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Make deeper
connections with
clients, using our
connected ecosystem.
IN HELPING PEOPLE LIVE
AN INTELLIGENT FINANCIAL LIFE.™
Annual Report 2022
Dear Shareholder,
Two years ago, Envestnet announced an investment plan that would deepen its operating scale and position
the company to power the future of financial advice for our industry- an opportunity our company is uniquely
capable of achieving. We took a deliberate stand knowing that the opportunity to unlock substantial long-term
shareholder value would mean we would experience challenges in short term results. Today, we have an even
deeper conviction about the steps we’ve taken; from the validation we are experiencing in the marketplace, to the
operating metrics we posted in an incredibly difficult market environment in 2022, including our return to margin
expansion in Q4 of 2022. It is clear that we are firmly on the path to re-accelerating revenue growth given the
investments we’ve made.
By successfully executing on what we committed to do, we can:
• Accelerate organic revenue and modernize our platform for greater operating leverage;
• Drive increasing market share and deeper engagement within our ecosystem; and
• Extend our margin expansion in 2023 and re-affirm our commitment to a 25% adjusted EBITDA margin in 2025.
Envestnet was there for our clients as they navigated a period of historic market uncertainty and volatility. 2022 was an exceedingly painful
year in our industry, marked by increasing inflation, double-digit losses across both equities and fixed income, and a dramatic shift away
from an era of low capital costs. The soundness of Envestnet’s strategy was evident as we experienced record levels of activity as financial
advisors worked to meet the adapting needs of their clients. We are an essential enabler for our clients, and the outcome of that position
has led to industry-leading account and advisor growth, rapid expansion of our higher margin services and a more fully connected and
data powered environment for financial advice. In doing so, we are turning the corner on both margin expansion and revenue growth and
affirming the path to our long-term goals. We are delivering the leadership our clients want from us.
Today we reaffirm our commitment to achieving the goals we set out in February 2021. Here is how we will achieve those goals:
• Capture more of the addressable market. To drive greater engagement and usage of the Envestnet platform by our clients, we
continue to develop solutions that intelligently address client-specific needs and preferences, enabling them to work more effectively
and provide seamless, personalized client experiences;
• Modernize digital engagement with our customers. We are better integrating with clients through our cloud-based data
infrastructure – which includes the delivery of our new client portal, data platform, connected proposal generation tool and enhanced
integrations. This infrastructure allows clients to consolidate their tech stack, providing auto-scaling capabilities to ensure stability even
on days of high market turbulence; and
• Open our platform to the ecosystem. By adding new offerings and leveraging our industry-leading infrastructure, we continue
to execute our growth strategy – prudently pursuing acquisitions and partnerships that allow us to strengthen our position in the
marketplace and capitalize on secular tailwinds that are driving the future of how financial advice will be consumed.
The convergence of achieving these objectives accrue advantages that will compound over time. We will continue to innovate and partner
to expand our ecosystem of solutions to enhance the delivery of hyper-personalized, data-driven advice; to build holistic views of a client’s
financial picture; all of which will ultimately accelerate revenue growth at higher margins.
We delivered despite the headwinds
Our results prove the strength of our business despite the historically challenging environment. A 60/40 hypothetical investment portfolio
was down 17%, its worst performance year since 1937, and the Nasdaq was down more than 30%. However, in the face of the market we
experienced, our operating results signal the progress our business is making. Envestnet posted $132 billion of total platform net asset
flows, including $57 billion from AUM/A. While that is down 35% from the prior year, it is important to note the environment and competitive
context:
• Six of the largest publicly traded wealth management firms saw their fee-based net flows decline by an average of 50% in 2022.
• A handful of the largest publicly traded asset managers saw their net flows decline by an average of 70%.
• Two publicly traded TAMPs saw their net flows decline by approximately 40% and 60%, respectively.
We have been gaining market share, growing the account base and users of our platform. This outperformance will pay dividends in
normalized markets as asset-based pricing will accelerate revenue growth on a larger share of assets. Simply put, we are outperforming the
industry.
Additional operating highlights include:
• As of December 31, 2022, nearly 106,000 advisors and approximately 6,900 companies—including 16 of the 20 largest U.S. banks, 47
of the 50 largest wealth management and brokerage firms, over 500 of the largest Registered Investment Advisors, and hundreds of
FinTech companies— were leveraging Envestnet’s technology and services.
• We grew the number of accounts on the Envestnet platform year-over-year by approximately 5%, to 18.3 million.
• We grew assets under management and administration in accounts per advisor on our platform by 9% -- we are going deeper with our
clients.
• We expanded the number of advisors and accounts using our direct indexing capabilities by 48% and 30%, respectively.
• Our ecosystem delivered over 20 million insights a day for advisors, compared to 11 million per day in 2021—enabling the advisors that rely
on our digital connectivity to take a greater number of actionable steps based on their clients’ specific needs.
1
ENVESTNET 2022 ANNUAL REPORT
• We completed 11.4 million service tasks and executed 220 million individual trade orders.
• As of December 31, 2022, the Envestnet platform included approximately $35.5 billion in sustainable and impact assets under
management and administration, spread across more than 29,600 advisors.
• In 2022, we acquired Redi2 Technologies, Truelytics, and 401kplans.com, as well as established new partnerships and integrations across
our ecosystem, to give advisors a platform to offer more holistic advice than ever before.
• We modernized digital engagement with our customers through solutions like the new client portal and our Next Generation Proposal
tool, which has now been enabled at over 87% of clients.
• We grew financial planning through open APIs, and the launch of multiple new financial planning tools within MyBlocks™.
• We showcased a streamlined, modern developer experience in the Envestnet Developer Portal that unifies the technology and APIs
across our entire ecosystem.
• We introduced proprietary Envestnet Solutions, including Fixed Income Quantitative Portfolios, enhanced overlay capabilities, and our
Sustainable Investment View.
Two important financial highlights:
• We generated $1.24 billion in full year adjusted revenues, a more than 4% increase from 2021.
• We generated $220.1 million of adjusted EBITDA and adjusted diluted earnings per share was $1.86.
We are committed to margin expansion with conviction
We have taken tangible steps to reduce expenses with a laser sharp focus on the most important priorities. In the fourth quarter of 2022,
we turned the corner, reporting a higher Adjusted EBITDA margin compared to the fourth quarter of the prior year. And this is only the
beginning. In 2023, we expect to increase our Adjusted EBITDA margin by up to 200 basis points over 2022. We have taken several
important steps that will drive this margin expansion, including:
• Streamlining the business to drive greater connectivity, client responsiveness and organizational efficiency. We see the collective
benefit of strengthening the platform and creating seamless, personalized connected experiences;
• Connecting our Wealth Data Platform to our next generation proposal tool. Those offerings then join our broadening array of portfolio
solutions. The interconnectivity of this environment is what drives accelerated usage and more profitable growth.
In addition, we:
• Reduced our non-people expenses in addition to lowering our headcount in both the U.S. and India;
• Completed the transition of our Data and Analytics operations to Tata Consultancy Services. As a result, we expect to realize savings of
between $10 to $13 million in 2023, a number that will increase over the coming years as our account base continues to grow;
• Reduced our real estate footprint by 30%.
The next phase of growth
Importantly, we made significant progress on addressing a missing element of the Envestnet business model which has been the ability to
offer a fully comprehensive service cycle for our clients which could then generate incremental opportunities for Envestnet to monetize
our services. Our partnership with FNZ accomplishes this goal and will create a fully end-to-end digital environment that will automate and
scale our clients’ engagement with Envestnet. The technology integration is underway, and we are on track to be in the marketplace with
this exciting new offering in the second half of 2023.
We also strengthened our balance sheet by repurchasing the bulk of our 2023 convertible notes and issuing 2027 convertible notes. This
extends our maturities, placing Envestnet in a strong financial position to continue executing on our growth strategy and to prudently
pursue attractive acquisitions and partnerships that may arise in the marketplace.
Clearly, Envestnet made significant progress during 2022. We went deeper within our client base, increasing the level of business we do
with the advisors on our platform. More importantly, we continued delivering for our clients, becoming more essential in an advisor’s daily
workflow. This increased usage of and greater engagement with our ecosystem by our customers provides tremendous validation of our
strategy, and the unparalleled footprint and industry reliance we have achieved will create an outsized long-term opportunity for our
shareholders.
As we look ahead at the remainder of 2023, we are focused on continuing to enhance operating efficiency through our multi-year
Operational Modernization roadmap, as well as our next-generation recordkeeping system and our wealth platform’s servicing
infrastructure.
We believe we have turned a corner, laying the foundation for faster revenue growth in the future, and have positioned the company for
margin expansion that builds off what we delivered in the fourth quarter of 2022.
Thank you for your continued support of Envestnet. We look forward to incredible new milestones and even more meaningful progress
ahead in 2023.
Sincerely,
Bill Crager
Co-Founder and Chief Executive Officer
Envestnet
ENVESTNET 2022 ANNUAL REPORT
2
Corporate Social Responsibility—Being A Positive Economic Force in Our Communities
Envestnet’s commitment to corporate responsibility aligns with our mission to not only be the best in the industry, but also the best
for our industry. By making financial wellness a reality for everyone, we build a company that strengthens the communities we serve
for generations to come.
Envestnet’s Impact By The Numbers
•
•
50% of Directors on our Board are female
30% of Directors on our Board are people of color
• Over 4,500 employee volunteer hours in 2022
• Nearly $1.3M donated to over 550 organizations in 2022, including:
–
$435,000 to eight organizations, including two in India, through Envestnet’s Signature Impact program that provides
long-term commitments to charitable organizations in the communities where we do business.
– Envestnet’s matching of $374,000 in employee charitable donations to approximately 500 organizations.
Supporting education and financial literacy
•
The Envestnet Institute On Campus (EIOC) program is available to students at 52 participating colleges and universities
across the country, including five historically Black colleges and universities.
– As of December 2022, over 6,700 students have completed the program, including over 2,400 women and over 2,000
people of color.
– An average of 26% of participating students are first-generation college students.
•
•
– The EIOC continues to support job and internship placements through its résumé database, which contains over 3,500
résumés for employers seeking workforce-ready employees for internships and entry-level positions.
Envestnet has continued our partnership with the Center for Financial Planning to provide scholarships to qualified individuals
from underrepresented populations (race, ethnicity, gender, sexual orientation, and disability), seeking to complete a CFP®
Board Registered Program, which then qualifies the student to sit for the CFP® certification exam. As of December 31,
2022, the Envestnet Scholarship has awarded approximately $414,000 to 75 individuals. 14 recipients have become CFP®
professionals, 17 have passed the exam and/or completed their education program, and 41 are working to complete their
education program.
Envestnet also continues to support the Black Wharton Undergraduate Association as a Silver Donor. The Black Wharton
Undergraduate Association provides networking, mentorship, education, and community service opportunities to
undergraduate Black students at the University of Pennsylvania.
Diversity, Equity, and Inclusion
•
•
•
The Diversity, Equity, Inclusion, and Belonging (DEIB) Executive Council champions initiatives across the four pillars of the
DEIB strategy. Our council influences an inclusive climate, optimizing employee experiences, engagement, well-being, and
performance. The council is comprised of executives and senior leaders across the firm.
Envestnet launched the first mandatory foundational Diversity, Equity, and Inclusion (DEI) training for all U.S. employees.
The training provided foundational knowledge around topics with a common language and understanding that increased our
awareness of how we engage across our differences to meet shared goals. Eight sessions were successfully completed with a
total of over 1,500 U.S. employees.
Pronouns training was introduced during Pride month to provide an understanding of language, terminology, and best
practices for creating a gender-inclusive workplace.
• Our Employee Resource Groups (ERGs) provide a consistent focus on issues of diversity and inclusiveness to advance our
company’s values. Envestnet Bridges, open to all employees, hosted four events around DEI topics, with approximately 150
employees participating.
•
Enclusion, the first African American ERG at Envestnet, launched in June 2022 in conjunction with the celebration of
Juneteenth. The group’s purpose is to create an inclusive environment to share their culture with the firm, celebrating
differences in background, ethnicity, and perspectives.
We believe in being a positive economic force, a responsible citizen in our communities, and a mindful steward of the resources we
consume.
3
ENVESTNET 2022 ANNUAL REPORT
Financial Highlights
For the year ended December 31,
(in millions)
Adjusted Revenues
Adjusted EBITDA
2022
1,240
220
$
$
$
$
1,187
262
2021
% Change
Operating Metrics
Platform Assets (in millions)
Assets Under Management (AUM)
Assets Under Administration (AUA)
TOTAL AUM/A
Subscription
TOTAL PLATFORM ASSETS
Platform Accounts
AUM
AUA
TOTAL AUM/A
Subscription
TOTAL PLATFORM ACCOUNTS
Advisors
AUM/A
Subscription
TOTAL ADVISORS
4%
-16%
2020
As of December 31,
2021
2022
$
341,144
367,412
708,556
4,382,109
$ 5,090,665
$ 362,038 $ 263,043
405,365
668,408
3,892,814
$ 5,720,016 $ 4,561,222
456,316
818,354
4,901,662
1,547,009
1,135,026
2,682,035
15,665,020
18,347,055
1,073,122
1,345,274
1,276,975
1,217,076
2,350,097
2,562,350
11,079,048
14,986,531
17,548,881 13,429,145
38,025
67,520
105,545
39,735
68,808
108,543
41,206
65,104
106,310
Note: Adjusted Revenues and Adjusted EBITDA are non-GAAP financial measures. Please see “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations - Non-GAAP Financial Measures” in our Form 10-K for the year
ended December 31, 2022 for a reconciliation of Adjusted Revenues to Revenues and Adjusted EBITDA to Net Income (Loss)
and related disclosures.
Total Platform Assets
(in trillions)
Total Platform Accounts
(in millions)
Total Platform Advisors
6
5
4
3
2
1
0
20
15
10
5
0
110000
88000
66000
44000
22000
0
2017
2018
2019
2020
2021
2022
2017
2018
2019
2020
2021
2022
2017
2018
2019
2020
2021
2022
ENVESTNET 2022 ANNUAL REPORT
4
Board of Directors
James Fox (Chair)
Mr. Fox has served as a member of our Board since February 2015 and Chair of the Board
since March 2020. Mr. Fox retired as Non-Executive Chairman of FundQuest, Inc., upon
its acquisition by the Company, effective December 2011 after serving in that role since
September 2010 and, prior to that, as President and Chief Executive Officer starting in
October 2005. Mr. Fox has over 30 years of senior executive experience with the BISYS
Group, Inc., First Data Corporation, eOne Global, and PFPC. He serves as a director of
Madison CF (UK) Limited, The Ultimus Group LLC and Yukon YC Holdings LLC. He also
served as a director of Brinker Capital. Holdings, Inc. from July 2015 until September 2020.
Mr. Fox participated in the Advanced Management Program at the Wharton School of the
University of Pennsylvania. He earned an M.B.A. in Finance from Suffolk University and a
B.A. in Economics from the State University of New York at Oswego.
Mr. Fox’s qualifications to serve on our Board include his extensive experience as a Chief
Executive Officer and business leader in the financial services industry and his knowledge
gained from service on the boards of various other companies. Mr. Fox brings to our Board
expertise in wealth management, accounting and financial reporting, public company
leadership and mergers, acquisitions and other strategic transactions.
William Crager (Chief Executive Officer and Director)
Mr. Crager serves as our Chief Executive Officer and has served as a member of our Board
since March 2020. Previously, Mr. Crager served as our Interim Chief Executive Officer
between October 2019 and March 2020, Chief Executive of Envestnet Wealth Solutions
since January 2019, and President of Envestnet since 2002. Prior to joining us, Mr. Crager
served as Managing Director of Marketing and Client Services at Rittenhouse Financial
Services, Inc., an investment management firm affiliated with Nuveen Investments. Mr.
Crager received a B.A. from Fairfield University where he majored in economics and now
serves on the Fairfield Board of Trustees.
Mr. Crager’s qualifications to serve on our Board include his extensive senior executive
experience in the financial services industry, having served in leadership roles at Envestnet
since 2002. Mr. Crager brings to our Board expertise in financial services, wealth
management, FinTech, digital transformation, operations and public company leadership.
Luis Aguilar
Mr. Aguilar has served as a member of our Board since March 2016. Mr. Aguilar was a
Commissioner at the U.S. Securities and Exchange Commission (“SEC”) from July 2008
through December 2015. Prior to his appointment as an SEC Commissioner, Mr. Aguilar was
a partner with the international law firm of McKenna Long & Aldridge, LLP (subsequently
merged with Dentons US LLP), specializing in corporate and securities law. Mr. Aguilar’s
previous experience includes serving as the General Counsel, Head of Compliance,
Executive Vice President and Corporate Secretary of Invesco, Inc. with responsibility for all
legal and compliance matters regarding Invesco Institutional. While at Invesco, he was also
Managing Director for Latin America and president of one of Invesco’s broker-dealers. His
career also includes tenure as a partner at several prominent national law firms: Alston &
Bird LLP; Kilpatrick Townsend & Stockton LLP; and Powell Goldstein Frazer & Murphy LLP
(subsequently merged with Bryan Cave LLP). He began his legal career as an attorney at
the SEC. Mr. Aguilar represented the Commission as its liaison to both the North American
Securities Administrators Association and to the Council of Securities Regulators of the
Americas. He also served as the sponsor of the SEC’s first Investor Advisory Committee.
Mr. Aguilar serves as a director of Donnelley Financial Solutions, Inc. He has been a
principal in Falcon Cyber Investments, a firm focused on cybersecurity since January 2016.
He was a director of MiMedx Group, Inc. from March 17, 2017 through September 19, 2019.
Mr. Aguilar earned a J.D. from the University of Georgia School of Law, an M.A. (Laws in
Taxation) from Emory University and a B.S. from Georgia Southern University. Mr. Aguilar
has completed certifications from the National Association of Corporate Directors (NACD)
in Directorship, Board Leadership and Cyber Risk Oversight.
Mr. Aguilar’s qualifications to serve on our Board include his experience as an SEC
Commissioner and his extensive experience in corporate, securities and compliance
matters, especially as they apply to investment advisers, investment companies and
broker-dealers. Mr. Aguilar brings to our Board expertise in investment management,
compliance, risk management, cybersecurity, corporate governance, government relations
and public policy.
Gayle Crowell
Ms. Crowell has served as a member of our Board since March 2016. She served as a
member of the Yodlee (“Yodlee”) board of directors from July 2002 until November 19,
2015, when Yodlee was acquired by the Company, and as lead independent director of
Yodlee between March 2014 and November 2015. Ms. Crowell served as an operational
business consultant for Warburg Pincus LLC, a private equity firm, from June 2001 to
January 2019. From January 2000 to June 2001, Ms. Crowell served as president of
Epiphany, Inc., a developer of customer relationship management software which was
acquired by SSA Global Technologies, Inc. in September 2005. Ms. Crowell currently
serves on the boards of directors of Pliant Therapeutics, a biotechnology company
developing therapies for fibrotic diseases, Hercules Capital, a specialty finance company
serving the technology and life sciences sectors, GTreasury, a fully integrated cash and
risk management solution providing strategic treasury management, Instinct Science, a
veterinary practice software and workflow platform and Centerbase, a full-service, cloud-
based legal practice management solution. Ms. Crowell earned a B.S. in Education from the
University of Nevada at Reno. Ms. Crowell also attended the Directors College Program
at Stanford Law School and the Executive Program for Growing Companies at Stanford
Graduate School of Business.
Ms. Crowell’s qualifications to serve on our Board include her experience as a senior
executive in the technology industry. Ms. Crowell brings to our Board expertise in
technology and software, cybersecurity, compliance, digital transformation, sales and
marketing and leadership.
Wendy Lane
Ms. Lane was appointed to our Board in March 2023. Ms. Lane has served as Chair of
Lane Holdings, Inc., a private equity investment company, since 1992. Previously, she was
a Principal and Managing Director of the Investment Banking Group at Donaldson, Lufkin
& Jenrette Securities Corporation, serving in these and other positions from 1981 to 1992.
Prior to that, she was an investment banker at The Goldman Sachs Group, Inc. from 1977
to 1980.
Ms. Lane currently serves on the board of directors of Verisk Analytics, Inc., a data
analytics and risk assessment firm. She previously served on the boards of directors of
NextPoint Financial, Inc., which was initially a special purpose acquisition company, but
currently provides consumer finance and tax advisory services, from August 2020 to July
2021, CoreLogic, Inc., a financial, property, and consumer information analytics firm, from
November 2020 to February 2021, Willis Towers Watson PLC, an advisory and solutions
company, from April 2004 to May 2022, MSCI Inc., an analytics company, from January
2015 to April 2019, and UPM-Kymmene Oyj, a Finnish forest industry company, from
5
ENVESTNET 2022 ANNUAL REPORT
March 2005 to April 2018 and five other public company boards. Ms. Lane earned a B.A.
in Mathematics and French and graduated with highest honors as a Durant Scholar from
Wellesley College and an M.B.A. from Harvard Business School.
Ms. Lane’s qualifications to serve on our Board include her extensive experience as a board
member of public companies in data and analytics and other regulated industries. Ms. Lane
brings to our Board expertise in corporate governance, investment management, finance,
compensation, strategy and transformation and capital allocation.
Valerie Mosley
Ms. Mosley has served as a member of our Board since October 2018. Ms. Mosley is
the founder and CEO of BrightUp Wealth, a company that provides financial advice to
historically underserved markets, including low income and minority investors. Ms. Mosely
is also the CEO of Valmo Ventures, a company that creates, collaborates, and invests
in companies, assets, and efforts that have significant potential to grow, profit and add
value to society. Ms. Mosley was Senior Vice President, Partner, Portfolio Manager and
Investment Strategist at Wellington Management Company, LLP, a $1.2 trillion global
money management firm. Ms. Mosley also chaired the firm’s Industry Strategy Group,
which took a long-term perspective to identify trends, headwinds, and tailwinds impacting
various industries. As a member of several investment strategy groups, Ms. Mosley helped
establish investment parameters to which team portfolio managers adhered. Ms. Mosley
serves as a board member at DraftKings, Caribou and Eaton Vance Funds. Ms. Mosley
received an M.B.A. from the University of Pennsylvania and a B.A. from Duke University.
She serves on the non-profit board New Profit and the McClean Hospital board.
Ms. Mosley’s qualifications to serve on the Board include her extensive experience in the
wealth management business. Ms. Mosley brings to our Board expertise in investment
management, the perspectives of public company investors, accounting and financial
reporting and strategic planning.
Gregory Smith
Mr. Smith has served as a member of our Board since February 2015. Mr. Smith currently is
an Executive-in-Residence and Lecturer at the University of Wisconsin-Milwaukee’s Lubar
School of Business. He was Managing Partner of Barnett Management Advisors, LLC from
2012 until 2020. Prior to joining the University of Wisconsin-Milwaukee, Mr. Smith served as
Senior Vice President and Chief Financial Officer of the Marshall & Ilsley Corporation and
M&I Bank from 2006 until the company’s sale to BMO Harris Bank in 2011. Prior to joining
Marshall & Ilsley, Mr. Smith held progressively senior roles during a 16-year Wall Street
investment banking career, including six years as a Managing Director. He is currently a
Director and Vice Chair of Church Mutual Holding Company, Inc. (f/k/a Church Mutual
Insurance Company). He also served as a Director of its subsidiary, CM Vantage Specialty
Insurance Company until the formation of the holding company in 2020. He is a board
member of the University School of Milwaukee and the Milwaukee Symphony Orchestra.
He served as a Trustee of the Milwaukee County Pension Fund in 2014 and 2015. Mr. Smith
earned an A.B. with honors from Princeton University and an M.B.A. with honors from The
University of Chicago. More recently, he has been recognized as a Board Leadership Fellow
by the National Association of Corporate Directors.
Mr. Smith’s qualifications to serve on our Board include his extensive experience in
accounting, liquidity, budgeting and forecasting, treasury, capital management, tax matters
and mergers and acquisitions, including as a Chief Financial Officer. Mr. Smith brings
to our Board expertise in finance, investment strategy and capital allocation, strategic
transactions, financial reporting and accounting.
Lauren Taylor Wolfe
Ms. Taylor Wolfe was appointed to our Board in March 2023. Ms. Taylor Wolfe is the co-
founder and has served as the Managing Partner of Impactive Capital LP, an active impact
investing firm, since its founding in April 2018. Prior to founding Impactive Capital LP, Ms.
Taylor Wolfe served as Managing Director and Investing Partner at Blue Harbour Group,
L.P., an investment management firm, from 2007 to January 2018. Earlier in her career,
Ms. Taylor Wolfe served as a Portfolio Manager at SIAR Capital LLC, an investment firm
specializing in undervalued and emerging growth companies, from 2003 to 2007, and as
an Associate at Diamond Technology Partners, a strategic technology consulting firm, from
2000 to 2003.
Ms. Taylor Wolfe previously served on the board of directors of HD Supply Holdings, Inc.,
an industrial distributor, from March 2017 until it was acquired by The Home Depot, Inc. in
December 2020. Ms. Taylor Wolfe has served on the 30% Club Steering Committee, an
organization dedicated to increasing gender balance on boards and in executive leadership
positions, from December 2016 to January 2019 and was an Angel member of 100 Women
in Finance from 2016 to 2020. Ms. Taylor Wolfe earned a B.S. in Applied Economics and
Management, magna cum laude, from Cornell University and an M.B.A. from The Wharton
School at the University of Pennsylvania.
Ms. Taylor Wolfe’s qualifications to serve on our Board include her experience in the
investment management industry. Ms. Taylor Wolfe brings to our Board expertise in capital
allocation, finance and the perspectives of public company investors.
Barbara Turner
Ms. Turner was appointed to our Board in March 2023. She has more than 35 years of
leadership experience in the financial services industry. Most recently, Ms. Turner was
President and Chief Executive Officer of Ohio National Financial Services, Inc., the first
woman and person of color to hold this role. During her 26 year tenure at Ohio National,
Ms. Turner served as Vice Chair, Chief Operating Officer, Chief Administrative Officer and
Chief Compliance Officer for Ohio National’s parent company and President and Chief
Executive Officer of its broker-dealer and investment advisory subsidiaries. Previously, she
held roles at Cox Financial Corporation, Reynolds DeWitt Securities, Provident Bank, and
Central Trust Bank.
Ms. Turner is the Board Chair of the United Way of Greater Cincinnati and the incoming
Board Chair of the Urban League of Greater Southwestern Ohio. She also serves on the
board of The Christ Hospital Health Network. Ms. Turner previously served as Vice Chair
of the Cincinnati USA Regional Chamber of Commerce, the Vice Chair of the insurance
industry trade association LL Global (LIMRA) and on the Board of Directors of the
American Council of Life Insurers.
Ms. Turner attended the University of Cincinnati and is a graduate of the SIFMA/Wharton
Securities Industry Institute (SII) and the FINRA Institute at Wharton Certified Regulatory
and Compliance Professional (CRCP) programs.
Ms. Turner’s qualifications to serve on our Board include her track record of exceptional
leadership as a senior executive in the financial services industry. Ms. Turner brings to our
Board expertise in financial services, compliance and information security, operations and
leadership.
Ross Chapin
Effective as of our 2023 Annual Meeting, Ross Chapin will retire from our Board. We extend
our sincere gratitude to Mr. Chapin for his service as a director.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, 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, 2022
☐ 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
(State or other jurisdiction of incorporation or organization)
20-1409613
(I.R.S Employer Identification No.)
1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania
(Address of principal executive offices)
60601
(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:
Common Stock, par value $0.005 per share
Trading symbol(s)
ENV
Name of each exchange on which registered:
New York Stock Exchange
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 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
1
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 common
stock on June 30, 2022 as reported on The New York Stock Exchange on that date: $1.8 billion. 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, 2022, are excluded in that
such persons may be deemed to be affiliates. This determination is not necessarily conclusive of affiliate status.
As of February 21, 2023, 54,019,836 shares of the common stock with a par value of $0.005 per share were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Part III incorporates by reference portions of the registrant’s definitive proxy statement for the annual
meeting of stockholders, which will be filed within 120 days after the close of the 2022 fiscal year.
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TABLE OF CONTENTS
PART I
Forward-Looking Statements ..........................................................................................................................................
Item 1.
Business ................................................................................................................................................
Item 1A.
Risk Factors ..........................................................................................................................................
Unresolved Staff Comments .................................................................................................................
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Properties ..............................................................................................................................................
Legal Proceedings .................................................................................................................................
Mine Safety Disclosures .......................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ...................................................................................................................................
Selected Financial Data .........................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............
Quantitative and Qualitative Disclosures About Market Risk ..............................................................
Financial Statements and Supplementary Data .....................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...............
Controls and Procedures .......................................................................................................................
Other Information .................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections .........................................
PART III
Directors, Executive Officers and Corporate Governance ....................................................................
Executive Compensation ......................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters ..................................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence .....................................
Principal Accounting Fees and Services ...............................................................................................
PART IV
Item 15.
Item 16.
Exhibits, Financial Statement Schedules ..............................................................................................
Form 10-K Summary ............................................................................................................................
SIGNATURES ................................................................................................................................................................
3
Forward-Looking Statements
Unless otherwise indicated, the terms “Envestnet,” “the Company,” “we,” “us” and “our” refer to Envestnet, Inc.
and its subsidiaries as a whole.
This annual report on Form 10-K for the year ended December 31, 2022 ("Annual Report") contains forward-looking
statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the
heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are
based on our current expectations and projections about future events and are identified by terminology such as “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of
those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In
addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our
business and other characteristics of future events or circumstances are forward-looking statements. The potential risks,
uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements
in this Annual Report include, but are not limited to,
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adverse economic or global market conditions, including periods of rising inflation and market interest rates, and
governmental responses to such conditions;
the conflict between Russia and Ukraine including related sanctions, and their impact on the global economy and
capital markets;
the concentration of our revenues from the delivery of our solutions and services to clients in the financial services
industry;
our reliance on a limited number of clients for a material portion of our revenue;
the renegotiation of fees by our clients;
changes in the estimates of fair value of reporting units or of long-lived assets;
the amount of our debt and our ability to service our debt;
limitations on our ability to access information from third parties or charges for accessing such information;
the targeting of some of our sales efforts at large financial institutions and large financial technology ("FinTech")
companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in
completing some of our sales;
changes in investing patterns on the assets on which we derive revenue and the freedom of investors to redeem or
withdraw investments generally at any time;
the impact of fluctuations in market conditions and interest rates on the demand for our products and services and
the value of assets under management or administration;
our ability to keep up with rapid technological change, evolving industry standards or changing requirements of
clients;
risks associated with our international operations;
the competitiveness of our solutions and services as compared to those of others;
liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest;
harm to our reputation;
our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate
acquired companies;
our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology
platforms in a timely and accurate manner;
the failure to protect our intellectual property rights;
our ability to introduce new solutions and services and enhancements;
our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal
information and potential liabilities for data security breaches;
the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws,
regulations, standards and obligations on how we operate our business and the negative effects of failure to comply
with these requirements;
regulatory compliance failures;
failure by our customers to obtain proper permissions or waivers for our use of disclosure of information;
adverse judicial or regulatory proceedings against us;
failure of our solutions, services or systems, or those of third parties on which we rely, to work properly;
potential liability for use of inaccurate information by third parties provided by us;
the occurrence of a deemed “change of control”;
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the uncertainty of the application and interpretation of certain tax laws;
issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on
our existing stockholders;
general economic, political and regulatory conditions;
global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on
the economy and trading markets;
a pandemic or health crisis, including the COVID-19 pandemic; and
management’s response to these factors.
More information on these important factors that could cause actual results to differ materially from the
forward-looking statements we make in this Annual Report are set forth in Part I, Item 1A under “Risk Factors”. In addition,
there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual
results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements
contained in this Annual Report and documents incorporated herein by reference are qualified in their entirety by this
cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or
otherwise revise the forward-looking statements to reflect events or circumstances after the date of this Annual Report or to
reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more
forward-looking statements, no inference should be made that we will make additional updates with respect to those or other
forward-looking statements.
You should read this Annual Report completely and with the understanding that our actual future results, levels of
activity, performance and achievements may be different from what we expect and that these differences may be material. We
qualify all of our forward-looking statements by these cautionary statements.
The following discussion and analysis should also be read along with our consolidated financial statements and the
related notes included elsewhere in this Annual Report. Except for the historical information contained herein, this discussion
contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those
discussed below.
5
Item 1. Business
General
Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is
to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been
a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness
ecosystem so that our clients can deliver an intelligent financial life to their clients ("Intelligent Financial Life").
Approximately 106,000 advisors and approximately 6,900 companies including: 16 of the 20 largest U.S. banks, 47 of
the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers ("RIAs") and
hundreds of FinTech companies, leverage Envestnet technology and services that help drive better outcomes for enterprises,
advisors and their clients.
Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a
financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive
better outcomes.
Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters based in Berwyn,
Pennsylvania, as well as other locations throughout the United States, India and other international locations.
Segments
Envestnet is organized around two primary, complementary business segments. Financial information about each
business segment is contained in Part II, Item 8, “Note 19—Segment Information”. Our business segments are as follows:
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Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to
empower financial advisors and institutions to enable them to deliver an Intelligent Financial Life to their clients.
Envestnet Data & Analytics – a leading data aggregation, intelligence, and experiences platform that powers data
connectivity and business intelligence across digital financial services to enable them to deliver an Intelligent
Financial Life to their clients.
Envestnet Wealth Solutions Segment
Envestnet Wealth Solutions empowers financial advisors at broker-dealers, banks and RIAs with all the tools they
require to deliver holistic wealth management to their end clients, enabling them to deliver an Intelligent Financial Life to their
clients. In addition, the firm provides advisors with practice management support so that they can grow their practices and
operate more efficiently. At the end of 2022, Envestnet Wealth Solutions’ platform assets are approximately $5.1 trillion in
more than 18.3 million accounts overseen by approximately 106,000 advisors.
Services provided to advisors include: financial planning, risk assessment tools, investment strategies and solutions,
asset allocation models, research, portfolio construction, proposal generation and paperwork preparation, model management
and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax
management and socially responsible investing, aggregated multi-custodian performance reporting and communication tools,
plus data analytics. We have access to a wide range of leading third-party asset custodians.
We offer these solutions principally through the following product and service suites:
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Envestnet | Enterprise provides an end-to-end open architecture wealth management platform, through which
advisors can construct portfolios for clients. It begins with aggregated household data which then leads to the
creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and
performance reporting. Advisors have access to nearly 23,000 investment products. Envestnet | Enterprise also
sells data aggregation and reporting, data analytics and digital advice capabilities to customers.
Envestnet | Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and
client relationship management software, principally to high-end RIAs.
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Envestnet | MoneyGuide provides leading goals-based financial planning solutions to the financial services
industry. The highly adaptable software helps financial advisors add significant value for their clients using best-
in-class technology with enhanced integrations to generate financial plans.
Envestnet | Retirement Solutions (“ERS & 401kplans.com”) offers a comprehensive suite of services for
advisor-sold retirement plans. Our retirement solutions address the regulatory, data, and investment needs of
retirement plans and delivers the information holistically. 401kplans.com is a digital 401(k) retirement plan
marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-
party administrators. With Envestnet's retirement solutions marketplace, advisors can employ Envestnet's
outsourced 3(38) or 3(21) fiduciary services for investment selection and monitoring in retirement plan portfolios
and can access essential information to make investment recommendations and understand the impact of fund
changes to the total cost of their plans.
Envestnet | PMC®, or Portfolio Management Consultants (“PMC”) provides research and consulting services to
assist advisors in creating investment solutions for their clients. These solutions include over 5,000 vetted third-
party managed account products, multi-manager portfolios and fund strategist portfolios, as well as over 950
proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio
overlay and tax optimization services.
Envestnet | Redi2 (“Redi2”) offers revenue management and hosted fee-billing solutions in the global financial
services industry. Redi2's platform enables fee calculation, invoice creation, payouts and accounting, and billing
compliance. Redi2 solutions caters to different segments of the market with three different product lines: Revenue
Manager which provides client revenue accounting and billing services for asset managers; Wealth Manager
which delivers multi-party billing and payouts for broker-dealers and turnkey asset management programs and
BillFin™ which offers advisory billing and invoicing for financial advisors.
As the tables below indicate, Envestnet Wealth Solutions has experienced steady and significant growth over the last
several years. We believe this growth is attributable to secular trends in the wealth management industry, the uniqueness and
comprehensiveness of our products, as well as acquisitions. Periodically clients choose to change the way they pay for our
solution, whereby they switch from an asset-based pricing model to a subscription-based model.
The following charts show growth in assets, number of accounts and advisors supported by Envestnet Wealth
Solutions, distinguishing those metrics between assets under management or administration (“AUM/A”) and subscription.
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AUM/A & Subscription
($ in billions)
AUM/A & Subscription Accounts
(in thousands)
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AUM/A & Subscription Advisors
Envestnet Data & Analytics Segment
Envestnet Data & Analytics is a leading data aggregation, data intelligence, and experiences platform. Envestnet Data
& Analytics enables consumers to aggregate financial accounts within client applications and provides to clients the
functionality to gather, refine, and aggregate massive sets of consumer permissioned data for use in financial applications,
reports, market research analysis, and application programming interfaces (“APIs”).
Over 1,800 clients, including financial institutions, financial technology innovators and financial advisory firms,
including 13 of the 20 largest U.S. banks, subscribe to the Envestnet Data & Analytics platform to underpin personalized
financial apps and services for approximately 37 million paid end-users.
Envestnet Data & Analytics serves four main client groups: financial institutions (“Banking”), financial advisors and
institutions (“Wealth”), market intelligence and analytics providers (“Research”) and financial technology innovators (“Tech”).
These groups serve the following customers:
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Banking – Retail Banks, Credit Unions and credit card providers
• Wealth – Wealth management financial advisors and institutions
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Research – Research and analyst firms
Tech – Personal financial management, small business accounting, e-commerce, payment solutions providers,
small business lending and authentication
With the exception of the Tech Group, we provide clients with secure access to open APIs, user facing applications
powered by our platform, APIs and reports. We aggregate and cleanse client permission consumer data elements. Envestnet
Data & Analytics also enables clients to develop their own applications through its open APIs, which deliver secure data,
payments solutions, and other functionality.
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The Tech group enables clients to develop new applications and enhance existing solutions through our APIs. These
clients operate in a number of sub-vertical markets, including FinTech, wealth management, personal financial management,
small business accounting, small business lending and authentication.
We believe that our brand recognition, innovative technology and intellectual property, large client base, and unique
data gathering and enrichment provide us with competitive advantages that have enabled us to grow.
Market Opportunity
The wealth management industry has experienced significant growth in terms of assets invested by retail investors in
the past several years. According to the Federal Reserve, U.S. household financial assets totaled approximately $108 trillion as
of September 30, 2022, representing a sizeable wealth management opportunity. According to Boston Consulting Group's
Global Wealth Report 2022, total net wealth in North America is expected to grow by 4.9% annually between 2021 and 2026 to
exceed $200 trillion. Based on data from Cerulli Associates, invested assets comprised an estimated 55% of overall U.S.
household financial assets in 2021, advisor-directed assets totaled $30.7 trillion in 2021, and advisors had discretion over 58%
of managed account assets as of September 30, 2022.
In the next 5-10 years, we believe the wealth management industry will continue to consolidate with fewer firms and
fewer advisors managing more assets, making scale and operational efficiency increasingly important. This will require firms to
integrate technology into all areas of their business.
The following trends are impacting our business and creating a large and growing market opportunity for data,
technology, and investment solutions and services like ours:
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Scale: Scale is a defining theme across the financial services landscape, including wealth management. For
example, in the independent broker-dealer channel, the ten largest firms are now 3.5 times larger than the next 40
firms, as measured by assets. In the RIA channel, firms with at least $1 billion of assets represented 75% of assets
in 2021. We expect consolidation of firms and assets to continue, driven by factors including advisor succession
needs, private capital attracted to the space, and the growing expectations of end-investors for modern digital
experiences and holistic advice relationships. We are well positioned for this future. More specific, as of
December 31, 2022, the company served approximately 106,000 financial advisors, including those at 47 of the
top 50 wealth management and brokerage firms and over 500 RIAs. Envestnet | MoneyGuide is the leading
financial planning software provider, according to a 2022 T3/Inside Information Survey; more than 2.5 million
plans were created or updated in 2022. Envestnet Data & Analytics has over 400 million linked accounts and
approximately 37 million paid end-users. From an operations standpoint, we handled over 200 million trades in
2022 and over 10 million service requests across more than 30 trading and custody partners.
Personalization: Consumers are increasingly demanding personalization in both their technology and their
investments. On the technology front, Envestnet Data & Analytics is delivering over 20 million insights per day to
financial advisors, home offices, and financial institutions. By surfacing actionable opportunities, we are enabling
our customers to create a better client experience and drive business efficiency and growth. Also, in 2022, we
introduced a new, modern, highly configurable client portal with features such as account aggregation, a spending
and budgeting experience, an Envestnet | MoneyGuide goal-planning page, and various widgets and performance
reports. On the investment side, direct indexing, tax overlay, and sustainable investing enable advisors to tailor
portfolios to meet specific client needs. We have invested in each of these capabilities for years and continue to
enhance our offerings. For instance, in late 2021, our direct indexing solution received GIPS verification and it
currently has a 9-year, GIPS-compliant track record. In 2022, our overlay services team introduced an after-tax
reporting capability.
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Integrated technology: Financial advisors and enterprises are looking for integrated, seamless WealthTech
workflows; as such, spending on technology continues to climb. According to the 2022 InvestmentNews Advisor
Technology Study, the median wealth management firm spent 3.7% of revenue on technology in 2021, up from
3.2% in 2016. We are delivering a cloud-based, open architecture, end-to-end technology stack to the marketplace.
Our offering is broad and integrated, encompassing portfolio management capabilities from proposal to planning
to reporting and billing. We have also invested in and connected its core technology offerings to the Envestnet
Insurance Exchange, the Envestnet Credit Exchange, and the Envestnet Trust Exchange, among other offerings, to
create a comprehensive digital ecosystem for advisors and their clients. During 2021, we opened up our UMA
technology to Envestnet | Tamarac users, which should benefit from and drive growing adoption of managed
accounts among RIAs. In 2022, we introduced the next generation proposal tool, which provides enhanced
features, streamlined workflows, and seamless access to managed accounts. We plan to continue to invest in
software, APIs, developer tools, and integration points.
Leveraging data: Enterprises, advisors, and financial institutions need to leverage in-house and third-party data to
make better, more timely decisions. According to NewVantage Partners’ Data and AI Leadership Executive
Survey 2022, 92% of senior executives respondents stated their organizations were increasing investments in data
and artificial intelligence. As part of our Wealth Data Platform, we gather and ingest advisor client accounts,
classifying them using a uniform process across account types and sources. Data comes from our portfolio
accounting system, a client-permissioned source via account aggregation, or an account assigned to a firm within
an institutional feed from a custodian, recordkeeper, trust accounting system, or data provider. All accounts are
fully reconciled and packaged at the enterprise level. These offerings and related tools provide our customers with
a single source of truth for wealth data. Further, our ecosystem brings together a diverse group of constituents—
consumers, product manufacturers, technology providers, developers and advisors—to create a network where
consumer-permissioned data can be leveraged to optimize experiences.
Independent and fee-based advice: We are a driver and beneficiary of the growth of financial advice, movement
to independent channels, fee-based pricing, and managed accounts. Beginning with financial advice industry
growth, in an annual survey by MarketCast and Cerulli Associates, 60% of affluent investors stated they are
willing to pay for advice in 2022, up from 58% in 2017. Cerulli forecasts independent advice channels to expand
from 39% of advisor-mediated assets in 2021 to 45% in 2026, driven by growth in the RIA and hybrid RIA
channels. Advice delivered with fee-based pricing—as opposed to commission-based pricing—also continues to
take share, growing from 43% of industry assets in 2016 to 54% in 2021, according to Cerulli. Lastly, using data
from Cerulli Lodestar, managed account assets have grown organically (excluding market appreciation) at a 10%
annualized rate from December 31, 2016 through September 30, 2022. Our managed account annualized organic
asset growth rate, as measured by organic AUM growth, has been approximately double that of the industry over
the same time period.
Business Model
Our business model lends itself to a high degree of recurring and predictable revenues. We provide asset-based,
subscription-based and professional services on a business-to-business-to-consumer basis to financial services clients, whereby
customers offer solutions based on our platform to their end users. On a business-to-business basis, we deliver an open platform
to customers and third-party developers through an open API framework. We believe that a number of characteristics contribute
to the success of our business model, including:
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Favorable trends with respect to growth in fee-based assets and need for advanced technology;
Recurring and resilient revenue base; and
Strong customer retention.
Our revenues are generated in the following manners:
Asset-based Recurring Revenues
Asset-based recurring revenues primarily consist of fees for providing customers continuous access to platform
services through the Company’s uniquely customized platforms. These platform services include investment manager research,
portfolio diagnostics, proposal generation, investment model management, rebalancing and trading, portfolio performance
reporting and monitoring solutions, billing and back office and middle-office operations and administration and are made
available to customers throughout the contractual term from the date the customized platform is launched.
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The asset-based fees the Company earns are generally based upon variable percentages of assets managed or
administered on our platforms. The fee percentage varies based on the level and type of services the Company provides to its
customers, as well as the values of existing customer accounts. The values of the customer accounts are affected by inflows or
outflows of customer funds and market fluctuations.
For approximately 80% of our asset-based fee arrangements, customers are billed at the beginning of each quarter
based on the market value of customer assets on our wealth management platforms as of the end of the prior quarter, providing
for a high degree of revenue visibility in the current quarter. Revenue may fluctuate from quarter-to-quarter based on changes in
asset values, fee rates on those asset values and asset flows.
Subscription-based Recurring Revenues
Subscription-based recurring revenues primarily consist of fees for providing customers continuous access to the
Company’s technology platforms for wealth management and financial wellness. The subscription-based fees generally include
fixed fees and or usage-based fees.
Subscription fees vary based on the scope of technology solutions and services being used, and are priced in a variety
of constructs based on the size of the business, number of users or number of accounts, and in many cases can increase over
time based on the growth of these factors.
Despite this potential variance, we believe that our subscription fees are also highly predictable because they are
generally established in multi-year contracts providing longer-term visibility regarding that portion of total revenues.
Professional Services and Other
We also generate revenue from professional services for client onboarding, technology development and other project
related work.
Growth Strategy
We intend to increase revenue and profitability by pursuing the following strategies:
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Capture addressable market:
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Enterprise clients in wealth management. We provide enterprise clients with customized,
private-labeled technology platforms that enable them to support their affiliated financial advisors with a
broad range of investment solutions and services.
Financial advisors that are working alone or as part of financial advisory firms. Our principal value
proposition aimed at financial advisors working alone or as part of financial advisory firms is that our
technology platforms allow them to compete effectively with financial advisors employed by large
financial institutions.
Financial institutions. We serve global banks through financial applications. Envestnet Data &
Analytics Retail Banking solution is a set of innovative FinApps providing consumers with a clear
picture and greater insight into their financial lives. It enables customers to consolidate all their financial
account information in one place which allows customers to manage and meet their financial goals,
which in turn leads to increased engagement.
Other financial technology providers. We work with a variety of firms who provide technology to the
financial services industry. We provide FinApps, personal financial management tools and data
aggregation capabilities to companies in online lending, e-commerce and payments, digital advice and
wealth management and other web development firms.
• Modernize the digital engagement marketplace:
◦ We have made significant investments in platform development in order to enhance and expand our
technology platforms and expect these investments to continue in the future.
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◦ We expect to continue focusing our technology development efforts principally on adding features to
increase our market competitiveness, enhancements to improve operating efficiency, address regulatory
demands and reduce risk and client-driven requests for new capabilities.
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Open the platform:
◦
As we connect with more firms and developers, our product offerings continue to expand and vitalize our
environment, which we believe drives more benefit for our customers.
We also continue to pursue strategic transactions and other relationships to support our growth strategies.
Technology Platforms
We are composed of technology platforms that are primarily multi-tenant SAAS-based hybrid cloud offerings that
afford us the flexibility to offer a highly scalable consolidated workflow via a web-based user interface that is complemented by
an API led open strategy that enables us to offer an integrated omnichannel flexibility and collaboration ecosystem. This open
ecosystem strategy has enabled us to abstract, integrate and modernize our offerings at a rapid pace while also enabling our
customers and partners to add incremental value on top of our platform via a fit for a purpose managed open ecosystem model.
We are committed to our operational and information security capabilities as strategic differentiators. We undergo
annual SSAE 16 SOC 2 Type II audits to validate the continued operation of our internal controls for our flagship offerings
within the ecosystem; the Unified Managed Platform, Envestnet Data & Analytics Platform and Envestnet | Tamarac platforms.
The SOC reports confirm design and operating effectiveness of internal controls. We maintain multiple redundancies, back up
our databases and safeguard technologies and proprietary information consistent with industry best practices. We also maintain
a comprehensive business continuity plan and company-wide risk assessment program that is consistent with industry best
practices and that complies with applicable regulatory requirements.
Our proprietary ecosystem provides Enterprise clients in wealth management, financial advisors that are working alone
or as part of financial advisory firms, financial institutions, and FinTech firms along with their respective customers, access to
investment solutions and services, enriched financial data, analytics, and workflows that enable the foundational orchestration
of an Intelligent Financial Life via one unified experience, with the widest range of front-, middle- and back-office needs. The
“open architecture” design of our ecosystem and platforms provide our customers and their customers with flexibility in terms
of the investment solutions, services they access, data they leverage, and configurability to meet their unique needs. The
multi-tenant platform architecture ensures that this level of flexibility and customization is achieved without requiring us to
create unique applications for each client, thereby enabling improved efficacy and efficiency vs other offerings. In addition,
though our technology platforms are designed to deliver a breadth of functions, our customers can select from the various
investment solutions, services, data, and analytics we offer; without being required to subscribe to or purchase more than what
they believe is necessary.
An integral part of our strategy is an open architecture approach to integration via our OpenENV integration platform.
This strategy allows for robust integrations with 3rd party technology platforms and service providers and enables client firms
to create unique client and advisor experiences powered by the Envestnet ecosystem.
Our data aggregation platform collects a wide variety of end user-permissioned transaction-level data from
approximately 17,000 sources, including banking, investment, loan and credit card information, and puts this data in a common
repository. Envestnet Data & Analytics has developed robust proprietary technology and processes and established
relationships that allows us to curate these data sources and expand our access to new data sources. Over 75% of this data is
collected through structured feeds from our customers. These structured feeds, which consist of either batch files pushed to us
or real-time access, provide this critical data efficiently and at scale. Where we do not have direct connections, we capture data
using our proprietary information-gathering techniques.
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Beyond collecting data, our data aggregation platform performs a data refining process and augments the data with
additional information from a variety of other sources. We enrich the data with a proprietary process, adding such elements as
categorization and merchant identification for bank or credit card account data and security identification, classification and
normalization for investment data. As our ecosystem usage grows and is exposed to more users, use cases and related data, the
system benefits from machine learning algorithms to better normalize, categorize and process large amounts of data, allowing
our network to become more effective, efficient and valuable to our customers. Utilizing this enhanced data, including
consolidated data from within our customers, our data intelligence organizes, analyzes and presents it in a manner that helps our
customers offer personalized solutions that enable their consumers to achieve better financial outcomes.
Our analytics platform provides a highly scalable cloud-based environment that supports a cost effective and secure
way of handling very large data sets, permitting us to develop and test new machine learning algorithms and transform these
data sets using the resulting models. The results of the computations can be accessed interactively, as insights, suggestions, or
next best actions within our workflow offerings, as files, or via API access for use in third-party or proprietary customer
applications and environments to create competitive advantage for our customers and their customers.
In the years ended December 31, 2022, 2021 and 2020, we incurred technology development costs for all our
technology platforms totaling approximately $112 million, $80 million and $72 million, respectively. Of these costs, we
capitalized approximately $89 million, $65 million and $55 million, respectively, as internally developed software.
Sales and Marketing
We are putting forth an extensive effort in partnering sales and marketing to deliver a cohesive and holistic message to
the wealth management industry. Efforts to increase the use of technology and sales enablement tools allows for more
predictive and effective conversations with our advisor client-base as well as prospective customers.
•
•
Our advisor-facing sales teams are both field sales and internal consultants. Depending on the specific business unit,
they are organized regionally or by firm segmentation. They help advisors understand and access our investment
solutions, create investment proposals, navigate our wealth management platform and facilitate new business. As an
example, our Platform Consulting Group and Business Development Directors help advisors utilize our wealth
management platform effectively and efficiently. They are subject matter experts on advisor managed programs,
unified managed accounts (“UMA”), proposal guidance and site navigation. They provide consulting services to a
number of large clients. Our PMC Consulting team of investment professionals provide a variety of portfolio and
investment management consulting services to advisors using our wealth management platform.
Enterprise Consultants are the main point of contact for enterprise clients with respect to day-to-day platform matters
as well as contractual and pricing efforts. This includes support for advisors and firm management with regard to the
overall relationship. The enterprise consultant is essentially the client’s relationship manager who serves as the liaison
between the firm and Envestnet.
• We have a direct sales and pre-sales team servicing the leading global financial institutions. The sales team is divided
geographically. Each regional sales and pre-sales team is responsible for acquiring new customers. Within the North
America region, direct sales and pre-sales representatives are further divided into teams that focus on specific
accounts, on a named-account basis, depending on size, location, product specialization and/or brand. Our current
customers work most closely with our Client Partner teams who specialize in customer account management and
expansion. Together, sales, pre-sales and Client Partners are responsible for growing our customer relationships in
terms of establishing new customers, deepening our relationships with existing customers (cross-selling additional
products and services into the same or additional groups) and expanding use of existing products and services
(increasing usage).
• We have a direct sales and technical pre-sales team covering financial technology providers in each region. Each
regional sales and technical pre-sales team is responsible for acquiring new customers and channel partners. From time
to time, we assign specific accounts based upon sales or domain expertise. These teams are supported by a customer
success and developer relations team who specialize in customer API integration, and account management and
expansion, including services to our channel partners. Together, sales, technical pre-sales, customer success and
developer relations representatives are responsible for growing our direct customer and channel partner relationships in
terms of account penetration and API usage.
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Our marketing efforts are focused on initiatives to drive global brand and ecosystem awareness and significant demand
generation and sales acceleration across our whole business. Our marketing strategy uses data driven integrated efforts across
paid, earned and owned media in order to reach our targeted clients and prospects with the right message at the right time.
To support and expand our current addressable market, our goal is to educate the market and our clients about our
solutions and achieve recognition as the industry leader. We drive ongoing communication through thought leadership content,
media interviews speaking engagements and industry analyst relations. We also employ a variety of integrated sales and
marketing initiatives, including hosting demand generated webinars, sponsorship and partnership of key industry conferences,
as well as executing our own events.
Additionally, as practice management and support is important to our advisors' business, we partner on direct email
campaigns, conduct proprietary research and produce collateral for financial advisors to use with their clients.
Our digital marketing efforts are increasing and are designed to support our clients and to engage audiences in actual
and measurable ways. We use digital media for search optimization, account base marketing and to drive traffic to our digital
solutions and websites. Our integrated creative campaigns consist of online performance advertising, social media, podcasts and
digital content marketing.
During 2022, we further enhanced our use of digital, and continued virtual events as a response to limitations of in
person contacts as a result of the COVID-19 pandemic and remote work changes.
Competition
Our competitors offer a variety of products and services that compete with one or more of the investment solutions and
services provided through our ecosystem of technology platforms; although, based on our industry experience, we believe that
none offers a more comprehensive set of products and services than we do.
Within Envestnet Wealth Solutions, we compete on the basis of several factors, including:
•
•
•
•
•
The breadth and quality of investment solutions and services to which we provide access through our technology
platform;
The number of custodians that are connected through our technology platforms;
The price of our investment solutions and services;
The ease of use of our technology platforms; and
The nature and scope of investment solutions and services that each wealth management provider believes are
necessary to address their needs.
Our Envestnet Data & Analytics group competes with other financial technology companies, credit bureaus and data,
analytics and digital providers. Based on our global and multi-industry experience, we do not believe any other single company
in the data aggregation, analytics and digital experiences space offers a diverse, comprehensive set of platforms with features
such as ours.
Within Envestnet Data & Analytics, we compete on the basis of several factors, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
Reputation;
Global and multi-market and segments reach;
Cloud-based delivery model;
Data aggregation capability;
Access to data through direct structured data feeds;
Scale (size of customer base and level of user adoption);
Security and open banking infrastructure;
Time to market;
Unique analytics capability;
Breadth and depth of application functionality user experience;
Access and integration to/with 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.
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Regulation
The financial services industry is among the most extensively regulated industries in the United States. We operate
investment advisory and mutual fund advisory businesses, each of which is subject to a specific regulatory scheme, 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. (“EAM”), Envestnet Portfolio Solutions, Inc. (“EPS”), FDX
Advisors, Inc., QRG Capital Management, Inc. (“QRG”), Envestnet Embedded Advisory, Inc., and Envestnet Retirement
Solutions, LLC operate investment advisory businesses. These subsidiaries are registered with the U.S. Securities and Exchange
Commission (“SEC”) as “investment advisers” under the Investment Advisers Act of 1940, as amended (the “Advisers Act”),
and are regulated thereunder. They may also provide fiduciary services as defined in Section 3(21)(A)(ii) of the Employee
Retirement Income Security Act of 1974 (“ERISA”), including acting as an “investment manager” (as defined in Section 3(38)
of ERISA). As described further below, many of our investment advisory programs are conducted pursuant to the non-exclusive
safe harbor from the definition of an “investment company” provided for under Rule 3a-4 of the Investment Company Act of
1940, as amended (the “Investment Company Act”). EAM serves as the investment adviser to two mutual funds. Mutual funds
are registered as “investment companies” under the Investment Company Act. The Advisers Act, Investment Company Act and
ERISA, together with related regulations and interpretations of the SEC and the Department of Labor (the “DOL”), impose
numerous obligations and restrictions on investment advisers and mutual funds, including recordkeeping requirements,
limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities and the requirement that
conflicts of interest be monitored, mitigated, and disclosed. The fiduciary obligations of investment advisers to their clients
require advisers to, among other things, 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 the adviser’s fees and provide extensive and ongoing disclosure to clients. The SEC is authorized to institute
proceedings and impose fines and sanctions for violations of the Advisers Act and the Investment Company Act and has the
power to restrict or prohibit an investment adviser from carrying on its business in the event that it fails to comply with
applicable laws and regulations. Although we believe we are in compliance in all material respects with the requirements of the
Advisers Act, ERISA and the Investment Company Act and the rules and interpretations promulgated thereunder.
Envestnet Data & Analytics is examined on a periodic basis by various regulatory agencies. For example, Envestnet
Data & Analytics is a supervised third-party technology service provider subject to multi-agency supervisory examinations in a
wide variety of areas based on published guidance by the Federal Financial Institutions Examination Council. These
examinations include reviews of Envestnet Data & Analytics’ management, acquisition and development activities, support and
delivery, IT and disaster preparedness and business recovery planning. The Office of the Comptroller of the Currency (the
“OCC”) is the agency in charge of these examinations.
Either as a result of direct regulation or obligations under customer agreements, our subsidiaries are required to
comply with certain provisions of the Gramm-Leach-Bliley Act, related to the privacy of consumer information and may be
subject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations continue
to be proposed and promulgated that necessitate the implementation of additional controls of companies like ours.
Many of the laws and regulations to which our subsidiaries are subject are evolving, unclear and inconsistent across
various jurisdictions, and ensuring compliance with them is difficult and costly. We continually develop improvements to our
existing products and services as well as new products and services.
Investment Advisory Program Conducted Under Rule 3a-4
Under the Investment Company Act, an issuer that is engaged in the business of investing, reinvesting or trading in
securities may be deemed an “investment company,” in which case the issuer may be subject to registration requirements and
regulation as an investment company under the Investment Company Act. In order to provide assurance that certain
discretionary investment advisory programs would not be considered investment companies, the SEC adopted Rule 3a-4 under
the Investment Company Act, which provides a non-exclusive safe harbor from the definition of an investment company for
programs that meet the requirements of the rule. We conduct and support the following programs pursuant to the Rule 3a-4 safe
harbor:
Separately managed accounts;
Unified managed account portfolios;
•
•
• Mutual fund portfolios and exchange-traded fund portfolios; and
•
Advisor as portfolio manager.
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Human Capital Resources
Our Values - Envestnet’s five values create the foundation for our organization and influence how we approach talent
acquisition, professional development, and retention. Additionally, these key principles inform our performance metrics for
leaders.
CLIENT SERVICE is the hallmark of Envestnet’s brand. We build our business by exceeding our clients’
expectations, listening to and anticipating their needs, and earning their trust; and we believe in treating our colleagues with the
same level of integrity and respect.
INNOVATION is what differentiates Envestnet’s products and services from our competitors. It is also the way our
employees respond to client needs and industry trends, and drive productivity through continuous process improvement and the
maximization of resources. Regardless of your position, you have an opportunity to innovate and improve and make Envestnet
better.
INCLUSION AND RESPECT is how we treat each other and our clients and by nurturing these values and culture, we
embrace differences, and appreciate the strength and value of a diverse workforce. We believe that a respectful, innovative, and
collaborative workplace attracts the best talent and ultimately fosters the best financial outcomes for advisors and their
investors.
COLLABORATION is critical to Envestnet’s ability to stay ahead of the demands of our ever-changing industry.
Together, through a culture of generosity, open communication and sharing, we can uphold our mission and shape our industry.
ACCOUNTABILITY is intrinsic to maintaining our clients’ trust, our colleagues’ confidence and our own integrity.
At Envestnet we aim for transparency and responsibility in all that we do. By standing behind our work, we can build a stronger
business and more lasting client relationships.
Diversity, Equity & Inclusion (“DEI”)
We recognize that our workforce is made up of people of different backgrounds, cultures, and beliefs. We welcome
and encourage this diversity and inclusion. Respecting each person as an individual and welcoming the richness of ideas that
come from such diversity help us meet our objective of being a great place to work.
We value the creative ideas and broader perspective that comes with a diverse workforce. We seek the best talent from
the widest possible pool, and we continue to offer opportunities for people willing and able to perform in a challenging and
competitive environment. We value employee diversity, equity and inclusion, and are committed to providing our employees
with the resources and support they need to achieve their full potential.
DEI - Professional Development
In June 2022 we launched mandatory DEI training which provided a safe space for employees to explore their varied
experiences and perspectives. The Foundations of Diversity, Equity and Inclusion is an interactive training that addresses a
wide spectrum of topics, increasing awareness of how we engage across our differences. Over 1,500 employees completed this
training, including our CEO and his direct reports. This mandatory training will continue as a requirement in 2023.
Also in 2022, we also introduced a “Share Your Pronouns” campaign that was accompanied by training that focused
on why sharing pronouns at work is important. Additional sessions had to be added given its popularity. Over 900 employees
completed this training.
Since 2021, we have partnered with the University of Delaware Women’s Leadership program to provide women tools
and resources to succeed in their leadership journey. Approximately 40 women have participated to date and graduates of the
program have created an alumni group to continue their learning journey and help encourage and develop other women.
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DEI - Talent Acquisition
In 2022, all members of our Talent Acquisition team completed their certifications as Diversity and Inclusion
Recruiters. The program offers talent acquisition professionals the opportunity to learn strategies to create or improve their
diversity and inclusion recruiting practices. Topics include building a strategy to locate under-represented candidates, using
online data resources that support inclusive hiring, and analyzing opportunities for improving job descriptions to reach a more
inclusive candidate pool.
Also in 2022, we began utilizing a national job board service which provides us with access to target diverse groups
through a network of 15,500 community-based organizations and niche diversity sites. This increases our applications and helps
us to access to an expansive talent pool of underrepresented groups.
DEI - Employee Resource Groups
The recognition of Juneteenth at Envestnet included the introduction of our third official employee resource group.
The resource group, “Enclusion,” was created by African American and Black-American employees to celebrate our differences
in background, ethnicity, and perspectives. This group will champion initiatives that elevate voices, networking, and
professional development for all employees.
The resource group “Bridges” continues to encourage all employees to participate in conversations regarding diversity
and differences, building greater understanding and enhancing our Envestnet community.
Our Women’s Initiative Network (“WIN”) continues to provide women with the tools, training, and networking
connections to advance in their careers and build a platform for them to succeed. In 2022, WIN hosted a Women in Wealth
Forum at the Advisor Summit with over 200 participants.
We continue to be an ambassador for Money Management Institute, an organization with a mission to prepare under-
represented talent for the financial tech industry.
In 2022, we were recognized by ThinkAdvisor for our efforts in Diversity, Equity, and Inclusion with a Luminary
Award.
Workforce Demographics
In 2022, our employee population primarily remains based in the United States and India, 57% and 42%, respectively,
with less than 1% of employees in Australia and Great Britain. Our global workforce decreased 16% from 4,335 full-time
employees to 3,429 full-time employees in 2022. During the fourth quarter of this year, Envestnet entered into a partnership
with Tata Consultancy Services, outsourcing 94% of our Yodlee Bangalore workforce, reducing our overall India population by
35%.
In 2021, we launched “People Manager Dashboards” which provide U.S.-based managers with anonymous
information regarding the race/ethnicity and gender demographics of their teams, as well as information regarding open
positions, promotions, terminations. This data helps managers pinpoint opportunities to increase diversity when hiring,
promoting, and developing employees. No employee is represented in a collective bargaining agreement.
Learning & Development
Through our global learning management system, employees have access to over 19,000 learning courses, including
management and skills development; and U.S. based employees receive reimbursement for training, certifications, and degrees.
In 2022, there were approximately 80,000 training completions by employees in Cornerstone. Additionally, approximately
3,000 unique courses were completed. Major enhancements were also conducted which included improving our data feed
process from Workday, updating our catalog, and developing processes to improve our user and client experience.
The Envestnet Scholarship Program has expanded its partnership with the CFP Board to offer scholarships to
undergraduate students from groups traditionally underrepresented in the financial planning profession who are pursuing their
Certified Financial Planner™ designation. Women and minorities who are undergraduates can apply for these scholarships. As
of June 30, 2022, 74 scholarships totaling over $413,000 have been granted.
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In 2022, we hosted a diverse group of approximately 60 interns in our Berwyn, Raleigh, Denver, and San Mateo
offices, in addition to a small number of interns who participated remotely. Of our interns, 53% self-identified as Black, Asian,
Hispanic or Two or More Races, and 39% as female or other. During the 10-week program, interns spent half their time
working on team-specific related items, which included projects and assignments coming from their managers and departments,
and the other half their time was spent on program-related items. Interns worked on a project presented to leadership at the end
of the summer. Eligible 2022 interns were given an opportunity to apply for a full-time position post-graduation via our
Rotational program.
The Delegates Program is a nine-month professional development program for a diverse pool of high performing
employees. Of these program participants, 40% self-identify as Black, Asian, Hispanic, or Two or More Races, and 46% as
female. This program allows us to build a strong bench of future leaders by increasing the leadership skills and competencies of
its participants. In 2022, 15 employees graduated from the program.
Engagement
We conduct global surveys every other year, and other surveys throughout the year. We also participate in “Best
Places to Work in FinTech” which surveys up to 400 employees selected at random. We were rated 41st in 2021, which was
our first year of participation. In 2022, we moved up to 29th.
The Best Places to Work survey takes into consideration Envestnet’s policies, practices, philosophy, systems, and
demographics; Envestnet improved overall, including two areas of great importance:
•
•
Envestnet leaders are open to input from employees
Employees feel they can express their honest opinions without fear of negative consequences, and are valued by
Envestnet
In our last Global Survey conducted at the end of 2021, we rated 4 points above the standard for employee satisfaction
and received positive feedback in the areas of leadership, development, and inclusion from employees:
•
•
•
84% of employees surveyed responded favorably to “I have confidence in the Leadership team.”
82% of employees surveyed responded favorably to “I am excited about Envestnet’s future.”
83% of employees surveyed responded favorably to “Envestnet takes a genuine interest in employees--
We have quarterly live all-hands meetings and survey employees following these meetings, encouraging employee
feedback so that we can continually increase and improve our communication between leaders and employees.
In Our Community
The Envestnet Institute on Campus (“EIOC”) is a program for motivated university students designed to bridge the gap
between academic knowledge and the application of this knowledge in the Wealth and Asset Management industries. Many of
our employees have graduated from this key Learning and Development program. The curriculum is currently offered at 47
universities and colleges, including Historically Black Colleges and Universities such as Howard University. The program
includes mentoring, job placement, and financial literacy initiatives. As of June 30, 2022, over 6,000 students have completed
the program averaging an approximate 72% completion rate. More than 2,000 women and over 2,000 students of color have
completed the program. EIOC continues to support job and internship placements through its résumé database, which contains
3,000 résumés for employers seeking workforce-ready employees for internships and entry-level positions
The Envestnet Cares program empowers our employees to engage in their local communities with paid time off for
volunteer activities, charitable donation matching, and partnerships with several non-profit organizations. U.S. employees
receive an annual match of up to $3,000, as well as increased match and limits for special match campaigns. We donated
approximately $1.3 million and $1 million worldwide in 2022 and 2021, respectively.
In 2022, our employees received three paid Volunteer Days for use when volunteering for a non-profit organization of
their choice during the workweek, or as part of a Company-organized volunteering event. Despite canceling in person volunteer
events early in 2022 due to the Pandemic, our employees still volunteered 371 days as employees participated in several virtual
events such as writing notes to veterans and the elderly, making toys for dogs in shelters, and assembling skateboards for kids
in the community.
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Total Rewards
To attract and retain top talent in our highly competitive industry, we offer employees a comprehensive total rewards
package. For U.S. based employees, this includes competitive base pay, annual bonus consideration, long-term incentive grants,
employer-subsidized health, dental, and vision insurance, employer match for retirement savings, paid time off, group term life
and disability insurance, college tuition reimbursement and scholarships, as well as paid parental leave for the birth or adoption
of a child, parental stipend for children under age 6 and military leave with pay differential. During 2021, we added adoption
and surrogacy to further support our employees in balancing work and life as well as After Tax Retirement contributions, and in
2022, we added a student loan repayment benefit to help our employees improve their financial wellness by paying down their
loan balances. All U.S. based, full-time employees also receive ten paid holidays, a minimum of three weeks paid time off, six
sick/personal emergency days, three floating holidays, and three paid volunteer days per year.
India-based employees receive standard health and welfare benefits, as well as additional family medical coverage, an
internet stipend, and free transportation home from late shifts. We support our employees’ physical and mental health with a
no-cost Wellness Program; and provide legal, financial, and work-life solutions with our Employee Assistance Program.
Pandemic Response
We care about our colleagues and anyone who enters our workplace. Our continuing focus on the health and well-
being of our colleagues has enabled us to preserve business continuity without sacrificing our commitment to keeping our
employees and workplace visitors safe during the COVID-19 pandemic.
Our Pandemic Response Team, which includes our CEO and other senior members of management, meets as needed
to assess the risks and status for each office location and to ensure business continuity.
All of our employees began working remotely in March 2020. Our Pandemic Response Team established protocols to
ensure the safety of our employees while working remotely and upon return to our office locations. This included mandatory
COVID-19 training, advanced cleaning protocols for all offices, modified workspaces, and communication that provides
employees with regular updates regarding Envestnet’s response to the impact of the pandemic. Beginning in early 2022,
employees were welcomed back to the office once their proof of vaccination was received. Later in 2022, we reopened our
offices to full staffing, regardless of vaccine status.
During the pandemic, our employees also received additional benefits to support home-office set-up (U.S. and India),
parental stipend (U.S.), additional health insurance (India), and utility stipend (India), as well as multiple initiatives and
organized activities to support mental wellness, morale and team building.
Information about our Executive Officers
The following table summarizes information about each one of our executive officers.
Name
William Crager
Peter D'Arrigo
Shelly O’Brien
Age
58
55
57
Position(s)
Chief Executive Officer, Director
Chief Financial Officer
Chief Legal Officer, General Counsel and Corporate Secretary
William Crager—Mr. Crager has served as Director, Chief Executive Officer, President and Chief Executive of
Envestnet Wealth Solutions. Having served as Envestnet’s President since 2002, Mr. Crager was named Interim Chief
Executive Officer in October 2019 and named Director and Chief Executive Officer in March 2020. Prior to joining us, Mr.
Crager served as Managing Director of Marketing and Client Services at Rittenhouse Financial Services, Inc., an investment
management firm affiliated with Nuveen. Mr. Crager received a BA from Fairfield University where he majored in economics
and now serves on the Board of Trustees.
Peter D’Arrigo—Mr. D’Arrigo has served as 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 after joining them in
1990. Mr. D’Arrigo received an MBA from the Northwestern University Kellogg Graduate School of Management and an
undergraduate degree in applied mathematics from Yale University.
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Shelly O’Brien—Ms. O’Brien has served as Chief Legal Officer, General Counsel and Corporate Secretary since 2002.
Prior to joining us, Ms. O’Brien was General Counsel and Director of Legal and Compliance for ING (U.S.) Securities, Futures
& Options Inc., a broker-dealer, and futures commission merchant. Ms. O’Brien received a degree in political science from
Northwestern University, a JD from Hamline University School of Law, and an LLM in taxation from John Marshall Law
School.
Securities Exchange Act Reports
The Company maintains a website at the following address: http://www.envestnet.com. The information on the
Company's website is not incorporated by reference in this Annual Report.
We make available on or through our website reports and amendments to those reports that we file with or furnish to
the SEC in accordance with the Securities Exchange Act of 1934, as amended. These include our Annual Reports on Form 10-
K, our Quarterly Reports on Form 10-Q and our Current Reports of Form 8-K and amendments to these reports. We make this
information available on our website free of charge as soon as reasonably practicable after we electronically file the information
available with, or furnish it to, the SEC. The SEC also maintains a website at the following address, through which this
information is available: http://www.sec.gov.
Item 1A. Risk Factors
An investment in any security involves risk. An investor or potential investor should consider the risks summarized in
this section when making investment decisions regarding our securities. These risks and uncertainties include, but are not
limited to, the risk factors set forth below. The risks and uncertainties described in this section are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also affect our
business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results
of operations could be materially adversely affected.
Risks Related to Our Results of Operations and Financial Condition
We derive a substantial portion of our revenues from the delivery of investment solutions and services to clients in the
financial services industry and our revenue could suffer if that industry experiences a downturn.
A substantial portion of our revenues are derived from clients in the financial services industry, particularly in
financial advisory services. A decline or lack of growth in demand for financial services would adversely affect our clients and,
in turn, our results of operations, financial condition and business. For example, the availability of free or low-cost investment
information and resources, including research and information relating to publicly traded companies and mutual funds available
on the internet or on company websites, could lead to lower demand by investors for the services provided by financial
advisors. In addition, demand for our investment solutions and services could decline for many reasons. Negative public
perception and reputation of the financial services industry could reduce demand for our broader services and investment
advisory solutions. Consolidation or limited growth in the financial services and advisory industry could reduce the number of
our clients and potential clients. Events that adversely affect our clients’ businesses, rates of growth or the numbers of
customers they serve, including decreased demand for our clients’ products and services, adverse conditions in our clients’
markets or adverse economic conditions generally, could in turn decrease demand for our investment solutions and services and
thereby decrease our revenues. Any of the foregoing could have a material adverse effect on our results of operations, financial
condition or business.
A limited number of clients account for a material portion of our revenue. Renegotiation or termination of our contracts
with any of these clients could have a material adverse effect on our results of operations, financial condition or business.
For the years ended December 31, 2022, 2021 and 2020, revenues associated with our relationship with FMR LLC, an
affiliate of FMR Corp., or Fidelity, accounted for approximately 16%, 17% and 15% respectively, of our total revenues and our
ten largest clients accounted for approximately 34%, 33% and 29%, respectively, of our total revenues. Our license agreements
with large financial institutions are generally multi-year contracts that may be terminated upon the expiration of the contract
term or prior to such time for cause, which may include breach of contract, bankruptcy, insolvency and other reasons. A
majority of our agreements with financial advisors generally provide for termination at any time.
A substantial majority of our revenues associated with Fidelity is derived from ongoing asset-based platform service
fees paid by firms, advisors or advisors’ clients obtained through the Fidelity relationship. The license agreement with Fidelity,
which accounted for less than 1% of our revenue in the year ended December 31, 2022, is subject to renewal on an annual basis.
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If Fidelity or a significant number of our most important clients were to renegotiate or terminate their contracts with us, our
results of operations, financial condition or business could be materially adversely affected.
Changes in the estimates of fair value of reporting units or of long-lived assets, particularly goodwill and intangible assets,
may result in future impairment charges, which could have a material adverse effect on our results of operations, financial
condition, cash flows or business.
Over time, the fair values of long-lived assets change. At December 31, 2022, we had $998.4 million of goodwill and
$380.0 million of intangible assets, net, collectively representing 65% of our total assets.
Goodwill is reviewed for impairment each year using a qualitative or quantitative process that is performed at least
annually or whenever events or circumstances indicate that impairment may have occurred. We perform the annual impairment
analysis on October 31 in order to provide management time to complete the analysis prior to year-end. Prior to performing the
quantitative evaluation, an assessment of qualitative factors may be performed to determine whether it is more likely than not
that the fair value of a reporting unit exceeds the carrying value. If it is determined that it is unlikely that the carrying value
exceeds the fair value, we are not required to complete the quantitative goodwill impairment evaluation. If it is determined that
the carrying value may exceed fair value when considering qualitative factors, a quantitative goodwill impairment evaluation is
performed. When performing the quantitative evaluation, if the carrying value of the reporting unit exceeds its fair value, an
impairment loss equal to the difference will be recorded. The identification of reporting units and consideration of aggregation
criteria requires management’s judgment. Based on the relevant GAAP authoritative guidance, we aggregate components of a
single operating segment into a reporting unit, if appropriate. Future goodwill impairment charges may occur if estimates of fair
values decrease, which would reduce future earnings.
We test our indefinite lived intangible assets on an annual basis and more often if an event occurs or circumstances
change that would more likely than not reduce the fair value of the indefinite lived intangible asset below its carrying
amount. We also test property and equipment and other long lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Future asset impairment charges may occur if asset
utilization declines, if customer demand decreases, or for a number of other reasons, which would reduce future earnings. Any
such impairment charges could have a material adverse effect on our business, financial condition, results of operations, and
cash flows. Impairment charges would also reduce our consolidated stockholders’ equity and increase our debt-to-total-
capitalization ratio, which could negatively impact our access to the debt and equity markets.
During the fourth quarter of 2022, we completed our annual goodwill impairment analysis. The qualitative analysis
performed as of October 31, 2022 indicated that it is more likely than not that the fair value of each reporting unit exceeded the
carrying value, and accordingly, no impairment existed. There can be no assurance that our estimates and assumptions of the
fair value of our reporting units, the current economic environment, or the other inputs used to estimate the fair value of our
reporting units will prove to be accurate, and any material error in our estimates and assumptions, could result in us needing to
take a material impairment charge, which would have the effects discussed above.
As part of our ongoing monitoring efforts, we will continue to consider capital markets and other economic factors and
its potential impact on our businesses, as well as other factors, in assessing goodwill and other long-lived assets for possible
indications of impairment.
We have a significant amount of debt and servicing our debt requires a significant amount of cash, and we may not have
sufficient cash flow from our business to service our debt.
As of December 31, 2022, we had $45.0 million of outstanding 1.75% Convertible Notes due 2023, $317.5 million of
outstanding 0.75% Convertible Notes due 2025, and $575.0 million of outstanding 2.625% Convertible Notes due 2027
(collectively, the “Convertible Notes”). As of December 31, 2022, we had an additional $500.0 million available to us to
borrow under our revolving credit facility (the “Credit Agreement”). This indebtedness could, 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, capital
expenditures, debt service requirements or other purposes;
require us to dedicate a substantial portion of our cash flow from operations to service the indebtedness, reducing
the amount of cash flow available for other purposes; and
limit our flexibility in planning for and reacting to changes in our business.
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The conditional conversion features of our Convertible Notes, if triggered, may adversely affect our financial condition and
operating results.
In the event the conditional conversion features of our outstanding Convertible Notes are triggered, holders of the
Convertible Notes will be entitled to convert their Convertible Notes at any time during specified periods at their option. We
may elect to satisfy our conversion obligation in cash, in shares of our common stock or in a combination of cash and shares of
our common stock. If one or more holders elect to convert their Convertible Notes, unless we satisfy our conversion obligation
by delivering solely shares of our common stock (other than cash in lieu of any fractional share), we would be required to settle
all or a portion of our conversion obligation through the payment of cash, which could adversely affect our liquidity.
Furthermore, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting
rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term
liability, which would result in a material reduction of our net working capital.
We may not have the ability to raise the funds necessary to settle conversions of our Convertible Notes or purchase the
Convertible Notes as required upon a fundamental change, and our existing debt contains, and our future debt may contain,
limitations on our ability to pay cash upon conversion or purchase of our Convertible Notes.
Following a fundamental change, Convertible Notes holders will have the right to require us to purchase their
Convertible Notes for cash. A fundamental change may also constitute an event of default or prepayment under, and result in
the acceleration of the maturity of, our then-existing indebtedness. In addition, upon conversion of the Convertible Notes,
unless we settle our conversion obligation solely in shares of our common stock (other than cash in lieu of any fractional share),
we will be required to make cash payments in respect of the Convertible Notes being surrendered for conversion. We may not
have sufficient financial resources, or may not be able to arrange financing, to pay the fundamental change purchase price in
cash with respect to the Convertible Notes surrendered by holders for purchase upon a fundamental change or make cash
payments upon conversions. In addition, restrictions in our Third Credit Agreement (as described herein) or future credit
facilities or other indebtedness, if any, may not allow us to purchase the Convertible Notes upon a fundamental change or make
cash payments upon conversions of the Convertible Notes. Our failure to purchase the Convertible Notes upon a fundamental
change or make cash payments upon conversions thereof when required would result in an event of default with respect to the
Convertible Notes which could, in turn, constitute a default under the terms of our other indebtedness, if any. If the repayment
of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds
to repay the indebtedness and purchase the Convertible Notes or make cash payments upon conversions thereof. For a
description of the Company’s Credit Agreement entered into on November 14, 2022 amending and restating the Third
Amended and Restated Credit Agreement, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations, Recent Developments, Credit Agreement Amendment” and Part II, Item 8, “Note 10—Debt”.
The capped call transactions entered into in connection with the issuance of our 2.625% Convertible Notes due 2027 may
affect the value of such notes and our common stock.
In connection with the issuance of our 2.625% Convertible Notes due 2027 (the “Convertible Notes due 2027”), we
entered into privately negotiated capped call transactions with certain financial institutions (the "Capped Call Counterparties").
The capped call transactions were entered into to reduce the potential dilutive effect on our common stock upon any conversion
of the Convertible Notes due 2027 and/or offset any potential cash payments we are required to make in excess of the principal
amount of converted notes, as the case may be, with such reduction and/or offset subject to cap.
In connection with establishing their initial hedges of the capped call transactions, the Capped Call Counterparties or
their respective affiliates entered into various derivative transactions with respect to our common stock and/or purchased shares
of our common stock concurrently with or shortly after the pricing of the Convertible Notes due 2027. The Capped Call
Counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various
derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in
secondary market transactions from time to time prior to the maturity of the Convertible Notes due 2027 (and are likely to do so
following any conversion of the Convertible Notes due 2027 or any retirement by us of the Convertible Notes due 2027, in each
case if we exercise the relevant election to terminate the corresponding portion of the capped call transactions). This activity
could cause or avoid an increase or decrease in the market price of our common stock or the Convertible Notes due 2027. The
potential effect, if any, of these transactions and activities on the market price of our common stock or the Convertible Notes
due 2027 will depend, in part, on market conditions and cannot be ascertained at this time. Any of these activities could
adversely affect the value of our common stock.
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We are subject to counterparty risk with respect to the capped call transactions, and the capped call transactions may not
operate as planned.
The Capped Call Counterparties are financial institutions or affiliates of financial institutions, and we will be subject to
the risk that any or all of them might default under the capped call transactions. Our exposure to the credit risk of the Capped
Call Counterparties will not be secured by any collateral. Global economic conditions have, from time to time, resulted in the
actual or perceived failure or financial difficulties of many financial institutions. If a Capped Call Counterparty becomes subject
to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at
that time under our transactions with that Capped Call Counterparty. Our exposure will depend on many factors, but generally
an increase in our exposure will be correlated with increase in the market price of the volatility of our common stock. In
addition, upon a default by a Capped Call Counterparty, we may suffer more dilution than we currently anticipate with respect
to our common stock. We can provide no assurances as to the financial stability or viability of any Capped Call Counterparty.
In addition, the capped call transactions are complex, and they may not operate as planned. For example, the terms of
the called call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or
other transactions occur. Accordingly, these may not operate as we intend if we are required to adjust their terms as a result of
transactions in the future or upon unanticipated developments that may adversely affect the functioning of the capped call
transactions.
Activist shareholders could have an adverse effect on our business, impact and create volatility in our stock price, divert
board and management’s attention and resources, and cause us to incur substantial expense.
In January 2023, Impactive Capital, L.P. ("Impactive Capital "), announced the nomination of four candidates for
election to our Board of Directors at our 2023 Annual Meeting of Shareholders. If a proxy contest ensues, the Company’s
business, operating results or financial condition could be adversely affected because actions in connection with the proxy
contest could result in us incurring substantial costs, including proxy solicitation, public relations, and legal fees. Further, such
a proxy contest or other actions taken by activist shareholders could (i) divert the attention of our Board of Directors,
management, and employees, and may disrupt the momentum in our business and operations, as well as our ability to execute
our strategic plan, (ii) create perceived uncertainties as to the future direction of our business or strategy, which may result in
the loss of customers and potential business opportunities, make it more difficult to attract and retain qualified personnel, and
impact our relationship with investors, vendors, and other third parties, and (iii) impact the market price and the volatility of our
common stock. If any of the nominees proposed by Impactive Capital are elected to our Board of Directors, their presence may
be disruptive, may lead to further uncertainty among our customers, employees and others, and may adversely affect our ability
to effectively implementing the Company’s business strategy and create additional value for our shareholders. In addition, the
proxy fight may result in litigation by or against the Company or the Board, which could also be a significant distraction for our
management and employees and may require us to incur significant costs or otherwise result in an adverse effect on the
Company.
Public health crises, pandemics or similar events, such as the COVID-19 pandemic, have and may continue to adversely
affect our business, including our operations and financial condition.
The effects of public health crises, pandemics and similar events, such as the COVID-19 pandemic, including
responses and restrictions related thereto have had, and may continue to have, a significant impact on global economic and
market conditions. Although certain economic conditions have improved since their worst levels during the pandemic, the
pandemic continues to evolve and the effects of COVID-19, its variants or any other widespread public health crisis could lead
to deterioration in then-current economic conditions or result in other adverse consequences to our business, results of
operations and financial condition in the future.
Such effects could have adverse impacts on our clients, vendors and other third-parties with whom we do business.
Additionally, our business operations may be disrupted if significant portions of our workforce are unable to work effectively,
including because of illness, quarantines, government actions or other restrictions in connection with any ongoing effects of
pandemic. Further, remote working and other modified business practices have introduced additional operational risks,
including resiliency, cybersecurity, and execution risks. Any failure to manage these additional risks effectively may result in
inefficiencies or delays, and may affect our ability to, or the manner in which we, conduct our business activities.
The extent to which COVID-19 and any other potential future public health crises, pandemics or similar events may
adversely affect our business, results of operations and financial condition, will depend on future developments that are highly
uncertain and cannot be predicted, including the duration and scope of the COVID-19 or any other future pandemic, actions
taken in response to any pandemic and the availability and efficacy of vaccines. Further, the impact on U.S. and global
economies and the extent and strength of any economic recovery after the COVID-19 pandemic abates is uncertain and subject
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to various evolving factors and conditions. In addition, to the extent COVID-19 or any other pandemic adversely affects our
business or the global economic conditions more generally, it may also have the effect of heightening many of the other risks
described in this section entitled “Risk Factors” and any subsequent filings with the SEC.
Risks Related to our Operations
If sources from which we obtain information limit our access to such information or charge us fees for accessing such
information, our business could be materially and adversely harmed.
Our Envestnet Data & Analytics data aggregation solutions require certain data that we obtain from thousands of
sources, including banks, other financial institutions, retail businesses and other organizations, some of which are not our
current customers. As of December 31, 2022, we receive over 75% of this data through structured data feeds that are provided
under the terms of our contracts with most of our customers. Although all of the information we currently gather is end user-
permissioned, non-identified data and, currently, we generally have free, unrestricted access to, or ability to use, such
information, one or more of our current customers could decide to limit or block our access to the data feeds we currently have
in place with these customers due to factors outside of our control, such as more burdensome regulation of our or our
customers’ industry, increased compliance requirements or changes in business strategy. If the sources from which we obtain
information that is important to our solutions limit or restrict our ability to access or use such information, we may be required
to attempt to obtain the information, if at all, through end user-permissioned data scraping or other means that could be more
costly and time-consuming, and less effective or efficient. In the past, a limited number of third parties, primarily airline and
international sites, have either blocked our access to their websites or requested that we cease employing data scraping of their
websites to gather information, and we could receive similar, additional requests in the future. Any such limitation or restriction
may also preclude us from providing our solutions on a timely basis, if at all. In addition, if in the future one or more third
parties challenge our right to access information from these sources, we may be required to negotiate with these sources for
access to their information or to discontinue certain services currently provided by our solutions. The legal environment
surrounding data scraping and similar means of obtaining access to information on third-party websites is not completely clear
and is evolving, and one or more third parties could assert claims against us seeking damages or to prevent us from accessing
information in that manner. In the event sources from which we obtain this information begin to charge us fees for accessing
such information, we may be forced to increase the fees that we charge our customers, which could make our solutions less
attractive, or our gross margins and other financial results could suffer.
Because some of our sales efforts are targeted at large financial institutions and large FinTech companies, we face
prolonged sales cycles, substantial upfront sales costs and less predictability in completing some of our sales. If our sales
cycle lengthens, or if our upfront sales investments do not result in sufficient revenue, our operating results may be harmed.
We target a portion of our sales efforts at large financial institutions and large FinTech companies, which presents
challenges that are different from those we encounter with smaller customers. Because our large customers are often making an
enterprise-wide decision to deploy our solutions, we face longer sales cycles, complex customer requirements, substantial
upfront sales costs, significant contract negotiations and less predictability in completing sales with these customers. Our sales
cycle can often last one year or more with our largest customers, who often undertake an extended evaluation process, but is
variable and difficult to predict. We anticipate that we will experience even longer sales cycles, more complex customer needs,
higher upfront sales costs and less predictability in completing sales with customers located outside of the United States. If our
sales cycle lengthens or our upfront sales investments do not generate sufficient revenue to justify our investments in our sales
efforts, our operating results may be harmed.
Investors’ decisions regarding their investment assets are affected by many factors and investors may redeem or withdraw
their investment assets generally at any time. Significant changes in investing patterns or large-scale withdrawal of
investment funds could have a material adverse effect on our results of operations, financial condition or business.
The clients of our financial advisors are generally free to change financial advisors, forgo the advice and other services
provided by financial advisors or withdraw the funds they have invested with financial advisors. These clients of financial
advisors may elect to change their investment strategies, by moving their assets away from equity securities to fixed income or
other investment options, or by withdrawing all or a portion of their assets from their accounts to avoid all securities
markets-related risks. These actions by investors are outside of our control and could materially adversely affect the market
value of the investment assets that our clients manage, which could materially adversely affect the asset-based fees we receive
from our clients.
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A substantial portion of our revenue is based on fees earned in the value of assets under management or administration.
Changes in market and economic conditions could lower the value of assets on which we earn revenues and could decrease
the demand for our investment solutions and services.
Asset-based fees make up a significant portion of our revenues. Asset-based fees represented 60%, 60% and 54% of
our total revenues for the years ended December 31, 2022, 2021 and 2020, respectively. We expect that asset-based fees will
continue to represent a significant percentage of our total revenues in the future. Significant fluctuations in securities prices may
materially affect the market value of the assets managed by our clients and may also influence financial advisor and investor
decisions regarding whether to invest in, or maintain an investment in, a particular investment or strategy. If such market
fluctuation led to less investment in the securities markets, our revenues and earnings derived from asset-based fees could be
materially adversely affected. Our asset-based fees are generally calculated quarterly using the value of assets at the end of each
calendar quarter. Our methodology may result in lower fees if the financial markets are down when fees are calculated, even if
the market had performed well earlier in the quarter.
We provide our investment solutions and services to the financial services industry. The financial markets, and in turn
the financial services industry, are affected by many factors, such as U.S. and foreign economic conditions and general trends in
business and finance that are beyond our control. In the event that the U.S. or international financial markets suffer a severe or
prolonged downturn, investors may choose to withdraw assets from financial advisors, which we refer to as “redemptions”, and
transfer them to investments that are perceived to be more secure, such as bank deposits and Treasury securities, and on which
we might not earn fees. For example, in early 2022 continuing through the fourth quarter of 2022, the financial markets
experienced a broad downturn, our redemption rates were higher than our historical average, and our results of operations,
financial condition and business were materially adversely affected. A continued downturn in financial markets or increased
levels of asset withdrawals could have a material adverse effect on our results of operations, financial condition or business.
Historically, redemption rates have typically increased during periods where there has been a significant downturn in financial
markets. Any potential decline in assets on which we earn fees would not necessarily be proportional to, and in total, could be
greater than the overall market decline.
We must continue to introduce new investment solutions and services and technological enhancements to address our
clients’ changing needs, market changes, regulations, and technological developments and failure to do so could 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 market
practices, 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 and
services obsolete and unmarketable. As a result, our future success will continue to depend upon our ability to develop new
investment solutions and services, and service and technological enhancements that address the future needs of our target
markets and respond to technological and market changes. We incurred technology development costs of approximately $112
million, $80 million and $72 million in the years ended December 31, 2022, 2021 and 2020, respectively. We expect that our
technology development costs will continue at this level or they may increase in the future. We may not be able to accurately
estimate the impact of new investment solutions and services on our business or how their benefits will be perceived by our
clients. Further, we may not be successful in developing, introducing, marketing and licensing our new investment solutions or
services or investment solution or service enhancements on a timely and cost effective basis, or at all, and our new investment
solutions and services and enhancements may not adequately meet the requirements of the marketplace or achieve market
acceptance. In addition, clients may delay purchases in anticipation of new investment solutions or services or enhancements.
Any of these factors could materially adversely affect our results of operations, financial condition or business.
As a global organization, our business is susceptible to risks associated with our international operations.
We currently maintain international operations in India, the United Kingdom, Canada and Australia, lease space in
other jurisdictions outside of the United States for the purpose of gathering data, and have customers located around the globe.
Managing a global organization outside of the United States is difficult and time-consuming and introduces risks that we may
not face with our operations and sales in the United States. These risks include:
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the burdens of complying with a wide variety of foreign regulations, laws and legal standards, including privacy,
data security, tax and employment, some of which may be materially different or more stringent than those of the
United States;
regional data privacy laws that apply to the transmission of data across international borders;
lack of familiarity with, and unexpected changes in, foreign regulatory requirements;
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customers’ unfamiliarity with and concerns regarding laws and regulations of the United States that may impact
our business operations in their jurisdictions;
negative, local perception of industries and customers that we may pursue;
laws and business practices favoring local competitors;
localization of our solutions, including unanticipated costs related to translation into foreign languages and
adaptation for local practices and regulatory requirements;
different pricing environments;
difficulties in managing and staffing international operations;
reduced or varied protection for intellectual property rights in some countries;
compliance with laws and regulations for foreign operations, including the U.S. Foreign Corrupt Practices Act, the
U.K. Bribery Act, import and export control laws, tariffs, trade barriers, economic sanctions and other regulatory
or contractual limitations on our ability to sell our solutions in certain foreign markets, and the risks and costs of
compliance;
fluctuations in currency exchange rates;
potentially adverse tax consequences, including the complexities of foreign value added tax systems, difficulty in
interpreting international tax laws and restrictions on the repatriation of earnings;
increased financial accounting and reporting burdens and complexities; and
political, social and economic instability abroad, terrorist attacks and security concerns in general.
Operating in international markets also requires significant management attention and financial resources. A
component of our growth strategy involves the further expansion of our operations and the development of new customer
relationships internationally. As we seek to expand internationally, we will need to develop relationships with additional
partners and add internal capabilities to effectively manage the operational, financial, legal and regulatory requirements and
risks associated with our international operations. The investment we make and additional resources we use to expand our
operations, target new international customers, expand our presence globally within our existing customers and manage
operational and sales growth in other countries may not produce desired levels of revenue or profitability, which could
adversely affect our business and operating results.
If we are unable to effectively manage certain risks and challenges related to our India operations, our business could be
harmed.
Our India operations are a key factor to our success. We believe that our significant presence in India provides certain
important advantages for our business, such as direct access to a large pool of skilled professionals and assistance in growing
our business internationally. However, it also creates certain risks that we must effectively manage. As of December 31, 2022,
approximately 1,400 of our approximate 3,400 total employees were based in India. Wage costs in India for skilled
professionals are currently lower than in the United States for comparably skilled professionals. However, wages in India are
increasing at a faster rate than in the United States, which could result in us incurring increased costs for technical professionals
and reduced margins. There is intense competition in India for skilled technical professionals, and we expect such competition
to increase. As a result, we may be unable to retain our current employee base in India or hire additional new talent or do so
cost-effectively. In addition, India has experienced significant inflation, low growth in gross domestic product and shortages of
foreign exchange. India also has experienced civil unrest and terrorism and, in the past, has been involved in conflicts with
neighboring 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 to effectively
manage any of the foregoing risks related to our India operations, our development efforts could be impaired, our growth could
be slowed, and our operating results could be negatively impacted.
We operate in highly competitive industries, with many firms competing for business from financial advisors and financial
institutions on the basis of a number of factors, including the quality and breadth of investment solutions and services,
ability to innovate, reputation and the prices of services and this competition could hurt our financial performance.
We compete with many different types of companies that vary in size and scope, including custodians, turnkey asset
management platforms, data and analytics providers, and other financial technology companies. Representative competitors
include Pershing LLC (a subsidiary of BNY Mellon Corporation), AssetMark, Inc., Advent Software (a subsidiary of SS&C
Technologies Holdings, Inc.) and Orion Advisor Services in our Envestnet Wealth Solutions business and Intuit, Inc., Plaid Inc.
and Fiserv, Inc in our Envestnet Data & Analytics business. Competition is discussed in greater detail under “Business—
Competition” included in this Annual Report. In addition, some of our clients have developed or may develop the in-house
capability to provide the technology and/or investment advisory services they have retained us to perform. These clients may
also offer internally developed services to their financial advisors, obviating the need to hire us, and they may offer these
services to third-party financial advisors or financial institutions, thereby competing directly with us for that business.
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Many of our competitors in this business have significantly greater resources than we do. These resources may allow
our competitors to respond more quickly to changes in demand for investment solutions and services, to devote greater
resources to developing and promoting their services and to make more attractive offers to potential clients and strategic
partners, which could hurt our financial performance.
We may lose clients as a result of the sale or merger of a client, a change in a client’s senior management, competition
from other financial advisors and financial institutions and for other reasons. We also face increased competition due to the
current trend of industry consolidation. If large financial institutions that are not our clients are able to attract assets from our
clients, our ability to grow revenues and earnings may be adversely affected.
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.
We expect competition to increase as other companies continue to evolve their offerings and as new companies enter
our market. New companies entering our market may choose to offer internally-developed solutions at little or no additional
cost to their end users by bundling them with their existing applications and solutions. Increased competition is likely to result
in pricing pressures, which could negatively impact our gross margins.
Our failure to successfully compete in any of the above-mentioned areas could result in reduced revenues or lack of
market share which could have a material adverse effect on our results of operations, financial condition or business.
Competition could also affect the revenue mix of services we provide, resulting in decreased revenues in lines of business with
higher profit margins.
We are subject to liability for losses that result from potential, perceived or actual conflicts of interest.
Potential, perceived and actual conflicts of interest are inherent in our existing and future business activities and could
give rise to client dissatisfaction, litigation or regulatory enforcement actions. In particular, we pay varying fees to third-party
asset managers and custodians and our financial advisor customers, or their clients, could accuse us of directing them toward
those asset managers or custodians that charge us the lowest fees and therefore provide us with a greater financial advantage. In
addition, we offer proprietary mutual funds and proprietary investment strategies through our internal investment management
and portfolio consulting group, and financial advisors or their clients could conclude that we favor our proprietary investment
products because of their belief that we earn higher fees when our proprietary investment products are used. Adequately
addressing conflicts of interest is complex and difficult. If we fail, or appear to fail, to adequately address potential, perceived
or actual conflicts of interest, the resulting negative public perception and reputational harm could materially adversely affect
our client relations or ability to enter into contracts with new clients and, consequently, our results of operations, financial
condition and business.
We are substantially dependent on our intellectual property rights, and a failure to protect these rights could adversely affect
our results of operations, financial condition or business.
We have made substantial investments in software and other intellectual property on which our business is highly
dependent. As of December 31, 2022, notwithstanding expiration of some of our oldest patents, we had over 50 issued patents
in the U.S. and foreign jurisdictions as well as additional pending patent applications in the U.S. and foreign jurisdictions. 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 rely on a combination of patent, trade secret,
trademark and copyright laws, confidentiality and nondisclosure agreements and other contractual and technical security
measures to protect our proprietary technology, all of which provide only limited protection. Despite our efforts, unauthorized
copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our intellectual
property rights without paying us for doing so, which could harm our business. Policing unauthorized use of proprietary
technology is difficult and expensive and our monitoring and litigation may be necessary to protect and enforce our intellectual
property rights. If litigation is necessary to protect and enforce our intellectual property rights, any such litigation could be very
costly and could divert management attention and resources. If we are unable to protect our intellectual property rights or if
third parties independently develop or gain access to our or similar technologies, investment solutions or services, our results of
operations, financial condition and business could be materially adversely affected.
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We cannot guarantee that:
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our intellectual property rights will provide competitive advantages to us;
our ability to assert our intellectual property rights against potential competitors or to settle current or future
disputes will not be limited by our agreements with third parties;
our intellectual property rights will be enforced in jurisdictions where competition may be intense or where legal
protection may be weak;
any of the trademarks, copyrights, trade secrets or other intellectual property rights that we presently employ in
our business will not lapse or be invalidated, circumvented, challenged or abandoned;
our trademark applications will lead to registered trademarks;
Our reliance on outsourcing arrangements subjects us to risk and may disrupt or adversely affect our operations.
We have entered into an agreement with Tata Consulting Services (“TCS”) pursuant to which we have outsourced
certain development, engineering and back office functions of the Envestnet Data & Analytics business located in Bangalore,
India to increase operations scale and business agility. Although we have service-level arrangements with TCS and a variety of
contractual obligations and options designed to (a) monitor TCS’s performance and (b) incentivize a high level of performance
by TCS, because we do not ultimately control its performance, our reliance on a third-party vendor could subject us to
additional risk, including the loss of valuable intellectual property, data security issues and non-compliance with data protection
and privacy laws. If TCS fails to perform as required or terminates our arrangements, we might not realize the expected
financial and operational benefits of the outsourcing arrangement and may be required to pursue new third-party relationships,
which could significantly disrupt Envestnet Data & Analytics’ operations and adversely affect our business, financial condition,
and results of operations. We may also be unable to establish comparable new vendor relationships on as favorable terms or at
all. Even if we are able to obtain replacement services in these scenarios, there may be a disruption or delay in our ability to
operate our Envestnet Data & Analytics business, and the replacement services might be more expensive than those we have
currently. The process of transitioning services and data from one provider to another can be complicated, time-consuming,
expensive and may lead to significant disruptions in Envestnet Data & Analytics’ business and could adversely affect our
business, financial condition, and results of operations.
Risks Related to our Acquisitions
Our growth strategy includes growing through acquisitions and acquisitions involve a number of risks.
We expect to grow our business by, among other things, making acquisitions. Over the past five years we have
completed a number of acquisitions. Acquisitions involve a number of risks. They can be time-consuming and may divert
management’s attention from day-to-day operations. Financing an acquisition could result in dilution from issuing equity
securities or a weaker balance sheet from using cash or incurring debt. Acquisitions might also result in losing key employees.
In addition, we may fail to successfully integrate acquisitions. We may also fail to generate enough revenues or profits from an
acquisition to earn a return on the associated purchase price.
To the extent we grow our business through acquisitions, any such future acquisitions could present a number of other
risks, including:
•
•
•
•
•
•
•
•
incorrect assumptions regarding the future results of acquired operations or assets or expected cost reductions or
other synergies expected to be realized as a result of acquiring operations or assets;
failure to integrate the operations or management of any acquired operations or assets successfully and on a timely
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 financial issues
related to acquired operations or assets; and
inability to secure, on terms we find acceptable, sufficient financing that may be required for any such acquisition
or investment.
In addition, if we are unsuccessful in completing acquisitions of other businesses, operations or assets or if such
opportunities for expansion do not arise, our results of operations, financial condition or business could be materially adversely
affected.
29
Risks Related to our Information Technology and Data
Our failure to successfully execute the conversion of our clients’ assets from their technology platform to our platforms in a
timely and accurate manner could have a material adverse effect on our results of operations, financial condition or
business.
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 technology
platforms. These conversions present significant technological and operational challenges that can be time-consuming and may
divert management’s attention from other operational activities. If we fail to successfully complete our conversions in a timely
and accurate manner, we may be required to expend more time and resources than anticipated, which could erode the
profitability of the client relationship. In addition, any such failure may harm our reputation and may make it less likely that
prospective clients will commit to working with us. Any of these risks could materially adversely affect our results of
operations, financial condition or business.
Our hosting, collection, use and storage of customer information and data require the implementation of effective security
controls, and a data security breach could disrupt our business, result in the disclosure of confidential information, expose
us to liability and protracted and costly litigation, adversely affect our reputation and revenue and cause losses.
We, and our customers through which our solutions are made available to end users, collect, use, transmit and store
confidential financial information, such as bank account numbers, social security numbers, non-public personally identifiable
information, portfolio holdings, credit card data and outstanding debts and bills. The measures we take to provide security for
collection, use, storage, processing and transmission of confidential end user information may not be effective to protect against
data security breaches by third parties. We use commercially available security technologies, including hardware and software
data encryption techniques and multi-layer network security measures, to protect transactions and information. Although we
encrypt data fields that typically include sensitive, confidential information, other unencrypted data fields may include similar
information that could be accessible in the event of a security breach. We use security and business controls to limit access and
use of confidential end user information. Although we require our customers and third-party suppliers to implement controls
similar to ours, the technologies and practices of our customers and third-party suppliers may not meet all of the requirements
we include in our contracts and we may not have the ability to effectively monitor the implementation of security measures of
our customers and third-party suppliers. In a number of cases, our customers build and host their own web applications and
access our solutions through our APIs. In these cases, additional risks reside in the customer’s system with respect to security
and preventive controls. As a result, inadequacies of our customers’ and third-party suppliers’ security technologies and
practices may only be detected after a security breach has occurred. Errors in the collection, use, storage or transmission of
confidential end user information may result in a breach of privacy or theft of assets.
The risk of unauthorized circumvention of our security measures has been heightened by advances in computer
capabilities and the increasing sophistication of hackers. Criminals are using increasingly sophisticated techniques to engage in
illegal activities involving solutions such as ours or involving end user information, such as counterfeiting, fraudulent payment
and identity theft. Because the techniques used by hackers change frequently and generally are not recognized until launched
against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. In addition to
hackers, it is possible that a customer could gain unauthorized access to our database through the use of our solutions. Improper
access to our systems or databases by hackers or customers intending to commit criminal activities could result in the theft,
publication, deletion or modification of confidential end user information. An actual or perceived breach of our security may
require notification under applicable data privacy regulations.
A data security breach of the systems on which sensitive user data and account information are stored could lead to
private claims or regulatory actions, including fines, against us. Many of our agreements with clients do not limit our potential
liability for breaches of confidentiality, and consequential damages. If any person, including any of our employees, contractors,
or consultants, penetrates our network security, misappropriates or mishandles sensitive data, inadvertently or otherwise, we
could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay
damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our
revenue and profitability. In addition, our customer contracts typically require us to meet specified minimum system security
and privacy standards. If a data security breach occurs and we have not been in compliance with these standards, we could be
liable for breach of contract claims brought by our customers.
30
We could also be required to indemnify our customers for third-party claims, fines, penalties and/or other assessments
imposed on our customers as a result of any data security breach and our liability could exceed our insurance coverage or
ability to pay. Our registered investment adviser subsidiaries may face SEC, FINRA and state enforcement actions, including
monetary fines, if it is determined that we had inadequate data security measures in place to prevent such theft.
Our security procedures and technologies are regularly audited by independent security auditors engaged by us, and
many of our prospective and current customers conduct their own audits or review the results of such independent security
audits as part of their evaluation of our solutions. We are also periodically audited by regulatory agencies to which our
operations or our customers are subject. Adverse findings in these audits or examinations, even if not accompanied by any data
security breach, could adversely affect our ability to maintain our existing customer relationships and establish new customer
relationships.
Data security breaches, acts of fraud involving our solutions, or adverse findings in security audits or examinations,
could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to
cease doing business with us and/or have a significant adverse impact on our revenue and future growth prospects. Further, any
of these events could lead to additional regulation and oversight by federal and state agencies, which could impose new and
costly compliance obligations and may lead to the loss of our ability to make our solutions available.
Risks Related to Laws and Regulations
Our operations are subject to extensive government regulation, and compliance failures or regulatory action against us
could adversely affect our results of operations, financial condition or business.
The financial services industry is among the most extensively regulated industries in the United States. We operate
investment advisory, broker-dealer, and mutual fund lines of business, each of which is subject to a specific and extensive
regulatory scheme. In addition, we are subject to numerous laws and regulations of general application. It is very difficult to
predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses.
Certain of our subsidiaries are registered as “investment advisers” with the SEC under the Advisers Act and are
regulated thereunder. In addition, many of our investment advisory services are conducted pursuant to the non-exclusive safe
harbor from the definition of an “investment company” provided under Rule 3a-4 under the Investment Company Act. If
Rule 3a-4 were to cease to be available, or if the SEC were to modify the rule or its interpretation of how the rule is applied, our
business could be adversely affected. Certain of our registered investment adviser subsidiaries provide advice to mutual fund
clients. Mutual funds are registered as “investment companies” under the Investment Company Act. Our advisory subsidiaries
provide advice on assets subject to the ERISA. The Advisers Act, Investment Company Act and ERISA, together with related
regulations and interpretations of the SEC and the Department of Labor, impose numerous obligations and restrictions on
investment advisers and mutual funds, including requirements relating to the safekeeping of client funds and securities,
limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on transactions
between an adviser and its clients, and between a mutual fund and its advisers and affiliates, and other detailed operating
requirements, as well as general fiduciary obligations.
Envestnet Data & Analytics is examined on a periodic basis by various regulatory agencies. For example, it is a
supervised third-party technology service provider subject to multi-agency supervisory examinations in a wide variety of areas
based on published guidance by the Federal Financial Institutions Examination Council. These examinations include
examinations of our management, acquisition and development activities, support and delivery, IT, and disaster preparedness
and business recovery planning. The Office of the Comptroller of the Currency is the agency in charge of these examinations. If
deficiencies are identified, customers may choose to terminate or reduce their relationships with us.
Either as a result of direct regulation or obligations under customer agreements, many of our subsidiaries are required
to comply with certain provisions of the Gramm-Leach-Bliley Act, related to the privacy of consumer information and may be
subject to other privacy and data security laws because of the solutions we provide. In addition, numerous regulations have
been proposed and are still being written to implement the Dodd-Frank Act for enhanced due diligence of the internal systems
and processes of companies like ours by their regulated customers. If we are required to make changes to our internal processes
and solutions as result of this heightened scrutiny, we could be required to invest substantial additional time and funds and
divert time and resources from other corporate purposes to remedy any identified deficiency.
All of the foregoing laws and regulations are complex, evolving, unclear and inconsistent across various jurisdictions
and we are required to expend significant resources in order to maintain our monitoring of, and compliance with, such laws and
regulations. We continually develop improvements to our existing products and services as well as new products and services.
31
Many of these improvements or new products and services may implicate regulations to which we may not already be subject
or with which we may not have experience. Any failure on our part to comply with these and other applicable laws and
regulations could result in decreasing the demand for these products and services, increasing our potential liability or increase
or costs, regulatory fines, suspensions of personnel or other sanctions, including revocation of our subsidiaries as an investment
adviser or broker-dealer, as the case may be, which could, among other things, require changes to our business practices and
scope of operations or harm our reputation. Any of the foregoing could have a material adverse effect on our results of
operations, financial condition or business.
We regularly rely on exemptions from various requirements of the Exchange Act, the Advisers Act, the Investment
Company Act and ERISA in conducting our activities. These exemptions are sometimes highly complex and may in certain
circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to
become unavailable to us, we could become subject to regulatory action or third-party claims and our business could be
materially and adversely affected.
Privacy laws and regulations, industry standards and contractual obligations, and changes in these laws, regulations,
standards and obligations, can affect the way in which we do business and cause us to incur significant costs and failure to
comply with these requirements could negatively affect our business.
As part of our business, we de-identify and then provide consumer transaction data panels to customers to support data
analytics and market research. We collect the underlying transaction data when requested by each applicable consumer. These
activities are subject to numerous laws, regulations, industry standards and contractual obligations. We have incurred, and will
continue to incur, significant expenses to comply with these requirements. New laws have been passed by several jurisdictions
regulating the use of personal data and setting requirements for the de-identification of data. Other jurisdictions are considering
imposing additional requirements. As our business continues to expand to new industry segments that may be more highly
regulated for privacy and data security, and to countries outside the United States that have more strict data protection laws, we
may be subject to increased compliance requirements and costs which could have a material adverse effect on our results of
operations, financial condition or business. Industry practices relating to this business activity may change. We are in the
process of negotiating new agreements with certain financial institutions governing our access to consumer transaction data
when requested by the consumer. These agreements may contain additional requirements relating to our processing and
provision of de-identified data. Additionally, our data panel customers might demand that the data that they purchase meet
additional data sourcing standards, which we may not satisfy in all cases in the future. Failure to comply with existing or new
laws, regulations, standards and obligations could result in loss of rights to use source data for data panels, loss of data panel
subscriptions, fines, sanctions or other penalties, which could have a material adverse effect on our results of operations,
financial condition or business.
State or federal legislation, regulatory requirements, or regulatory enforcement applicable to this business activity may
also change. Privacy groups, governmental agencies and individuals also may seek to restrict or prevent, or may advocate for
greater regulation of, our provision of data panels to data panel customers. For example, in January 2020, three members of
Congress wrote to the Federal Trade Commission (the “FTC”) to request a review of these business practices. In February
2020, we received a civil investigative demand from the FTC for documents and information relating to our data collection,
assembly, evaluation, sharing, correction and deletion practices, with which demand we fully complied. In November, 2020, we
were informed by the FTC that it had closed the matter with no further action.
Our use of data panels is subject to the agreement of our business customers from which we obtain the underlying data
or for which we source their underlying data. Although our arrangements with these customers generally permit us to use non-
identified transaction level data, some customers decline to permit the use of this data. The inability to use data may limit the
usefulness of our solutions and services which could adversely affect our business. For some of our solutions, we contractually
require our customers to provide necessary notices and to obtain necessary permissions and waivers for use and disclosure of
information through our solutions. A failure by our customers to comply with these contractual requirements could limit our use
of the related data and therefore the usefulness of our solutions and services which could adversely affect our business.
Furthermore, a failure by our customers to comply with these contractual requirements could subject us to claims or liability for
unauthorized use or disclosure of information. These claims or liabilities could subject us to unexpected costs and have a
material adverse effect on our results of operations, financial condition or business.
32
Our investment advisory services may subject us to liability for losses that result from potential, perceived or actual breaches
of our fiduciary duties.
Our investment advisory services involve fiduciary obligations that require us to act in the best interests of our clients,
and we may be sued and face liabilities for actual or claimed breaches of our fiduciary duties. Because we provide investment
advisory services, both directly and indirectly, with respect to substantial assets we could face substantial liability if it is
determined that we have breached our fiduciary duties. In certain circumstances, which generally depend on the types of
investment solutions and services we are providing, we may enter into client agreements jointly with advisors and retain
third-party investment money managers on behalf of clients. As a result, we may be included as a defendant in lawsuits against
financial advisors and third-party investment money managers that involve claims of breaches of the duties of such persons, and
we may face liabilities for the improper actions and/or omissions of such advisors and third-party investment money managers.
In addition, we may face claims based on the results of our investment advisory recommendations, even in the absence of a
breach of our fiduciary duty. This risk may be heightened during periods when equity or other financial markets are declining in
value or are particularly volatile, or when clients or investors with financial advisory clients are experiencing losses. Such
claims and liabilities could have a material adverse effect on our results of operations, financial condition or business.
We may become subject to liability based on the use of our investment solutions and services by our clients.
Our investment solutions and services support the investment processes of our clients, which, in the aggregate, manage
billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potential liability claims
brought by our clients or third parties based on the use of our investment solutions and services. However, these provisions
have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws.
Use of our products as part of the investment process creates the risk that clients, or the parties whose assets are managed by
our clients, may pursue claims against us for very significant dollar amounts. Any such claim, even if the outcome were to be
ultimately favorable to us, would involve a significant commitment of our management, personnel, financial and other
resources and could have a negative impact on our reputation. Such claims and lawsuits could therefore have a material adverse
effect on our results of operations, financial condition or business.
Furthermore, our clients may use our investment solutions and services together with software, data or products from
other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our
investment solutions and services do not cause these problems, the existence of these errors might cause us to incur significant
costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our
results of operations, financial condition or business.
If our investment solutions and services fail to perform properly due to undetected errors or similar problems, our results of
operations, financial condition and business could be materially adversely affected.
Investment solutions and services we develop or license may contain undetected errors or defects despite testing. Such
errors can exist at any point in the life cycle of our investment solutions or services, but are frequently found after introduction
of new investment solutions and services or enhancements to existing investment solutions or services. We continually
introduce new investment solutions and services and new versions of our investment solutions and services. Despite internal
testing and testing by current and potential clients, our current and future investment solutions and services may contain serious
defects or malfunctions. If we detect any errors before release, we might be required to delay the release of the investment
solution or service for an extended period of time while we address the problem. We might not discover errors that affect our
new or current investment solutions, services or enhancements until after they are deployed, and we may need to provide
enhancements to correct such errors. Errors may occur that could have a material adverse effect on our results of operations,
financial condition or business and could result in harm to our reputation, lost sales, delays in commercial release, third-party
claims, regulatory actions, contractual disputes, contract terminations or renegotiations, or unexpected expenses and diversion
of management and other resources to remedy errors. In addition, negative public perception and reputational damage caused by
such claims would adversely affect our client relationships and our ability to enter into new contracts. Any of these problems
could have a material adverse effect on our results of operations, financial condition and business.
33
We could face liability for certain information we provide, including information based on data we obtain from other
parties.
We may be subject to claims for securities law violations, negligence, breach of fiduciary duties or other claims
relating to the information we provide. For example, individuals may take legal action against us if they rely on information we
have provided and it contains an error. In addition, we could be subject to claims based upon the content that is accessible from
our website through links to other websites. Moreover, we could face liability based on inaccurate information provided to us
by others. Defending any such claims could be expensive and time-consuming, and any such claim could materially adversely
affect our results of operations, financial condition or business.
Our charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for certain legal
actions between us and our stockholders, which could increase costs to bring a claim, discourage claims or limit the ability
of our stockholders to bring a claim in a judicial forum viewed by the stockholders as more favorable for disputes with us or
our directors, officers or other employees.
Our charter provides that unless we consent in writing to the selection of an alternative forum, the Court of Chancery
of the State of Delaware will be the sole and exclusive forum for any (i) derivative action or proceeding brought on our behalf,
(ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or
our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law,
or (iv) any action asserting a claim governed by the internal affairs doctrine. Although we believe this exclusive forum
provision benefits us by providing increased consistency in the application of Delaware law for the specified types of actions
and proceedings, this choice of forum provision may increase costs to bring a claim, discourage claims or limit a stockholder’s
ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits against us or our directors, officers and other employees. The exclusive forum
provision in our charter will not preclude or contract the scope of exclusive federal or concurrent jurisdiction for actions
brought under the federal securities laws including the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, or the respective rules and regulations promulgated thereunder.
A deemed “change of control” of our company could require us to obtain the consent of our clients and a failure to do so
properly 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 subsidiaries may
not be assigned without the client’s consent. Under the Investment Company Act, advisory agreements with registered funds
terminate automatically upon assignment and, any assignment of an advisory agreement must be approved by the board of
directors and the shareholders of the registered fund. Under the Advisers Act and the Investment Company Act, such an
assignment may be deemed to occur upon a change of control of the Company. A change of control includes either gaining or
losing a “controlling person”. Whether someone is a controlling person for these purposes depends significantly on the specific
facts and circumstances. There can be no assurance that if we undergo a change of control, we would be successful in obtaining
all necessary consents or that the method by which we obtain such consents could not be challenged at a later time. If we are
unable to obtain all necessary consents or if such a challenge were to be successful it could have a material adverse effect on
our results of operations, financial condition or business.
Risks Related to our Common Stock
Holders of our common stock may be diluted by future issuances of common or preferred stock or convertible securities in
connection with our incentive plans, acquisitions or otherwise; and future sales of such shares in the public market, or the
expectations that such sales may occur, could lower our stock price.
Our charter authorizes us to issue shares of our common stock and options, rights, warrants and appreciation rights
relating to our common stock for the consideration and on the terms and conditions established by our Board of Directors in its
sole discretion. We could issue a significant number of shares of common stock, or securities convertible into shares of our
common stock, in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing
stockholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market
price for the shares of our common stock.
34
The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders
of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together
with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on
which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock. The
future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms
favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an
investment in the common stock less attractive.
We do not currently intend to pay dividends on our common stock for the foreseeable future and any share repurchases will
be subject to our discretion; consequently, your ability to achieve a return on your investment may depend only on
appreciation in the price of our common stock.
We do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future.
Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only
way to realize any gains on their investment. Investors seeking cash dividends should not purchase our common stock.
Additionally, in 2016, we announced that our Board of Directors authorized a share repurchase program under which
we may repurchase up to 2.0 million shares of our outstanding common stock. We retain the ability to repurchase when
circumstances warrant and may suspend or discontinue such program at any time. The Inflation Reduction Act of 2022, which
was signed into law in August 2022, imposes a 1% excise tax on the fair market value of stock repurchases after December 31,
2022, which may impact our future decisions on how to return value to stockholders in the most tax efficient manner.
Certain provisions in our charter documents and agreements and Delaware law may inhibit potential acquisition bids for
our company and prevent changes in our management.
Our certificate of incorporation and bylaws contains provisions that could depress the trading price of our common
stock by acting to discourage, delay or prevent a change of control of our company or changes in management that our
stockholders might deem advantageous. As a result of these provisions in our certificate of incorporation, the price investors
may 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 certain
restrictions on mergers and other business combinations between us and any holder of 15% or more of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our headquarters are located in Berwyn, Pennsylvania. We support our Envestnet Wealth Solutions segment primarily
through offices in Denver, Colorado; Raleigh, North Carolina; Berwyn, Pennsylvania; Richmond, Virginia; Boston,
Massachusetts; and Trivandrum, India. We support our Envestnet Data & Analytics segment primarily through offices in San
Mateo, California; and Raleigh, North Carolina. The majority of our offices are leased. We believe that our office facilities are
adequate for our immediate needs and that additional or substitute space is available if needed to accommodate the foreseeable
growth of our operations.
Item 3. Legal Proceedings
See Part II, Item 8, “Note 21—Commitments” for Legal Proceedings details.
Item 4. Mine Safety Disclosures
This section is not applicable.
35
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
(a)
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol “ENV”.
(b)
Holders
The number of holders of record of our common stock was 124 as of February 21, 2023.
Common Stock
As of December 31, 2022, we had 500,000,000 common shares authorized at a par value of $0.005, of which
54,013,826 shares were outstanding.
Preferred Stock
As of December 31, 2022, we had 50,000,000 preferred shares authorized at a par value of $0.005, of which no shares
were outstanding.
(c)
Dividends
We have never declared or paid cash dividends on our common stock, and we intend to retain our future earnings, if
any, to fund the growth of our business. We therefore do not anticipate paying any cash dividends on our common stock in the
foreseeable future. Our future decisions concerning the payment of dividends on our common stock will depend upon our
results of operations, financial condition and capital expenditure plans, as well as any other factors that the Board, in its sole
discretion, may consider relevant.
(d)
Securities Authorized for Issuance Under Equity Compensation Plan
For a description of securities authorized under our equity compensation plans, see Part II, Item 8, “Note 15—Stock-
Based Compensation” and Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters”.
(e)
Stock Performance Graph
The following graph compares the cumulative return to stockholders for $100 invested in our common stock relative to
the cumulative total returns of the Russell® 2000 Index and The S&P North American Technology Sector Index for each of the
last five fiscal years. In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed. The indices
are included for comparative purposes only. This graph is not “soliciting material,” is not deemed filed with the SEC and is not
to be incorporated by reference in any of our filings under the Securities Act, as amended, or the Exchange Act, as amended,
whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
36
5 YEAR STOCK PERFORMANCE GRAPH
12/30/2017
12/31/2018
12/31/2019
12/30/2020
12/30/2021
12/31/2022
Envestnet, Inc. ................................................................ $ 100.00 $ 98.68 $ 139.68 $ 165.08 $ 159.16 $ 123.77
114.70
Russell® 2000 Index .......................................................
128.61
108.66
146.23
100.00
87.82
S&P North American Technology Sector Index ............
100.00
101.11
144.78
207.31
260.56
167.17
__________________________________________________________
The stock price performance included in the graph above is not necessarily indicative of future stock price performance.
(f)
Recent Sales of Unregistered Securities
None
(g)
Issuer Purchases of Equity Securities
Total number
of shares
purchased
Average
price paid
per share
Total number of
shares purchased
as part of publicly
announced plans
or programs
Maximum number (or
approximate dollar
value) of shares
that may yet be
purchased under the
plans or programs
October 1, 2022 through October 31, 2022 ..................
November 1, 2022 through November 30, 2022 ..........
— $
—
—
—
—
—
December 1, 2022 through December 31, 2022 ...........
1,417,622
60.50
1,417,622
1,748,882
1,748,882
331,260
In 2016, the Company announced that its Board of Directors had authorized a share repurchase program under which
the Company may repurchase up to 2.0 million shares of its common stock. The timing and volume of share repurchases will be
determined by the Company’s management based on its ongoing assessments of the capital needs of the business, the market
price of its common stock and general market conditions. No time limit has been set for the completion of the repurchase
program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to
purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block
transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other
forward transactions or otherwise, all in compliance with applicable laws and other restrictions. As of December 31, 2022, 0.3
million shares could still be purchased under this program.
37
Item 6. Selected Financial Data
Part II, Item 6 is no longer required as the Company has adopted certain provisions within the amendments to
Regulation S-K that eliminate Item 301.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is
to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet has been
a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness
ecosystem so that our clients can deliver an Intelligent Financial Life to their clients.
Approximately 106,000 advisors and approximately 6,900 companies, including 16 of the 20 largest U.S. banks, 47 of
the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs and hundreds of FinTech companies,
leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients.
Through a combination of platform enhancements, partnerships and acquisitions, Envestnet uniquely provides a
financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive
better outcomes.
Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters based in Berwyn,
Pennsylvania, as well as other locations throughout the United States, India and other international locations.
We also operate six RIAs registered with the SEC. We believe that our business model results in a high degree of
recurring and predictable financial results.
Recent Developments
Macroeconomic Environment
Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets.
Recent geopolitical uncertainty resulting, in part, from military conflict between Russia and Ukraine which escalated in
February 2022 as well as rising inflation have contributed to significant volatility and decline in global financial markets during
2022 which continues as of the date of this Annual Report. The uncertainty over the extent and duration of the ongoing conflict
and this period of inflation continues to cause disruptions to businesses and markets worldwide. The extent of the effect on our
financial performance will continue to depend on future developments, including the extent and duration of the conflict and this
period of inflation, the Federal Reserve's monetary policy in response to rising inflation, the extent of economic sanctions
imposed, changes in market interest rates, further governmental and private sector responses and the timing and extent normal
economic conditions resume, all of which are uncertain and difficult to predict. Although we are unable to estimate the overall
financial effect of the conflict and this period of inflation at this time, as these conditions continue, they could have a material
adverse effect on our business, results of operations, financial condition and cash flows. As of December 31, 2022, the
consolidated financial statements do not reflect any adjustments as a result of these macroeconomic conditions.
Credit Agreement
On November 14, 2022, we entered into a First Amendment to the Third Amended and Restated Credit Agreement
(the “Third Credit Agreement”) with a group of banks. The Third Credit Agreement, dated as of February 4, 2022, amended
and restated, in its entirety, our prior credit agreement.
The First Amendment to the Third Credit Agreement amended certain provisions under the Third Credit Agreement to
(i) permit us to enter into derivative transactions related to our common stock in connection with the issuance of any convertible
indebtedness permitted to be incurred under the Third Credit Agreement and (ii) eliminate the testing of the liquidity covenant
on March 31, 2023. The Third Credit Agreement amended certain provisions under the prior credit agreement to, among other
things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce the interest rate payable on the loans
and (iii) increase capacity and flexibility under certain of the negative covenants.
38
The Third Credit Agreement provides, subject to certain customary conditions, for a revolving credit facility
(“Revolving Credit Facility”), in an aggregate amount of $500.0 million, with a $20.0 million sub-facility for issuances of
letters of credit.
In connection with entering into the Third Credit Agreement, we capitalized $1.9 million of new issuance costs and
wrote off $0.6 million of existing deferred financing charges.
In the event that we borrow monies under the Revolving Credit Facility, at Envestnet’s option, we will pay interest on
these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or
(ii) an adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.25% to 2.75% per
annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement. Any
borrowings under the Credit Facility mature on February 4, 2027. The undrawn portion of the commitments under the Credit
Facility is subject to a commitment fee at a rate ranging from 0.25% to 0.30% per annum, based upon the total net leverage
ratio as calculated pursuant to the Credit Agreement.
Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s domestic subsidiaries
and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet
and the guarantors, subject to certain exclusions. Proceeds under the Third Credit Agreement may be used to finance capital
expenditures and permitted acquisitions and for working capital and general corporate purposes.
Private Offering of Convertible Notes due 2027
In November 2022, we issued $575.0 million aggregate principal amount of convertible notes due 2027 (“Convertible
Notes due 2027”). The Convertible Notes due 2027 will mature on December 1, 2027, unless earlier repurchased, redeemed or
converted. Net proceeds from the offering were approximately $558.7 million. The Convertible Notes due 2027 bear interest at
a rate of 2.625% per annum payable semiannually in arrears in cash on June 1 and December 1 of each year, beginning on June
1, 2023.
The Convertible Notes due 2027 are general unsecured obligations, subordinated in right of payment to our obligations
under our revolving credit facility. The Convertible Notes due 2027 are convertible into shares of our common stock under
certain circumstances prior to maturity at a conversion rate of 13.6304 shares per one thousand principal amount of notes,
which represents a conversion price of $73.37 per share, subject to adjustment under certain conditions.
In connection with the pricing of the Convertible Notes due 2027, the Company entered into privately negotiated
capped call transactions (the “Capped Call Transactions”) with certain financial institutions for a total cost of approximately
$79.6 million. The Capped Call Transactions initially cover the number of shares of our common stock underlying the
Convertible Notes due 2027, subject to customary anti-dilution adjustments. The Capped Call Transactions are net purchased
call options on our common stock.
Using proceeds from the issuance of the Convertible Notes due 2027, we repurchased $300.0 million aggregate
principal of the outstanding Convertible Notes due 2023 for cash consideration of approximately $312.4 million and recognized
a loss on extinguishment of approximately $13.4 million recognized in interest expense. As of December 31, 2022, aggregate
principal of $45.0 million less unamortized debt issuance costs of $0.1 million remain outstanding after the repurchase.
Additionally, we repurchased $200.0 million aggregate principal of the outstanding Convertible Notes due 2025 for cash
consideration of approximately $181.8 million and recognized a gain on extinguishment of approximately $15.1 million
recognized in interest expense. As of December 31, 2022, aggregate principal of $317.5 million less unamortized debt issuance
costs of $4.8 million remain outstanding after the repurchase.
See Part II, Item 8, “Note 10—Debt, Convertible Notes due 2025” for more details regarding the issuance of the
Convertible Notes due 2027, repurchases of Convertible Notes due 2023 and Convertible Notes due 2025, and Capped Call
Transactions.
Procurement of Technology Solutions
On April 1, 2022, we entered into a purchase agreement with a privately held company to acquire the technology
solutions being developed by this privately held company for a purchase price of $9.0 million. We have paid a $4.0 million
advance during the year ended December 31, 2022. This advance is included in other non-current assets in the consolidated
balance sheets.
39
Office Closures
In April 2022, in response to changing needs and an increase in employees working remotely, we closed three offices
in the United States. In December 2022, we closed our office in Bangalore, India as a result of the outsourcing arrangement
with Tata Consultancy Services (“TCS”) (as described below). We are currently exploring alternative uses for these properties,
including sublease options. In connection with these closures, in the year ended December 31, 2022, we recognized $4.4
million of losses on asset retirements, which are included in general and administration expense in the consolidated statement of
operations. Additionally, in the year ended December 31, 2022, we recognized approximately $13.0 million of lease related
impairments, primarily right-of-use assets, which are included in general and administration expense in the consolidated
statement of operations.
Investment in Privately Held Companies
On May 20, 2022, we acquired a 25.0% interest in a privately held company for cash consideration of $5.0 million.
Subject to the occurrence of certain conditions, we agreed to invest up to an additional $10.0 million for additional units in the
future. We use the equity method of accounting to record our portion of this privately held company's net income or loss on a
one quarter lag from the actual results of operations. We use the equity method of accounting because of our less than 50%
ownership interest and lack of control and we do not otherwise exercise control over the significant economic and operating
decisions of the privately held company.
On September 2, 2022, we acquired additional membership units in a privately held company in which we already had
an approximate 43% ownership interest for $8.4 million which increased our ownership interest to 48%. We use the equity
method of accounting to record our portion of this privately held company's net income or loss on a one quarter lag from the
actual results of operations. After this unit purchase, our investment in this privately held company exceeded our proportionate
share of our net assets by approximately $7.8 million, which represents amortizable intangible assets. We will recognize
amortization of this basis difference prospectively over a period of 5 years. This amortization will be included within our
proportional share of income (loss) in other expense, net in the consolidated statements of operations.
Dilution gains on equity method investee share issuance
We have an ownership interest in a privately held company that is accounted for under the equity method. During the
first quarter of 2022, we funded a $2.5 million convertible loan to this privately held company. During the second quarter of
2022, this privately held company raised additional preferred equity which reduced our ownership to 41.0% and our convertible
loan was converted. As a result of this transaction, we recorded a $6.9 million dilution gain during the second quarter of 2022,
which is included in other expense, net in the consolidated statements of operations.
During the fourth quarter of 2022, another of our equity method investee's raised additional preferred equity which
reduced our ownership to 3.51%. As a result of this transaction, we recorded a $2.6 million dilution gain during the fourth
quarter of 2022, which is included in other expense, net in the consolidated statements of operations.
Exercise of Membership Interests
We granted membership interests in certain of our equity investments to two legacy PIEtech executives as part of the
2019 acquisition of PIEtech. These interests, which were fully vested as of May 1, 2020, became exercisable on May 1, 2022.
In July 2022, these executives exercised their respective put options and sold these membership interests to us for
approximately $10 million.
Acquisition of 401kplans.com
On May 31, 2022, we acquired 401kplans.com LLC (“401kplans.com”). 401kplans.com has been integrated into the
Envestnet Wealth Solutions segment.
401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and
due diligence among financial advisors and third-party administrators. The acquisition demonstrates our commitment to the
retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping
them shop, compare and select the best-fitting 401(k) plan for their client.
In connection with the 401kplans.com acquisition, we paid estimated consideration of $14.5 million, net of cash
acquired, subject to certain post-closing adjustments. We funded the acquisition with available cash resources.
40
Acquisition of Truelytics
On July 1, 2022, we acquired Truelytics, Inc. (“Truelytics”). The acquisition of Truelytics aligns with our strategy to
further connect our ecosystem by creating transformative progress for our advisors and clients. Truelytics is an Advisor
Transition Management platform and the first end-to-end data-driven system to help wealth management and insurance
enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The
Truelytics platform combines our data, analytics, and wealth technology to further support advisors across the ecosystem.
Truelytics has been integrated into the Envestnet Data & Analytics segment.
In connection with the acquisition of Truelytics, we paid estimated cash consideration of approximately $20.7 million,
net of cash acquired, subject to certain post-closing adjustments. We funded the Truelytics acquisition with available cash
resources.
Acquisition of Redi2
On July 1, 2022, we acquired Redi2 Technologies Inc. (“Redi2”). Redi2 provides revenue management and hosted fee-
billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. Redi2
has been integrated into the Envestnet Wealth Solutions segment.
In connection with the Redi2 acquisition, we paid estimated consideration of approximately $68.9 million in cash. In
addition, certain executives may earn up to $20.0 million in performance bonuses based upon the achievement of certain target
financial and non-financial metrics. These performance bonuses are recognized as compensation and benefits expense in the
statement of operations. As of December 31, 2022, the amount recorded in the statement of operations related to these
performance bonuses was immaterial. We funded the Redi2 acquisition with available cash resources.
Inflation Reduction Act of 2022
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (“IRA”), which, among other things,
implements a 15% minimum tax on book income of certain large corporations and a 1% excise tax on net stock repurchases.
The provisions of the IRA are effective beginning in 2023. We are currently evaluating the impacts of this act on our
consolidated financial statements.
Entry into Outsourcing Arrangement
In October 2022, we entered into an outsourcing arrangement with TCS to increase operational scale and business
agility. Under this agreement, we will outsource certain administrative and operational services of the Envestnet Data &
Analytics business located in Bangalore, India. The agreement became effective in October 2022 and will continue for a period
of ten years. In certain circumstances, we may terminate certain portions of the agreement, and in doing so, the agreement
requires us to pay significant termination fees. In connection with the outsourcing arrangement with TCS, we incurred
severance expenses, write-off of lease related restructuring costs, and other related expenses of approximately $9.1 million.
Organizational Realignment
In the fourth quarter of 2022, as part of an organizational realignment, we entered into separation agreements with a
number of employees. This realignment will allow us to operate more efficiently and prioritize activities and services that will
benefit our clients and the future of our business. In connection with the organizational realignment, we incurred approximately
$10.1 million of total severance expense during 2022.
Privately Held Company Investment
On January 31, 2023, we entered into a convertible promissory note agreement with a customer of our business, a
privately held company, whereby we were issued a convertible promissory note with a principal amount of $20.0 million and a
stated interest rate of 8.0% per annum (the “Convertible Promissory Note”). The Convertible Promissory Note has a maturity
date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified
financing events or corporate transactions.
In connection with the Convertible Promissory Note, we concurrently entered into a call option agreement with the
privately held company, which provides us an option to acquire the privately held company at a predetermined price upon
satisfaction of certain financial metrics.
41
Key Metrics
Envestnet Wealth Solutions Segment
The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and
investor accounts in the periods indicated:
As of December 31,
2022
2021
2020
(in millions, except accounts and advisors data)
Platform Assets
AUM ..................................................................................................... $
341,144 $
362,038 $
AUA .....................................................................................................
Total AUM/A ....................................................................................
367,412
708,556
456,316
818,354
263,043
405,365
668,408
Subscription ..........................................................................................
Total Platform Assets ........................................................................ $
4,382,109
5,090,665 $
4,901,662
5,720,016 $
3,892,814
4,561,222
Platform Accounts
AUM .....................................................................................................
AUA .....................................................................................................
Total AUM/A ....................................................................................
Subscription ..........................................................................................
Total Platform Accounts ....................................................................
Advisors
AUM/A .................................................................................................
Subscription ..........................................................................................
Total Advisors ...................................................................................
1,547,009
1,135,026
2,682,035
15,665,020
18,347,055
38,025
67,520
105,545
1,345,274
1,217,076
2,562,350
14,986,531
17,548,881
39,735
68,808
108,543
1,073,122
1,276,975
2,350,097
11,079,048
13,429,145
41,206
65,104
106,310
The following table provides information regarding the degree to which gross sales, redemptions, net flows and
changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated:
As of
December
31, 2021
Gross Sales
Redemptions
Net Flows
Market
Impact
Reclass to
Subscription Reclassification(1)
As of
December
31, 2022
(in millions, except account data)
Asset Rollforward - 2022
AUM .............. $ 362,038 $ 100,098 $ (68,181) $ 31,917 $ (60,948) $
(584) $
8,721 $ 341,144
AUA ...............
456,316
120,409
(95,016)
25,393
(73,849)
(31,727)
(8,721) 367,412
Total
AUM/A ...... $ 818,354 $ 220,507 $ (163,197) $ 57,310 $ (134,797) $ (32,311) $
— $ 708,556
Fee-Based
Accounts
2,562,350
243,320
(123,635)
2,682,035
__________________________________________________________
(1) Certain assets have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain
customers.
The above AUM/A gross sales figures include $52.9 billion in new client conversions. We onboarded an additional
$132.3 billion in subscription conversions during 2022, bringing total conversions for the year to $185.2 billion.
42
Asset Rollforward - 2021
As of
December
31, 2020
Gross
Sales
Redemptions
Net Flows
Market
Impact
Reclass to
Subscription
(in millions, except account data)
As of
December
31, 2021
AUM ............................................ $ 263,043 $ 117,066 $
AUA .............................................
(52,668) $
(92,299)
Total AUM/A ........................... $ 668,408 $ 233,741 $ (144,967) $
405,365
116,675
Fee-Based Accounts
2,350,097
64,398 $ 34,597 $
24,376
88,774 $ 75,384 $
40,787
— $ 362,038
(14,212) 456,316
(14,212) $ 818,354
322,138
(109,885) 2,562,350
The above AUM/A gross sales figures include $34.9 billion in new client conversions. We onboarded an additional
$312.4 billion in subscription conversions during 2021, bringing total conversions for the year to $347.3 billion.
Asset and account figures in the “Reclass to Subscription” columns for the years ended December 31, 2022 and 2021
represent enterprise customers whose billing arrangements in future periods are subscription-based, rather than asset-based.
Such amounts are included in Subscription metrics at the end of the quarter in which the reclassification occurred, with no
impact on total platform assets or accounts.
Envestnet Data & Analytics Segment
Paid End-Users
A paid end-user is defined as a user of an application or service provided to our customer using the Envestnet Data &
Analytics platform whose status corresponds to a billable activity under the associated customer contract. We believe that our
ability to increase the number of paid end-users is an indicator of our market penetration, the growth of our business, and our
potential future business opportunities.
Paid end-users were approximately 37 million, 32 million and 35 million as of December 31, 2022, 2021 and 2020,
respectively.
Revenues
Overview
We earn revenues primarily under three pricing models. First, a portion of our revenues is derived from fees charged as
a percentage of the assets that are managed or administered on our technology platforms by financial advisors. These revenues
are recorded under asset-based revenues. Our asset-based fees vary based on the types of investment solutions and services that
financial advisors utilize. Asset-based fees accounted for approximately 60%, 60% and 54% of our total revenues for the years
ended December 31, 2022, 2021 and 2020, respectively. In future periods, the percentage of our total revenues attributable to
asset-based fees is expected to vary based on fluctuations in securities markets, whether we enter into significant subscription
agreements, the mix of AUM or AUA, and other factors.
We also generate revenues from recurring, contractual subscription fees for providing access to our technology
platforms. This subscription revenue includes both contractual minimum payments and usage-based fees and is driven primarily
by the number of customers, including new customers as well as customers who renew their existing subscription contracts, and
the number of paid end-users. These revenues are recorded under subscription-based revenues. Subscription fees vary based on
the scope of technology solutions and services being used, and are priced in a variety of constructs based on the size of the
business, number of users or number of accounts and in many cases can increase over time based on the growth of these factors.
Subscription fees accounted for 39%, 38% and 43% of our total revenues for the years ended December 31, 2022, 2021 and
2020, respectively.
Finally, a portion of our revenues are generated from fees received in connection with professional services and other
sources.
43
Asset-based recurring revenues
We generally charge our customers fees based on a higher percentage of the market value of AUM than the fees we
charge on the market value of AUA, because we provide fiduciary oversight and/or act as the investment advisor in connection
with assets we categorize as AUM. The level of fees varies based on the nature of the investment solutions and services we
provide, as well as the specific investment manager, fund and/or custodian chosen by the financial advisor. A portion of our
revenues from assets under management or administration includes costs paid by us to third parties for sub-advisory, clearing,
custody and brokerage services. These expenses are recorded under cost of revenues. We do not have fiduciary responsibility in
connection with AUA and, therefore, generally charge lower fees on these assets. Our fees for AUA vary based on the nature of
the investment solutions and services we provide.
Approximately 80% of our asset-based recurring revenues from AUM/A are billed to customers at the beginning of
each quarter and are based on the market value of their assets on our platforms as of the end of the prior quarter. For example,
asset-based recurring revenues recognized during the fourth quarter of 2022 were primarily based on the market value of assets
as of September 30, 2022. Our asset-based recurring revenues are generally recognized ratably throughout the quarter based on
the number of days in the quarter.
Our asset-based recurring revenues are affected by the amount of new assets that are added to existing and new client
accounts, which we refer to as gross sales. Gross sales, from time to time, also include conversions of client assets to our
technology platforms. The amounts of assets that are withdrawn from client accounts are referred to as redemptions. We refer to
the difference between gross sales and redemptions as net flows. Positive net flows indicate that the market value of assets
added to client accounts exceeds the market value of assets that have been withdrawn from client accounts.
Our asset-based revenues are also affected by changes in the market values of securities held in client accounts due to
fluctuations in the securities markets. Certain types of securities have historically experienced greater market price fluctuations,
such as equity securities, than other securities, such as fixed income securities, though in any given period the type of securities
that experience the greatest fluctuations may vary.
Subscription-based recurring revenues
Subscription-based recurring revenues are generally recognized ratably over the term of each respective subscription
agreement, commencing on the date the service is provisioned to the customer, provided all applicable revenue recognition
criteria have been satisfied. As part of the subscription contracts, our customers generally commit to a minimum level of paid
end-users from which a minimum level of non-refundable subscription revenue is derived. As paid end-users in excess of the
guaranteed minimum level access the platform, the customer is then required to pay additional usage fees calculated based upon
a contracted per-paid-user fee. No refunds or credits are given if fewer paid end-users access the platform than the contracted
minimum level. Usage-based revenue is recognized as earned, provided all applicable revenue recognition criteria have been
satisfied.
Professional services and other revenues
We also receive revenues from professional services fees by providing customers with certain technology platform
software development and implementation services. These revenues are recognized when completed, under a
proportional-performance model utilizing an output-based approach or on a straight-line basis over the estimated life of the
customer relationship. Our contracts generally have fixed prices and generally specify or quantify interim deliverables.
Expenses
The following is a description of our principal expense items:
Cost of revenues
Cost of revenues primarily includes expenses related to our receipt of sub-advisory and clearing, custody and
brokerage services from third parties. The largest component of cost of revenues is paid to third party investment managers.
Clearing, custody and brokerage services are performed by third-party providers. These expenses are typically calculated based
upon a contractual percentage of the market value of assets held in customer accounts measured as of the end of each fiscal
quarter and are recognized ratably throughout the quarter based on the number of days in the quarter. Also included in cost of
revenues are vendor specific expenses related to the direct support of revenues associated with the Envestnet Data & Analytics
products.
44
Compensation and benefits
Compensation and benefits expenses primarily relate to employee compensation, including salaries, short-term
incentive compensation, non-cash stock-based compensation, incentive compensation, benefits and employer-related taxes.
General and administration
General and administration expenses include costs and expenses related to occupancy, communications services,
research and data services, software and maintenance charges, marketing, professional and legal services, travel and
entertainment and acquisition/transaction related expenses.
Depreciation and amortization
Depreciation and amortization expenses include depreciation and amortization related to:
•
•
•
fixed assets, including building and building improvements, computer equipment and software, leasehold
improvements, office furniture and fixtures and office equipment and other;
internally developed software; and
intangible assets, primarily related to customer lists, proprietary technology and trade names, the values of
which are capitalized in connection with our acquisitions.
Building, furniture and equipment are depreciated using the straight-line method based on the estimated useful lives of
the depreciable assets. Leasehold improvements are amortized using the straight-line method over their estimated economic
useful lives or the remaining lease term, whichever is shorter. Improvements are capitalized, while repairs and maintenance
costs are recorded as expenses in the period they are incurred. Assets are tested for recoverability whenever events or
circumstances indicate that the 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 the useful
lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could
impact the recoverability of these assets.
Intangible assets are depreciated using an accelerated or straight-line basis over their estimated economic useful lives
and are reviewed for possible impairment whenever events or changes in circumstances occur that could impact the
recoverability of these assets.
Interest income
Interest income primarily includes amounts earned on our bank accounts and money market funds.
Interest expense
Interest expense includes coupon interest and issuance cost amortization related to our convertible note issuances, as
well as interest and amortization of upfront fees and monthly fees related to our Revolving Credit Facility. The issuance costs
and upfront fees are amortized over the term of the related agreements. Interest expense may also include gain or loss on
extinguishment of debt. See Part II, Item 8, “Note 10—Debt” for additional details regarding our third-party debt.
Other income (expense), net
Other income (expense), net includes gains (losses) on our portion of our equity method investees' results and foreign
exchange gains or losses as well as other miscellaneous income or expense items as appropriate.
45
Results of Operations
Revenues:
Year Ended December 31,
2022
2021
%
Change
2020
%
Change
(in thousands, except for percentages)
Asset-based ................................................................... $
Subscription-based ........................................................
738,228 $
477,844
709,376
453,989
Total recurring revenues .............................................
Professional services and other revenues .....................
Total revenues .............................................................
1,216,072
23,712
1,239,784
1,163,365
23,152
1,186,517
Operating expenses:
Cost of revenues ...........................................................
Compensation and benefits ...........................................
General and administration ...........................................
Depreciation and amortization ......................................
468,460
490,725
216,075
130,548
423,723
432,829
171,657
117,767
Total operating expenses ............................................
1,305,808
1,145,976
4 % $
5 %
5 %
2 %
4 %
11 %
13 %
26 %
11 %
14 %
540,947
426,507
967,454
30,776
998,230
305,929
398,970
160,229
113,661
978,789
31 %
6 %
20 %
(25) %
19 %
39 %
8 %
7 %
4 %
17 %
Income (loss) from operations ...........................................
(66,024)
40,541
*
19,441
109 %
Other income (expense):
Interest income .............................................................
4,184
827
*
1,112
Interest expense ............................................................
Other income (expense), net .........................................
(16,843)
264
(16,931)
(4,076)
(1) %
(106) %
Total other expense, net ..............................................
(12,395)
(20,180)
(39) %
Income (loss) before income tax provision (benefit) .........
(78,419)
Income tax provision (benefit) ...........................................
7,061
Net income (loss) ...............................................................
(85,480)
20,361
7,667
12,694
*
(8) %
*
(31,504)
2,906
(27,486)
(8,045)
(5,401)
(2,644)
Add: Net (income) loss attributable to non-
controlling interest ......................................................
4,541
602
Net income (loss) attributable to Envestnet, Inc. ............... $
(80,939) $
13,296
*
* $
(466)
(3,110)
(26) %
(46) %
*
(27) %
*
*
*
*
*
__________________________________________________________
* Not meaningful
Year ended December 31, 2022 compared to year ended December 31, 2021
Asset-based recurring revenues
Asset-based recurring revenues increased 4% from $709.4 million in 2021 to $738.2 million in 2022. The increase was
primarily due to an increase in asset values applicable to our quarterly billing cycles as a result of the upswing in the equity
markets in the fourth quarter of 2021, offset by a decline in the equity markets beginning the first quarter of 2022 through the
end of 2022. In 2022, revenues were also positively affected by new account growth and positive net flows of AUM/A. The
revenue increase was partially offset by existing customers switching from an asset-based pricing model to a subscription-based
pricing model.
The number of financial advisors with AUM or AUA on our technology platforms decreased from approximately
40,000 as of December 31, 2021 to approximately 38,000 as of December 31, 2022 and the number of AUM or AUA client
accounts increased from approximately 2.6 million as of December 31, 2021 to approximately 2.7 million as of December 31,
2022.
Asset-based recurring revenue remained consistent at 60% of total revenue in 2021 and 2022.
46
Subscription-based recurring revenues
Subscription-based recurring revenues increased 5% from $454.0 million in 2021 to $477.8 million in 2022. This
increase was primarily due to an increase of $27.3 million in the Envestnet Wealth Solutions segment which can be attributed to
new and existing customer growth as well as existing customers switching from an asset-based pricing model to a subscription-
based pricing model. This increase is partially offset by a $3.4 million decrease in the Envestnet Data & Analytics segment,
primarily due to the equity market decline impacting the asset management customers in the research business. Periodically,
existing customers switch from an asset-based pricing model to a subscription-based pricing model.
Professional services and other revenues
Professional services and other revenues increased 2% from $23.2 million in 2021 to $23.7 million in 2022. The
increase was primarily due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person
event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic.
Cost of revenues
Cost of revenues increased 11% from $423.7 million in 2021 to $468.5 million in 2022. The increase was primarily
due to an increase in asset-based cost of revenues of $36.6 million, which directly correlates with the increase to asset-based
recurring revenues during the period. Also contributing to this increase was an increase in professional services and other cost
of revenues of $6.9 million, primarily as a result of our 2022 Advisor Summit, which was held in-person in 2022, and an
increase in subscription-based cost of revenues of $1.2 million. As a percentage of total revenues, cost of revenues increased
from 36% to 38% for the years ended December 31, 2021 and 2022.
Compensation and benefits
Compensation and benefits increased 13% from $432.8 million in 2021 to $490.7 million in 2022. The increase is
comprised of increases in salaries, benefits and related payroll taxes of $40.5 million, non-cash compensation expense of $12.3
million, and miscellaneous employee related expenses of $3.6 million. These increases were primarily due to increased
headcount as a result of growth and acquisitions in the Envestnet Wealth Solutions segment. Also contributing to this increase
was an increase in severance expense of $18.8 million, primarily a result of the outsourcing of the arrangement with TCS as
well as an organizational realignment in the fourth quarter. These increases were partially offset by a decrease in incentive
compensation expense of $20.5 million primarily due to the result of lower revenue and profitability measures achieved in our
incentive compensation program. As a percentage of total revenues, compensation and benefits increased from 36% in 2021 to
40% in 2022 primarily due to lower revenue increase compared to a higher growth in compensation and benefits.
General and administration
General and administration expenses increased 26% from $171.7 million in 2021 to $216.1 million in 2022. The
increase was primarily due to increases in lease restructuring and transaction costs of $16.6 million driven by the closure of four
offices, software and maintenance charges of $13.9 million, travel and entertainment expenses of $5.6 million,
communications, research and data services of $3.5 million, insurance, bank and payroll expenses of $2.0 million and
miscellaneous other general and administration expenses of $2.5 million. These increases were partially offset by decreases in
total occupancy costs of $4.6 million and professional and legal fees of $4.3 million. As a percentage of total revenues, general
and administration expenses increased from 14% in 2021 to 17% and 2022, which is primarily attributed to the increase in lease
restructuring and other related costs.
Depreciation and amortization
Depreciation and amortization expense increased 11% from $117.8 million in 2021 to $130.5 million in 2022,
primarily due to increases in internally developed software amortization expense of $8.4 million, finance lease amortization
expense of $4.7 million and intangible asset amortization of $3.3 million. The increases are partially offset by a decrease in
fixed assets depreciation of $3.7 million. As a percentage of total revenues, depreciation and amortization expense increased
from 10% in 2021 to 11% in 2022.
Interest income
Interest income increased from $0.8 million in 2021 to $4.2 million in 2022, primarily due to an increase the effective
interest rates earned on our cash and money market funds compared to the prior year.
47
Other income (expense), net
Other income (expense), net decreased from other expense of $4.1 million in 2021 to other income of $0.3 million in
2022, primarily due to dilution gains of $9.5 million recorded in 2022 related to equity method investee share issuances
partially offset by an increase in losses recorded for our share of losses on our equity method investees and a loss on foreign
exchange.
Income tax provision
Year Ended December 31,
2022
2021
(in thousands, except for percentages)
Income (loss) before income tax provision ............................................................................ $
Income tax provision ..............................................................................................................
(78,419)
7,061
$
Effective tax rate ....................................................................................................................
(9.0) %
20,361
7,667
37.7 %
Our 2022 effective tax rate differs from the statutory rate primarily due to the change in the valuation allowance we
have placed on a portion of US deferred tax assets, the generation of research and development ("R&D") tax credits, executive
compensation deduction limitations, income related to Indian partnerships, a change in our India indefinite reinvestment
assertion, and state income taxes.
Our 2021 effective tax rate differs from the statutory rate primarily due to the change in the valuation allowance we
have placed on a portion of US deferred tax assets, the generation of R&D tax credits, executive compensation deduction
limitations, income related to Indian partnerships, and state income taxes.
Year ended December 31, 2021 compared to year ended December 31, 2020
For a discussion of the 2021 Results of Operations compared to 2020, see Part II, Item 7, “Management's Discussion
and Analysis of Financial Condition and Results of Operations” of our Form 10-K filed with the SEC on February 25, 2022.
48
Business Segments
Business segments are generally organized around our service offerings. Financial information about each of our two
business segments is contained in Part II, Item 8, “Note 19—Segment Information”. Our business segments are as follows:
Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to empower
financial advisors and institutions to enable them to deliver an Intelligent Financial Life to their clients.
Envestnet Data & Analytics – a leading data aggregation, intelligence, and experiences platform that powers data
connectivity and business intelligence across digital financial services to enable them to deliver an Intelligent Financial Life to
their clients.
We also incur expenses not directly attributable to the segments listed above. These nonsegment operating expenses
include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance,
acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related
expenses.
The following table reconciles income (loss) from operations by segment to consolidated net income (loss) attributable
to Envestnet, Inc.:
Year Ended December 31,
2022
2021
2020
(in thousands)
Envestnet Wealth Solutions ..................................................................... $
55,972 $
124,651 $
(16,931)
(31,504)
91,501
(9,943)
(62,117)
19,441
1,112
2,906
(8,045)
(5,401)
(2,644)
(466)
(3,110)
Envestnet Data & Analytics .....................................................................
Nonsegment operating expenses ..............................................................
Income (loss) from operations .................................................................
Interest income ......................................................................................
Interest expense .....................................................................................
Other income (expense), net ..................................................................
Consolidated income (loss) before income tax provision (benefit) .........
Income tax provision (benefit) .................................................................
Consolidated net income (loss) ................................................................
Add: Net (income) loss attributable to non-controlling interest .........
(20,870)
(101,126)
(66,024)
4,184
(16,843)
264
(78,419)
7,061
(85,480)
4,541
2,033
(86,143)
40,541
827
(4,076)
20,361
7,667
12,694
602
Consolidated net income (loss) attributable to Envestnet, Inc. ................ $
(80,939) $
13,296 $
49
Envestnet Wealth Solutions
The following table presents income from operations for the Envestnet Wealth Solutions segment:
Year Ended December 31,
2022
2021
%
Change
2020
%
Change
(in thousands, except for percentages)
Revenues:
Asset-based ....................................................... $
738,228 $
Subscription-based ...........................................
Total recurring revenues .................................
Professional services and other revenues .........
Total revenues ................................................
Operating expenses:
Cost of revenues ...............................................
Compensation and benefits ..............................
General and administration ..............................
Depreciation and amortization .........................
Total operating expenses ................................
294,997
1,033,225
16,568
1,049,793
443,471
312,910
140,782
96,658
993,821
Income from operations ......................................... $
55,972 $
709,376
267,720
977,096
14,070
991,166
399,313
269,153
107,976
90,073
866,515
124,651
4 % $
10 %
6 %
18 %
6 %
11 %
16 %
30 %
7 %
15 %
(55) % $
540,947
248,810
789,757
16,333
806,090
283,497
257,698
92,680
80,714
714,589
91,501
31 %
8 %
24 %
(14) %
23 %
41 %
4 %
17 %
12 %
21 %
36 %
Year ended December 31, 2022 compared to year ended December 31, 2021 for the Envestnet Wealth Solutions segment
Revenues
Asset-based recurring revenues
Asset-based recurring revenues increased 4% from $709.4 million in 2021 to $738.2 million in 2022. The increase was
primarily due to an increase in asset values applicable to our quarterly billing cycles as result of the upswing in the equity
markets in the fourth quarter of 2021, offset by a decline in the equity markets beginning the first quarter of 2022 through the
end of 2022. In 2022, revenues were also positively affected by new account growth and positive net flows of AUM/A. The
revenue increase was partially offset by existing customers switching from an asset-based pricing model to a subscription-based
pricing model.
The number of financial advisors with AUM or AUA on our technology platforms decreased from approximately
40,000 as of December 31, 2021 to approximately 38,000 as of December 31, 2022 and the number of AUM or AUA accounts
increased from approximately 2.6 million as of December 31, 2021 to approximately 2.7 million as of December 31, 2022.
As a percentage of total revenues, asset-based recurring revenue decreased from 72% of total revenue in 2021 to 70%
in 2022.
Subscription-based recurring revenues
Subscription-based recurring revenues increased 10% from $267.7 million in 2021 to $295.0 million in 2022,
primarily due to new and existing customer growth along with additional revenue from existing customers switching from an
asset-based pricing model to a subscription-based pricing model.
Professional services and other revenues
Professional services and other revenues increased 18% from $14.1 million in 2021 to $16.6 million in 2022. The
increase was primarily due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person
event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic.
50
Cost of revenues
Cost of revenues increased 11% from $399.3 million in 2021 to $443.5 million in 2022. The increase was primarily
due to an increase in asset-based cost of revenues of $36.6 million directly correlated with the increase in asset-based recurring
revenues for the period. Also contributing to this increase was an increase in professional services and other cost of revenues of
$7.0 million, primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of segment
revenues, cost of revenues increased from 40% in 2021 to 42% in 2022.
Compensation and benefits
Compensation and benefits increased 16% from $269.2 million in 2021 to $312.9 million in 2022, primarily due to
increases in salaries, benefits and related payroll taxes of $34.3 million, non-cash compensation of $10.3 million and an
increase in severance expense of $8.9 million. These increases primarily relate to an increase in headcount as a result of growth
and acquisitions, along with the increase in severance expense related to a fourth quarter organizational realignment. These
increases are partially offset by a decrease in incentive compensation expense of $10.4 million primarily a result of lower
revenue and profitability measures achieved in our incentive compensation program. As a percentage of segment revenues,
compensation and benefits increased from 27% in 2021 to 30% in 2022, primarily due to lower revenue increase as well as
higher growth in compensation and benefits.
General and administration
General and administration expenses increased 30% from $108.0 million in 2021 to $140.8 million in 2022, primarily
due to increases in lease restructuring and transaction costs of $9.1 million driven by the closure of three offices, software and
maintenance charges of $11.5 million, travel and entertainment expenses of $3.3 million, miscellaneous general and
administrative expenses of $3.1 million and insurance, bank and payroll charges of $1.5 million. These increases were partially
offset by decreases in occupancy costs of $4.1 million and professional services fees of $3.5 million. As a percentage of
segment revenues, general and administration expenses increased from 11% in 2021 to 13% in 2022.
Depreciation and amortization
Depreciation and amortization increased 7% from $90.1 million in 2021 to $96.7 million in 2022, primarily due to an
increase in internally developed software amortization expense of $4.5 million and an increase in finance lease amortization
expense of $2.8 million. These increases are partially offset by other immaterial decreases within depreciation and amortization
As a percentage of segment revenues, depreciation and amortization expense remained consistent at 9% in 2021 and 2022.
Year ended December 31, 2021 compared to year ended December 31, 2020 for the Envestnet Wealth Solutions segment
For a discussion of the 2021 Results of Operations compared to 2020 for the Envestnet Wealth Solutions segment, see
Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K
filed with the SEC on February 25, 2022.
51
Envestnet Data & Analytics
The following table presents loss from operations for the Envestnet Data & Analytics segment:
Year Ended December 31,
2022
2021
%
Change
2020
%
Change
(in thousands, except for percentages)
Revenues:
Subscription-based ............................................ $
182,847 $
Professional services and other revenues ..........
Total revenues .................................................
Operating expenses:
Cost of revenues ................................................
Compensation and benefits ...............................
General and administration ...............................
Depreciation and amortization ..........................
Total operating expenses .................................
7,144
189,991
24,989
109,667
42,315
33,890
210,861
Income (loss) from operations ............................... $
(20,870) $
__________________________________________________________
* Not meaningful
186,269
9,082
195,351
24,410
105,416
35,798
27,694
193,318
2,033
(2) % $
(21) %
(3) %
2 %
4 %
18 %
22 %
9 %
177,697
14,443
192,140
22,432
110,436
36,268
32,947
202,083
5 %
(37) %
2 %
9 %
(5) %
(1) %
(16) %
(4) %
* $
(9,943)
(120) %
Year ended December 31, 2022 compared to year ended December 31, 2021 for the Envestnet Data & Analytics segment
Revenues
Subscription-based recurring revenues
Subscription-based recurring revenues decreased 2% from $186.3 million in 2021 to $182.8 million in 2022, primarily
due to the equity market decline impacting our asset management customers in the research business.
Professional services and other revenues
Professional services and other revenues decreased 21% from $9.1 million in 2021 to $7.1 million in 2022, primarily
due to the timing of the completion of customer projects and deployments.
Compensation and benefits
Compensation and benefits increased 4% from $105.4 million in 2021 to $109.7 million in 2022, primarily due to
increases in severance expense of $7.6 million, miscellaneous employee expense of $2.2 million and salaries, benefits and
related payroll taxes of $2.2 million. The increase in severance expense is primarily a result of the outsourcing arrangement
with TCS as well as an organizational realignment in the fourth quarter. The increases were partially offset by decreases in
incentive compensation of $7.6 million and stock-based compensation expense of $2.0 million. As a percentage of segment
revenues, compensation and benefits increased from 54% in 2021 to 58% in 2022. The increase in compensation and benefits as
a percentage of total revenues is primarily due to a decrease in revenue as well as an overall increase in compensation and
benefits.
General and administration
General and administration expenses increased 18% from $35.8 million in 2021 to $42.3 million in 2022, primarily
due to increases in restructuring and transaction costs of $2.8 million, research and data services expense of $2.4 million, travel
and entertainment expense of $1.8 million and software and maintenance charges of $1.7 million. These increases were
primarily offset by decreases in immaterial other general and administration expenses. As a percentage of segment revenues
general and administration expenses increased from 18% in 2021 to 22% in 2022, which is primarily due to a decrease in
revenues as well as an overall increase in general and administration expenses.
52
Depreciation and amortization
Depreciation and amortization increased 22% from $27.7 million in 2021 to $33.9 million in 2022, primarily due to
increases in internally developed software amortization expense of $3.8 million and intangible asset amortization expense of
$2.6 million. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in 2021 to 18%
in 2022. The increase in depreciation and amortization as a percentage of total revenues is primarily due to a decrease in
revenues as well as higher amortization expense incurred in 2022 driven by increased capitalization related to internally
developed software costs and the procurement of technology solutions from a privately held company.
Year ended December 31, 2021 compared to year ended December 31, 2020 for the Envestnet Data & Analytics segment
For a discussion of the 2021 Results of Operations compared to 2020 for the Envestnet Data & Analytics segment, see
Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K
filed with the SEC on February 25, 2022.
Nonsegment
The following table presents nonsegment operating expenses:
Year Ended December 31,
2022
2021
%
Change
2020
%
Change
(in thousands, except for percentages)
Operating expenses:
Compensation and benefits ................................ $
68,148 $
General and administration ................................
32,978
Total operating expenses ........................................ $
101,126 $
58,260
27,883
86,143
17 % $
18 %
17 % $
30,836
31,281
62,117
89 %
(11) %
39 %
Year ended December 31, 2022 compared to year ended December 31, 2021 for Nonsegment
Compensation and benefits
Compensation and benefits increased 17% from $58.3 million in 2021 to $68.1 million in 2022, primarily due to
increases in headcount that resulted in increases in non-cash compensation expense of $4.0 million and salaries, benefits and
related payroll taxes of $3.3 million. In addition, severance expense increased by $3.4 million as a result of an organization
realignment in the fourth quarter of 2022. The increases are partially offset by a decrease in incentive compensation of $2.5
million.
General and administration
General and administration expenses increased 18% from $27.9 million in 2021 to $33.0 million in 2022, primarily
due to an increase in restructuring charges and transaction costs of $4.1 million, primarily driven by acquisition activity and
system implementation costs.
Year ended December 31, 2021 compared to year ended December 31, 2020 for Nonsegment
For a discussion of the 2021 Results of Operations compared to 2020 for Nonsegment expenses, see Part II, Item 7,
“Management's Discussion and Analysis of Financial Condition and Results of Operations” of our Form 10-K filed with the
SEC on February 25, 2022.
53
Non-GAAP Financial Measures
In addition to reporting results according to GAAP, we also disclose certain non-GAAP financial measures to enhance
the understanding of our operating performance. Those measures include “adjusted revenues,” “adjusted EBITDA,” “adjusted
net income” and “adjusted net income per diluted share”.
“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. On
January 1, 2022, the Company adopted ASU 2021-08 whereby it now accounts for contract assets and contract liabilities
obtained upon a business combination in accordance with ASC 606. Prior to the adoption of ASU 2021-08, we recorded at fair
value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related
to acquired entities for periods subsequent to the acquisition did not reflect the full amount of revenue that would have been
recorded by these entities had they remained stand-alone entities. Adjusted revenues has limitations as a financial measure,
should be considered as supplemental in nature and is not meant as a substitute for revenue prepared in accordance with GAAP.
“Adjusted EBITDA” represents net income (loss) before deferred revenue fair value adjustment, interest income,
interest expense, accretion on contingent consideration and purchase liability, income tax provision (benefit), depreciation and
amortization, non-cash compensation expense, restructuring charges and transaction costs, severance, fair market value
adjustment to contingent consideration liability, fair market value adjustment on investment in private company, litigation and
regulatory related expenses, foreign currency, gain on settlement of liability, gain on insurance reimbursement, non-income tax
expense adjustment, gain on acquisition of equity method investment, gain on sale of interest in private company, dilution gain
on equity method investee share issuance, loss allocations from equity method investments and (income) loss attributable to
non-controlling interest.
“Adjusted net income” represents net income before deferred revenue fair value adjustment, accretion on contingent
consideration and purchase liability, non-cash interest expense, cash interest on our Convertible Notes (subsequent to the
adoption of ASU 2020-06 on January 1, 2021), non-cash compensation expense, restructuring charges and transaction costs,
severance, amortization of acquired intangibles, fair market value adjustment to contingent consideration liability, fair market
value adjustment to investment in private company, litigation and regulatory related expenses, foreign currency, gain on
settlement of liability, gain on insurance reimbursement, non-income tax expense adjustment, dilution gain on equity method
investee share issuance, gain on acquisition of equity method investment, gain on sale of interest in private company, loss
allocations from equity method investments and (income) loss attributable to non-controlling interest. Reconciling items are
presented gross of tax, and a normalized tax rate is applied to the total of all reconciling items to arrive at adjusted net income.
The normalized tax rate is based solely on the estimated blended statutory income tax rates in the jurisdictions in which we
operate. We monitor the normalized tax rate based on events or trends that could materially impact the rate, including tax
legislation changes and changes in the geographic mix of our operations.
“Adjusted net income per diluted share” represents adjusted net income attributable to common stockholders divided
by the diluted number of weighted-average shares outstanding. Beginning January 1, 2021, the dilutive effect of our
Convertible Notes are calculated using the if-converted method in accordance with the adoption of ASU 2020-06 (See “Note 2
—Summary of Significant Accounting Policies”). As a result, 9.9 million potential shares to be issued in connection with our
Convertible Notes are assumed to be dilutive for purposes of the adjusted net income per share calculation beginning January 1,
2021.
Our Board and management use these non-GAAP financial measures:
•
•
•
•
•
As measures of operating performance;
For planning purposes, including the preparation of annual budgets;
To allocate resources to enhance the financial performance of our business;
To evaluate the effectiveness of our business strategies; and
In communications with our Board concerning our financial performance.
Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, among
other factors, when determining management’s incentive compensation.
We also present adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share
as supplemental performance measures because we believe that they provide our Board, management and investors with
additional information to assess our performance. Adjusted revenues provide comparisons from period to period by excluding
the effect of purchase accounting on the fair value of acquired deferred revenue. Adjusted EBITDA provides comparisons from
period to period by excluding potential differences caused by variations in the age and book depreciation of fixed assets
54
affecting relative depreciation expense and amortization of internally developed software, amortization of acquired intangible
assets, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, accretion on
contingent consideration and purchase liability, severance, fair market value adjustment to contingent consideration liability,
income or loss allocations from equity method investments, litigation and regulatory related expenses, foreign currency, gain on
settlement of liability, gain on insurance reimbursement, gain on acquisition of equity method investment, fair market value
adjustment to investment in private company, dilution gain on equity method investee share issuance, income or loss allocations
from equity method investments, pre-tax (income) loss attributable to non-controlling interest and changes in interest expense
and interest income that are influenced by capital structure decisions and capital market conditions. Our management also
believes it is useful to exclude non-cash stock-based compensation expense from adjusted EBITDA and adjusted net income
because non-cash equity grants made at a certain price and point in time do not necessarily reflect how our business is
performing at any particular time.
We believe adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are
useful to investors in evaluating our operating performance because securities analysts use adjusted revenues, adjusted
EBITDA, adjusted net income and adjusted net income per diluted share as supplemental measures to evaluate the overall
performance of companies, and we anticipate that our investors and analyst presentations will include adjusted revenues,
adjusted EBITDA, adjusted net income and adjusted net income per diluted share.
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are not
measurements of our financial performance under GAAP and should not be considered as an alternative to revenues, net
income, operating income or any other performance measures derived in accordance with GAAP, or as an alternative to cash
flows from operating activities as a measure of our profitability or liquidity.
We understand that, although adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per
diluted share are frequently used by securities analysts and others in their evaluation of companies, these measures have
limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as
reported under GAAP. In particular you should consider:
•
•
•
•
•
•
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not
reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not
reflect changes in, or cash requirements for, our working capital needs;
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not
reflect non-cash components of employee compensation;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often
will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such
replacements;
Due to either net losses before income tax expense or the use of federal and state net operating loss carryforwards,
we paid net cash of $12.1 million, $7.9 million, and $8.3 million in the years ended December 31, 2022, 2021 and
2020, respectively. In the event that we generate taxable income and our existing net operating loss carryforwards
for federal and state income taxes have been fully utilized or have expired, income tax payments will be higher;
and
Other companies in our industry may calculate adjusted revenues, adjusted EBITDA, adjusted net income and
adjusted net income per diluted share differently than we do, limiting their usefulness as a comparative measure.
Management compensates for the inherent limitations associated with using adjusted revenues, adjusted EBITDA,
adjusted net income and adjusted net income per diluted share through disclosure of such limitations, presentation of our
financial statements in accordance with GAAP and reconciliation of adjusted revenues to revenues, the most directly
comparable GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per diluted share to net
income and net income per share, the most directly comparable GAAP measures. Further, our management also reviews GAAP
measures and evaluates individual measures that are not included in some or all of our non-GAAP financial measures, such as
our level of capital expenditures and interest income, among other measures.
55
The following table sets forth a reconciliation of total revenues to adjusted revenues based on our historical results:
Year Ended December 31,
2022
2021
2020
(in thousands)
Total revenues ........................................................................................... $
Deferred revenue fair value adjustment ...............................................
1,239,784 $
216
1,186,517 $
284
Adjusted revenues ..................................................................................... $
1,240,000 $
1,186,801 $
998,230
692
998,922
The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:
Year Ended December 31,
2022
2021
2020
(in thousands)
(85,480) $
12,694 $
(2,644)
Net income (loss) ...................................................................................... $
Add (deduct):
Deferred revenue fair value adjustment ...............................................
Interest income .....................................................................................
Interest expense ....................................................................................
Accretion on contingent consideration and purchase liability .............
Income tax provision (benefit) .............................................................
Depreciation and amortization .............................................................
Non-cash compensation expense ..........................................................
Restructuring charges and transaction costs .........................................
Severance .............................................................................................
Fair market value adjustment to contingent consideration liability .....
Fair market value adjustment on investment in private company ........
Litigation and regulatory related expenses ...........................................
Foreign currency ..................................................................................
Gain on settlement of liability ..............................................................
Gain on insurance reimbursement ........................................................
Non-income tax expense adjustment ....................................................
Gain on acquisition of equity method investment ................................
Gain on sale of interest in private company .........................................
216
(4,184)
16,843
—
7,061
130,548
80,333
35,141
30,117
—
(400)
6,055
1,419
—
—
802
—
—
Dilution gain on equity method investee share issuance ......................
(9,517)
Loss allocations from equity method investments ...............................
(Income) loss attributable to non-controlling interest ..........................
8,874
2,300
284
(827)
16,931
730
7,667
117,767
68,020
18,490
11,347
(1,067)
(758)
7,591
(7)
(1,206)
(968)
(1,347)
—
—
—
7,093
(704)
692
(1,112)
31,504
1,688
(5,401)
113,661
57,113
19,383
25,110
(3,105)
—
7,825
116
—
—
421
(4,230)
(1,647)
—
5,399
(1,830)
Adjusted EBITDA .................................................................................... $
220,128 $
261,730 $
242,943
56
The following table sets forth a reconciliation of net income (loss) to adjusted net income and adjusted net income per
diluted share based on our historical results:
Net income (loss) ...................................................................................... $
Income tax provision (benefit) (1)
..............................................................
Income (loss) before income tax provision (benefit) ................................
Add (deduct):
Deferred revenue fair value adjustment ...............................................
Accretion on contingent consideration and purchase liability .............
Non-cash interest expense ....................................................................
Cash interest - Convertible Notes (2)
.....................................................
Non-cash compensation expense ..........................................................
Restructuring charges and transaction costs .........................................
Severance .............................................................................................
Amortization of acquired intangibles ...................................................
Fair market value adjustment to contingent consideration liability .....
Fair market value adjustment to investment in private company .........
Litigation and regulatory related expenses ...........................................
Foreign currency .................................................................................
Gain on settlement of liability ..............................................................
Gain on insurance reimbursement ........................................................
Non-income tax expense adjustment ....................................................
Gain on acquisition of equity method investment
Gain on sale of interest in private company
Dilution gain on equity method investee share issuance ......................
Loss allocations from equity method investments ...............................
(Income) loss attributable to non-controlling interest ..........................
Adjusted net income before income tax effect .........................................
Income tax effect (3)
Adjusted net income ................................................................................. $
..................................................................................
Year Ended December 31,
2022
2021
2020
(in thousands)
(85,480) $
12,694 $
7,061
(78,419)
216
—
4,678
10,897
80,333
35,141
30,117
71,901
—
(400)
6,055
1,419
—
—
802
—
—
(9,517)
8,874
2,300
164,397
(41,921)
122,476 $
7,667
20,361
284
730
5,745
9,919
68,020
18,490
11,347
68,587
(1,067)
(758)
7,591
(7)
(1,206)
(968)
(1,347)
—
—
—
7,093
(704)
212,110
(54,088)
158,022 $
(2,644)
(5,401)
(8,045)
692
1,688
17,480
—
57,113
19,383
25,110
73,559
(3,105)
—
7,825
116
—
—
421
(4,230)
(1,647)
—
5,399
(1,830)
189,929
(48,432)
141,497
Basic number of weighted-average shares outstanding ............................
55,199,482
54,470,975
53,589,232
Effect of dilutive shares:
Options to purchase common stock......................................................
Unvested restricted stock units .............................................................
111,327
390,270
206,022
633,384
Convertible Notes .................................................................................
10,092,369
9,898,549
Warrants ...............................................................................................
—
73,715
416,593
592,033
414,398
58,459
Diluted number of weighted-average shares outstanding .........................
65,793,448
65,282,645
55,070,715
Adjusted net income per share - diluted ................................................... $
1.86 $
2.42 $
2.57
__________________________________________________________
(1) For the years ended December 31, 2022, 2021 and 2020, the effective tax rate computed in accordance with GAAP equaled
(9.0)%, 37.7% and 67.1%, respectively.
(2) Cash interest on the Company's Convertible Notes included only for the for the year ended December 31, 2022 and 2021
due to the adoption of ASU 2020-06 on January 1, 2021 (See Part II, Item 8, "Note 2—Summary of Significant Accounting
Policies”).
(3) Estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for all years presented.
57
Note on Income Taxes: As of December 31, 2022, we had net operating loss carryforwards of approximately $69
million and $221 million for federal and state income tax purposes, respectively, available to reduce future income subject to
income taxes. As a result, the amount of actual cash taxes we pay for federal, state and foreign income taxes differs
significantly from the effective income tax rate computed in accordance with GAAP, and from the normalized rate shown
above.
The following tables set forth a reconciliation of revenues to adjusted revenues and income (loss) from operations to
adjusted EBITDA based on our historical results for each segment for the years ended December 31, 2022, 2021 and 2020:
Year Ended December 31, 2022
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Nonsegment
Total
Revenues ..................................................................... $
Deferred revenue fair value adjustment ....................
Adjusted revenues ....................................................... $
1,049,793 $
216
1,050,009 $
(in thousands)
189,991 $
—
189,991 $
— $
—
— $
1,239,784
216
1,240,000
Income (loss) from operations ..................................... $
55,972 $
(20,870) $
(101,126) $
(66,024)
Add (deduct): ...............................................................
Deferred revenue fair value adjustment ....................
Depreciation and amortization ..................................
Non-cash compensation expense ..............................
Restructuring charges and transaction costs .............
Severance ..................................................................
Litigation and regulatory related expenses ...............
Non-income tax expense adjustment ........................
Loss attributable to non-controlling interest .............
Other ........................................................................
216
96,658
47,043
22,868
12,415
—
878
2,300
635
—
33,890
10,739
3,734
11,567
6,055
(76)
—
5
—
—
22,551
8,539
6,135
—
—
—
—
216
130,548
80,333
35,141
30,117
6,055
802
2,300
640
Adjusted EBITDA ....................................................... $
238,985 $
45,044 $
(63,901) $
220,128
58
Year Ended December 31, 2021
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Nonsegment
Total
(in thousands)
Revenues ..................................................................... $
991,166 $
195,351 $
Deferred revenue fair value adjustment ....................
Adjusted revenues ....................................................... $
284
991,450 $
—
195,351 $
— $
—
— $
1,186,517
284
1,186,801
Income (loss) from operations ..................................... $
Add (deduct): ...............................................................
124,651 $
2,033 $
(86,143) $
40,541
Deferred revenue fair value adjustment ....................
Accretion on contingent consideration and
purchase liability .......................................................
Depreciation and amortization ..................................
Non-cash compensation expense ..............................
Restructuring charges and transaction costs .............
Severance ..................................................................
Fair market value adjustment to contingent
consideration liability ...............................................
Litigation and regulatory related expenses ...............
Non-income tax expense adjustment ........................
Income attributable to non-controlling interest ........
Other .........................................................................
284
632
90,073
36,787
13,795
4,614
—
—
(1,507)
(704)
78
—
98
27,694
12,634
242
4,016
(1,067)
7,591
160
—
—
—
—
—
18,599
4,453
2,717
—
—
—
—
—
284
730
117,767
68,020
18,490
11,347
(1,067)
7,591
(1,347)
(704)
78
Adjusted EBITDA ....................................................... $
268,703 $
53,401 $
(60,374) $
261,730
Year Ended December 31, 2020
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Nonsegment
Total
(in thousands)
Revenues ..................................................................... $
Deferred revenue fair value adjustment ....................
806,090 $
692
192,140 $
—
Adjusted revenues ....................................................... $
806,782 $
192,140 $
— $
—
— $
998,230
692
998,922
Income (loss) from operations ..................................... $
91,501 $
(9,943) $
(62,117) $
19,441
Add (deduct): ...............................................................
Deferred revenue fair value adjustment ....................
Accretion on contingent consideration and
purchase liability .......................................................
Depreciation and amortization ..................................
Non-cash compensation expense ..............................
Restructuring charges and transaction costs .............
Severance ..................................................................
Fair market value adjustment to contingent
consideration liability ...............................................
Litigation and regulatory related expenses ...............
Non-income tax expense adjustment ........................
Income attributable to non-controlling interest ........
Other .........................................................................
692
1,430
80,714
35,797
6,878
18,617
—
—
514
(1,830)
15
—
258
32,947
14,932
2,304
4,628
(3,105)
7,825
(93)
—
5
—
—
—
8,908
10,201
1,865
—
—
—
—
—
692
1,688
113,661
59,637
19,383
25,110
(3,105)
7,825
421
(1,830)
20
Adjusted EBITDA ....................................................... $
234,328 $
49,758 $
(41,143) $
242,943
59
Liquidity and Capital Resources
As of December 31, 2022, we had total cash and cash equivalents of $162.2 million compared to $429.3 million as of
December 31, 2021.
We plan to use existing cash as of December 31, 2022, cash generated in the ongoing operations of our business and
amounts under our revolving credit facility to fund our current operations, capital expenditures and possible acquisitions or
other strategic activity, and to meet our debt service obligations. If the cash generated in the ongoing operations of our business
is insufficient to fund these requirements we may be required to borrow under our revolving credit facility or incur additional
debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities.
Credit Agreement
On February 4, 2022, we entered into a First Amendment to the Third Amended and Restated Credit Agreement (the
"Third Credit Agreement"), dated as of February 4, 2022. The Third Credit Agreement amended and restated, in its entirety, the
prior credit agreement.
The First Amendment to the Third Credit Agreement amended certain provisions under the Third Credit Agreement to
(i) permit us to enter into derivative transactions related to our common stock in connection with the issuance of any convertible
indebtedness permitted to be incurred under the Third Credit Agreement and (ii) eliminate the testing of the liquidity covenant
on March 31, 2023. The Third Credit Agreement amended certain provisions under the prior credit agreement to, among other
things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce the interest payable on the loans, and
(iii) increase capacity and flexibility under certain of the negative covenants.
The Third Credit Agreement provides, subject to certain customary conditions, for the Revolving Credit Facility, in an
aggregate amount of $500.0 million, with a $20.0 million sub-facility for letters of credit.
Proceeds under the Third Credit Agreement may be used to finance capital expenditures and permitted acquisitions
and for working capital and general corporate purposes.
Outstanding loans under the Revolving Credit Facility accrue interest, at our option, at a rate equal to either (i) a base
rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term SOFR plus an applicable
margin ranging from 1.25% to 2.75% per annum, in each case based upon our total net leverage ratio, as calculated pursuant to
the Third Credit Agreement. The undrawn portion of the commitments under the Revolving Credit Facility is subject to a
commitment fee at a rate ranging from 0.25% to 0.30% per annum based upon our total net leverage ratio, as calculated
pursuant to the Third Credit Agreement. Borrowings made under the Third Credit Agreement are scheduled to mature on
February 4, 2027.
There are no amounts outstanding under the Revolving Credit Facility and we have $500.0 million available to borrow
under the Revolving Credit Facility, subject to covenant compliance.
Convertible Notes
In November 2022, we issued $575.0 million aggregate principal amount of Convertible Notes due 2027. The
Convertible Notes due 2027 will mature on December 1, 2027, unless otherwise repurchased, redeemed or converted. Net
proceeds from the offering were approximately $558.7 million. The Convertible Notes due 2027 bear interest at a rate of
2.625% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2023.
Using proceeds from the issuance of the Convertible Notes due 2027, we repurchased $300.0 million of the $345.0
million of convertible notes issued in May 2018 that mature on June 1, 2023 (the “Convertible Notes due 2023”) for cash
consideration of approximately $312.4 million and recognized a loss on extinguishment of approximately $13.4 million
recognized in interest expense. As of December 31, 2022, aggregate principal of $45.0 million less unamortized debt issuance
costs of $0.1 million remain outstanding after the repurchase. The Convertible Notes due 2023 bear interest at a rate of 1.75%
per annum payable semiannually in arrears on June 1 and December 1 of each year.
60
Using proceeds from the issuance of the Convertible Notes due 2027, we repurchased $200.0 million of the $517.5
million of convertible notes issued in August 2020 that mature on August 15, 2025 (the “Convertible Notes due 2025”) for cash
consideration of approximately $181.8 million and recognized a gain on extinguishment of approximately $15.1 million
recognized in interest expense. As of December 31, 2022, aggregate principal of $317.5 million less unamortized debt issuance
costs of $4.8 million remaining outstanding after the repurchase. The Convertible Notes due 2025 bear interest at a rate of
0.75% per annum payable semiannually in arrears on February 15 and August 15 of each year.
See Part II, Item 8, “Note 10—Debt” for further information regarding the terms of our Convertible Notes.
Capped Call Transactions
In connection with the pricing of the Convertible Notes due 2027, we entered into privately negotiated Capped Call
Transactions with certain financial institutions for a total cost of approximately $79.6 million. The Capped Call Transactions
initially cover the number of shares of our common stock underlying the Convertible Notes due 2027, subject to customary
anti-dilution adjustments. The Capped Call Transactions are net purchased call options on our common stock.
Issuance and sale of Common Shares to BlackRock
On December 20, 2018, we issued and sold to BlackRock, Inc. (“BlackRock”) warrants to purchase approximately
470,000 common shares of our common stock at an exercise price of $65.16 per share, subject to customary anti-dilution
adjustments. The warrants were exercisable at BlackRock’s option for four years from the date of issuance. The warrants were
unexercised upon expiration on December 20, 2022.
Impact of Tax Cuts and Jobs Act
Beginning in 2022, the Tax Cuts and Jobs Act (“TCJA”) eliminates the option to deduct research and development
("R&D") expenditures currently and requires taxpayers to amortize them pursuant to IRC Section 174. As a result, in 2023, we
expect the amount of cash we pay for income taxes to increase compared to 2022.
Cash Flows
The following table presents information regarding our cash flows for the periods indicated:
Year Ended December 31,
2022
2021
(in thousands)
Net cash provided by operating activities .............................................................................. $
117,037 $
250,577
Net cash used in investing activities ......................................................................................
Net cash used in financing activities ......................................................................................
Effect of exchange rate on changes on cash ...........................................................................
(251,126)
(127,002)
(6,164)
(176,138)
(29,170)
(555)
Net (decrease) increase in cash, cash equivalents and restricted cash ................................... $
(267,255) $
44,714
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2022 was $117.0 million compared to net
cash provided by operating activities of $250.6 million for the same period in 2021. The decrease was primarily due to an
increase in pre-tax net loss period over period of $98.8 million, a decrease in the change in operating assets and liabilities of
$72.3 million, which is primarily timing related, and gains on equity method investee share issuances recorded in 2022 of $9.5
million. These were partially offset by year-over-year increases in lease-related impairment charges and loss on property and
equipment disposals driven by office closures of $19.3 million, noncash addbacks for depreciation and amortization expense of
$12.8 million, and non-cash compensation expense of $12.3 million.
61
Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 was $251.1 million compared to net cash
used in investing activities of $176.1 million for the same period in 2021. The increase was primarily due to year-over-year
increases of $61.7 million in net disbursements related to acquisitions and investments in privately held companies and an
additional $24.0 million of internally developed software costs capitalized in 2022 compared to 2021. These increases were
partially offset by decreases in cash disbursements of $10.5 million for acquisitions of proprietary technology, purchases of
property and equipment of $7.6 million and issuance of notes receivable to equity method investees of $6.4 million.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2022 was $127.0 million compared to net cash
used in financing activities of $29.2 million for the same period in 2021. In November 2022, we received proceeds of
approximately $558.7 million from the issuance of the Convertible Notes due 2027. We repurchased $312.4 million of the
Convertible Notes due 2023 and $181.8 million of the Convertible Notes due 2025. Additionally, we used approximately $79.6
million from the net proceeds to pay the cost of entering into Capped Call Transactions. We also increased share repurchases of
$81.7 million and increased finance lease payments of $18.7 million in 2022 also contributed to the year-over-year increase.
These increases in net cash used in financing activities were partially offset by additional capital contributions of $12.8 million
in 2022 made by non-controlling shareholders and decreased contingent consideration payments of $8.5 million.
Commitments
We enter into unconditional purchase obligations arrangements for certain of our services that we receive in the
normal course of business. As of December 31, 2022, the Company estimated future minimum unconditional purchase
obligations of approximately $103 million. This amount increased by $65 million compared to the prior year primarily driven
by our entry into the outsourcing agreement with TCS.
As of December 31, 2022, future minimum lease payments under non-cancellable leases were $154.7 million. These
leases expire at various dates prior to 2033.
In connection with certain of our acquisitions, we have entered into arrangements whereby we have agreed to pay
performance bonuses up to $20 million based upon the achievement of certain performance targets. As of December 31, 2022,
the liabilities associated with these performance bonuses were immaterial.
We have also committed $12.5 million in future funding to certain of our equity method investees.
We expect to increase our capital expenditures to approximately $33 million in 2023 compared to approximately $16
million in 2022. Subsequent to 2023, we expect to spend approximately $19 - $30 million per year on capital expenditures.
We have entered into a purchase agreement with a privately held company to acquire the technology solutions being
developed by this privately held company for a purchase price of $18.0 million, including an advance of $3.0 million. We
closed the transaction on February 1, 2022 and paid the remaining $15.0 million on February 2, 2022. This proprietary
technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an estimated
useful life of five years. In addition, the agreement includes an earn-out payment of $10.0 million based upon the achievement
of certain target metrics within five years after the date of our launch of the technology solutions. The parties have agreed to
renegotiate the terms of the earn-out payment. On April 1, 2022, we entered into a purchase agreement with this same privately
held company to acquire certain technology solutions being developed by this privately held company for an original purchase
price of $9.0 million, including an advance of $4.0 million. The purchase agreement was amended subsequent to December 31,
2022 to increase the purchase price to $14 million for additional functionality.
We include various types of indemnification and guarantee clauses in certain arrangements. These indemnifications
and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential
damages and guarantees to certain service providers and service level requirements with certain customers. The type and
amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. We have
experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to
these indemnification and guarantee provisions. We believe that it is unlikely that we will have to make material payments
under these arrangements and therefore we have not recorded a contingent liability in the consolidated balance sheets.
62
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the
United States (“GAAP”). The accounting policies described below require management to apply significant judgment in
connection with the preparation of our consolidated financial statements. In particular, judgment is applied to determine the
appropriate assumptions to be used in calculating estimates that affect certain reported amounts in our consolidated financial
statements. These estimates and assumptions are based on historical experience and on various other factors that we believe to
be reasonable under the circumstances. If different estimates or assumptions were used, our results of operations, financial
condition and cash flows could have been materially different than those reflected in our consolidated financial statements. For
additional information regarding our critical accounting policies, see Part II, Item 8, “Note 2—Summary of Significant
Accounting Policies”.
Revenue Recognition
Revenues are derived from asset-based and subscription-based services and professional services and other sources.
Revenues are recognized when control of these services is transferred to our customers, in an amount that reflects the
consideration that we expect to be entitled to in exchange for those services. All revenue recognized in the consolidated
statements of operations is considered to be revenue from contracts with customers. Sales and usage-based taxes are excluded
from revenues.
Asset-based recurring revenues—Asset-based recurring revenues primarily consist of fees for providing customers
continuous access to platform services through our uniquely customized platforms. These platform services include investment
manager research, portfolio diagnostics, proposal generation, investment model management, rebalancing and trading, portfolio
performance reporting and monitoring solutions, billing and back office and middle-office operations and administration and
are made available to customers throughout the contractual term from the date the customized platform is launched.
The asset-based fees we earn are generally based upon variable percentages of assets managed or administered on our
platforms. The fee percentage varies based on the level and type of services we provide to our customers, as well as the values
of existing customer accounts. The values of the customer accounts are affected by inflows or outflows of customer funds and
market fluctuations.
The platform services are substantially the same over each quarter and performed in a similar manner over the contract
period, and are considered stand-ready promises. The platform services that are delivered to the customer over the quarter are
considered distinct, as the customer benefits distinctly from each increment of our services and each quarter is separately
identified in the contract, and are considered to be a single performance obligation under ASC 606.
The pricing generally resets each quarter and the pricing structure is consistent throughout the term of the contract. The
variable fees are generally calculated and billed quarterly in advance based on preceding quarter-end values and the variable
amounts earned from the platform services relate specifically to the benefits transferred to the customer during that quarter.
Accordingly, revenue is allocated to the specific quarter in which services are performed.
The asset-based contracts generally contain one performance obligation and revenue is recognized on a ratable basis
over the quarter beginning on the date that the platform services are made available to the customer as the customer
simultaneously consumes and receives the benefits of the services. All asset-based fees are recognized in the Envestnet Wealth
Solutions segment.
For certain services provided by third parties, we evaluate whether we are the principal (revenues reported on a gross
basis) or agent (revenues reported on a net basis). Generally, we report customer fees including charges for third party service
providers where we have a direct contract with such third party service providers on a gross basis, whereas the amounts billed
to our customers are recorded as revenues, and amounts paid to third party service providers are recorded as cost of revenues.
We are the principal in the transaction because we control the services before they are transferred to our customers. Control is
evidenced by being primarily responsible to our customers and having discretion in establishing pricing.
Subscription-based recurring revenues—Subscription-based recurring revenues primarily consist of fees for providing
customers continuous access to our platform for wealth management and financial wellness. The subscription-based fees
generally include fixed fees and or usage-based fees.
63
Generally, the subscription services are substantially the same over each quarter and performed in a similar manner
over the contract period, and are considered stand-ready promises. Quarterly subscription services are considered distinct as the
customer can benefit from each increment of services on its own and each quarter is separately identified in the contract, and
services are considered to be a single performance obligation under the ASC 606.
The usage-based pricing generally resets each quarter and the pricing structure is generally consistent throughout the
term of the contract. The fixed fees are generally calculated and billed quarterly in advance. The usage-based fees are generally
calculated and are billed either monthly or quarterly based on the actual usage and relate specifically to the benefits transferred
to the customer during that month or quarter. Accordingly, revenue is allocated to the specific quarter in which services are
performed.
Certain subscription-based contracts contain multiple performance obligations (i.e. platform services performance
obligation and professional services performance obligation). Fixed fees are generally recognized on a ratable basis over the
quarter beginning when the subscription services are made available to the customer, as the customer simultaneously receives
and consumes the benefits of the subscription services. Usage-based revenue is recognized on a monthly basis as the customer
receives and consumes the benefit as we provide the services. Subscription-based fees are recognized in both the Envestnet
Wealth Solutions and Envestnet Data & Analytics segments.
Professional services and other revenues—We earn professional services fees by providing contractual customized
services and platform software development as well as initial implementation fees. Professional services contracts generally
have fixed prices, and generally specify the deliverables in the contract. Certain professional services contracts are billed on a
time and materials basis and revenue is recognized over time as the services are performed. For contracts billed on a fixed price
basis, revenue is recognized over time based on the proportion of services performed. Initial implementation fees are fixed and
are generally recognized ratably over the contract term.
Other revenues primarily include revenue related to the Advisor Summit. Other revenue is recognized when the events
are held. Other revenue is not significant.
The majority of the professional services and other contracts contain one performance obligation. Professional services
and other revenues are recognized in both the Envestnet Wealth Solutions and Envestnet Data & Analytics segments.
Reviews for impairment of goodwill and acquired intangible assets
Goodwill is tested for impairment at the reporting unit level on an annual basis and more often if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based
on the relevant GAAP authoritative guidance, we aggregate components of a single operating segment into a reporting unit, if
appropriate. For purposes of performing the impairment tests, we identify reporting units in accordance with GAAP. The
identification of reporting units and consideration of aggregation criteria requires management judgment.
If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is
performed. If the carrying value of the reporting unit exceeds its fair value, then a quantitative evaluation must be performed. If
the carrying value of a reporting unit’s goodwill exceeds its fair value, then an impairment loss equal to the difference will be
recorded. In accordance with applicable accounting guidance, prior to performing the quantitative evaluation, an assessment of
qualitative factors may be performed to determine whether it is more likely than not that the fair value of a reporting unit
exceeds the carrying value. If it is determined that it is unlikely that the carrying value exceeds the fair value, we are not
required to complete the quantitative goodwill impairment evaluation. The selection and assessment of qualitative factors used
to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value involves
management judgment.
We completed our annual goodwill impairment test as of October 31, 2022 for the fiscal year ended December 31,
2022. At that date, we determined it was appropriate to aggregate certain components of the same operating segment into a
single reporting unit. We concluded that we have two reporting units. We also determined that it was more likely than not that
the fair value of the reporting units exceeded the carrying value and concluded that goodwill was not impaired. As a result, we
did not perform the quantitative goodwill impairment evaluation.
64
As part of the ongoing monitoring efforts to assess goodwill for possible indications of impairment, we will continue
to consider a wide variety of factors, including but not limited to the global economic environment and its potential impact on
our business. There can be no assurance that our estimates and assumptions regarding forecasted cash flows of certain reporting
units, the current economic environment, or the other inputs used in forecasting the present value of forecasted cash flows will
prove to be accurate projections of future performance.
Intangible assets are reviewed for impairment whenever events or changes in circumstances may affect the
recoverability of the net assets. Such reviews include an analysis of current results and take into consideration the undiscounted
value of projected operating cash flows. No intangible asset impairment charges have been recorded for the years ended
December 31, 2022, 2021 and 2020.
Income taxes
We are subject to income taxes in the United States, Australia, Canada, India, and the United Kingdom. Significant
judgment 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 recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases, and for net operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our
income tax provision in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax
assets to an amount that we determine is more-likely-than-not to be realized in the future.
In our ordinary course of business, we may enter into transactions for which the ultimate tax determination is
uncertain. In such cases, we establish reserves for tax-related uncertainties based on our estimates of whether, and the extent to
which, additional taxes will be due. The reserves are established when we believe that certain positions are likely to be
challenged and may not be fully sustained on review by tax authorities. We adjust these reserves in light of changing facts and
circumstances, such as the closing of a tax audit or refinement of an estimate. Although we believe our reserves are reasonable,
no assurance can be given that the final outcome of these matters will not be different from that which is reflected in our
historical income tax provisions and accruals. To the extent that the final tax outcome of these matters is different than the
amounts recorded, such differences will be reflected in our provision for income taxes. The provision for income taxes includes
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 result in
proposed assessments. Our estimate of the potential outcome for any uncertain tax issue is highly judgmental. We believe that
we have adequately provided for the foreseeable outcome related to these matters. However, our future results may include
favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits
are closed or when statutes of limitations on potential assessments expire. Additionally, the jurisdictions in which our earnings
or deductions are realized may differ from our current estimates. As a result, our effective tax rate may fluctuate significantly
on a quarterly basis.
Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In
assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of
future taxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the
amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the
provision for income taxes in the period in which such determination is made.
Our effective tax rates differ from the statutory rates primarily due to the change in the valuation allowance the
Company has placed on a portion of its US deferred tax assets, the generation of R&D tax credits, the executive compensation
deduction limitation, income related to the India partnerships and state taxes. Our provision for income taxes varies based on,
among other things, changes in the valuation of our deferred tax assets and liabilities, the tax effects of non-cash stock-based
compensation or changes in applicable tax laws, regulations and accounting principles or interpretations thereof.
We are subject to examination of our income tax returns by the U.S. Internal Revenue Service and other tax
authorities. We assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our
provision for income taxes. There can be no assurance that the outcomes from these examinations will not have a material
adverse effect on our results of operations, financial condition and cash flows.
65
Our Indian subsidiaries are currently under examination by the India Tax Authority for the fiscal years ended March
31, 2020, 2019, 2018, 2017, 2012, 2011 and 2010. Based on the outcome of examinations of our subsidiary or the result of the
expiration of statutes of limitations it is reasonably possible that the related unrecognized tax benefits could change from those
recorded in the consolidated balance sheets. It is possible that one or more of these audits may be finalized within the next
twelve months.
Recent Accounting Pronouncements
See Part II, Item 8, “Note 2—Summary of Significant Accounting Policies” for a detailed description of Recent
Accounting Pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk
Our exposure to market risk is directly related to asset-based recurring revenues earned based upon a contractual
percentage of AUM or AUA. In the years ended December 31, 2022, 2021 and 2020, 60%, 60% and 54% of our revenues,
respectively, were derived from revenues based on the market value of AUM or AUA. We expect this percentage to vary over
time. A decrease in the aggregate value of AUM or AUA may cause our revenue to decline which in turn could lead to a
decrease in our earnings. If there are financial market declines for COVID-19 or any other matter, our asset-based revenues may
negatively be impacted in future periods.
Foreign currency risk
A portion of our revenues are billed in various foreign currencies. We are directly exposed to changes in foreign
currency exchange rates through the translation of these monthly revenues into U.S. dollars. For the year ended December 31,
2022, we estimate that a hypothetical 10% change in the value of various foreign currencies to the U.S. dollar would not have a
material effect on our consolidated financial position, results of operations or cash flow.
The expenses of our Indian subsidiaries, 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 the translation
of these monthly expenditures into U.S. dollars. For the year ended December 31, 2022, we estimate that a hypothetical 10%
increase in the value of the Indian Rupee to the U.S. dollar would result in a decrease of approximately $7.4 million to pre-tax
earnings and a hypothetical 10% decrease in the value of the Indian Rupee to the U.S. dollar would result in an increase of
approximately $6.0 million to pre-tax earnings.
Interest rate risk
On February 4, 2022, we entered into the Third Credit Agreement which amends and restates, in its entirety, the Prior
Credit Agreement. The Third Credit Agreement provides for a Credit Facility of $500.0 million and a $20.0 million sub-facility
for the issuance of letters of credit. We are subject to market risk from changes in interest rates only if we have borrowings
outstanding on our Credit Facility. At our option, outstanding loans under the Credit Facility accrue interest at a rate equal to
either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term SOFR rate
plus an applicable margin ranging from 1.25% to 2.75% per annum, based upon our total net leverage ratio, as calculated
pursuant to the Third Credit Agreement. As these rates fluctuate, so too will our interest expense on amounts borrowed under
the Third Credit Agreement. We currently have no borrowings or amounts outstanding under the Third Credit Agreement for
the year ended December 31, 2022.
As of December 31, 2022, we have $45.0 million of outstanding 1.75% Convertible Notes due 2023, $317.5 million of
outstanding 0.75% Convertible Notes due 2025, and $575.0 million of outstanding 2.625% Convertible Notes due 2027
(collectively "Convertible Notes"). The total estimated fair value of our Convertible Notes was approximately $946.0 million
as of December 31, 2022. The fair value was determined based on quoted market prices in less active markets and is
categorized accordingly as Level 2 in the fair value hierarchy.
66
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Envestnet, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Envestnet, Inc. and subsidiaries (the Company) as of
December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes
(collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial
reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2022 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for
convertible notes as of January 1, 2021 due to the adoption of Accounting Standards Update No. 2020-06, Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible instruments and Contracts in an Entity’s own Equity.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an
opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
67
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Sufficiency of audit evidence over the IT elements of revenue recognition
As discussed in Notes 2 and 14 to the consolidated financial statements, the Company has recorded $1.2 billion of revenues for
the year ended December 31, 2022. Revenues are derived from asset-based services, subscription or licensing-based services,
and professional services and other sources, and sold with varying price structures. The Company recognizes revenues when
control of the services is transferred to customers.
We identified the evaluation of the sufficiency of audit evidence over the information technology (“IT”) elements of revenue
recognition as a critical audit matter. Subjective and complex auditor judgment was required to assess the sufficiency of audit
procedures performed and the nature and extent of audit evidence obtained due to the complexity and number of IT systems and
the specialized skills needed to test the IT elements of the revenue recognition process.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to
determine the nature and extent of procedures to be performed over the IT elements of revenue recognition, including the
determination of IT systems for which those procedures were to be performed based on the nature of the information processed
by the systems. We evaluated the design and tested the operating effectiveness of certain internal controls within the
Company’s revenue recognition process, including the automated elements of the flow of transactions and certain manual
controls over the underlying transaction data processed by the IT systems. We involved IT professionals with specialized skills
and knowledge, who assisted in testing certain general IT controls and certain application controls interacting within the
Company’s revenue recognition process. We evaluated the sufficiency of audit evidence obtained by assessing the results of
procedures performed.
/s/ KPMG LLP
We have served as the Company’s auditor since 2013.
Denver, Colorado
February 28, 2023
68
Envestnet, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share information)
December 31,
2022
2021
Assets
Current assets:
Cash and cash equivalents ..........................................................................................................................
Fees receivable, net .....................................................................................................................................
Prepaid expenses and other current assets ..................................................................................................
Total current assets ..................................................................................................................................
$
162,173 $
101,696
41,363
305,232
429,279
95,291
42,706
567,276
Property and equipment, net ............................................................................................................................
Internally developed software, net ...................................................................................................................
Intangible assets, net ........................................................................................................................................
Goodwill ..........................................................................................................................................................
Operating lease right-of-use assets, net ...........................................................................................................
Other non-current assets ..................................................................................................................................
Total assets ...............................................................................................................................................
62,443
184,558
379,995
998,414
81,596
99,927
50,215
133,659
400,396
925,154
90,714
73,768
$ 2,112,165 $ 2,241,182
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities ........................................................................................................
Accounts payable ........................................................................................................................................
Operating lease liabilities ............................................................................................................................
Deferred revenue .........................................................................................................................................
Current portion of long-term debt ...............................................................................................................
Total current liabilities .............................................................................................................................
$
216,532 $
17,334
11,949
36,363
44,886
327,064
Long-term debt .................................................................................................................................................
Non-current operating lease liabilities .............................................................................................................
Deferred tax liabilities, net ...............................................................................................................................
Other non-current liabilities .............................................................................................................................
Total liabilities .........................................................................................................................................
871,769
110,652
16,196
18,880
1,344,561
Commitments and contingencies .....................................................................................................................
225,159
19,092
10,999
33,473
—
288,723
848,862
105,920
21,021
17,114
1,281,640
Equity:
Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as
of December 31, 2022 and December 31, 2021 ..........................................................................................
Common stock, par value $0.005, 500,000,000 shares authorized; 70,025,733 and 68,879,152 shares
issued as of December 31, 2022 and December 31, 2021, respectively; 54,013,826 and 54,793,088
shares outstanding as of December 31, 2022 and December 31, 2021, respectively .................................
Additional paid-in capital ...........................................................................................................................
Accumulated deficit ....................................................................................................................................
Treasury stock at cost, 16,011,907 and 14,086,064 shares as of December 31, 2022 and December 31,
2021, respectively .......................................................................................................................................
Accumulated other comprehensive loss ......................................................................................................
Total stockholders’ equity ........................................................................................................................
Non-controlling interest ..............................................................................................................................
Total equity ..............................................................................................................................................
Total liabilities and equity .......................................................................................................................
—
—
350
1,135,284
(118,927)
344
1,131,628
(37,988)
(253,551)
(8,589)
754,567
13,037
767,604
(134,996)
(1,899)
957,089
2,453
959,542
$ 2,112,165 $ 2,241,182
See accompanying notes to Consolidated Financial Statements.
69
Envestnet, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share information)
Year Ended December 31,
2022
2021
2020
Revenues:
Asset-based ................................................................................................. $
Subscription-based ......................................................................................
738,228 $
477,844
709,376 $
453,989
Total recurring revenues ..........................................................................
Professional services and other revenues ...................................................
Total revenues ..........................................................................................
1,216,072
23,712
1,239,784
1,163,365
23,152
1,186,517
Operating expenses:
Cost of revenues .........................................................................................
Compensation and benefits .........................................................................
General and administration .........................................................................
Depreciation and amortization ....................................................................
468,460
490,725
216,075
130,548
423,723
432,829
171,657
117,767
Total operating expenses ..........................................................................
1,305,808
1,145,976
540,947
426,507
967,454
30,776
998,230
305,929
398,970
160,229
113,661
978,789
Income (loss) from operations ........................................................................
(66,024)
40,541
19,441
Other income (expense):
Interest income ...........................................................................................
4,184
827
1,112
Interest expense ..........................................................................................
(16,843)
(16,931)
(31,504)
Other income (expense), net .......................................................................
264
(4,076)
2,906
Total other expense, net ...........................................................................
(12,395)
(20,180)
(27,486)
Income (loss) before income tax provision (benefit) ......................................
(78,419)
20,361
(8,045)
Income tax provision (benefit) ........................................................................
7,061
7,667
(5,401)
Net income (loss) ............................................................................................
Add: Net (income) loss attributable to non-controlling interest ..............
Net income (loss) attributable to Envestnet, Inc. ............................................ $
(85,480)
4,541
(80,939) $
12,694
602
13,296 $
(2,644)
(466)
(3,110)
Net income (loss) per share attributable to Envestnet, Inc.:
Basic ........................................................................................................... $
(1.47) $
0.24 $
(0.06)
Diluted ........................................................................................................ $
(1.59) $
0.24 $
(0.06)
Weighted average common shares outstanding:
Basic ...........................................................................................................
55,199,482
54,470,975
53,589,232
Diluted ........................................................................................................
56,842,125
55,384,096
53,589,232
See accompanying notes to Consolidated Financial Statements.
70
Envestnet, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Net income (loss) attributable to Envestnet, Inc. ........................................... $
Other comprehensive income (loss), net of taxes:
Year Ended December 31,
2022
2021
2020
(80,939) $
13,296 $
(3,110)
Foreign currency translation gains (losses), net ........................................
(6,690)
(1,501)
Comprehensive income (loss) attributable to Envestnet, Inc. ........................ $
(87,629) $
11,795 $
1,351
(1,759)
See accompanying notes to Consolidated Financial Statements.
71
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73
Envestnet, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2022
2021
2020
OPERATING ACTIVITIES:
Net income (loss) ..........................................................................................................................................
$
(85,480) $
12,694 $
(2,644)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization ...................................................................................................................
130,548
117,767
113,661
Provision for doubtful accounts .................................................................................................................
Deferred income taxes ...............................................................................................................................
Release of uncertain tax positions .............................................................................................................
Non-cash compensation expense ...............................................................................................................
Non-cash interest expense .........................................................................................................................
Loss on extinguishment of Convertible Notes due 2023 ...........................................................................
511
(3,490)
—
80,333
7,445
13,421
Gain on extinguishment of Convertible Notes due 2025 ...........................................................................
(15,089)
Accretion on contingent consideration and purchase liability ...................................................................
Payments of contingent consideration .......................................................................................................
Fair market value adjustment to contingent consideration liability ...........................................................
Gain on settlement of liability ...................................................................................................................
Loss allocations from equity method investments .....................................................................................
Gain on equity method investments ...........................................................................................................
Loss on property and equipment disposals ...............................................................................................
Lease related impairments, including right-of-use assets ..........................................................................
Other ..........................................................................................................................................................
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net ................................................................................................................................
Prepaid expenses and other current assets ..............................................................................................
Other non-current assets .........................................................................................................................
Accrued expenses and other liabilities ...................................................................................................
Accounts payable ...................................................................................................................................
Deferred revenue ....................................................................................................................................
Other non-current liabilities ...................................................................................................................
—
—
—
—
8,874
(9,517)
5,097
15,750
355
(5,031)
2,864
(4,992)
(24,711)
(3,724)
(305)
4,178
1,598
(320)
—
68,020
5,799
—
—
730
(2,360)
(1,067)
(1,206)
7,093
—
—
1,537
(293)
2,817
(1,884)
(7,101)
59,637
18,515
—
—
1,688
—
(3,105)
—
5,399
(4,230)
—
2,661
(729)
(16,731)
(15,055)
399
2,741
53,265
1,290
(2,080)
1,701
(9,666)
(1,963)
22,109
(187)
(4,125)
(5,962)
Net cash provided by operating activities ...........................................................................................................
117,037
250,577
169,836
INVESTING ACTIVITIES:
Purchases of property and equipment ...........................................................................................................
Capitalization of internally developed software ...........................................................................................
Investments in private companies .................................................................................................................
Acquisitions of businesses, net of cash acquired ..........................................................................................
Acquisition of proprietary technology ..........................................................................................................
Advance for technology solutions .................................................................................................................
Issuance of notes receivable to equity method investees ..............................................................................
Other ..............................................................................................................................................................
(16,172)
(89,153)
(16,351)
(104,100)
(15,000)
(4,000)
(6,350)
—
(23,731)
(65,170)
(25,926)
(32,794)
(25,517)
(3,000)
—
—
(12,088)
(54,908)
(15,640)
(20,257)
—
—
—
2,897
Net cash used in investing activities ...................................................................................................................
(251,126)
(176,138)
(99,996)
-continued-
74
Envestnet, Inc.
Consolidated Statements of Cash Flows (continued)
(in thousands)
Year Ended December 31,
2022
2021
2020
FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2027 ...............................................................................
Convertible Notes due 2027 issuance costs ..................................................................................................
Repurchase of Convertible Notes due 2023 ..................................................................................................
Repurchase of Convertible Notes due 2025 ..................................................................................................
Proceeds from issuance of Convertible Notes due 2025 ...............................................................................
Convertible Notes due 2025 issuance costs ..................................................................................................
Proceeds from borrowings on revolving credit facility .................................................................................
Payments on revolving credit facility ...........................................................................................................
575,000
(16,323)
(312,422)
(181,772)
—
—
—
—
Capital contributions - non-controlling shareholders ....................................................................................
16,037
Payments of deferred consideration on prior acquisitions ............................................................................
Payments of contingent consideration ..........................................................................................................
Purchase of capped calls ...............................................................................................................................
Proceeds from exercise of stock options .......................................................................................................
Taxes paid in lieu of shares issued for stock-based compensation ...............................................................
Share repurchases ..........................................................................................................................................
Finance lease payments .................................................................................................................................
Other ..............................................................................................................................................................
—
(743)
(79,585)
2,620
(23,516)
(85,750)
(18,682)
(1,866)
—
—
—
—
—
—
—
—
3,201
—
(9,276)
—
2,090
(20,529)
(4,001)
—
(655)
—
—
—
—
517,500
(14,540)
45,000
(305,000)
606
(1,879)
—
—
10,760
(19,501)
—
—
4
Net cash provided by (used in) financing activities ............................................................................................
(127,002)
(29,170)
232,950
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(6,164)
(555)
(831)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
(267,255)
44,714
301,959
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD (See Note 2)
429,428
384,714
82,755
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2)
$
162,173 $
429,428 $
384,714
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes ............
$
12,120 $
7,920 $
Supplemental disclosure of cash flow information - cash paid during the period for interest ...........................
11,046
11,132
Supplemental disclosure of non-cash operating, investing and financing activities:
Common stock issued to settle purchase liability .........................................................................................
Contingent consideration issued in acquisition of businesses .......................................................................
Internally developed software costs included in accrued expenses and other liabilities ..............................
Leasehold improvements funded by lease incentive .....................................................................................
Membership interest liabilities included in other non-current liabilities ......................................................
Purchase liabilities included in accrued expenses and other liabilities .........................................................
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities ..............
Property and equipment acquired through financing leases .........................................................................
Transfer of non-controlling units ..................................................................................................................
Treasury stock purchases included in accrued expenses and other liabilities ...............................................
Right-of-use assets obtained in exchange for lease liabilities, net ................................................................
Conversion of equity method investee loan to shares ...................................................................................
—
—
—
—
752
—
4,206
18,682
—
9,289
13,211
2,623
See accompanying notes to Consolidated Financial Statements.
4,068
—
591
164
496
2,951
1,328
—
—
—
4,596
—
8,304
12,990
126
5,239
—
1,806
3,345
632
1,841
—
771
—
39,370
—
75
Envestnet, Inc.
Notes to Consolidated Financial Statements
1.
Organization and Description of Business
Envestnet, Inc. ("Envestnet"), through its subsidiaries (collectively, the "Company"), is transforming the way financial
advice and insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology,
solutions and intelligence. Envestnet has been a leader in helping transform wealth management, working towards its goal of
expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients.
Envestnet is organized around two primary, complementary business segments. Financial information about each
business segment is contained in “Note 19—Segment Information”. The business segments are as follows:
•
Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to
empower financial advisors and institutions to enable them to deliver an Intelligent Financial Life to their clients.
Envestnet Wealth Solutions serves its clients principally through the following product and service suites:
•
•
•
•
•
•
Envestnet | Enterprise provides an end-to-end open architecture wealth management platform, through which
advisors can construct portfolios for clients. It begins with aggregated household data which then leads to the
creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and
performance reporting. Advisors have access to nearly 23,000 investment products. Envestnet | Enterprise
also sells data aggregation and reporting, data analytics and digital advice capabilities to customers.
Envestnet | Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting
and client relationship management software, principally to high-end RIAs.
Envestnet | MoneyGuide provides leading goals-based financial planning solutions to the financial services
industry. The highly adaptable software helps financial advisors add significant value for their clients using
best-in-class technology with enhanced integrations to generate financial plans.
Envestnet | Retirement Solutions (“ERS & 401kplans.com”) offers a comprehensive suite of services for
advisor-sold retirement plans. Our retirement solutions address the regulatory, data, and investment needs of
retirement plans and delivers the information holistically. 401kplans.com is a digital 401(k) retirement plan
marketplace that streamlines retirement plan distribution and due diligence among financial advisors and
third-party administrators. With Envestnet's retirement solutions marketplace, advisors can employ
Envestnet's outsourced fiduciary services for investment selection and monitoring in retirement plan
portfolios and can access essential information to make investment recommendations and understand the
impact of fund changes to the total cost of their plans.
Envestnet | PMC®, or Portfolio Management Consultants (“PMC”) provides research and consulting services
to assist advisors in creating investment solutions for their clients. These solutions include over 5,000 vetted
third-party managed account products, multi-manager portfolios, and fund strategist portfolios, as well as
over 950 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers
portfolio overlay and tax optimization services.
Envestnet | Redi2 (“Redi2”) offers revenue management and hosted fee-billing solutions in the global
financial services industry. Redi2's platform enables fee calculation, invoice creation, payouts and accounting,
and billing compliance. Redi2 solutions caters to different segments of the market with three different product
lines: Revenue Manager which provides client revenue accounting and billing services for asset managers;
Wealth Manager which delivers multi-party billing and payouts for broker-dealers and turnkey asset
management programs and BillFin™ which offers advisory billing and invoicing for financial advisors.
•
Envestnet Data & Analytics – a leading data aggregation, data intelligence, and experiences platform. Envestnet
Data & Analytics enables consumers to aggregate financial accounts within client applications and provides to
clients the functionality to gather, refine, and aggregate massive sets of consumer permissioned data for use in
financial applications, reports, market research analysis, and application programming interfaces (“APIs”).
76
Envestnet, Inc.
Notes to Consolidated Financial Statements
Envestnet operates six RIAs registered with the U.S. Securities and Exchange Commission ("SEC").
2.
Summary of Significant Accounting Policies
The Company follows accounting standards established by the Financial Accounting Standards Board (“FASB”) to
ensure consistent reporting of financial condition, results of operations and cash flows. References to accounting principles
generally accepted in the United States (“GAAP”) in these notes are to the FASB Accounting Standards Codification™ (“ASC”)
and related updates (“ASU”).
Principles of Consolidation—The consolidated financial statements include the accounts of Envestnet and its
subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Foreign Currency—Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S.
currency have been remeasured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet Data &
Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a
functional currency other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenues
and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded
in the consolidated balance sheets as accumulated other comprehensive income (loss) within stockholders' equity. The
Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign
currency denominated balance sheet accounts, both of which are included in other income (expense), net in the consolidated
statements of operations.
Management Estimates—Management has made certain estimates and assumptions relating to the reporting of assets,
liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial
statements in conformity with GAAP. Areas requiring the use of management estimates relate to estimating uncollectible
receivables, revenue recognition, valuations and assumptions used for impairment testing of goodwill, intangible and other
long-lived assets, right-of-use assets, performance shares issued, contingent consideration, realization of deferred tax assets,
uncertain tax positions, sales tax liabilities, operating lease liabilities, fair value of the liability portion of the convertible debt,
commitments and contingencies and assumptions used to allocate purchase prices in business combinations. Actual results
could differ materially from these estimates under different assumptions or conditions.
Revenue Recognition
The Company accounts for its revenue arrangements in accordance with FASB Topic 606 - Revenue from Contracts
with Customers ("ASC 606"). The Company derives revenues from asset-based and subscription-based services and
professional services and other sources. Revenues are recognized when control of these services is transferred to our customers,
in an amount that reflects the consideration that we expect to be entitled to in exchange for those services. All revenue
recognized in the consolidated statements of operations is considered to be revenue from contracts with customers. Sales and
usage-based taxes are excluded from revenues. The majority of the Company's revenues are recognized when services are
provided.
Asset-Based Recurring Revenues—Asset-based recurring revenues primarily consist of fees for providing customers
continuous access to platform services through the Company’s uniquely customized platforms. These platform services include
investment manager research, portfolio diagnostics, proposal generation, investment model management, rebalancing and
trading, portfolio performance reporting and monitoring solutions, billing and back office and middle-office operations and
administration and are made available to customers throughout the contractual term from the date the customized platform is
launched.
The asset-based fees the Company earns are generally based upon variable percentages of assets managed or
administered on our platforms. The fee percentage varies based on the level and type of services the Company provides to its
customers, as well as the values of existing customer accounts. The values of the customer accounts are affected by inflows or
outflows of customer funds and market fluctuations.
77
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The platform services are substantially the same over each quarter and performed in a similar manner over the contract
period, and are considered stand-ready promises. The platform services that are delivered to the customer over the quarter are
considered distinct, as the customer benefits distinctly from each increment of our services and each quarter is separately
identified in the contract, and are considered to be a single performance obligation.
The pricing generally resets each quarter and the pricing structure is consistent throughout the term of the contract. The
variable fees are generally calculated and billed quarterly in advance based on preceding quarter-end values and the variable
amounts earned from the platform services relate specifically to the benefits transferred to the customer during that month or
quarter. Accordingly, revenue is allocated to the specific quarter in which services are performed.
The asset-based contracts generally contain one performance obligation and revenue is recognized on a ratable basis
over the quarter beginning on the date that the platform services are made available to the customer as the customer
simultaneously consumes and receives the benefits of the services. All asset-based fees are recognized in the Envestnet Wealth
Solutions segment.
For certain services provided by third parties, the Company evaluates whether it is the principal (revenues reported on
a gross basis) or agent (revenues reported on a net basis). Generally, the Company reports customer fees including charges for
third party service providers where the Company has a direct contract with such third party service providers on a gross basis,
whereas the amounts billed to its customers are recorded as revenues, and amounts paid to third party service providers are
recorded as cost of revenues. The Company is the principal in the transaction because it controls the services before they are
transferred to its customers. Control is evidenced by the Company being primarily responsible to its customers and having
discretion in establishing pricing.
Subscription-Based Recurring Revenues—Subscription-based recurring revenues primarily consist of fees for
providing customers continuous access to the Company’s platform for wealth management and financial wellness. The
subscription-based fees generally include fixed fees and or usage-based fees.
Generally, the subscription services are substantially the same over each quarter and performed in a similar manner
over the contract period, and are considered stand-ready promises. Quarterly subscription services are considered distinct as the
customer can benefit from each increment of services on its own and each quarter is separately identified in the contract, and
services are considered to be a single performance obligation.
Certain subscription-based contracts include fixed and variable consideration. The amount of variable consideration
that is included in the transaction price may be subject to constraint and included in the subscription-based recurring revenues
only to the extent that is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur
in a future period. The Company utilizes the expected value method to estimate variable consideration based on available
historical, current, and forecasted information.
The usage-based pricing generally resets each quarter and the pricing structure is generally consistent throughout the
term of the contract. The fixed fees are generally calculated and billed quarterly in advance. The usage-based fees are generally
calculated and are billed either monthly or quarterly based on the actual usage and relate specifically to the benefits transferred
to the customer during that quarter. Accordingly, revenue is allocated to the specific quarter in which services are performed.
Fixed fees are generally recognized on a ratable basis over the quarter beginning when the subscription services are
made available to the customer, as the customer simultaneously receives and consumes the benefits of the subscription services.
Usage-based revenue is recognized on a monthly basis as the customer receives and consumes the benefit as the Company
provides the services. Subscription-based fees are recognized in both the Envestnet Wealth Solutions and Envestnet Data &
Analytics segments.
Professional Services and Other Revenues—The Company earns professional services fees by providing contractual
customized services and platform software development as well as initial implementation fees. Professional services contracts
generally have fixed prices, and generally specify the deliverables in the contract. Certain professional services contracts are
billed on a time and materials basis and revenue is recognized over time as the services are performed. For contracts billed on a
fixed price basis, revenue is recognized over time based on the proportion of services performed. Initial implementation fees are
fixed and are generally recognized ratably over the contract term.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Other revenues primarily include revenue related to the Advisor Summit. Other revenues are recognized when the
events are held. Other revenues are not significant.
The majority of the Company's professional services and other contracts contain one performance obligation.
Professional services and other revenues are recognized in both the Envestnet Wealth Solutions and Envestnet Data & Analytics
segments.
Arrangements with Multiple Performance Obligations—Certain of the Company’s contracts with customers contain
multiple performance obligations, such as platform services performance obligation and professional services performance
obligation. For such arrangements, the Company allocates revenue to each performance obligation based on its relative
standalone selling price. Standalone selling prices of services are estimated based on observable transactions when these
services are sold on a standalone basis or based on expected cost plus margin.
Remaining Performance Obligations—Remaining performance obligations represent the transaction price allocated to
unsatisfied or partially satisfied performance obligations. The disclosure includes estimates of variable consideration. The
Company applies the practical expedients and exemption not to disclose the value of unsatisfied performance obligations for (i)
contracts with an original expected length of one year or less; (ii) contracts for which the Company recognizes revenue at the
amount to which it has the right to invoice for services performed; and (iii) contracts for which the variable consideration is
allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct service
that forms part of a single performance obligation.
Contract Balances—The Company records contract liabilities (deferred revenue) when cash payments are received in
advance of its performance. The term between invoicing date and when payment is due is generally not significant. For the
majority of its arrangements, the Company requires advance quarterly payments before the services are delivered to the
customer.
Deferred Revenue—Deferred revenue primarily consists of implementation fees, professional services and
subscription fee payments received in advance from customers.
Deferred Sales Incentive Compensation—Sales incentive compensation earned by the Company’s sales force is
considered an incremental and recoverable cost to acquire a contract with a customer. Sales incentive compensation for initial
contracts is deferred and amortized on a straight-line basis over the period of benefit. The Company determined the period of
benefit by taking into consideration its customer contracts, life of the technology and other factors. Sales incentive
compensation for renewal contracts are deferred and amortized on a straight-line basis over the related contractual renewal
period. Deferred sales incentive compensation is included in other non-current assets in the consolidated balance sheets and
amortization expense is included in compensation and benefits expenses in the consolidated statements of operations.
The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as an
expense when incurred if the amortization period would have been one year or less. These costs are included in compensation
and benefits expenses in the consolidated statements of operations.
Cost of Revenues—Cost of revenues primarily includes expenses related to third party investment management and
clearing, custody and brokerage services. Generally, these expenses are calculated based upon a contractual percentage of the
market value of assets held in customer accounts measured as of the end of each quarter and are recognized ratably throughout
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 for
potentially uncollectible fees receivable. In establishing the amount of the allowance, if any, customer-specific information is
considered related to delinquent accounts, including historical loss experience and current economic conditions. As of
December 31, 2022 and 2021, the Company’s allowance for doubtful accounts was $2.6 million and $3.9 million, respectively.
Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair
value. The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash
equivalents.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Restricted Cash—The following table reconciles cash, cash equivalents and restricted cash from the consolidated
balance sheets to amounts reported in the consolidated statements of cash flows:
Cash and cash equivalents ........................................................... $
Restricted cash included in prepaid expenses and other current
assets ............................................................................................
Restricted cash included in other non-current assets ...................
Total cash, cash equivalents and restricted cash ....................... $
2022
December 31,
2021
(in thousands)
2020
162,173 $
429,279 $
384,565
—
—
162,173 $
149
—
429,428 $
—
149
384,714
Investments—The Company has investments in private companies for which it has significant influence that are
recorded using the equity method of accounting. The Company uses the equity method of accounting because of its less than
50% ownership and lack of control in these companies. These investments are included in other non-current assets on the
consolidated balance sheets. The Company records the portion of its earnings or losses in these privately held companies’ net
income or loss on a one quarter lag from the actual results of operations as a component of other income (expense), net on the
consolidated statements of operations.
The Company reviews all investments on a regular basis to evaluate the carrying amount and economic viability. This
evaluation process is based on information that the Company requests directly from these investees and includes, but is not
limited to, the review of the investee’s cash position, financing needs, earnings/revenue outlook, operational performance,
management/ownership changes and competition. As this information is not subject to the same disclosure regulations as U.S.
publicly traded companies, the basis for these evaluations is subject to the timing and accuracy of the data received from these
investees.
When a review of an investee’s operations indicates that there is a decline in its value and it has been determined that
this decline is other than temporary, the Company assesses the investment for impairment. Impaired investments are written
down to estimated fair value. Fair value is estimated using a variety of valuation methodologies, including comparing the
investee with publicly traded companies in similar lines of business, applying valuation multiples to estimated future operating
results and analyzing estimated discounted future cash flows. There were no impairments of investments for the years ended
December 31, 2022, 2021 and 2020.
For investments where the Company owns equity interests in privately held companies though does not have
significant influence and there is no readily determinable fair value, it accounts for the investment under the measurement
alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes.
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 the
depreciable assets. Leasehold improvements are amortized on a straight-line basis over their estimated economic useful lives or
the remaining lease term, whichever is shorter. Improvements are capitalized, while repairs and maintenance costs are charged
to operations as incurred. Assets are reviewed for recoverability whenever events or circumstances indicate the carrying value
may not be recoverable. There were $5.1 million of impairments of property and equipment for the year ended December 31,
2022. There were immaterial impairments of property and equipment for the years ended December 31, 2021 and 2020.
Internally Developed Software for Internal Use—Costs incurred in the preliminary stages of development are
expensed as incurred. Once an application has reached the development stage, internal and external costs, if direct and
incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases
upon completion of all substantial testing. The Company also capitalizes costs related to specific upgrades and enhancements
when it is probable the expenditures will result in additional functionality. Maintenance and training costs are expensed as
incurred. Internally developed software is amortized on a straight-line basis over its estimated useful life. Management
evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in
circumstances occur that could impact the recoverability of these assets. There were immaterial impairments of internally
developed software for internal use for the years ended December 31, 2022, 2021 and 2020.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Goodwill and Intangible Assets—Goodwill consists of the excess of the purchase price over the fair value of
identifiable net assets of businesses acquired. Goodwill is reviewed for impairment each year using a qualitative or quantitative
process that is performed at least annually or whenever events or circumstances indicate a likely reduction in the fair value of a
reporting unit below its carrying amount. The Company has concluded that it has two reporting units.
The Company performs the annual impairment analysis on October 31 in order to provide management time to
complete the analysis prior to year-end. Prior to performing the quantitative evaluation, an assessment of qualitative factors may
be performed to determine whether it is more likely than not that the fair value of a reporting unit exceeds the carrying value. If
it is determined that it is unlikely that the carrying value exceeds the fair value, the Company is not required to complete the
quantitative goodwill impairment evaluation. If it is determined that the carrying value may exceed fair value when considering
qualitative factors, a quantitative goodwill impairment evaluation is performed. When performing the quantitative evaluation, if
the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the difference will be recorded. No
goodwill impairment charges have been recorded for the years ended December 31, 2022, 2021 and 2020.
Intangible assets are recorded at cost less accumulated amortization. Intangible assets are reviewed for impairment
whenever events or changes in circumstances may affect the recoverability of the net assets. Such reviews include an analysis
of current results and take into consideration the undiscounted value of projected operating cash flows. No intangible asset
impairment charges have been recorded for the years ended December 31, 2022, 2021 and 2020.
Leases—The Company accounts for its leases in accordance with FASB Topic 842 - Leases (“ASC 842”) and has
elected the available package of practical expedients as well as elected to apply the short-term lease exemption to all of its
classes of underlying assets.
At inception, the Company determines if an arrangement is a lease. Operating leases are included in operating right-of-
use ("ROU") assets, current operating lease liabilities and non-current operating lease liabilities in the Company's consolidated
balance sheets. Finance leases are included in property and equipment, net in the Company's consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent
the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments over the remaining lease term. The operating
lease ROU asset also includes prepaid payments and excludes lease incentives. As none of the Company's leases provide an
implicit rate, the Company uses an estimated incremental borrowing rate based on the information available at commencement
date in determining the present value of lease payments. The Company's lease terms may include options to extend or terminate
the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is
recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components. The Company has elected the practical
expedient to account for non-lease components as part of the lease component for all asset classes. The majority of the
Company's lease agreements are real estate leases.
Fair Value Measurements—The Company accounts for its fair value measurements in accordance with FASB Topic
825 - Financial Instruments (“ASC 825”), which provides companies the option to report selected financial assets and liabilities
at fair value and also requires entities to display the fair value of the selected assets and liabilities on the face of the balance
sheets. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value.
ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand
the effect of the Company’s choice to use fair value on its earnings.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Financial assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon a
fair value hierarchy established by GAAP, which prioritizes the inputs used to measure fair value into the following levels:
Level I:
Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.
Level II:
Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and
liabilities in markets that are not active; or inputs that are observable and can be corroborated by observable
market data.
Level III:
Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing
the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the
valuation of the instruments.
Income Taxes—The Company uses the asset and liability method to account for income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and net operating loss carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Company records 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 or expected
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 tax benefits recognized in
the consolidated financial statements from tax positions are measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement.
Business Combinations—The Company accounts for business combinations under the acquisition method. The cost of
an acquired company is assigned to the tangible and intangible assets acquired and the liabilities assumed on the basis of their
fair values at the date of acquisition. The determination of fair values of assets acquired and liabilities assumed requires
management to make estimates and use valuation techniques when market values are not readily available. Any excess of
purchase price over the fair value of net tangible and intangible assets acquired is allocated to goodwill. Transaction costs
associated with business combinations are expensed as incurred. The Company determines the fair value of contingent
consideration payable on the acquisition date using a discounted cash flow approach utilizing an appropriate discount rate. Each
reporting period thereafter, the Company revalues these obligations and records increases or decreases in their fair value as
adjustments to fair market value adjustment to contingent consideration in the Company’s consolidated statements of
operations. Changes in the fair value of the contingent consideration payable can result from adjustments to the estimated
revenue forecasts included in the contingent consideration calculations.
Stock-Based Compensation—Compensation cost relating to stock-based awards made to employees and directors is
recognized 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 of such awards
based on the estimated fair value of the award measured at the grant date and recognizes the expense on a straight-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 volatility of
its stock price, the expected life of the option, forfeiture rate, dividend yield and interest rates. The Company estimates the
expected life of its options using historical internal forfeiture data. The Company estimates stock-price volatility using historical
third-party quotes of Envestnet’s common stock. The Company utilizes a risk-free interest rate, which is based on the yield of
U.S. zero coupon securities with a maturity equal to the expected life of the options. The Company has not and does not expect
to pay dividends on its common shares.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The Company is required to estimate expected forfeitures of stock-based awards at the grant date and recognize
compensation cost only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual
forfeiture rate. Therefore, changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized
over the vesting period. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and
circumstances.
Convertible Notes—In May 2018, the Company issued $345.0 million of 1.75% Convertible Notes due June 2023. In
August 2020, the Company issued $517.5 million of 0.75% Convertible Notes due August 2025. In November 2022, the
Company issued $575.0 million of 2.625% Convertible Notes due November 2027. The Company used a portion of the
proceeds from the Convertible Notes due 2027 and available cash to repurchase $300.0 million aggregate principal amount of
the outstanding Convertible Notes due 2023 and $200.0 million aggregate principal amount of the outstanding Convertible
Notes due 2025 in November 2022. Collectively the “Convertible Notes” are accounted for in accordance with FASB Topic
470 - Debt ("ASC 470"). The Company has determined that the embedded conversion options in the Convertible Notes are not
required to be separately accounted for as a derivative under GAAP. Upon adoption of ASU 2020-06, the Company accounts
for the Convertible Notes as a single liability measured at amortized cost.
Capped Call Transactions—In November 2022, the Company entered into privately negotiated capped call
transactions (the “Capped Call Transactions”) with certain financial institutions (the “Capped Call Counterparties”). The
Capped Call Transactions initially cover the number of shares of Envestnet’s common stock underlying the Convertible Notes
due 2027, subject to customary anti-dilution adjustments. The Capped Call Transactions are net purchased call options on
Envestnet’s common stock.
The Capped Call Transactions are separate transactions entered into by the Company with each of the Capped Call
Counterparties, are not part of the terms of the Convertible Notes due 2027, and do not affect any holder’s rights under the
Convertible Notes due 2027. Holders of the Convertible Notes due 2027 do not have any rights with respect to the Capped Call
Transactions.
As the Capped Call Transactions are legally detachable and separately exercisable from the Convertible Notes due
2027, they were evaluated as freestanding instruments under FASB Topic 480 - Distinguishing Liabilities from Equity. The
Company concluded that the Capped Call Transactions meet the scope exceptions for derivative instruments under FASB Topic
815 - Derivatives and Hedging. As such, the Capped Call Transactions meet the criteria for classification in equity and are
included as a reduction to additional paid-in capital.
Non-controlling Interest—In March 2018, the Company initially acquired a 43% fully diluted interest in a private
company for cash consideration of $1.3 million. In connection with the acquisition, the Company was granted the ability to
appoint two members to the private company's board of directors. The appointment of two board members gives the Company
the majority of the board's voting rights. As a result, the Company uses the consolidation method of accounting for this
investment. The private company was formed to enable financial advisors to provide insurance and income protection products
to their clients.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements—In August 2020, the FASB issued ASU 2020-06, “Debt—Debt with
Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity.” This update simplifies the
accounting for certain convertible instruments by reducing the number of accounting models available for convertible debt
instruments and revises Topic 815-40, which provides guidance on how an entity must determine whether a contract qualifies
for a scope exception from derivative accounting. Under the new guidance, the embedded conversion features are no longer
separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as
derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. The convertible debt
instruments will be accounted for as a single liability measured at amortized cost. In addition, the new guidance requires the if-
converted method to be applied for all convertible instruments. This standard is effective for financial statements issued by
public companies for annual and interim periods beginning after December 15, 2021. Early adoption of the standard is
permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years. Adoption of the standard requires using either a modified retrospective or a full retrospective approach.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The Company adopted this standard as of January 1, 2021 using the modified retrospective approach. Adoption of this
standard resulted in a decrease to accumulated deficit of $28.6 million (net of $0.9 million in taxes), a decrease to paid-in
capital of $108.5 million (net of $6.7 million in taxes) and an increase to Convertible Notes of $87.5 million. Interest expense
recognized in future periods is expected to be reduced as a result of accounting for the convertible debt instrument as a single
liability measured at its amortized cost, with an expected decrease of approximately $22.1 million in 2021 as a result of the
adoption.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations ("ASC 805").” This update amends ASC
805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that
apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract
liabilities in accordance with ASC 606. This standard is effective for financial statements issued by public companies for annual
and interim periods beginning after December 15, 2022. Early adoption of the standard is permitted. The amendment is to be
applied prospectively to business combinations occurring on or after the effective date of the amendment. The Company has
early adopted this standard as of January 1, 2022. Adoption of ASU 2021-08 did not have a material impact on the Company's
consolidated financial statements.
3.
Acquisitions
2020 Acquisitions
Acquisition of Private Technology Company
On February 18, 2020, the Company, through its wholly owned subsidiary Yodlee, Inc. (“Yodlee”), acquired a private
technology company (the “Private Technology Company Acquisition”). The private technology company enables the consent
generation and data flow between financial information providers, such as banks and financial institutions, and financial
information users, such as financial technology lenders and other financial services agencies, through a network of cloud-based
interoperable interfaces or application programming interfaces. The technology and operations of the private technology
company have been integrated into the Company's Envestnet Data & Analytics segment.
In connection with the Private Technology Company Acquisition, the Company acquired all of the outstanding shares
of the private technology company and paid cash consideration of $2.3 million, net of cash acquired, subject to certain closing
and post-closing adjustments, plus up to an additional $6.8 million in contingent consideration, based upon achieving certain
performance targets. The Company recorded a liability as of the date of acquisition of $5.2 million, which represented the
estimated fair value of contingent consideration on the date of acquisition.
In 2021 and 2020, we determined that certain performance targets for this acquisition would not be met. As a result,
we reduced the contingent consideration liability plus accrued interest associated with this acquisition by $0.7 million and $3.1
million, respectively, and recorded this as a reduction to general and administration expenses. Future changes to the estimated
fair value of the contingent consideration, if any, will be recognized in our earnings. Contingent consideration of $1.1 million
was paid during the year ended December 31, 2021.
The Company recorded estimated goodwill of $7.0 million, which is not deductible for income tax purposes, and
estimated identifiable intangible assets for proprietary technologies of $1.0 million. The tangible assets acquired and liabilities
assumed were not material.
The results of the private technology company's operations are included in the consolidated statements of operations
beginning February 18, 2020 and were not considered material to the Company’s results of operations.
For the years ended December 31, 2022, 2021 and 2020, acquisition related costs for the Private Technology
Company Acquisition were not material and are included in general and administration expenses.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Acquisition of Private Cloud Technology Company
On March 2, 2020, the Company acquired certain assets of a private cloud technology company (the “Private Cloud
Technology Company Acquisition”). The private cloud technology company enables enterprises to design and implement the
digital transition from legacy systems and applications to a modern cloud computing platform. The technology and operations
of the private cloud technology company have been integrated into the Company's Envestnet Wealth Solutions segment.
In connection with the Private Cloud Technology Company Acquisition, the Company paid estimated consideration of
$12.0 million, net of cash acquired. In connection with the acquisition, the Company recorded estimated goodwill of $10.9
million, which is deductible for income tax purposes. The tangible assets acquired and liabilities assumed were not material.
The results of the private cloud technology company's operations are included in the consolidated statements of
operations beginning March 2, 2020 and were not considered material to the Company’s results of operations.
For the years ended December 31, 2022, 2021 and 2020, acquisition related costs for the Private Cloud Technology
Company Acquisition were not material and are included in general and administration expenses.
Acquisition of Private Financial Technology Design Company
On March 3, 2020, the Company acquired the outstanding units of a private financial technology design company that
were not owned by the Company and merged the acquired company into a wholly owned subsidiary of the Company (the
“Private Financial Technology Design Company Acquisition”). The private financial technology design company designs
integrated, intuitive digital technology applications for institutional financial services firms, bank wealth management
organizations, independent advisor networks, and broker-dealers. The technology and operations of the private financial
technology design company have been integrated into the Envestnet Wealth Solutions segment.
The Company previously owned approximately 45% of the outstanding units in this private financial technology
design company and accounted for it as an equity method investment. Based upon the estimated value of the private financial
technology design company of $11.0 million, the Company paid estimated consideration of $5.9 million, net of cash acquired,
for the remaining outstanding units. As a result of the acquisition, the Company recognized a gain of $4.2 million in the first
quarter of 2020 on the re-measurement to fair value of its previously held interest, which is included in other income (expense),
net in the consolidated statements of operations.
In connection with the Private Financial Technology Design Company Acquisition, the Company recorded estimated
total goodwill of $9.2 million, of which approximately $6.2 million is deductible for income tax purposes, and estimated
identifiable intangible assets for proprietary technologies of $2.0 million. The tangible assets acquired and liabilities assumed
were not material.
The results of the private financial technology design company's operations are included in the consolidated statements
of operations beginning March 3, 2020 and were not considered material to the Company’s results of operations.
For the years ended December 31, 2022, 2021 and 2020, acquisition related costs for the Private Financial Technology
Design Company Acquisition were not material and are included in general and administration expenses.
The goodwill arising from these 2020 acquisitions represents the expected synergistic benefits of these transactions,
primarily related to an increase in future revenues as a result of potential new business and cross selling opportunities, as well
as enhancements to our technologies.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
2021 Acquisitions
Acquisition of Proprietary Technology
The Company previously owned approximately 29% of the outstanding units in a privately held company and
accounted for it as an equity method investment. On March 11, 2021, the Company entered into an intellectual property
purchase agreement with this privately held company to acquire all of the proprietary technology developed by the privately
held company for approximately $35.5 million. Concurrent with the intellectual property purchase agreement, the Company
also entered into a redemption agreement with the same privately held company to redeem the Company's previously held
equity interest for approximately $10.0 million. The Company accounted for these two arrangements as a single unit of account.
As of the acquisition date, the net cost of the proprietary technology acquired, including capitalized transaction costs, was
approximately $24.5 million, which will be amortized over a five-year period on a straight-line basis. The proprietary
technology has been integrated into the Envestnet Wealth Solutions.
Acquisition of Harvest
On April 7, 2021, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of March 31,
2021, between, among others, Harvest Savings & Wealth Technologies (“Harvest”), a Delaware corporation, and Bounty
Merger Sub, Inc, a wholly-owned subsidiary of the Company (“Merger Sub”), the Company completed the merger of Harvest
with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “Harvest Acquisition”) and operating
as a wholly-owned subsidiary of Envestnet. Harvest has been integrated into the Envestnet Wealth Solutions segment.
Harvest provides automated goals-based saving and wealth solutions tools to customers of banks, credit unions, trust
companies, and other financial institutions. The acquisition optimizes the Company's API-based financial wellness ecosystem,
and also helps strengthen the Company's foothold to enable embedded finance, which the Company sees as a key driver of the
future of financial services.
In connection with the Harvest Acquisition, the Company paid estimated consideration of $32.8 million (of which
approximately $3.0 million was held in escrow for 18 months after the closing date), net of cash acquired, subject to certain
post-closing adjustments. The Company funded the acquisition with cash on hand.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of
acquisition:
Preliminary Estimate
Measurement Period
Adjustments
(in thousands)
Revised Estimate
Tangible assets acquired, net of cash(1)
Total liabilities assumed ...............................................................
........................................ $
Identifiable intangible assets ........................................................
Goodwill .......................................................................................
2,032 $
(596)
9,500
21,858
Total net assets acquired ............................................................ $
32,794 $
3,278 $
54
—
(3,332)
— $
5,310
(542)
9,500
18,526
32,794
__________________________________________________________
(1) The Company recorded measurement period adjustments of $3.3 million primarily due to the establishment of deferred tax
assets during the year ended December 31, 2021.
The goodwill arising from the acquisition represents the expected synergistic benefits of the transaction, primarily
related to an increase in future revenues as a result of potential cross selling opportunities, as well as enhancements to the
Company's existing technologies. The goodwill is not deductible for income tax purposes.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
Proprietary technology ................................................................. $
Customer list ................................................................................
Total intangible assets acquired ................................................. $
6,900
2,600
9,500
6
14
Straight-line
Accelerated
Preliminary Estimate
(in thousands)
Estimated Useful Life
in Years
Amortization Method
The results of Harvest’s operations are included in the consolidated statements of operations beginning April 7, 2021
and were not considered material to the Company’s results of operations.
For the years ended December 31, 2022 and 2021, the Company’s acquisition related costs were not material and are
included in general and administration expenses.
2022 Acquisitions
Acquisition of 401kplans.com
On May 31, 2022, Envestnet Retirement Solutions, LLC, a wholly-owned subsidiary of the Company, acquired all of
the issued and outstanding membership interests of 401kplans.com LLC (“401kplans.com”). 401kplans.com has been
integrated into the Envestnet Wealth Solutions segment.
401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and
due diligence among financial advisors and third-party administrators. The acquisition demonstrates Envestnet's commitment to
the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by
helping them shop, compare and select the best-fitting 401(k) plan for their clients.
In connection with the 401kplans.com acquisition, the Company paid estimated consideration of $14.5 million, net of
cash acquired, subject to certain post-closing adjustments. The Company funded the acquisition with available cash resources.
The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:
Preliminary Estimate
Measurement Period
Adjustments
(in thousands)
Revised Estimate
Tangible assets acquired, net of acquired cash ........................... $
94 $
10 $
Identifiable intangible assets .......................................................
Goodwill .....................................................................................
3,000
11,378
—
18
Total net assets acquired .......................................................... $
14,472 $
28 $
104
3,000
11,396
14,500
The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the
enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling
opportunities. The estimated goodwill is deductible for income tax purposes.
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
Proprietary technology ................................................................. $
3,000
5
Straight-line
Preliminary Estimate
(in thousands)
Estimated Useful Life
in Years
Amortization Method
The results of 401kplans.com's operations are included in the consolidated statements of operations beginning May 31,
2022 and are not considered material to the Company’s results of operations.
87
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
For the year ended December 31, 2022, the Company’s acquisition related costs were not material and are included in
general and administration expenses.
Acquisition of Truelytics
On July 1, 2022, pursuant to an agreement and plan of merger (the “Merger Agreement”), dated as of May 10, 2022,
between, among others, Truelytics, Inc., (“Truelytics”), Yodlee, Inc. and Quadrant Merger Sub Inc., a wholly-owned subsidiary
of Envestnet (“Merger Sub”), the Company completed the merger of Truelytics with and into Merger Sub, with Truelytics
continuing as the surviving corporation (the “Truelytics Merger”) and a wholly owned subsidiary of Envestnet. Truelytics has
been integrated into the Envestnet Data & Analytics segment.
The acquisition of Truelytics aligns with the Company's strategy to further connect its ecosystem by creating
transformative progress for its advisors and clients. Truelytics is an advisor transition management platform and the first end-to-
end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses,
while also reducing the costs related to advisor transitions. The Truelytics platform combines Envestnet data, analytics, and
wealth technology to further support advisors across the ecosystem.
The Company paid estimated cash consideration of $20.7 million, net of cash acquired, subject to certain post-closing
adjustments. The Company funded the Truelytics acquisition with available cash resources.
The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:
Preliminary Estimate
Measurement Period
Adjustments
(in thousands)
Revised Estimate
Tangible net assets acquired, net of acquired cash ...................... $
532 $
Identifiable intangible assets ........................................................
Goodwill ......................................................................................
4,000
16,195
Total net assets acquired ........................................................... $
20,727 $
(22) $
—
22
— $
510
4,000
16,217
20,727
The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the
enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling
opportunities. The estimated goodwill is not deductible for income tax purposes.
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
Proprietary technology ................................................................. $
4,000
5
Straight-line
Preliminary Estimate
(in thousands)
Estimated Useful Life
in Years
Amortization Method
The results of Truelytics' operations are included in the consolidated statements of operations beginning July 1, 2022
and are not considered material to the Company’s results of operations.
For the year ended December 31, 2022, the Company’s acquisition related costs were not material and are included in
general and administration expenses.
Acquisition of Redi2
On July 1, 2022, pursuant to a stock purchase agreement, dated as of June 24, 2022, between Envestnet and Redi2
Technologies Inc., (“Redi2”), Envestnet completed the acquisition of all of the issued and outstanding shares of Redi2. Redi2
provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts
and accounting, and billing compliance. Redi2 has been integrated into the Envestnet Wealth Solutions segment.
88
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
In connection with the Redi2 acquisition, the Company paid estimated consideration as follows:
Preliminary Estimate
Measurement Period
Adjustments
(in thousands)
Revised Estimate
Cash consideration, net ...............................................................
Estimated working capital adjustment ........................................
Total .........................................................................................
$
$
69,406 $
(1,465)
67,941 $
— $
932
932 $
69,406
(533)
68,873
The Company funded the Redi2 acquisition with available cash resources. In addition, certain executives may earn up
to $20.0 million in performance bonuses based upon the achievement of certain target financial and non-financial metrics.
These performance bonuses will be recognized as compensation and benefits expense in the consolidated statement of
operations. The performance bonuses recognized during the year ended December 31, 2022 were immaterial.
The following table summarizes the estimated fair values of the assets acquired at the date of acquisition:
Preliminary Estimate
Measurement Period
Adjustments
(in thousands)
Revised Estimate
Total current assets
Other non-current assets
$
1,985 $
Identifiable intangible assets ........................................................
Goodwill ......................................................................................
Total assets acquired ..................................................................
Accounts payable and accrued expenses .....................................
Operating lease liabilities .............................................................
Deferred revenue ..........................................................................
Total liabilities assumed ............................................................
Total net assets acquired, net of cash received ...................... $
3,349
26,500
44,236
76,070
(1,157)
(2,201)
(4,771)
(8,129)
67,941 $
— $
(28)
—
2,231
2,203
(1,271)
—
—
(1,271)
932 $
1,985
3,321
26,500
46,467
78,273
(2,428)
(2,201)
(4,771)
(9,400)
68,873
The goodwill arising from the acquisition represents the expected benefits of the transaction, primarily related to the
enhancement of the Company's existing technologies and increase in future revenues as a result of potential cross selling
opportunities. Estimated goodwill of $40.7 million is deductible for income tax purposes.
A summary of estimated intangible assets acquired, estimated useful lives and amortization method is as follows:
Customer lists
Proprietary technologies
Trade names
Total intangible assets acquired
Preliminary Estimate
(in thousands)
Estimated Useful Life Amortization Method
$
$
14,000
14-16 years
9,500
3,000
26,500
6 years
6-7 years
Accelerated
Straight-line
Straight-line
The estimated fair values of certain of the assets acquired and liabilities assumed are provisional and based on
information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items
are based on certain valuation procedures that are in progress and not yet at the point where there is sufficient information for a
definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair
values of these amounts, though is waiting for additional information necessary to finalize those fair values. Therefore,
provisional measurements of fair values reflected herein are subject to change and such changes could be significant. The
Company expects to finalize the valuation of tangible assets acquired, liabilities assumed, identifiable intangible assets and
goodwill balances and complete the acquisition accounting as soon as reasonably practicable though no later than July 1, 2023.
89
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The results of operations of Redi2 are included in the consolidated statements of operations beginning July 1, 2022 and
are not considered material to the Company’s results of operations.
For the year ended December 31, 2022, the Company’s acquisition related costs totaled $1.5 million and are included
in general and administration expenses.
Pro Forma Financial Information
The results of the Company's acquisitions since January 1, 2020 were not considered material to the Company's results
of operations, therefore, pro forma information is not presented.
4.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
December 31,
2022
2021
(in thousands)
Prepaid technology ........................................................................................................ $
16,649 $
15,415
Non-income tax receivables ...........................................................................................
Prepaid insurance ...........................................................................................................
Income tax prepayments and receivables ......................................................................
Escrow for acquisition ...................................................................................................
Other ..............................................................................................................................
Total prepaid expenses and other current assets ......................................................... $
5,488
2,881
2,515
545
13,285
41,363 $
7,013
2,234
1,310
2,951
13,783
42,706
5.
Property and Equipment, Net
Property and equipment, net consisted of the following:
Estimated Useful Life
2022
2021
(in thousands)
December 31,
Cost:
Computer equipment and software ..............................
Leasehold improvements .............................................
3 years
Shorter of the lease term
or useful life of the asset
Leased data servers ......................................................
Office furniture and fixtures ........................................
Office equipment and other .........................................
3 years
3-7 years
3-5 years
Building and building improvements ..........................
7-39 years
Land .............................................................................
Not applicable
Less: accumulated depreciation and amortization .........................................................
Total property and equipment, net .............................................................................. $
90
$
66,639 $
72,289
36,158
19,273
10,796
11,563
2,729
940
148,098
(85,655)
62,443 $
43,544
590
12,214
7,973
2,729
940
140,279
(90,064)
50,215
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
During the year ended December 31, 2022, the Company entered into an arrangement with a third party cloud service
provider for the use of dedicated servers to migrate its infrastructure to the cloud. As the terms of the arrangement convey a
finance lease under ASC 842, the Company accounts for those dedicated servers as leased assets when the lease term
commences. The leased dedicated servers are presented as a component of property and equipment, net in the consolidated
balance sheets as of December 31, 2022. To take advantage of the favorable savings programs offered by the cloud service
provider, the Company prepaid the lease payments and therefore does not have a lease liability recorded for the leased assets.
Amortization of the right-of-use assets totaled $4.9 million for the year ended December 31, 2022. Finance lease activity as of
and for the year ended December 31, 2021 was not material.
During the year ended December 31, 2022 and 2021, the Company retired property and equipment that was no longer
in service for the Envestnet Wealth Solutions segment with an historical cost of $20.0 million and $12.7 million, respectively.
During the year ended December 31, 2022 and 2021, the Company retired property and equipment that was no longer in service
for the Envestnet Data & Analytics segment with an historical cost of $10.4 million and $2.4 million, respectively.
The following table presents the cost amounts and related accumulated depreciation written off by category:
Year Ended December 31, 2022
Year Ended December 31, 2021
Cost
Accumulated
Depreciation
Cost
Accumulated
Depreciation
(in thousands)
Computer equipment and software ............. $
15,887 $
(14,947) $
10,936 $
(10,838)
Leasehold improvements .............................
Office furniture and fixtures ........................
Office equipment and other .........................
2,442
660
11,467
(1,209)
(418)
(8,785)
197
1,702
2,227
(178)
(1,646)
(1,915)
Total property and equipment retirements $
30,456 $
(25,359) $
15,062 $
(14,577)
Depreciation and amortization expense was as follows:
Depreciation and amortization expense ....................................... $
21,688 $
20,577 $
21,432
Year Ended December 31,
2022
2021
(in thousands)
2020
6.
Internally Developed Software, Net
Internally developed software, net consisted of the following:
Internally developed software ......................................................
5 years
$
313,200 $
Less: accumulated amortization ...................................................
(128,642)
Internally developed software, net .............................................
$
184,558 $
225,380
(91,721)
133,659
Estimated Useful Life
2022
2021
(in thousands)
December 31,
Amortization expense was as follows:
Amortization expense ................................................................... $
36,959 $
28,603 $
18,670
Year Ended December 31,
2022
2021
(in thousands)
2020
91
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
7.
Goodwill and Intangible Assets, Net
Changes in the carrying amount of goodwill were as follows:
Envestnet
Wealth Solutions
Envestnet
Data & Analytics
(in thousands)
Total
Balance at December 31, 2020 ..................................................... $
Harvest acquisition ..................................................................
603,350 $
18,526
Foreign currency translation ....................................................
Balance at December 31, 2021 .....................................................
401kplans.com acquisition ......................................................
Truelytics acquisition ...............................................................
Redi2 acquisition .....................................................................
Foreign currency translation ....................................................
—
621,876
11,396
—
46,467
—
303,423 $
—
(145)
303,278
—
16,217
—
(820)
906,773
18,526
(145)
925,154
11,396
16,217
46,467
(820)
Balance at December 31, 2022 ..................................................... $
679,739 $
318,675 $
998,414
Procurement of Technology Solutions
On June 21, 2021, the Company entered into a purchase agreement with a privately held company to acquire the
technology solutions being developed by this privately held company for a purchase price of $18.0 million, including an
advance of $3.0 million. The Company closed the transaction and paid the remaining $15.0 million in February 2022. This
proprietary technology asset has been integrated into the Envestnet Data & Analytics segment and is being amortized over an
estimated useful life of five years. In addition, the agreement included an earn-out payment of $10.0 million based upon the
achievement of certain target metrics within five years after the date of the Company’s launch of the technology solutions. The
parties have agreed to renegotiate the terms of the earn-out payment.
Intangible assets, net consisted of the following:
December 31, 2022
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
(in thousands)
Accumulated
Amortization
Net
Carrying
Amount
Customer lists ..................... $
Proprietary technologies .....
604,080 $
113,224
(285,288) $
(59,401)
Trade names ........................
15,700
(8,320)
318,792 $
590,080 $
53,823
7,380
85,324
33,700
(241,189) $
(43,004)
(24,515)
348,891
42,320
9,185
Total intangible assets ...... $
733,004 $
(353,009) $
379,995 $
709,104 $
(308,708) $
400,396
During 2022, the Company had no retirements of intangible assets for the Envestnet Wealth Solutions segment.
During 2021, the Company retired fully amortized intangible assets for the Envestnet Wealth Solutions segment with an
historical cost of $5.0 million, including proprietary technologies and customer lists. During 2022, the Company had $27.6
million retirements of fully amortized intangible assets, including trade names and proprietary technologies for the Envestnet
Data & Analytics segment. During 2021, the Company had no retirements of intangible assets for the Envestnet Data &
Analytics segment.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Amortization expense was as follows:
Amortization expense ................................................................... $
71,901 $
68,587 $
73,559
Future amortization expense of the Company's intangible assets as of December 31, 2022, is expected to be as follows:
Year Ended December 31,
2022
2021
(in thousands)
2020
Amortization
Expense
(in thousands)
Years ending December 31:
2023 ................................................................................................................................................................ $
2024 ................................................................................................................................................................
2025 ................................................................................................................................................................
2026 ................................................................................................................................................................
2027 ................................................................................................................................................................
Thereafter .......................................................................................................................................................
Total .............................................................................................................................................................. $
60,087
53,240
49,900
41,997
33,432
141,339
379,995
8.
Investments
Equity Method Investments
The Company owns equity interests in various privately held companies for which it has significant influence and,
therefore, recognizes its investment under the equity method. Equity method investments are initially recorded at cost. Under
the equity method of accounting, the investment is adjusted for the Company’s proportionate share of earnings or losses,
dividends, capital contributions and changes in ownership interests.
As of December 31, 2022, the Company’s ownership interests in these companies ranged from approximately 3% to
48%. As of December 31, 2021, the Company’s ownership interests in these companies ranged from approximately 4% to 47%.
As of December 31, 2022 and December 31, 2021, the carrying value of the Company’s equity method investments was $37.4
million and $18.6 million, respectively, which are included in other non-current assets in the consolidated balance sheets. As of
December 31, 2022, the Company has committed $12.5 million in future funding to certain of these equity method investees.
Summarized combined financial information for these investments is as follows (amounts represent 100% of investee
financial information, except Envestnet’s proportional share of losses):
Balance Sheets
December 31,
2022
2021
(in thousands)
Current assets ................................................................................................................. $
42,059 $
Non-current assets ..........................................................................................................
Current liabilities ...........................................................................................................
Non-current liabilities ....................................................................................................
50,703
17,647
9,437
40,333
33,529
20,018
1,583
93
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Statements of Operations
Year Ended December 31,
2022
2021
(in thousands)
2020
Revenues ...................................................................................... $
79,062 $
65,085 $
Loss from operations ....................................................................
Net loss ........................................................................................
Envestnet’s proportional share of gains (losses) (1)
......................
__________________________________________________________
(1) The year ended December 31, 2022 includes a $9.5 million dilution gain on equity method investee share issuance.
(149)
(134)
(7,093)
(8,896)
(7,124)
643
35,603
(4,758)
(5,062)
(5,399)
Envestnet's proportional share of gains (losses) from the Company’s equity method investments are included in other
income (expense), net in the consolidated statements of operations.
Equity Method Investments
The Company has an approximate 3.51% membership interest in a private services company that it accounts for using
the equity method of accounting and is considered to be a related party. Revenues from the private services company totaled
$16.0 million, $16.4 million and $11.5 million in the years ended December 31, 2022, 2021 and 2020, respectively. As of
December 31, 2022 and 2021, the Company had recorded a net receivable of $2.0 million and $3.0 million, respectively, from
the private services company. During the fourth quarter of 2022, the Company recognized a $2.6 million dilution gain on this
investment.
During the first quarter of 2022, the Company funded a $2.5 million convertible loan to a privately held company that
is accounted for under the equity method. During the second quarter of 2022, this privately held company raised additional
preferred equity which reduced the Company's ownership to 41.0% and the Company's convertible loan was converted. As a
result of this transaction, the Company recorded a $6.9 million dilution gain during the second quarter of 2022, which is
included in other income (expense), net in the consolidated statements of operations. During the third quarter of 2022, the
Company acquired additional membership units in this privately held company for $8.4 million which increased its ownership
interest to 48.0%. The Company uses the equity method of accounting to record its portion of this privately held company's net
income or loss on a one quarter lag from the actual results of operations. After this unit purchase, the Company's investment in
this privately held company exceeded its proportionate share of its net assets by approximately $7.8 million, which represents
amortizable intangible assets. The Company will recognize amortization of this basis difference prospectively over a period of 5
years. This amortization will be included within Envestnet's proportional share of income (loss) in other income (expense), net
in the consolidated statements of operations.
During the second quarter of 2022, the Company acquired an approximate 25.0% interest in a privately held company
for cash consideration of $5.0 million. Subject to the occurrence of certain conditions, the Company agreed to invest up to an
additional $10.0 million for additional units in the future. The Company uses the equity method of accounting to record its
portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. The
Company uses the equity method of accounting because of its less than 50% ownership interest and lack of control and does not
otherwise exercise control over the significant economic and operating decisions of the privately held company.
Other Equity Investments
The Company owns equity interests in various privately held companies for which it does not have significant
influence, there is no readily determinable fair value, and its investment qualifies for recognition under the measurement
alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes.
As of December 31, 2022 and December 31, 2021, the carrying value of these other equity investments was $22.1
million and $18.7 million, respectively, which are included in other non-current assets in the consolidated balance sheets. There
have been no impairments or downward adjustments due to observable transactions recognized for these investments as of
December 31, 2022 and 2021. Fair value adjustments, resulting from observable price changes, of $0.4 million and $0.8 million
were recognized during the years ended December 31, 2022 and 2021, respectively.
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Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
9.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following:
December 31,
2022
2021
Accrued investment manager fees ................................................................................. $
Accrued compensation and related taxes .......................................................................
Accrued professional services .......................................................................................
Accrued treasury stock purchases ..................................................................................
Accrued technology .......................................................................................................
Non-income tax payables ...............................................................................................
Other accrued expenses .................................................................................................
(in thousands)
93,788 $
77,939
10,762
9,289
6,393
2,548
15,813
Total accrued expenses and other liabilities ................................................................ $
216,532 $
Entry into Outsourcing Arrangement and Organizational Realignment
95,858
97,523
7,746
—
8,951
4,907
10,174
225,159
In the fourth quarter of 2022, the Company entered into an outsourcing arrangement with Tata Consultancy Services
(“TCS”) to increase operational scale and business agility. Under this agreement, the Company will outsource certain
administrative and operational services of the Envestnet Data & Analytics segment located in Bangalore, India. In connection
with this agreement, the Company closed its Bangalore office. The agreement became effective in October 2022 and will
continue for a period of ten years. In certain circumstances, the Company may terminate certain portions of the agreement, and
in doing so, the agreement requires the Company to pay significant termination fees. Additionally, as part of an organizational
realignment in the fourth quarter of 2022, the Company entered into separation agreements with a number of employees. This
realignment will allow Envestnet to operate more efficiently and prioritize activities and services that will benefit its clients and
the future of its business.
In connection with the outsourcing arrangement with TCS and the 2022 organizational realignment, the Company
recognized approximately $18.7 million of severance expense in the fourth quarter of 2022. As of December 31, 2022 the
Company has accrued approximately $9.0 million in accrued compensation and related taxes. Additionally, as a result of the
outsourcing arrangement and related office closure, the Company recognized office closure and other related expenses totaling
$0.9 million during the year ended December 31, 2022.
95
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
10.
Debt
The Company’s outstanding debt obligations as of December 31, 2022 and 2021 were as follows:
December 31,
2022
2021
Revolving credit facility balance ................................................................................... $
(in thousands)
— $
Convertible Notes due 2023 .......................................................................................... $
Unamortized issuance costs on Convertible Notes due 2023 ........................................
Convertible Notes due 2023 carrying value .................................................................. $
45,000 $
(114)
44,886 $
Convertible Notes due 2025 .......................................................................................... $
317,500 $
Unamortized issuance costs on Convertible Notes due 2025 ........................................
(4,765)
Convertible Notes due 2025 carrying value .................................................................. $
312,735 $
Convertible Notes due 2027 .......................................................................................... $
Unamortized issuance costs on Convertible Notes due 2027 ........................................
Convertible Notes due 2027 carrying value .................................................................. $
575,000 $
(15,966)
559,034 $
—
345,000
(2,979)
342,021
517,500
(10,659)
506,841
—
—
—
Credit Agreement
On February 4, 2022, the the Company entered into a Third Amended and Restated Credit Agreement (the "Third
Credit Agreement") with a group of banks (the “Banks”), for which Bank of Montreal is acting as administrative agent. The
Third Credit Agreement amended and restated, in its entirety, the Company's prior credit agreement. In connection with
entering into the Third Credit Agreement, the Company capitalized an additional $1.9 million of deferred financing charges to
Other non-current assets on the consolidated balance sheets and wrote off $0.6 million of pre-existing finance charges to other
expense, net on the consolidated statements of operations.
Pursuant to the Third Credit Agreement, the Banks have agreed to provide the Company with a revolving credit
facility of $500.0 million (the “Revolving Credit Facility”). The Third Credit Agreement also includes a $20.0 million sub-
facility for the issuances of letters of credit. As of December 31, 2022 and December 31, 2021, there were no amounts
outstanding under the Revolving Credit Facility.
Obligations under the Third Credit Agreement are guaranteed by substantially all of Envestnet’s U.S. subsidiaries and
are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) of Envestnet and
the guarantors, subject to certain exclusions. Proceeds under the Third Credit Agreement may be used to finance capital
expenditures and permitted acquisitions and for working capital and general corporate purposes.
In the event the Company has borrowings under the Third Credit Agreement, at the Company's option, it will pay
interest on these borrowings at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per
annum or (ii) an adjusted Term Secured Overnight Financing Rate (“SOFR”) plus an applicable margin ranging from 1.25% to
2.75% per annum, in each case based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement.
Any borrowings under the Third Credit Agreement will mature on February 4, 2027. There is also a commitment fee at a rate
ranging from 0.25% to 0.30% per annum based upon the total net leverage ratio.
As of December 31, 2022, debt issuance costs related to the Third Credit Agreement of $0.7 million and $2.2 million
are presented in prepaid expenses and other non-current assets in the consolidated balance sheets, respectively.
96
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The Third Credit Agreement contains customary conditions, representations and warranties, affirmative and negative
covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring
the Company to maintain compliance with a maximum total leverage ratio, a minimum interest coverage ratio and a minimum
liquidity covenant. The Company was in compliance with these financial covenants as of December 31, 2022. On November
14, 2022, the Company entered into a First Amendment to the Third Credit Agreement, which amended certain provisions
under the Third Credit Agreement, including elimination of required testing of the liquidity covenant beginning March 31,
2023. The borrowing base and rate were not amended by this First Amendment to the Third Credit Agreement.
As of December 31, 2022, the Company had all $500.0 million available to borrow under the Revolving Credit
Facility, subject to covenant compliance.
Convertible Notes due 2023
In May 2018, the Company issued $345.0 million of convertible notes maturing June 1, 2023 (the “Convertible Notes
due 2023”). Net proceeds from the offering were $335.0 million. The Convertible Notes due 2023 bear interest at a rate of
1.75% per annum payable semiannually in arrears on June 1 and December 1 of each year.
The Convertible Notes due 2023 are general unsecured senior obligations, subordinated in right of payment to the
Company’s obligations under its Credit Agreement. The Convertible Notes due 2023 rank equally in right of payment with all
of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s
future subordinated obligations. The Convertible Notes due 2023 will be structurally subordinated to the indebtedness and other
liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc.,
which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible
Notes due 2023 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively
subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change”, as defined in the indenture, the holders may require the Company to
repurchase all or a portion of the Convertible Notes due 2023 for cash at 100% of the principal amount of the Convertible Notes
due 2023 being purchased, plus any accrued and unpaid interest.
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after June 5, 2021 if
the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect for at
least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and including, any
of the five trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2023 are convertible into shares of Envestnet’s common stock under certain circumstances
prior to maturity at an initial conversion rate of 14.6381 shares per one thousand principal amount of the Convertible Notes due
2023, which represents a conversion price of $68.31 per share, subject to adjustment under certain conditions. The initial
conversion rate is subject to adjustment upon a "fundamental change", as defined in the indenture, if the Company calls all or
any portion of the notes for optional redemption, or subject to anti-dilution provisions provided in the indenture. On or after
December 15, 2022, until the close of business on the second scheduled trading day immediately preceding the maturity date,
holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and
stock, as determined by the Company in its discretion.
Upon issuance, the Company separately accounted for the liability and equity components of the Convertible Notes
due 2023 by allocating the proceeds from issuance of the Convertible Notes due 2023 between the liability component and the
embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of
issuance for similar notes that do not include an embedded conversion option. The Company allocated $46.6 million to the
equity component, presented within additional paid-in capital, net of offering costs of $1.4 million. The Company recorded a
discount on the Convertible Notes due 2023 of $48.0 million which was accreted and recorded as additional interest expense.
97
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Upon the adoption of ASU 2020-06 on January 1, 2021, the equity component is no longer separated from the host
contract and is now accounted for as a single liability measured at amortized cost within long-term debt in the consolidated
balance sheets. Accordingly, no future accretion of the original issue discount necessary. During the years ended December 31,
2022, 2021 and 2020, the Company recognized $0.0 million, $0.0 million and $9.4 million, respectively, in accretion related to
the discount.
In connection with the issuance of the Convertible Notes due 2023, the Company incurred $10.0 million of issuance
costs in 2018, of which $8.6 million was originally allocated to the debt component and presented net in long-term debt and
$1.4 million was originally allocated to the equity component and presented within additional paid-in capital in the consolidated
balance sheets. Upon the adoption of ASU 2020-06, the costs originally allocated to the equity component are reflected within
long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due
2023.
In November 2022, the Company repurchased $300.0 million aggregate principal of the outstanding Convertible Notes
due 2023 for cash consideration of approximately $312.4 million and recognized a loss on extinguishment of approximately
$13.4 million recognized in interest expense on the consolidated statements of operations. As of December 31, 2022, aggregate
principal of $45.0 million less unamortized debt issuance costs of $0.1 million remain outstanding after this repurchase which
may result in approximately 0.7 million shares issuable upon conversion, subject to adjustment under certain conditions.
Convertible Notes due 2025
In August 2020, the Company issued $517.5 million of convertible notes that mature on August 15, 2025 (the
“Convertible Notes due 2025”). Net proceeds from the offering were $503.0 million. The Convertible Notes due 2025 bear
interest at a rate of 0.75% per annum payable semiannually in arrears in cash on February 15 and August 15 of each year.
The Convertible Notes due 2025 are general unsecured senior obligations, subordinated in right of payment to the
Company’s obligations under its Credit Agreement. The Convertible Notes due 2025 rank equally in right of payment with all
of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s
future subordinated obligations. The Convertible Notes due 2025 will be structurally subordinated to the indebtedness and other
liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc.,
which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible
Notes due 2025 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively
subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to
repurchase all or a portion of the Convertible Notes due 2025 for cash at 100% of the principal amount of the Convertible Notes
due 2025 being purchased, plus any accrued and unpaid interest.
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after August 15,
2023 if the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect
for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and
including, any of the five trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2025 are convertible into shares of Envestnet’s common stock under certain circumstances
prior to maturity at a an initial conversion rate of 9.3682 shares per one thousand principal amount of the Convertible Notes due
2025, which represents a conversion price of $106.74 per share, subject to adjustment under certain conditions. The initial
conversion rate is subject to adjustment upon a "fundamental change", as defined in the indenture, if the Company calls all or
any portion of the notes for optional redemption, or subject to anti-dilution provisions provided in the indenture. Holders may
convert their Convertible Notes due 2025 at their option at any time prior to the close of business on the business day
immediately preceding February 15, 2025, only under the following circumstances: (a) during any calendar quarter
commencing after the calendar quarter ending on September 30, 2020 (and only during such calendar quarter), if the last
reported sale price of Envestnet’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30
consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in
which the conversion occurs, is more than 130% of the conversion price of the Notes in effect on each applicable trading day;
(b) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price
for the notes for each such trading day is less than 98% of the last reported sale price of Envestnet’s common stock on such date
98
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
multiplied by the then-current conversion rate; (c) if the Company calls any or all of the notes for redemption, at any time prior
to the close of business on the scheduled trading day immediately preceding the redemption date; or (d) upon the occurrence of
specified corporate events described in the Indenture. On or after February 15, 2025, until the close of business on the second
scheduled trading day immediately preceding the maturity date, holders may surrender their notes for conversion at any time,
regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and
stock, as determined by the Company in its discretion.
Upon issuance, the Company separately accounted for the liability and equity components of the Convertible Notes
due 2025 by allocating the proceeds from issuance of the Convertible Notes due 2025 between the liability component and the
embedded conversion option, or equity component. This allocation was done by first estimating an interest rate at the time of
issuance for similar notes that do not include the embedded conversion option. The Company allocated $61.9 million to the
equity component presented within additional paid-in capital, net of offering costs of $1.9 million and taxes of $6.7 million.
The Company recorded a discount on the Convertible Notes due 2025 of $70.6 million which was accreted and recorded as
additional interest expense.
Upon the adoption of ASU 2020-06 on January 1, 2021, the equity component is no longer separated from the host
contract and is now accounted for as a single liability measured at amortized cost within long-term debt in the consolidated
balance sheets. Accordingly, no future accretion of the original issue discount necessary. During the years ended December 31,
2022, 2021 and 2020, the Company recognized $0.0 million, $0.0 million and $4.7 million, respectively in accretion related to
the discount.
In connection with the issuance of the Convertible Notes due 2025, the Company incurred $14.5 million of issuance
costs in 2020, of which $12.6 million was originally allocated to the debt component and presented net in long-term debt and
$1.9 million was originally allocated to the equity component and presented within additional paid-in capital in the consolidated
balance sheets. Upon the adoption of ASU 2020-06, the costs originally allocated to the equity component are reflected within
long-term debt and are being amortized and recorded as additional interest expense over the life of the Convertible Notes due
2025.
In November 2022, the Company repurchased $200.0 million aggregate principal of the outstanding Convertible Notes
due 2025 for cash consideration of approximately $181.8 million and recognized a gain on extinguishment of approximately
$15.1 million recognized in interest expense on the consolidated statements of operations. As of December 31, 2022, aggregate
principal of $317.5 million less unamortized debt issuance costs of $4.8 million remain outstanding after this repurchase which
may result in approximately 3.0 million shares issuable upon conversion, subject to adjustment under certain conditions.
Convertible Notes due 2027
In November 2022, the Company issued $575.0 million of Convertible Notes due 2027. Net proceeds from the
offering were $558.7 million. The Convertible Notes due 2027 bear interest at a rate of 2.625% per annum payable
semiannually in arrears in cash on June 1 and December 1 of each year.
The Convertible Notes due 2027 are general unsecured senior obligations, subordinated in right of payment to the
Company’s obligations under its Credit Agreement. The Convertible Notes due 2027 rank equally in right of payment with all
of the Company’s other existing and future senior indebtedness and will be senior in right of payment to any of the Company’s
future subordinated obligations. The Convertible Notes due 2027 will be structurally subordinated to the indebtedness and other
liabilities of any of the Company’s subsidiaries, other than its wholly owned subsidiary, Envestnet Asset Management, Inc.,
which will fully and unconditionally guarantee the notes on an unsecured basis, and other than to the extent the Convertible
Notes due 2027 are guaranteed in the future by any of our other subsidiaries as described in the indenture and will be effectively
subordinated to and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
Upon the occurrence of a “fundamental change,” as defined in the indenture, the holders may require the Company to
repurchase all or a portion of the Convertible Notes due 2027 for cash at 100% of the principal amount of the Convertible Notes
due 2027 being purchased, plus any accrued and unpaid interest.
99
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The Company may redeem for cash all or any portion of the notes, at the Company's option, on or after December 5,
2025 if the last reported sale price of Envestnet’s common stock has been at least 130% of the conversion price then in effect
for at least 20 trading days, consecutive or non-consecutive, within a 30 consecutive trading day period ending on, and
including, any of the five trading days immediately preceding the date on which the Company provides notice of redemption.
The Convertible Notes due 2027 are convertible into shares of Envestnet’s common stock under certain circumstances
prior to maturity at a an initial conversion rate of 13.6304 shares per one thousand principal amount of the Convertible Notes
due 2027, which represents a conversion price of $73.37 per share and approximately 7.8 million shares issuable upon
conversion, subject to adjustment under certain conditions. The initial conversion rate is subject to adjustment upon a
"fundamental change", as defined in the indenture, if the Company calls all or any portion of the notes for optional redemption,
or subject to anti-dilution provisions provided in the indenture. Holders may convert their Convertible Notes due 2027 at their
option at any time prior to the close of business on the business day immediately preceding June 1, 2027, only under the
following circumstances: (a) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022
(and only during such calendar quarter), if the last reported sale price of the Company’s common stock, for at least 20 trading
days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar
quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price
of the Notes in effect on each applicable trading day; (b) during the five consecutive business-day period following any five
consecutive trading-day period in which the trading price for the notes for each such trading day is less than 98% of the last
reported sale price of Envestnet’s common stock on such date multiplied by the then-current conversion rate; (c) if the
Company calls any or all of the notes for redemption, at any time prior to the close of business on the scheduled trading day
immediately preceding the redemption date; or (d) upon the occurrence of specified corporate events described in the Indenture.
On or after June 1, 2027, until the close of business on the second scheduled trading day immediately preceding the maturity
date, holders may surrender their notes for conversion at any time, regardless of the foregoing circumstances.
Upon conversion, the Company may pay cash, shares of Envestnet’s common stock or a combination of cash and
stock, as determined by the Company in its discretion.
As of December 31, 2022, the Convertible Notes due 2027 are presented at their gross proceeds of $575.0 million less
unamortized debt issuance costs of $16.0 million.
In connection with the issuance of the Convertible Notes due 2027, the Company incurred a total of $16.3 million of
issuance costs in 2022, which are being amortized and recorded as additional interest expense over the life of the Convertible
Notes due 2027.
See “Note 18—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income per
common share.
In connection with the pricing of the Convertible Notes due 2027, the Company entered into privately negotiated
Capped Call Transactions for a total cost of approximately $79.6 million. The Capped Call Transactions initially cover the
number of shares of our common stock underlying the Convertible Notes due 2027, subject to customary anti-dilution
adjustments. The Capped Call Transactions generally are expected to reduce the potential dilutive effect on the common stock
upon any conversion of the Convertible Notes due 2027 and/or offset any potential cash payments the Company is required to
make in excess of the principal amount of converted Convertible Notes due 2027, as the case may be, with such reduction and/
or offset subject to a cap, subject to certain adjustments under the terms of the Capped Call Transactions. The Capped Call
Transactions allow the Company to purchase shares of our common stock at a strike price equal to the initial conversion price
of $73.37 per share and are subject to a cap of $110.74 per share, subject to certain adjustments under the terms of the Capped
Call Transactions. The options underlying the Capped Call Transactions can, at the Company’s option, remain outstanding until
the maturity date for the Convertible Notes due 2027 of December 1, 2027, even if all or a portion of the Convertible Notes due
2027 are converted, repurchased or redeemed prior to such date.
100
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Interest Expense
Interest expense was comprised of the following and is included in other income (expense), net in the consolidated
statements of operations:
Year Ended December 31,
2022
2021
(in thousands)
2020
Coupon interest
Amortization of issuance costs (1)
Undrawn and other fees................................................................
Accretion of debt discount ...........................................................
Interest on revolving credit facility ..............................................
.................................................
$
10,897 $
4,678
1,268
—
—
9,919 $
5,745
1,267
—
—
Total interest expense ................................................................ $
16,843 $
16,931 $
7,442
3,396
796
14,084
5,786
31,504
__________________________________________________________
(1) For the year ended December 31, 2022, amount includes a net gain on the extinguishment of debt of $1.7 million related to
the partial repurchase of Convertible Notes due 2023 and Convertible Notes due 2025.
For the years ended December 31, 2022, 2021 and 2020, total interest expense related to the Convertible Notes due
2023 was $20.7 million, $8.0 million, and $17.1 million, respectively, with coupon interest expense of $5.4 million, $6.0
million, and $6.0 million, and amortization of debt discount, issuance costs of $1.9 million, $2.0 million, and $11.1 million,
respectively. For the year ended December 31, 2022, recognized in total interest expense of $20.7 million includes a loss on
extinguishment of debt of $13.4 million in connection with the repurchase of $300.0 million in Convertible Notes due 2023.
Excluding the impact of the repurchase, the effective interest rate of the Convertible Notes due 2023 was approximately 2.4%,
2.4%, and 6.0% for the years ended December 31, 2022, 2021, and 2020, respectively. The effective interest rate of the
Convertible Notes due 2023 is equal to the stated interest rate plus the amortization of the debt issuance costs subsequent to
adoption of ASU 2020-06.
For the years ended December 31, 2022, 2021 and 2020, total interest expense related to the Convertible Notes due
2025 was $(8.6) million, $6.8 million, and $6.9 million, respectively, with coupon interest expense of $3.7 million, $3.9
million, and $1.4 million, and amortization of debt discount and issuance costs of $2.8 million, $2.9 million, and $5.5 million,
respectively. For the year ended December 31, 2022, recognized in total interest expense of $8.6 million includes a gain on
extinguishment of debt of $15.1 million in connection with the repurchase of $200.0 million in Convertible Notes due 2025,
Excluding the impact of the repurchase, the effective interest rate of the Convertible Notes due 2025 was approximately 1.3%,
1.3%, and 4.0% for the years ended December 31, 2022, 2021, and 2020, respectively. The effective interest rate of the
Convertible Notes due 2025 was equal to the stated interest rate plus the amortization of the debt issuance costs subsequent to
adoption of ASU 2020-06.
For the year ended December 31, 2022, total interest expense related to the Convertible Notes due 2027 was $2.2
million with coupon interest expense of $1.8 million and issuance costs of $0.4 million. The effective interest rate of the
Convertible Notes due 2027 for the year ended December 31, 2022 was approximately 3.2%. The effective interest rate of the
Convertible Notes due 2027 was equal to the stated interest rate plus the amortization of the debt issuance costs.
11.
Leases
The Company has operating leases for corporate offices and certain equipment, some of which may include options to
extend the leases for up to 7 years, and some of which may include options to terminate the leases within 90 days. Terms of the
Company's operating leases may change from time to time. The Company's leases have remaining lease terms of 3 months to 11
years. See "Note 5 - Property and Equipment, net" for further discussion of finance leases.
101
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The following table illustrates information for the Company's operating leases as of and for the year ended December
31, 2022 and 2021:
December 31,
2022
2021
(in thousands)
Total operating lease cost ............................................................................................. $
Short-term lease cost ......................................................................................................
Weighted average remaining lease term (in years)
Weighted average discount rate .....................................................................................
Cash paid for amounts included in the measurement of the operating lease liability ....
$
15,157
12,445
9.2
5.0%
15,748
18,600
4,940
9.8
5.1%
18,052
The Company did not have significant sublease income or variable lease cost for the years ended December 31, 2022
and 2021.
Future minimum lease payments under non-cancellable leases, as of December 31, 2022, were as follows:
Operating Leases
(in thousands)
Years Ending December 31,
2023 ............................................................................................................................................................... $
2024 ...............................................................................................................................................................
2025 ...............................................................................................................................................................
2026 ...............................................................................................................................................................
2027 ...............................................................................................................................................................
Thereafter .......................................................................................................................................................
Total future minimum lease payments ........................................................................................................
Less imputed interest ..................................................................................................................................
Total operating lease liabilities ................................................................................................................ $
16,058
17,925
15,372
15,242
15,370
74,709
154,676
(32,075)
122,601
As a result of office closures in 2022, 2021 and 2020, the Company wrote down operating lease right-of-use assets
totaling $13.0 million, $1.5 million and $2.7 million, respectively, as general and administrative expense in the consolidated
statements of operations.
As of December 31, 2022, the Company has several operating lease commitments, primarily for our corporate offices,
that have not yet commenced. These operating leases are expected to commence before January 2024 with lease terms of up to
10 years.
12.
Stockholders’ Equity
In 2016, the Company announced that its Board of Directors had authorized a share repurchase program under which
the Company may repurchase up to 2,000,000 shares of its common stock. The timing and volume of share repurchases will be
determined by the Company’s management based on its ongoing assessments of the capital needs of the business, the market
price of its common stock and general market conditions. No time limit has been set for the completion of the repurchase
program, and the program may be suspended or discontinued at any time. The repurchase program authorizes the Company to
purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block
transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other
forward transactions or otherwise, all in compliance with applicable laws and other restrictions. Throughout 2022, we
repurchased 1,569,642 shares of the Company's common stock for $95.0 million. Throughout 2021, we repurchased 55,488
shares of the Company's common stock for $4.0 million. As of December 31, 2022, a maximum of 331,260 shares may yet be
purchased under this program.
102
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
On December 20, 2018, the Company issued and sold to BlackRock, Inc. (“BlackRock”) warrants to purchase
approximately 470,000 common shares at an exercise price of $65.16 per share, subject to customary anti-dilution adjustments.
The warrants were exercisable at BlackRock’s option for four years from the date of issuance. The warrants were unexercised
upon expiration on December 20, 2022.
In December 2021, the Company issued 78,677 shares of the Company’s common stock for the settlement of liabilities
connected with a prior acquisition.
13.
Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on
a recurring basis in the consolidated balance sheets as of December 31, 2022 and December 31, 2021, based on the three-tier
fair value hierarchy:
Fair Value
Level I
Level II
Level III
December 31, 2022
(in thousands)
Assets:
Money market funds ............................................ $
Assets to fund deferred compensation liability ....
2,628 $
2,628 $
10,074
—
Total assets ........................................................ $
12,702 $
2,628 $
Liabilities:
Deferred compensation liability ........................... $
Total liabilities ................................................... $
8,088 $
8,088 $
8,088 $
8,088 $
— $
—
— $
— $
— $
—
10,074
10,074
—
—
Fair Value
Level I
Level II
Level III
December 31, 2021
(in thousands)
Assets:
Money market funds ............................................ $
Assets to fund deferred compensation liability ....
2,684 $
2,684 $
11,140
—
Total assets ........................................................ $
13,824 $
2,684 $
Liabilities:
Contingent consideration ..................................... $
Deferred compensation liability ...........................
743 $
— $
10,418
10,418
Total liabilities ................................................... $
11,161 $
10,418 $
— $
—
— $
— $
—
— $
—
11,140
11,140
743
—
743
Level I assets and liabilities include money-market funds not insured by the Federal Deposit Insurance Corporation
(“FDIC”) and deferred compensation liability. The Company periodically invests excess cash in money-market funds not
insured by the FDIC. The Company believes that the investments in money market funds are on deposit with creditworthy
financial institutions and that the funds are highly liquid. These money-market funds are considered Level I and are included in
cash and cash equivalents in the consolidated balance sheets. The fair values of the Company’s investments in money-market
funds are based on the daily quoted market prices for the net asset value of the various money market funds. The fair market
value of the deferred compensation liability is based on the daily quoted market prices for the net asset value of the various
funds in which the participants have selected, and is included in other non-current liabilities in the consolidated balance sheets.
Level III assets and liabilities consist of the estimated fair values of contingent consideration as well as the assets to
fund the Company's deferred compensation liability. The fair market value of the assets used to fund the Company's deferred
compensation liability approximates the cash surrender value of the Company's life insurance premiums and is included in other
non-current assets in the consolidated balance sheets.
103
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Fair Value of Contingent Consideration Liabilities
The fair value of the contingent consideration liabilities related to certain of the Company's acquisitions
were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus
represents a Level III fair value measurement. The significant inputs in the Company's Level III fair value measurement not
supported by market activity included its assessments of expected future cash flows related to these acquisitions and their
ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management
believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in
accordance with the terms of their respective agreements.
The Company will continue to reassess the fair values of the contingent consideration liabilities at each reporting date
until settlement. Changes to these estimated fair values will be recognized in the Company's earnings and included in general
and administration expenses in the consolidated statements of operations.
The table below presents a reconciliation of the Company's contingent consideration liabilities, which were measured
at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2021 to
December 31, 2022:
Balance at December 31, 2021 ........................................................................................................................ $
Payments of contingent consideration liability ...........................................................................................
Balance at December 31, 2022 ........................................................................................................................ $
743
(743)
—
The table below presents a reconciliation of assets used to fund deferred compensation liability, which was measured
at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2021 to
December 31, 2022:
Fair Value of
Contingent
Consideration
Liabilities
(in thousands)
Fair Value of Assets
Used to Fund
Deferred
Compensation
Liability
(in thousands)
Balance at December 31, 2021 ........................................................................................................................ $
Contributions ...............................................................................................................................................
Fair value adjustments and fees ..................................................................................................................
Balance at December 31, 2022 ........................................................................................................................ $
11,140
649
(1,715)
10,074
The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash
surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred
compensation liability, which are included in other non-current assets in the consolidated balance sheets, decreased due to
losses on the underlying investment vehicles. These losses are recognized in the Company's earnings and included in general
and administration expenses in the consolidated statements of operations.
The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers
between levels are recognized on the actual date of the event or when changes in circumstances cause the transfer, in
accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value
hierarchy. There were no transfers between Levels I, II and III during the year ended December 31, 2022.
104
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Fair Value of Debt Agreements and Other Financial Assets and Liabilities
The Company considered its Convertible Notes due 2023, Convertible Notes due 2025 and Convertible Notes due
2027 to be Level II liabilities as of December 31, 2022 and 2021, and used a market approach to calculate their respective fair
values. The estimated fair value for each convertible note was determined based on the estimated or actual bids and offers in an
over-the-counter market on December 31, 2022 and 2021 (See “Note 10—Debt”).
In May 2018, the Company issued $345.0 million of Convertible Notes due 2023. As of December 31, 2022 and 2021,
the carrying value of the Convertible Notes due 2023 equaled $44.9 million and $342.0 million, respectively, and represented
the aggregate principal amount outstanding less the debt issuance costs. As of December 31, 2022 and 2021, the estimated fair
value of the Convertible Notes due 2023 was $46.1 million and $439.9 million, respectively.
In August 2020, the Company issued $517.5 million of Convertible Notes due 2025. As of December 31, 2022 and
2021, the carrying value of the Convertible Notes due 2025 equaled $312.7 million and $506.8 million, and represented the
aggregate principal amount outstanding less the debt issuance costs. As of December 31, 2022 and 2021, the estimated fair
value of the Convertible Notes due 2025 was $293.7 million and $526.1 million, respectively.
In November 2022, the Company issued $575.0 million of Convertible Notes due 2027. As of December 31, 2022, the
carrying value of the Convertible Notes due 2027 equaled $559.0 million and represented the aggregate principal amount
outstanding less the debt issuance costs. As of December 31, 2022, the estimated fair value of the Convertible Notes due 2027
was $606.1 million.
As of December 31, 2022 and 2021, no advances were outstanding on the revolving credit facility under the Credit
Agreement. The Company considered the revolving credit facility to be a Level I liability as of December 31, 2022 and 2021
(See “Note 10—Debt”).
The Company considered the recorded value of its other financial assets and liabilities, which consist primarily of cash
and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and
liabilities at December 31, 2022 based upon the short-term nature of these assets and liabilities.
14.
Revenues and Cost of Revenues
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by major source:
Year Ended December 31, 2022
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Consolidated
(in thousands)
Revenues:
Asset-based ................................................................................ $
738,228 $
— $
Subscription-based ....................................................................
Total recurring revenues ..........................................................
Professional services and other revenues ..................................
294,997
1,033,225
16,568
182,847
182,847
7,144
738,228
477,844
1,216,072
23,712
Total revenues .......................................................................... $
1,049,793 $
189,991 $
1,239,784
105
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Year Ended December 31, 2021
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Consolidated
(in thousands)
Revenues:
Asset-based ............................................................................... $
Subscription-based ....................................................................
Total recurring revenues ..........................................................
Professional services and other revenues ..................................
Total revenues ......................................................................... $
709,376 $
267,720
977,096
14,070
991,166 $
— $
186,269
186,269
9,082
195,351 $
709,376
453,989
1,163,365
23,152
1,186,517
Year Ended December 31, 2020
Envestnet Wealth
Solutions
Envestnet Data &
Analytics
Consolidated
(in thousands)
Revenues:
Asset-based ............................................................................... $
Subscription-based ....................................................................
Total recurring revenues ..........................................................
Professional services and other revenues ..................................
540,947 $
248,810
789,757
16,333
— $
177,697
177,697
14,443
Total revenues ......................................................................... $
806,090 $
192,140 $
540,947
426,507
967,454
30,776
998,230
One customer accounted for more than 10% of the Company’s total revenues, substantially all of which are included
within the Envestnet Wealth Solutions segment:
Fidelity .........................................................................................
16 %
17 %
15 %
The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the
customer:
Year Ended December 31,
2022
2021
2020
Year Ended December 31,
2022
2021
(in thousands)
2020
United States ................................................................................ $
International (1)
.............................................................................
1,218,254 $
1,166,251 $
21,530
20,266
Total revenues ........................................................................... $
1,239,784 $
1,186,517 $
977,047
21,183
998,230
__________________________________________________________
(1) No foreign country accounted for more than 10% of total revenues.
Remaining Performance Obligations
As of December 31, 2022, the Company's estimated revenue expected to be recognized in the future related to
performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately
$544.6 million. We expect to recognize approximately 43% of this revenue in 2023, approximately 42% throughout 2024 and
2025, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future
periods.
106
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Contract Balances
Total deferred revenue increased $4.9 million for the year ended December 31, 2022 and decreased $2.0 million for
the year ended December 31, 2021. These fluctuations are primarily due to timing differences related to the satisfaction of
outstanding performance obligations and the Company's billing cycles during the years then ended. The majority of the
Company's deferred revenue as of December 31, 2022 will be recognized over the course of the next twelve months.
The amount of revenue recognized that was included in the opening deferred revenue balance was $33.1 million and
$33.8 million for the years ended December 31, 2022 and 2021, respectively. The majority of this revenue consists of
subscription-based services and professional services arrangements. The amount of revenue recognized from performance
obligations satisfied in prior periods was not material.
Deferred Sales Incentive Compensation
Deferred sales incentive compensation was $11.0 million and $11.8 million as of December 31, 2022 and 2021,
respectively. Amortization expense for the deferred sales incentive compensation was $4.3 million and $4.4 million for the
years ended December 31, 2022 and 2021, respectively. Deferred sales incentive compensation is included in other non-current
assets on the consolidated balance sheets and amortization expense is included in compensation and benefits expenses on the
consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the periods.
Cost of Revenues
The following table summarizes cost of revenues by revenue category:
Year Ended December 31,
2022
2021
(in thousands)
2020
Asset-based .................................................................................. $
430,345 $
393,717 $
Subscription-based .......................................................................
Professional services and other ....................................................
30,613
7,502
29,445
561
Total cost of revenues ................................................................ $
468,460 $
423,723 $
278,569
26,934
426
305,929
15.
Stock-Based Compensation
On June 22, 2010, the Board of Directors approved the 2010 Long-Term Incentive Plan (“2010 Plan”), effective upon
the closing of the Company’s initial public offering. The 2010 Plan provides for the grant of options, stock appreciation rights,
Full Value Awards (as defined in the 2010 Plan agreement) and cash incentive awards to employees, consultants and non-
employee directors to purchase common stock, which vest over time and have a ten-year contractual term. As approved by the
Company’s shareholders, the 2010 Plan has since been amended whereby the maximum number of shares of common stock
that may be delivered under the 2010 Plan is 12,375,000. Stock options and stock appreciation rights are granted with an
exercise price no less than the fair-market-value price of the common stock at the date of the grant. As of December 31, 2022,
the maximum number of options and restricted stock available for future issuance under the Company’s plans is 2,579,021.
As a result of the PIEtech acquisition in 2019, the Company adopted the 2019 Equity Plan in order to make
inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. Envestnet agreed to grant at future
dates, not earlier than the sixty day anniversary of the PIEtech Acquisition, up to 301,469 shares of Envestnet common stock in
the form of RSUs and PSUs pursuant to the 2019 Equity Plan. The RSUs vest over time and the PSUs vest upon the
achievement of meeting certain performance conditions as well as a subsequent service condition. The Company is recognizing
the estimated expense on a graded-vesting method over a requisite service period of three to five years, which is the estimated
vesting period. The Company estimates the expected vesting amount and recognizes compensation expense only for those
awards expected to vest. This estimate is reassessed by management each reporting period and may change based upon new
facts and circumstances. Changes in assumptions impact the total amount of expense and are recognized over the vesting
period.
107
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Stock-based compensation expense under the Company's plans was as follows:
Year Ended December 31,
2022
2021
(in thousands)
2020
Stock-based compensation expense ............................................. $
Tax effect on stock-based compensation expense ........................
Net effect on income .................................................................... $
79,581 $
(20,293)
59,288 $
67,525 $
(17,219)
50,306 $
56,292
(14,354)
41,938
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for
each of the years ended December 31, 2022, 2021 and 2020 respectively.
Stock Options
The following weighted average assumptions were used to value options granted during the periods indicated:
Year Ended December 31,
2022
2021
2020
Grant date fair value of options .................................................... $
—
$
31.23
$
Volatility ......................................................................................
Risk-free interest rate ...................................................................
Dividend yield ..............................................................................
Expected term (in years) ..............................................................
— %
— %
— %
0.0
42.1 %
0.4 %
— %
6.5
—
— %
— %
— %
0.0
The following table summarizes option activity under the Company’s plans:
Options
Weighted-Average
Exercise Price
Outstanding as of December 31, 2019 ........
1,150,586 $
Exercised ..................................................
Forfeited ...................................................
Outstanding as of December 31, 2020 ........
Granted .....................................................
Exercised ..................................................
Forfeited ...................................................
Outstanding as of December 31, 2021 ........
Exercised ..................................................
Forfeited ...................................................
Outstanding as of December 31, 2022 ........
Options exercisable .....................................
(705,333)
(7,213)
438,040
4,781
(76,303)
(1,277)
365,241
(82,802)
(4,904)
277,535
277,303
25.66
18.83
48.70
36.28
74.83
27.37
49.02
38.61
31.67
72.96
40.07
39.69
Weighted-Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic Value
(in thousands)
3.4 $
50,590
4.1
20,156
3.3
14,878
2.2
2.2
6,005
6,005
The aggregate intrinsic values in the table below represent the total pre-tax intrinsic value (the aggregate difference
between the fair value of the Company’s common stock on December 31, 2022, 2021 and 2020 of $61.70, $79.34 and $82.29,
respectively, and the exercise price of in-the-money options) that would have been received by the option holders had all option
holders exercised their options as of that date.
108
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Other information is as follows:
Year Ended December 31,
2022
2021
(in thousands)
2020
Total intrinsic value of options exercised .................................... $
Cash received from exercises of stock options ............................
2,650 $
2,620
3,815 $
2,090
35,687
10,760
Exercise prices of stock options outstanding as of December 31, 2022 range from $15.34 to $74.83. At December 31,
2022, there was an immaterial amount of unrecognized compensation expense related to unvested stock options.
Restricted Stock Units and Performance Stock Units
Periodically, the Company grants restricted stock units and performance-based stock units to employees. Restricted
stock units vest one-third on the first anniversary of the grant date and quarterly thereafter. Performance-based restricted units
vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition.
The business and financial metrics governing the vesting of these performance-based restricted stock units provide thresholds
that dictate the number of shares to vest upon each evaluation date, which range from 0% to 150% of the original grant number.
If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant
date.
The following is a summary of the activity for unvested restricted stock units granted under the Company’s plans:
RSUs
PSUs
Number of Shares
Weighted-Average
Grant Date Fair
Value per Share
Number of Shares
Weighted-Average
Grant Date Fair
Value per Share
Outstanding as of December 31, 2019 ........
1,318,870 $
Granted .....................................................
Vested ......................................................
Forfeited ...................................................
Outstanding as of December 31, 2020 ........
Granted .....................................................
Vested ......................................................
Forfeited ...................................................
Outstanding as of December 31, 2021 ........
Granted .....................................................
Vested ......................................................
Forfeited ...................................................
970,390
(804,982)
(138,931)
1,345,347
1,195,313
(828,942)
(204,294)
1,507,424
1,401,742
(908,362)
(318,828)
Outstanding as of December 31, 2022 ........
1,681,976
58.88
74.61
57.77
62.14
70.56
71.03
69.50
70.71
71.50
73.13
71.22
73.16
72.69
254,118 $
81,689
—
(33,010)
302,797
129,865
(62,524)
(10,954)
359,184
113,269
(155,417)
(57,987)
259,049
67.96
83.47
—
64.70
72.50
70.92
61.53
78.97
73.64
68.47
66.22
78.17
74.83
At December 31, 2022, there was $88.2 million of unrecognized compensation expense related to unvested restricted
stock units, which the Company expects to recognize over a weighted-average period of 1.8 years. At December 31, 2022, there
was $4.8 million of unrecognized compensation expense related to unvested performance-based restricted stock units, which
the Company expects to recognize over a weighted-average period of 1.5 years.
In connection with the unexpected death of our former CEO in 2019, the Company modified certain of his outstanding
equity awards. The modifications included the extension of exercise periods for his outstanding stock options and the
immediate vesting of his outstanding RSUs. All unvested PSUs were forfeited. In 2020, the Company recognized a gain of $2.5
million in other income (expense), net as a result of a fair value adjustment upon settlement of the former CEO’s stock options.
109
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
In connection with the PIEtech acquisition the Company also granted membership interests in certain of the
Company's equity investments to two legacy PIEtech executives with an estimated grant date fair market value of $8.9 million.
These membership interests vested on May 1, 2020 and became exercisable on May 1, 2022, with the option to put the
membership interests to the Company. For the years ended December 31, 2022, 2021 and 2020 the Company recorded
approximately $0.8 million, $0.5 million and $3.3 million, respectively, as a component of compensation and benefits in the
consolidated statements of operations. As of December 31, 2021, the corresponding liability was recorded in accrued expenses
and other current liabilities. In July 2022, these executives exercised their respective put options and sold these membership
interests to the Company for approximately $10 million.
16.
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,
2022
2021
(in thousands)
2020
Voluntary employer matching contributions ................................ $
8,087 $
6,873 $
6,247
17.
Income Taxes
Income (loss) before income tax expense (benefit) was generated in the following jurisdictions:
Year Ended December 31,
2022
2021
(in thousands)
2020
Domestic ...................................................................................... $
(89,000) $
Foreign .........................................................................................
10,581
Total ........................................................................................... $
(78,419) $
9,730 $
10,631
20,361 $
(17,234)
9,189
(8,045)
The components of the income tax expense (benefit) charged to operations are summarized as follows:
2022
Year Ended December 31,
2021
(in thousands)
2020
Current:
Federal ....................................................................................... $
1,185 $
— $
State ...........................................................................................
Foreign .......................................................................................
Deferred:
Federal .......................................................................................
State ...........................................................................................
Foreign .......................................................................................
6,964
2,402
10,551
(2,453)
(1,439)
402
(3,490)
3,488
4,499
7,987
4,021
(3,548)
(793)
(320)
(1,086)
2,111
(4,542)
(3,517)
(2,659)
1,158
(383)
(1,884)
Total ......................................................................................... $
7,061 $
7,667 $
(5,401)
110
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Net deferred tax assets (liabilities) consisted of the following:
Deferred revenue ....................................................................................................... $
Prepaid expenses and accrued expenses ....................................................................
Right-of-use assets ....................................................................................................
Lease liabilities ..........................................................................................................
Net operating loss and tax credit carryforwards ........................................................
Property and equipment and intangible assets ..........................................................
Stock-based compensation expense ..........................................................................
Investment in partnerships ........................................................................................
Convertible Notes ......................................................................................................
R&D expenditures .....................................................................................................
Withholding taxes .....................................................................................................
Other ..........................................................................................................................
Total deferred tax assets, net ..................................................................................
Less: valuation allowance .......................................................................................
Net deferred tax liabilities .................................................................................... $
December 31,
2022
2021
(in thousands)
8,945 $
8,847
(20,388)
31,328
64,590
(94,061)
10,559
2,836
20,440
43,956
(4,841)
196
72,407
(88,603)
(16,196) $
6,436
8,099
(22,190)
28,994
85,698
(100,314)
9,652
2,941
—
—
—
(173)
19,143
(40,164)
(21,021)
Beginning in 2022, the Tax Cuts and Jobs Act ("TCJA") eliminates the option to deduct research and development
("R&D") expenditures currently and requires taxpayers to amortize them pursuant to IRC Section 174. As a result, in 2023, the
Company expects the amount of cash paid for income taxes to increase compared to 2022.
The deferred tax liability that is not being recorded because of the Company's assertion to permanently reinvest the
earnings of its India subsidiaries is $2.0 million related to the withholding tax in India, net of an assumed foreign tax deduction
for this amount in the U.S.
The valuation allowance for deferred tax assets as of December 31, 2022 and 2021 was $88.6 million and $40.2
million, respectively. The change in the valuation allowance from 2021 to 2022 was primarily related to the 401kplans.com,
Truelytics, and Redi2 acquisitions, the increased deferred tax assets for R&D expenditures, original issue discount on
convertible debt, and additional valuation allowance on state NOLs. In assessing the realizability of deferred tax assets,
management considers whether it is more-likely-than-not that some or all of the deferred tax assets will be realized.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will
be generated to use the existing deferred tax assets. A significant piece of objective negative evidence is the cumulative pre-tax
loss incurred over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other
subjective evidence, such as the Company's projections for future growth. On the basis of this evaluation, as of December 31,
2022, a valuation allowance of $88.6 million has been recorded to record only the portion of the deferred tax asset that is more
likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if
estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in
the form of cumulative losses is no longer present and additional weight may be given to subjective evidence, such as the
Company's projections for growth.
111
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The expected income tax provision (benefit) calculated at the statutory federal rate differs from the actual provision as
follows:
Year Ended December 31,
2022
2021
2020
(in thousands)
Tax provision (benefit), at U.S. federal statutory tax rate ............ $
State income tax provision (benefit), net of federal benefit .........
(15,515) $
(3,463)
Effect of stock-based compensation excess tax benefit ...............
Effect of limitation on executive compensation ...........................
Effect of permanent items ............................................................
Effect of India partnerships ..........................................................
Change in valuation allowance ....................................................
Effect of change in state and foreign income tax rates ................
Uncertain tax positions .................................................................
717
2,511
869
1,644
26,974
(254)
(617)
Research and development credits ...............................................
(10,993)
Change in India indefinite reinvestment assertion .......................
Other .............................................................................................
4,372
816
4,402 $
856
(364)
1,678
661
1,422
5,660
(1,184)
158
(5,695)
—
73
Income tax provision (benefit) ..................................................... $
7,061 $
7,667 $
(1,787)
(2,461)
(9,349)
961
(703)
2,977
16,210
1,323
(6,093)
(5,939)
—
(540)
(5,401)
At December 31, 2022, the Company had NOL carryforwards, before any uncertain tax position reserves, for federal
income tax purposes of approximately $69 million available to offset future federal taxable income, if any, of which $32
million expire through 2036 and $37 million are carried forward indefinitely. In addition, as of December 31, 2022, the
Company had NOL carryforwards for state income tax purposes of approximately $221 million available to reduce future
income subject to income taxes. The state NOL carryforwards that are subject to expiration expire through 2041. In addition,
the Company had R&D credit carryforwards of approximately $38 million for federal and $14 million for California and
Illinois, as well as foreign tax credits of $0.9 million available to offset federal income tax. Federal R&D credits began to expire
in 2022 will expire through 2041. California R&D credits carryover indefinitely.
A reconciliation of the beginning and ending amount of unrecognized tax benefit follows:
Balance at beginning of year ........................................................ $
Additions based on tax positions related to the current year ...
Reductions based on tax positions related to prior years ........
Reductions for settlements with taxing authorities related to
prior years ................................................................................
Reductions for lapses of statute of limitations ........................
Balance at end of year .................................................................. $
2022
Year Ended December 31,
2021
2020
(in thousands)
14,517 $
15,132 $
2,522
(296)
—
(3,131)
13,612 $
1,631
(550)
(394)
(1,302)
14,517 $
18,939
1,420
(2,793)
(2,434)
—
15,132
At December 31, 2022, the amount of unrecognized tax benefits that would benefit the Company’s effective tax rate, if
recognized, was $13.6 million. At this time, the Company estimates that the liability for unrecognized tax benefits will decrease
by an estimated $0.3 million in the next twelve months as statutes of limitations expire.
112
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense.
For the years ended December 31, 2022 and 2021, income tax expense (benefit) included $0.3 million and $0.6 million,
respectively, of potential interest and penalties related to unrecognized tax benefits. The Company had accrued interest and
penalties of $2.0 million and $1.9 million as of December 31, 2022 and 2021, 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 was notified by the Internal Revenue
Service (“IRS”) in August 2021 that the calendar year 2018 federal income tax return had been selected for audit by the IRS.
The Company’s tax returns for the 2018-2021 calendar years remain open to examination by the IRS in their entirety. With
respect to state taxing jurisdictions, the Company’s tax returns for the 2017-2021 calendar years remain open to examination by
various state revenue services.
The Company's Indian subsidiaries are currently under examination by the India Tax Authority for the fiscal years
ended March 31, 2020, 2019, 2018, 2017, 2012, 2011 and 2010. Based on the outcome of examinations of the Company's
subsidiaries or the result of the expiration of statutes of limitations, it is reasonably possible that the related unrecognized tax
benefits could change from those recorded in the consolidated balance sheets. It is possible that one or more of these audits may
be finalized within the next twelve months.
Inflation Reduction Act of 2022
On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 ("IRA"), which, among other things,
implements a 15% minimum tax on book income of certain large corporations and a 1% excise tax on net stock repurchases.
The provisions of the IRA are effective beginning in 2023. The Company is currently evaluating the impacts of this act on the
consolidated financial statements.
18.
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income (loss) available to common
stockholders by the weighted average number of shares of common stock outstanding for the period. For the calculation of
diluted net income (loss) per share, the basic weighted average number of shares is increased by the dilutive effect of stock
options, common warrants, restricted stock awards, restricted stock units and Convertible Notes, if dilutive.
Prior to January 1, 2021, the Company accounted for the effect of its convertible notes using the treasury stock method
since they may be settled in cash, shares or a combination thereof at the Company's option. As a result, the Convertible Notes
due 2023 and Convertible Notes due 2025 had no effect on diluted net income per share until the Company’s stock price
exceeded the conversion price of $68.31 per share and $106.74 per share, respectively, and certain other criteria were met, or if
the trading price of the convertible notes met certain criteria. Pursuant to the adoption of ASU 2020-06 on January 1, 2021, the
Company now accounts for the effect of its convertible notes on diluted net income per share using the if-converted method
(See “Note 2—Summary of Significant Accounting Policies” and “Note 10—Debt”).
113
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The following table provides the numerators and denominators used in computing basic and diluted net income (loss)
per share attributable to Envestnet, Inc.:
Year Ended December 31,
2022
2021
2020
(in thousands, except share and per share amounts)
Net income (loss) attributable to Envestnet, Inc. (a) .................... $
(80,939) $
13,296 $
(3,110)
Interest and gain on settlement of Convertible Notes due
2025, net of interest and tax ....................................................
Net income (loss) attributable to Envestnet, Inc. - Diluted (b) .... $
(9,524)
(90,463) $
—
13,296 $
—
(3,110)
Weighted-average common shares outstanding:
Basic (c) .......................................................................................
Effect of dilutive shares:
Options to purchase common stock .........................................
Unvested restricted stock units ................................................
Convertible Notes ....................................................................
Warrants ...................................................................................
Diluted (d) ....................................................................................
Net income (loss) per share attributable to Envestnet, Inc
common stock:
Basic (a/c) .................................................................................... $
Diluted (b/d) ................................................................................. $
55,199,482
54,470,975
53,589,232
—
—
1,642,643
—
56,842,125
206,022
633,384
—
73,715
55,384,096
—
—
—
—
53,589,232
(1.47) $
(1.59) $
0.24 $
0.24 $
(0.06)
(0.06)
Securities that were anti-dilutive and therefore excluded from the computation of diluted net income (loss) per share
were as follows:
Options to purchase common stock .............................................
Unvested RSU's and PSU's ..........................................................
Convertible Notes (1)
.....................................................................
Warrants .......................................................................................
Total anti-dilutive securities .....................................................
2022
277,535
1,941,025
11,470,646
—
13,689,206
December 31,
2021
—
—
9,898,549
—
9,898,549
2020
438,040
1,648,144
9,898,549
470,000
12,454,733
__________________________________________________________
(1) From 2021 to 2022, this amount increased by 7,837,480 potential common shares associated with Convertible Notes due 2027 issued in
2022 offset by 4,391,743 potential common shares associated with Convertible Notes due 2023 and 1,873,640 potential common shares
associated with Convertible Notes due 2025 repurchased in 2022 (See “Note 10—Debt”).
19.
Segment Information
Business segments are generally organized around the Company's business services. The Company's business
segments are:
•
•
Envestnet Wealth Solutions – a leading provider of unified wealth management software and services to
empower financial advisors and institutions to enable them to deliver an intelligent financial life to their clients.
Envestnet Data & Analytics – a leading data aggregation, intelligence, and experiences platform that powers
data connectivity and business intelligence across digital financial services to enable them to deliver an
Intelligent Financial Life to their clients.
114
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
The information in the following tables is derived from the Company’s internal financial reporting used for corporate
management purposes. Nonsegment operating expenses may include salary and benefits for certain corporate officers, certain
types of professional service expenses and insurance, acquisition related transaction costs, certain restructuring charges and
other non-recurring and/or non-operationally related expenses. Intersegment revenues were not material for the year ended
December 31, 2022 and 2021.
See “Note 14—Revenues and Cost of Revenues” for detail of revenues by segment.
The following table presents a reconciliation from income (loss) from operations by segment to consolidated net
income (loss) attributable to Envestnet, Inc.:
Year Ended December 31,
2022
2021
2020
(in thousands)
Envestnet Wealth Solutions ......................................................... $
Envestnet Data & Analytics .........................................................
Nonsegment operating expenses ..................................................
Income (loss) from operations ......................................................
Interest expense, net of interest income .......................................
Other income (expense), net .........................................................
Consolidated income (loss) before income tax benefit ................
Income tax provision (benefit) .....................................................
Consolidated net income (loss) ....................................................
Add: Net (income) loss attributable to non-controlling interest
Consolidated net income (loss) attributable to Envestnet, Inc. .... $
55,972 $
(20,870)
(101,126)
(66,024)
(12,659)
264
(78,419)
7,061
(85,480)
4,541
(80,939) $
124,651 $
2,033
(86,143)
40,541
(16,104)
(4,076)
20,361
7,667
12,694
602
13,296 $
91,501
(9,943)
(62,117)
19,441
(30,392)
2,906
(8,045)
(5,401)
(2,644)
(466)
(3,110)
A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital
expenditures by segment follows:
Segment assets:
December 31,
2022
2021
(in thousands)
Envestnet Wealth Solutions ....................................................................................... $
Envestnet Data & Analytics ......................................................................................
1,503,646 $
608,519
Consolidated total assets ................................................................................................ $
2,112,165 $
1,720,779
520,403
2,241,182
Segment depreciation and amortization:
Envestnet Wealth Solutions ..................................................... $
Envestnet Data & Analytics .....................................................
(in thousands)
96,658 $
33,890
90,073 $
27,694
Consolidated depreciation and amortization ................................ $
130,548 $
117,767 $
80,714
32,947
113,661
Year Ended December 31,
2022
2021
2020
115
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Segment capital expenditures:
Year Ended December 31,
2022
2021
2020
(in thousands)
Envestnet Wealth Solutions ..................................................... $
Envestnet Data & Analytics .....................................................
Consolidated capital expenditures ................................................ $
79,993 $
25,332
105,325 $
65,264 $
23,637
88,901 $
46,891
20,105
66,996
20.
Geographical Information
The following table sets forth certain long-lived assets including property and equipment, net and internally developed
software, net by geographic area:
December 31,
2022
2021
(in thousands)
United States .................................................................................................................. $
245,817 $
India ...............................................................................................................................
Other ..............................................................................................................................
Total long-lived assets, net .......................................................................................... $
1,093
91
247,001 $
180,680
2,923
271
183,874
See “Note 14—Revenues and Cost of Revenues” for detail of revenues by geographic area.
21.
Commitments and Contingencies
Purchase Obligations and Indemnifications
The Company includes various types of indemnification and guarantee clauses in certain arrangements. These
indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct
or consequential damages and guarantees to certain service providers and service level requirements with certain customers.
The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each
arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future
payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have
to make material payments under these arrangements and therefore has not recorded a contingent liability in the consolidated
balance sheets.
The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in
the normal course of business. As of December 31, 2022, the Company estimated future minimum unconditional purchase
obligations of approximately $103 million. This amount increased by $65 million compared to the prior year primarily driven
by the Company's entry into the outsourcing agreement with TCS.
In connection with certain of our acquisitions, we have entered into arrangements whereby we have agreed to pay
performance bonuses up to $20 million based upon the achievement of certain performance targets. As of December 31, 2022,
the liabilities associated with these performance bonuses were immaterial.
We have also committed $12.5 million in future funding to certain of our equity method investees.
On April 1, 2022, the Company entered into a purchase agreement with a privately held company to acquire the
technology solutions being developed by this privately held company for a purchase price of $9.0 million. The Company has
paid a $4.0 million advance during the year ended December 31, 2022. This advance is included in other non-current assets in
the consolidated balance sheets.
116
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
Legal Proceedings
The Company and its subsidiary, Yodlee, Inc. (“Yodlee”), have been named as defendants in a lawsuit filed on July
17, 2019, by FinancialApps, LLC (“FinancialApps”) in the United States District Court for the District of Delaware. The case
caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into
a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary
information to develop competing credit risk assessment software. The complaint includes claims for, among other things,
misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition,
copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable
and injunctive relief.
On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed
by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District
Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on
FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while
the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on
allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found
that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.
On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that
FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps
has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion
on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that
count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee
and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical
deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various
defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court
ordered that (i) FinancialApps’s claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be
tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps’s
claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury
trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters,
and expert discovery concluded on September 30, 2022. The parties are currently briefing summary judgment and Daubert
motions.
The Company believes FinancialApps’s allegations are without merit and will continue to defend the claims against it
and litigate the counterclaims vigorously.
The Company and Yodlee were also named as defendants in a putative class action lawsuit filed on August 25, 2020,
by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an
amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption is Deborah
Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK. Plaintiffs allege that Yodlee unlawfully collected their
financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s API, and
plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleges violations of
certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored
Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a
putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in
an allegedly similar manner from 2014 to the present. The Company believes that it is not properly named as a defendant in the
lawsuit and it further believes, along with Yodlee, that plaintiffs’ claims are without merit. On November 4, 2020, the Company
and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted
in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend.
The Court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On
March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court
had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not
previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted
against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second
amended complaint. On July 19, 2021, the Court granted in part Yodlee’s motion, resulting in the dismissal of all federal law
117
Envestnet, Inc.
Notes to Consolidated Financial Statements (continued)
claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed
the Company from the lawsuit. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022,
Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied
Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early
motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court
granted Yodlee’s motion for reconsideration and dismissed one additional claim. Yodlee will continue to vigorously defend the
remaining claims against it.
In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and
other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it
is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably
estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings,
advice of legal counsel, and other information or events pertaining to a particular case. For litigation matters where a loss may
be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter
is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not
probable, and therefore has not recorded any accrual for any claims as of December 31, 2022. Further, while any possible range
of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings,
individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or
business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company’s results of
operations or cash flow in a particular quarter or year.
22.
Subsequent Events
Privately Held Company
On January 31, 2023, the Company entered into a convertible promissory note agreement with a customer of the
Company's business, a privately held company, whereby the Company was issued a convertible promissory note with a
principal amount of $20.0 million and a stated interest rate of 8.0% per annum (the “Convertible Promissory Note”). The
Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock
of the privately held company upon qualified financing events or corporate transactions.
In connection with the Convertible Promissory Note, the Company concurrently entered into a call option agreement
with the privately held company, which provides the Company an option to acquire the privately held company at a
predetermined price upon satisfaction of certain financial metrics.
118
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
a. Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of December 31, 2022. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are defined as controls and other procedures
of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or
submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our management, including its principal executive and
principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives, and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and
procedures.
Based on this evaluation, our chief executive officer and chief financial officer have concluded that, as of December
31, 2022, our disclosure controls and procedures were effective.
b. Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with accounting principles generally accepted in the United States and include
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the
United States, and that our receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the consolidated financial statements.
Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our
internal control over financial reporting as of December 31, 2022 using the criteria established in the updated Internal Control
— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on the assessment, management determined that the Company maintained effective internal control over financial
reporting as of December 31, 2022.
Our independent registered public accounting firm, KPMG LLP, has issued a report concerning the effectiveness of
our internal control over financial reporting as of December 31, 2022. See Part II, Item 8, “Report of Independent Registered
Public Accounting Firm”.
c. Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the three months ended December 31,
2022, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
119
Item 10. Directors, Executive Officers and Corporate Governance
Part III
The information required by this Item will be included in our Proxy Statement, which will be filed within 120 days
after the close of the 2022 fiscal year, and is hereby incorporated by reference.
Information required by this Item relating to our executive officers and other corporate officers is included under the
caption “Information about our Executive Officers” in Part I, Item 1 of this report.
We have adopted a code of ethics that applies to all of our employees, including our principal executive officer, our
principal financial officer and our principal accounting officer. This code of ethics is posted on our website within the “Investor
Relations” section. We intend to disclose any amendment to, or waiver from, a provision of this code of ethics by posting such
information to our website. Information found on our website is not part of this Annual Report or any other report filed with the
SEC.
Item 11. Executive Compensation
The information required by this Item will be included in our Proxy Statement, which will be filed within 120 days
after the close of the 2022 fiscal year, and is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be included in our Proxy Statement, which will be filed within 120 days
after the close of the 2022 fiscal year, and is hereby incorporated by reference. For a description of securities authorized under
our equity compensation plans, please refer to our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be included in our Proxy Statement, which will be filed within 120 days
after the close of the 2022 fiscal year, and is hereby incorporated by reference.
Item 14. Principal Accounting Fees and Services
The information required by this Item will be included in our Proxy Statement, which will be filed within 120 days
after the close of the 2022 fiscal year, and is hereby incorporated by reference.
120
Item 15. Exhibits, Financial Statement Schedules
PART IV
(a)(1)
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(KPMG LLP, Denver, CO, Auditor Firm ID: 185)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for each of the years ended December 31, 2022,
2021 and 2020
Consolidated Statements of Comprehensive Income (Loss) for each of the years ended
December 31, 2022, 2021, and 2020
Consolidated Statements of Stockholders’ Equity for each of the years ended December 31,
2022, 2021 and 2020
Consolidated Statements of Cash Flows for each of the years ended December 31, 2022,
2021 and 2020
Notes to Consolidated Financial Statements
(a)(2)
Evaluation and Qualifying Accounts
Financial statements and schedules are omitted for the reason that they are not
applicable, are not required, or the information is included in the financial statements or the
related notes.
(b)
Exhibits: The Exhibits required by Item 601 of Regulation S-K are listed in the Index to the
Exhibits on pages 122 to 125 of this report, which is incorporated herein by reference.
Item 16. Form 10-K Summary
Not applicable.
Page Number in
Form 10-K
67
69
70
71
72
74
76
121
INDEX TO EXHIBITS
Exhibit No.
3.1
Description
Fifth Amended and Restated Certificate of Incorporation of Envestnet, Inc. (filed as Exhibit 3.1 to Amendment
No. 3 the Company’s Registration Statement on Form S-1 (File No. 333-165717) filed with the SEC on July 1,
2010 and incorporated by reference herein).
3.2 Amended and Restated Bylaws of Envestnet, Inc. (filed as Exhibit 3.2 to Amendment No. 3 to the Company’s
Registration Statement on Form S-1 (File No. 333-165717) filed with the SEC on July 1, 2010 and incorporated
by reference herein).
4.1
4.2
4.3
Indenture, dated as of August 20, 2020, by and among Envestnet, Inc., Envestnet Asset Management, Inc., 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 August 20, 2020 and incorporated by reference herein).
Indenture, dated as of May 25, 2018, by and among the Company, Envestnet Asset Management, Inc. 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
May 25, 2018 and incorporated by reference herein).
Indenture, dated as of November 17, 2022, by and among the Company, Envestnet, Inc., Envestnet Asset
Management, Inc., 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 November 17, 2022 and incorporated by reference herein).
4.4 Warrant issued to Blackhawk Investment Holdings, LLC (filed as Exhibit 4.1 to the Company’s Form 8-K filed
with the SEC on December 20, 2018 and incorporated by reference herein).
Registration Rights Agreement, dated as of December 20, 2018, between the Company and BlackRock, Inc.
(filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on December 20, 2018 and incorporated
by reference herein).
4.5
10.1
10.2
10.3
4.6 Description of Registrant’s Securities (filed as Exhibit 4.5 to the Company's Form 10-K for the fiscal year
ended December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).
Technology and Services Agreement dated as of March 31, 2008, between the Company and FMR LLC (filed
as Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File
No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference herein).**
First Amendment to Technology and Services Agreement dated as of June 26, 2008 between the Company and
FMR LLC (filed as Exhibit 10.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1
(File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference herein).
Second Amendment to Technology and Services Agreement dated as of May 5, 2009 between the Company
and FMR LLC (filed as Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on
Form S-1 (File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference herein).**
Third Amendment to Technology and Services Agreement dated as of November 16, 2009 between the
Company and FMR LLC (filed as Exhibit 10.4 to Amendment No. 1 to the Company’s Registration Statement
on Form S-1 (File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference
herein).**
Services Agreement dated as of December 28, 2005 between Envestnet Asset Management, Inc. and Fidelity
Brokerage Services LLC (filed as Exhibit 10.5 to Amendment No. 1 to the Company’s Registration Statement
on Form S-1 (File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference
herein).**
10.4
10.5
10.6
10.7
10.8
10.9
Services Agreement effective March 24, 2005 between Envestnet Asset Management, Inc. and National
Financial Services, LLC (filed as Exhibit 10.6 to Amendment No. 1 to the Company’s Registration Statement
on Form S-1 (File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference
herein).**
Services Agreement Amendment between Envestnet Asset Management, Inc. and National Financial Services,
LLC dated March 2008 (filed as Exhibit 10.7 to Amendment No. 1 to the Company’s Registration Statement on
Form S-1 (File No. 333-165717) filed with the SEC on May 6, 2010 and incorporated by reference herein).**
Envestnet, Inc. 2010 Long-Term Incentive Plan, as amended through the Fifth Amendment (filed as
Exhibit 10.1 to the Company's Form 8-K filed with the SEC on May 13, 2021 and incorporated by reference
herein).*
Form of Non-Qualified Stock Option Grant Certificate under the Envestnet, Inc. 2010 Long-Term Incentive
Plan (filed as Exhibit 10.12 to the Company’s Form 10-K for the fiscal year ended December 31, 2010 filed
with the SEC on March 18, 2011 and incorporated by reference herein).*
10.10
Form of Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive
Plan (for awards prior to February 2020)(filed as Exhibit 10.10 to the Company's Form 10-K for the fiscal year
ended December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).*
122
Exhibit No.
10.11
Form of Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive
Plan (for awards beginning February 2020) (filed as Exhibit 10.11 to the Company's Form 10-K for the fiscal
year ended December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference
herein).*
Description
10.12
10.13
10.14
Form of Performance-Based Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010
Long-Term Incentive Plan (filed as Exhibit 10.12 to the Company's Form 10-K for the fiscal year ended
December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).*
Form of Annual Non-Equity Incentive Compensation Grant Certificate under the Envestnet, Inc. 2010 Long-
Term Incentive Plan (filed as Exhibit 10.13 to the Company's Form 10-K for the fiscal year ended December
31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).*
Fourth Amendment to Technology and Services Agreement, dated as of December 31, 2011, between the
Company and FMR LLC (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 6,
2012 and incorporated by reference herein).
10.15 Amendment to Services Agreement effective December 31, 2011, between Envestnet Asset Management, Inc.
and Fidelity Brokerage Services, LLC (filed as Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on
January 6, 2012 and incorporated by reference herein).
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Third Amendment to Services Agreement effective December 31, 2011, between Envestnet Asset
Management, Inc. and National Financial Services LLC. (filed as Exhibit 10.3 to the Company’s Form 8-K
filed with the SEC on January 6, 2012 and incorporated by reference herein).
Envestnet, Inc. Executive Deferred Compensation Plan (filed as Exhibit 10.1 to the Company’s Form 8-K filed
with the SEC on February 10, 2015 and incorporated by reference herein).*
Envestnet, Inc. Director Deferred Compensation Plan (filed as Exhibit 10.2 to the Company’s Form 8-K/A filed
with the SEC on February 11, 2015 and incorporated by reference herein).*
Executive Agreement, dated as of May 12, 2016 between William Crager, the Company and Envestnet Asset
Management, Inc. (filed as Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on May 13, 2016 and
incorporated by reference herein).*
Executive Agreement, dated as of May 12, 2016 between Peter D’Arrigo, the Company and Envestnet Asset
Management, Inc. (filed as Exhibit 10.3 to the Company’s Form 8-K filed with the SEC on May 13, 2016 and
incorporated by reference herein).*
Executive Agreement, dated as of August 2, 2016 between Shelly O'Brien, the Company and Envestnet Asset
Management, Inc. (filed as Exhibit 10.21 to the Company’s Form 10-K for the fiscal year ended December 31,
2021 filed with the SEC on February 25, 2022 and incorporated by reference herein).*,***
Executive Agreement, dated as of August 2, 2016 between Scott Grinis, the Company and Envestnet Asset
Management, Inc. (filed as Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on August 4, 2016 and
incorporated by reference herein.)*
Executive Agreement, dated as of June 1, 2019 between Stuart DePina, the Company and Envestnet Financial
Technologies, Inc. (filed as Exhibit 10.23 to the Company's Form 10-K for the fiscal year ended December 31,
2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).*
Severance Agreement and General Release, dated as of October 29, 2020 between Scott Grinis and Envestnet
Financial Technologies, Inc. (filed as Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on October
30, 2020 and incorporated by reference herein).*
Form of Amendment to Executive Employment Agreements (filed as Exhibit 10.25 to the Company's Form 10-
K for the fiscal year ended December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by
reference herein).*
Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (filed as Exhibit 4.3 to the Company’s Registration
Statement on Form S-8 filed with the SEC on June 29, 2020 and incorporated by reference herein).*
Form of Restricted Stock Unit Grant Certificate under the Envestnet, Inc. 2019 Acquisition Equity Incentive
Plan (filed as Exhibit 10.27 to the Company's Form 10-K for the fiscal year ended December 31, 2020 filed
with the SEC on February 26, 2021 and incorporated by reference herein).*
Form of Performance-Based Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2019
Acquisition Equity Incentive Plan (filed as Exhibit 10.28 to the Company's Form 10-K for the fiscal year ended
December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by reference herein).*
123
Exhibit No.
10.29
10.30
Description
Summary of Non-Employee Director Compensation (filed as Exhibit 10.29 to the Company's Form 10-K for
the fiscal year ended December 31, 2020 filed with the SEC on February 26, 2021 and incorporated by
reference herein).*
Second Amended and Restated Credit Agreement dated as of July 18, 2017 among Envestnet, Inc., the
Guarantors 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 July 24, 2017
and incorporated by reference herein).
10.31 Amended and Restated Security Agreement, dated as of July 18, 2017, among Envestnet, Inc., the Debtors from
time to time party thereto and Bank of Montreal, as Administrative Agent (filed as Exhibit 10.2 to the
Company’s Form 8-K filed with the SEC on July 24, 2017 and incorporated by reference herein).
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
First Amendment to Second Amended and Restated Credit Agreement, dated as of May 24, 2018, among
Envestnet, Inc., the Guarantors 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 May 31, 2018 and incorporated by reference herein).
Second Amendment to Second Amended and Restated Credit Agreement, dated as of September 27, 2019,
among Envestnet, Inc., the Guarantors 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 10-Q for
the period ended September 30, 2019 filed with the SEC on November 8, 2019 and incorporated by reference
herein).***
Third Amendment to Second Amended and Restated Credit Agreement, dated as of October 29, 2021, among
Envestnet, Inc., the Guarantors 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 10-Q for the period
ended September 30, 2021 filed with the SEC on November 9, 2021 and incorporated by reference herein).***
Third Amended and Restated Credit Agreement, dated as of February 4, 2022, by and among Envestnet, the
Guarantors party thereto, the Lenders party thereto and Bank of Montreal as Administrative Agent (filed as
Exhibit 10.01 to the Company's Form 8-K filed with the SEC on February 8, 2022 and incorporated by
reference herein).***
First Amendment to Third Amended and Restated Credit Agreement, dated as of February 4, 2022, in each
case, by and among Envestnet, the Guarantors party thereto, the Lenders 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 November 15,
2022 and incorporated by reference herein).***
Form of Restricted Stock Unit Grant Award Agreement for Non-Employee Directors under the Envestnet, Inc.
2010 Long-Term Incentive Plan (filed as Exhibit 10.1 to the Company's Form 10-Q for the period ended March
31, 2021 filed with the SEC on May 7, 2021 and incorporated by reference herein).*
Form of Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive
Plan (for awards granted in 2021) (filed as Exhibit 10.2 to the Company's Form 10-Q for the period ended
March 31, 2021 filed with the SEC on May 7, 2021 and incorporated by reference herein).*
Form of Performance-Based Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010
Long-Term Incentive Plan (for awards granted in 2021) (filed as Exhibit 10.3 to the Company's Form 10-Q for
the period ended March 31, 2021 filed with the SEC on May 7, 2021 and incorporated by reference herein).*
Form of Performance-Based Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010
Long-Term Incentive Plan (for awards beginning February 2022) (filed as Exhibit 10.1 to the Company's Form
10-Q for the period ended March 31, 2022 filed with the SEC on May 6, 2022 and incorporated by reference
herein).*
10.41
Form of Restricted Stock Unit Grant Award Agreement under the Envestnet, Inc. 2010 Long-Term Incentive
Plan (for awards beginning February 2022) (filed as Exhibit 10.2 to the Company's Form 10-Q for the period
ended March 31, 2022 filed with the SEC on May 6, 2022 and incorporated by reference herein).*
10.42 Consultant Agreement, dated June 6, 2022, between Envestnet Financial Technologies, Inc. and Stuart DePina
(filed as Exhibit 10.1 to the Company's Form 8-K filed with the SEC on June 7, 2022 and incorporated by
reference herein).
10.43
Severance Agreement and General Release, dated June 6, 2022, between Envestnet Financial Technologies,
Inc. and Stuart DePina (filed as Exhibit 10.2 to the Company's Form 8-K filed with the SEC on June 7, 2022
and incorporated by reference herein).
Subsidiaries of the Company, filed herewith.
21.1
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.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
124
Exhibit No.
32.1(1)
32.2(1)
Description
Certification of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its
XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document****
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document****
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document****
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document****
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document****
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
__________________________________________________________
(1) The material contained in Exhibit 32.1 and 32.2 is not deemed “filed” with the SEC and is not to be incorporated by
reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934,
whether made before or after the date hereof and irrespective of any general incorporation language contained in such
filing, except to the extent that the registrant specifically incorporates it by reference.
Management contract or compensation plan.
Certain information redacted pursuant to a grant of confidential treatment by the staff of the Securities and Exchange
Commission.
*
**
*** Certain information identified in the exhibit has been excluded as permitted by Item 601 of Regulation S-K.
**** Attached as Exhibit 101 to this Annual Report on Form 10-K are the following materials, formatted in Inline XBRL
(Extensible Business Reporting Language): (i) the cover page; (ii) the Consolidated Balance Sheets as of December 31,
2022 and 2021; (iii) the Consolidated Statements of Operations for the years ended December 31, 2022, 2021 and
2020; (iv) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021
and 2020; (v) the Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and
2020; (vi) the Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020;
(vii) Notes to Consolidated Financial Statements tagged as blocks of text.
125
Pursuant to the requirements of Section 13 or 15(d) the Securities Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 28, 2023
Date: February 28, 2023
ENVESTNET, INC.
/s/ William C. Crager
William C. Crager
Chief Executive Officer, Director (Principal Executive Officer)
/s/ Peter H. D’Arrigo
Peter 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 following persons
on behalf of the registrant and in the capacities on February 28, 2023.
Name
/s/ William C. Crager
William C. Crager
/s/ Peter H. D’Arrigo
Peter H. D’Arrigo
/s/ Matthew J. Majoros
Matthew J. Majoros
/s/ Luis Aguilar
Luis Aguilar
/s/ Ross Chapin
Ross Chapin
/s/ Gayle Crowell
Gayle Crowell
/s/ James Fox
James Fox
/s/ Valerie Mosley
Valerie Mosley
/s/ Greg Smith
Greg Smith
Position
Chief Executive Officer, Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Senior Vice President, Financial Reporting
(Principal Accounting Officer)
Director
Director
Director
Chairperson, Director
Director
Director
126
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Executive Officers and Corporate Information
Safe Harbor Statement
This annual report contains forward-looking statements regarding
future events and our future results. These forward-looking
statements involve risks and uncertainties and our actual future
results could differ materially from the results expressed or implied
by such forward-looking statements. Furthermore, reported results
should not be considered as an indication of future performance.
The potential risks, uncertainties and other factors that could
cause actual results to differ from those expressed by the
forwardlooking statements in this annual report are set forth in
our Annual Report on Form 10-K. All forward-looking statements
contained in this annual report are qualified in their entirety by this
cautionary statement. You should read this annual report and our
other communications to you completely.
Website
Visit investor.envestnet.com
Other office locations include:
Boston, MA
Chicago, IL
Denver, CO
Raleigh, NC
Richmond, VA
Trivandrum, India
Executive Officers
William Crager, Chief Executive Officer and Director
Peter D’Arrigo, Chief Financial Officer
Shelly O’Brien, Chief Legal Officer, General Counsel and Corporate
Secretary
Annual Meeting of Shareholders (Virtual)
Information about the Envestnet Annual Meeting of Shareholders
on June 15, 2023 at 9:00 a.m. Eastern Time is in our proxy
statement, which is also available online at www.envestnet.com on
the Investor Relations page.
Stock Exchange Listings
New York Stock Exchange. Symbol: ENV
Investor Relations
Shareholders, securities analysts, portfolio managers and
representatives of financial institutions seeking information about
Envestnet should contact Investor Relations at the company’s
address, by emailing
investor.relations@envestnet.com
Stock Transfer Agent and Registrar
American Stock Transfer & Trust Company, LLC
6201 15th Ave
Brooklyn, NY 11219
www.astfinancial.com
800-937-5449
Ordering Additional Annual Reports
Envestnet’s 2022 Annual Report may be obtained without charge
by completing and submitting the form on our website or by
contacting Investor Relations.
Corporate Offices
Berwyn (Headquarters)
1000 Chesterbrook Boulevard
Suite 250
Berwyn, PA 19312
Main: 484-328-5581
Email: investor.relations@envestnet.com
www.envestnet.com
Form 10-K
A copy of our Annual Report on Form 10-K for 2022 is available on
our website. Additional copies of our Annual Report on Form 10-K
or interim financial reports filed with the SEC may be obtained by
contacting Investor Relations.
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