. TheAcquired Entities have total assets representing $633,838,000 and have total revenues representing $16,987,000 of theCompany’s consolidated financial statement amounts as of and for the year ended December 31, 2015.KPMG LLP, our independent registered public accounting firm, has audited the Company’s internal control overfinancial reporting as of December 31, 2015, as stated in their report included in “Item 9A. – Controls and Procedures.”c. Changes in Internal Control Over Financial ReportingDuring the three months ended December 31, 2015, the Company finalized its remediation plan related to materialweakness that was identified in 2014, specifically we did not have adequately designed or documented controls to prevent ordetect a material misstatement over the portion of revenues and cost of revenues of a business that was acquired in 2013,Wealth Management Solutions, that was not migrated to the Envestnet core technology platform in 2014. We also did nothave adequately designed or documented controls related to the financial statement review process, including the review ofmanual journal entries. These remediation measures which were finalized and implemented in the three months ended December 31, 2015consisted of the following measures:·We have completed the identification and testing of all relevant internal controls related to the legacy WMSplatform and concluded that they were effective. As of December 31, 2015, only one former WMS clientremains on the legacy platform, with final conversion expected in the first half of 2016; We haveimplemented certain technology enhancements, including an online automated accounting reconciliation toolthat has enhanced our account reconciliation process; ·We have completed our testing of all relevant internal controls related to the financial statement review process,including the testing of internal controls over manual journal entries.During 2014, Envestnet acquired an entity that was included in management’s 2015 testing for Sarbanes-0xley 404,as required by the PCAOB. As a result of the testing of this acquisition, new controls were documented and tested inmanagement’s control framework. Other than as discussed above, there was no change to the Company’s internal control over financial reporting thatoccurred during the Company’s quarter ended December 31, 2015 and that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting. 127 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersEnvestnet, Inc.:We have audited Envestnet Inc.’s (the Company) internal control over financial reporting as of December 31, 2015, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl Over Financial Reporting (Item 9A(b)). Our responsibility is to express an opinion on the Company’s internal control over financialreporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting wasmaintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing therisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessedrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our auditprovides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies or procedures may deteriorate.In our opinion, Envestnet, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015,based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. Envestnet, Inc. acquired Upside Holdings, Inc., Oltis Software LLC, Castle Rock Innovations, Inc. and Yodlee, Inc., collectively AcquiredEntities, during 2015, and management excluded from its assessment of the effectiveness of the Company’s internal control over financialreporting as of December 31, 2015, the Acquired Entities’ internal control over financial reporting associated with total assets of $633,838,000and total revenues of $16,987,000, included in the consolidated financial statements of Envestnet, Inc. and subsidiaries as of and for the yearended December 31, 2015. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internalcontrol over financial reporting of the Acquired Entities.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidatedbalance sheets of Envestnet, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of operations,other comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2015, andour report dated February 29, 2016 expressed an unqualified opinion on those consolidated financial statements. /s/ KPMG LLPChicago, IllinoisFebruary 29, 2016 128 Table of ContentsItem 9B. Other InformationNone.129 Table of ContentsPart III Item 10. Directors, Executive Officers and Corporate GovernanceThe information required by this item relating to our directors and nominees, regarding compliance withSection 16(a) of the Securities Act of 1934, and regarding our Audit Committee is included under the captions “Board ofDirectors,” “Board Meetings and Committees—Audit Committee” (including information with respect to audit committeefinancial experts), “Stock Ownership of Management,” and “Section 16(a) Beneficial Ownership Reporting Compliance” inour Proxy Statement related to the Annual Meeting of Stockholders to be held May 11, 2016, and is incorporated herein byreference.The information required by this item relating to our executive officers and other corporate officers is includedunder the caption “Executive Officers of the Registrant” in Item 1 of this report.We have adopted a code of ethics that applies to all of our employees, including our principal executive officer andour principal financial officer and our principal accounting officer. This code of ethics is posted on our Website. The Internetaddress for our Website is www.envestnet.com, and the code of ethics may be found from our main Web page by clicking firston “Investor Information” and then “Corporate Governance,” and then on “Code of Business Conduct and Ethics.”We intend to disclose any amendment to, or waiver from, a provision of this code of ethics by posting suchinformation to our Website, at the address and location specified above. Item 11. Executive CompensationInformation regarding executive compensation is under the captions “Board Meetings and Committees—DirectorCompensation,” “Board Meetings and Committees—Compensation Committee Interlocks and InsiderParticipation,” “Compensation Committee Report on Compensation Discussion and Analysis,” and “ExecutiveCompensation” in our Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 2016, and is incorporatedherein by reference, except the section captioned “Compensation Committee Report on Compensation Discussion andAnalysis” is hereby “furnished” and not “filed” with this annual report on Form 10‑K. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersInformation regarding security ownership of certain beneficial owners and management and related stockholdermatters is under the tables captioned “Stock Ownership of Management,” “Persons Owning More Than Five Percent ofEnvestnet, Inc. Stock,” and in our Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 2016, and isincorporated herein by reference. For a description of securities authorized under our equity compensation plans, see Note 12to the notes to the consolidated financial statements in Part II, Item 8. Item 13. Certain Relationships and Related Transactions, and Director IndependenceThe information set forth under “Board Meetings and Committees—Related Person Transaction Policies andProcedures,” “Board of Directors” and “Audit Committee Report to Stockholders” in our Proxy Statement for the AnnualMeeting of the Stockholders to be held May 11, 2016, is incorporated herein by reference except the section captioned“Audit Committee Report” is hereby “furnished” and not “filed” with this annual report on Form 10‑K. Item 14. Principal Accountant Fees and ServicesInformation regarding principal accountant fees and services is under the captions “Audit Committee Report toStockholders—Audit Committee’s Policy on Pre‑Approval of Services Provided by Independent Registered PublicAccounting Firm” and “Audit Committee Report to Stockholders—Fees Paid to Independent Registered Public AccountingFirm” in our Proxy Statement for the Annual Meeting of Stockholders to be held May 11, 2016, and is incorporated herein byreference.130 Table of ContentsPart IV Item 15. Exhibits and Financial Statement Schedules Page Number inForm 10‑K(a)(1) Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 77 Consolidated Balance Sheets as of December 31, 2015 and 2014 78 Consolidated Statements of Operations for each of the years ended December 31, 2015,2014, and 2013 79 Consolidated Statements of Stockholders’ Equity for each of the years endedDecember 31, 2015, 2014 and 2013 81 Consolidated Statements of Cash Flows for each of the years ended December 31, 2015,2014 and 2013 82 Notes to Consolidated Financial Statements 84 (a)(2) Evaluation and Qualifying Accounts Financial statements and schedules are omitted for the reason that they are notapplicable, are not required, or the information is included in the financial statements orthe related footnotes. 131 Table of ContentsINDEX TO EXHIBITSExhibit No.Description3.1 Amended and Restated Certificate of Incorporation of Envestnet, Inc. (filed as Exhibit 3.1 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC on July 1, 2010and incorporated by reference herein).3.2 Amended and Restated Bylaws of Envestnet, Inc. (filed as Exhibit 3.2 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC on July 1, 2010 andincorporated by reference herein).4.1 Registration Rights Agreement dated as of March 22, 2004 (filed as Exhibit 4.2 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC on March 26, 2010 andincorporated by reference herein).4.2 First Amendment to Registration Rights Agreement dated as of August 30, 2004 (filed as Exhibit 4.3 to theCompany’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC onMarch 26, 2010 and incorporated by reference herein).4.3 Second Amendment to Registration Rights Agreement effective as of March 24, 2005 (filed as Exhibit 4.4 tothe Company’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC onMarch 26, 2010 and incorporated by reference herein).4.4 Joinder Agreements to Registration Rights Agreement (filed as Exhibit 4.5 to the Company’s RegistrationStatement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC on March 26, 2010 andincorporated by reference herein).4.5 Indenture, dated as of December 15, 2014, by and between the Company and U.S. Bank National Association,as trustee (filed as Exhibit 4.1 to the Company’s Form 8‑K filed with the SEC on December 15, 2014 andincorporated by reference herein).4.6 First Supplemental Indenture, dated as of December 15, 2014, by and between the Company and U.S. BankNational Association, as trustee (filed as Exhibit 4.2 to the Company’s Form 8‑K filed with the SEC onDecember 15, 2014 and incorporated by reference herein).10.1 Technology and Services Agreement dated as of March 31, 2008, between Registrant and FMR LLC (filed asExhibit 10.1 to the Company’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filedwith the SEC on May 6, 2010 and incorporated by reference herein).10.2 First Amendment to Technology and Services Agreement dated June 26, 2008 (filed as Exhibit 10.2 to theCompany’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC onMay 6, 2010 and incorporated by reference herein).10.3 Second Amendment to Technology and Services Agreement dated May 5, 2009 (filed as Exhibit 10.3 to theCompany’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC onMay 6, 2010 and incorporated by reference herein).10.4 Third Amendment to Technology and Services Agreement dated November 16, 2009 (filed as Exhibit 10.4 tothe Company’s Registration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC onMay 6, 2010 and incorporated by reference herein).10.5 Services Agreement dated December 28, 2005 between Registrant and Fidelity Brokerage Services LLC (filedas Exhibit 10.5 to the Company’s Registration Statement on Form S‑1, as amended (File No. 333‑165717),filed with the SEC on May 6, 2010 and incorporated by reference herein).10.6 Services Agreement effective March 24, 2005 between Registrant and National Financial Services LLC (filedas Exhibit 10.6 to the Company’s Registration Statement on Form S‑1, as amended (File No. 333‑165717),filed with the SEC on May 6, 2010 and incorporated by reference herein).10.7 Services Agreement Amendment dated effective March 2008 (filed as Exhibit 10.7 to the Company’sRegistration Statement on Form S‑1, as amended (File No. 333‑165717), filed with the SEC on May 6, 2010and incorporated by reference herein).10.10 2010 Long‑Term Incentive Plan (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S‑1,as amended (File No. 333‑165717), filed with the SEC on July 1, 2010 and incorporated by reference herein).*132 Table of ContentsExhibit No.Description10.11 2004 Stock Incentive Plan (filed as Exhibit 10.11 to the Company’s Registration Statement on Form S‑1, asamended (File No. 333‑165717), filed with the SEC on July 1, 2010 and incorporated by reference herein).*10.12 Form of Equity Award, filed as Exhibit 10.12 to the Company’s 2010 Form 10‑K, (filed with the SEC onMarch 18, 2011 and incorporated by reference herein).*10.13 Fourth Amendment to Technology Services Agreement, dated as of December 31, 2011, betweenEnvestnet, Inc. and FMR LLC (filed as Exhibit 10.1 to the Company’s Form 8‑K filed with the SEC onJanuary 6, 2012 and incorporated by reference herein).10.14 Amendment to Services Agreement effective December 31, 2011, between Envestnet Asset Management, Inc.and Fidelity (filed as Exhibit 10.2 to the Company’s Form 8‑K filed with the SEC on January 6, 2012 andincorporated by reference herein).10.15 Third Amendment to Services Agreement effective December 31, 2011, between Envestnet AssetManagement, Inc. and National Financial Services LLC. (filed as Exhibit 10.3 to the Company’s Form 8‑Kfiled with the SEC on January 6, 2012 and incorporated by reference herein).10.16 Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (filed asExhibit 4.3 to the Company’s Registration Statement on Form S‑8 (filed with the SEC on May 1, 2012 andincorporated by reference herein).*10.17 First Amendment to Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac ManagementEmployees (filed as Exhibit 10.1 to the Company’s Form 8‑K filed with the SEC on April 17, 2013 andincorporated by reference herein).*10.18 Second Amendment to Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac ManagementEmployees (filed as Exhibit 10.1 to the Company’s Form 8‑K filed with the SEC on May 13, 2013 andincorporated by reference herein).*10.19 Envestnet, Inc. Executive Deferred Compensation Plan (filed as Exhibit 10.1 to the Company’s Form 8-K filedwith the SEC on February 10, 2015 and incorporated by reference herein).*10.20 Envestnet, Inc. Director Deferred Compensation Plan (filed as Exhibit 10.2 to the Company’s Form 8-K/A filedwith the SEC on February 11, 2015 and incorporated by reference herein).*10.21 2010 Long-Term Incentive Plan, as amended (filed as Exhibit A to the Company’s 2015 Annual MeetingProxy Statement (File No. 1-34835), filed with the SEC on April 13, 2015 and incorporated by referenceherein).*10.22 Membership Interest Purchase Agreement by and among Oleg Tishkevich, Envestnet, Inc. and, solely forpurposes of Article 9, OLTIS SOFTWARE LLC (d/b/a Finance Logix), dated as of May 6, 2015. (filed asExhibit 10.1 to the Company’s Form 10-Q filed with the SEC on August 8, 2015 and incorporated by referenceherein).10.23 Agreement And Plan Of Merger By And Among Envestnet, Inc., Yale Merger Corp. And Yodlee, Inc., dated asof August 10, 2015 (filed as Form S4 for Company filed with the SEC on September 10, 2015 and incorporatedby reference herein).10.24 Amended and Restated Credit Agreement, dated as of November 19, 2015 among Envestnet, Inc., theGuarantors from time to time party thereto, the Lenders from time to time party thereto and Bank of Montreal,as Administrative Agent (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on November19, 2015 and incorporated by reference herein).10.25 Security Agreement, dated as of November 19, 2015, among Envestnet, Inc., the Debtors from time to timeparty thereto and Bank of Montreal, as Administrative Agent (filed as Exhibit 10.2 to the Company’s Form 8-Kfiled with the SEC on November 19, 2015 and incorporated by reference herein).10.26 Envestnet, Inc. 2015 Acquisition Equity Award Plan (filed as Exhibit 4.3 to the Company’s Form S-8 filedwith the SEC on November 19, 2015 and incorporated by reference herein).*12.1 Computation of Ratio of Earnings to Fixed Charges filed herewith.21.1 Subsidiaries of the Company, filed herewith.23.1 Consent of Independent Registered Public Accounting Firm, filed herewith.31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002.133 Table of ContentsExhibit No.Description31.2 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 theSarbanes‑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 theSarbanes‑Oxley Act of 2002.101.INSXBRL Instance Document***101.SCH101.CAL101.LAB101.PRE101.DEFXBRL Taxonomy Extension Schema Document***XBRL Taxonomy Extension Calculation Linkbase Document***XBRL Taxonomy Extension Label Linkbase Document***XBRL Taxonomy Extension Presentation Linkbase Document***XBRL Taxonomy Extension Definition Linkbase Document***(1)The material contained in Exhibit 32.1 and 32.2 is not deemed “filed” with the SEC and is not to be incorporated byreference 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 suchfiling, except to the extent that the registrant specifically incorporates it by reference.*Management contract or compensation plan.**Application has been made with the Securities and Exchange Commission to seek confidential treatment of certainprovisions. Omitted material for which confidential treatment has been requested has been filed separately with theSecurities and Exchange Commission.***Attached as Exhibit 101 to this Annual Report on Form 10‑K are the following materials, formatted in XBRL (ExtensibleBusiness Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2015 and 2014; (ii) theConsolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013; (iii) the ConsolidatedStatements of Stockholders’ Equity for the years ended December 31, 2015, 2014 and 2013; (iv) the ConsolidatedStatements of Cash Flows for the years ended December 31, 2015, 2014 and 2013; (v) notes to Consolidated FinancialStatements. 134 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) the Securities Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized. ENVESTNET, INC. Date: February 29, 2016 /s/ Judson BergmanJudson Bergman Chairman and Chief Executive Officer (Principal Executive Officer) Date: February 29, 2016 /s/ Peter H. D’ArrigoPeter H. D’Arrigo Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities on February 29, 2016.Name Position /s/ Judson BergmanJudson Bergman Chairman and Chief Executive Officer; Director (PrincipalExecutive Officer) /s/ Anil aroraAnil Arora Vice Chairman, Director/s/ Peter H. D’ArrigoPeter H. D’Arrigo Chief Financial Officer (Principal Financial Officer) /s/ Matthew J. MajorosMatthew J. Majoros Senior Vice President, Financial Reporting (PrincipalAccounting Officer) /s/ Ross ChapinRoss Chapin Director /s/ Cynthia EganCynthia Egan Director /s/ James FoxJames Fox Director /s/ James JohnsonJames Johnson Director /s/ Charles RoameCharles Roame Director /s/ Yves SisteronYves Sisteron Director /s/ Greg SmithGreg Smith Director 135Exhibit 12.1Envestnet, Inc.Ratio of Earnings to Fixed Charges (unaudited)(dollars in thousands) Years Ended December 31, 2015 2014 2013 2012 2011Ratio of Earnings to Fixed Charges Earnings: Income before income taxes$8,988 $22,507 $5,712 $3,068 $10,580 Add: fixed charges 13,979 4,594 2,989 1,336 1,763Income before income taxes and fixed charges$22,967 $27,101 $8,701 $4,404 $12,343 Fixed Charges: Interest expensed and capitalized (1)$4,765 $1,772 $1,288 $ - $786 Amortized premiums, discounts and capitalizedexpenses related to indebtedness 6,394 326 - - - An estimate of the interest within rent expense (2) 2,820 2,496 1,701 1,336 977Total fixed charges$13,979 $4,594 $2,989 $1,336 $1,763 Ratio of earnings to fixed charges 1.64 5.90 2.91 3.30 7.00 (1)Amounts presented for the years ended December 31, 2015, 2014 and 2013 represent coupon interest, interest and feesrelated to the credit facility (as amended) and accretion on contingent consideration.(2)Interest is estimated by management to equal one‑third of minimum rent payments under operating leases.Because we had no shares of preferred stock outstanding during any of the periods presented, we do not separately presentthe ratio of earnings to combined fixed charges and preferred stock dividends. Exhibit 21.1Envestnet, Inc.Subsidiaries of the Registrant Jurisdiction ofNameIncorporationCastleRock Innovations, Inc.DelawareCastleRock Innovations, LLCDelawareEnvestnet Asset Management, Inc.DelawareEnvestnet Asset Management Canada, Inc.QuebecEnvestnet Asset Management.com India Pvt. Ltd. Inc.IndiaEnvestnet Institute, Inc.DelawareEnvestnet Portfolio Solutions, Inc.DelawareEnvestnet Retirement Solutions, LLCDelawareFinaConnect, Inc.DelawareKD Advisors, LLCNorth CarolinaKlein Decisions, Inc.North CarolinaNetAssetManagement, Inc.DelawareOltis Software LLCArizonaOberon Financial Technology, Inc.DelawarePMC International, Inc.ColoradoPortfolio Brokerage Services, Inc.ColoradoPortfolio Management Consultants, Inc.ColoradoPremier Advisors Fund, L.L.C.DelawarePrima Capital Holding, Inc.ColoradoTamarac, Inc.WashingtonUpside Holdings, Inc.DelawareUpside Brokerage, LLCDelawareUpside Financial, LLCDelawareYodlee, Inc.DelawareYodlee Canada, Inc.CanadaYodlee Group Australia PTY Ltd.AustraliaYodlee Infotech Private LimitedIndia Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsEnvestnet, Inc.:We consent to the incorporation by reference in the registration statements (Nos. 333-169050, 333-181071, 333-204858 and 333-208107) on Form S-8 and (No. 333-197145) on Form S-3 of Envestnet, Inc. (the Company) of our reportsdated February 29, 2016, with respect to the consolidated balance sheets of Envestnet, Inc. and subsidiaries as ofDecember 31, 2015 and 2014, and the related consolidated statements of operations, other comprehensive income,stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and theeffectiveness of internal control over financial reporting as of December 31, 2015, which reports appear in the December 31,2015 annual report on Form 10-K of Envestnet, Inc.Our report dated February 29, 2016, on the effectiveness of internal control over financial reporting as of December31, 2015, contains an explanatory paragraph that states that Envestnet, Inc. acquired Upside Holdings, Inc., Oltis SoftwareLLC, Castle Rock Innovations, Inc. and Yodlee, Inc., collectively Acquired Entities, during 2015, and managementexcluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December31, 2015, the Acquired Entities’ internal control over financial reporting associated with total assets of $633,838,000 andtotal revenues of $16,987,000, included in the consolidated financial statements of Envestnet, Inc. and subsidiaries as of andfor the year ended December 31, 2015. Our audit of internal control over financial reporting of the Company also excludedan evaluation of the internal control over financial reporting of the Acquired Entities./s/ KPMG LLPChicago, IllinoisFebruary 29, 2016 Exhibit 31.1CHIEF EXECUTIVE OFFICER CERTIFICATIONI, Judson Bergman, certify that:1.I have reviewed this Annual Report on Form 10‑K for the period ended December 31, 2015, of Envestnet, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: February 29, 2016/s/ Judson Bergman Judson Bergman Chairman and Chief Executive Officer (Principal Executive Officer) Exhibit 31.2CHIEF FINANCIAL OFFICER CERTIFICATIONI, Peter H. D’Arrigo, certify that:1.I have reviewed this Annual Report on Form 10‑K for the period ended December 31, 2015, of Envestnet, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b.Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a.All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: February 29, 2016/s/ Peter H. D’Arrigo Peter H. D’Arrigo Chief Financial Officer (Principal Financial Officer) Exhibit 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with the Annual Report of Envestnet, Inc. (the “Company”) on Form 10‑K for the period endedDecember 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, JudsonBergman, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes‑Oxley Act of 2002, that, to thebest of my knowledge and belief:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financialcondition and result of operations of the Company.By:/s/ Judson Bergman Judson Bergman Chairman and Chief Executive Officer (Principal Executive Officer) Dated: February 29, 2016A signed original of this written statement required by Section 906, or other document authenticating,acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this writtenstatement has been provided to the Company and will be retained by the Company and furnished to the Securities andExchange Commission or its staff upon request.Exhibit 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002In connection with the Annual Report of Envestnet, Inc. (the “Company”) on Form 10‑K for the period endedDecember 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter H.D’Arrigo, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §906 of the Sarbanes‑Oxley Act of 2002, that, to thebest of my knowledge and belief:(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financialcondition and result of operations of the Company.By:/s/ Peter H. D’Arrigo Peter H. D’Arrigo Chief Financial Officer (Principal Financial Officer) Dated: February 29, 2016A signed original of this written statement required by Section 906, or other document authenticating,acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this writtenstatement has been provided to the Company and will be retained by the Company and furnished to the Securities andExchange Commission or its staff upon request. 

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