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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
 
Commission file number 001-34835
Envestnet, Inc.
(Exact name of registrant as specified in its charter)
Delaware 20-1409613
(State or other jurisdiction of
incorporation or organization)
(I.R.S Employer
Identification No.)
35 East Wacker Drive, Suite 2400, Chicago, Illinois
60601
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code:
(312) 827-2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of exchange on which registered
Common Stock, par value $0.005 per share ENV New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý   Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes   No 
As of July 31, 2020, Envestnet, Inc. had 53,772,483 shares of common stock outstanding.



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Envestnet, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share information)
(unaudited)
June 30, December 31,
2020 2019
Assets
Current assets:
Cash and cash equivalents $ 92,244    $ 82,505   
Fees receivable, net 74,871    67,815   
Prepaid expenses and other current assets 38,665    32,183   
Total current assets 205,780    182,503   
Property and equipment, net 49,752    53,756   
Internally developed software, net 78,024    60,263   
Intangible assets, net 471,091    505,589   
Goodwill 906,499    879,850   
Operating lease right-of-use assets, net 73,537    82,796   
Other non-current assets 46,722    37,127   
Total assets $ 1,831,405    $ 1,801,884   
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities $ 134,763    $ 137,944   
Accounts payable 16,132    17,277   
Operating lease liabilities 13,926    13,816   
Contingent consideration 1,603    —   
Deferred revenue 42,861    34,753   
Total current liabilities 209,285    203,790   
Convertible Notes due 2023 311,031    305,513   
Revolving credit facility 275,000    260,000   
Contingent consideration 11,422    9,045   
Deferred revenue 5,231    5,754   
Non-current operating lease liabilities 81,600    88,365   
Deferred tax liabilities, net 27,106    29,481   
Other non-current liabilities 36,993    32,360   
Total liabilities 957,668    934,308   
Commitments and contingencies
Equity:
Stockholders’ equity:
Preferred stock, par value $0.005, 50,000,000 shares authorized
—    —   
Common stock, par value $0.005, 500,000,000 shares authorized; 67,396,243 and 66,320,706 shares issued as of June 30, 2020 and December 31, 2019, respectively; 53,743,382 and 52,841,706 shares outstanding as of June 30, 2020 and December 31, 2019, respectively
337    331   
Additional paid-in capital 1,071,502    1,037,141   
Accumulated deficit (89,065)   (75,664)  
Treasury stock at cost, 13,652,861 and 13,479,000 shares as of June 30, 2020 and December 31, 2019, respectively
(103,781)   (90,965)  
Accumulated other comprehensive loss (3,198)   (1,749)  
Total stockholders’ equity 875,795    869,094   
Non-controlling interest (2,058)   (1,518)  
Total equity 873,737    867,576   
Total liabilities and equity $ 1,831,405    $ 1,801,884   

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
3


Envestnet, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except share and per share information)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Revenues:
Asset-based $ 122,246    $ 120,070    $ 257,057    $ 229,004   
Subscription-based 104,979    92,258    209,530    175,345   
Total recurring revenues 227,225    212,328    466,587    404,349   
Professional services and other revenues 8,088    12,117    15,265    19,762   
Total revenues 235,313    224,445    481,852    424,111   
Operating expenses:
Cost of revenues 68,849    72,080    143,782    133,725   
Compensation and benefits 95,565    103,286    205,995    190,003   
General and administration 38,448    42,421    79,558    82,945   
Depreciation and amortization 28,443    26,915    56,126    46,432   
Total operating expenses 231,305    244,702    485,461    453,105   
Income (loss) from operations 4,008    (20,257)   (3,609)   (28,994)  
Other expense, net (8,173)   (7,512)   (9,710)   (13,275)  
Loss before income tax provision (benefit) (4,165)   (27,769)   (13,319)   (42,269)  
Income tax provision (benefit) 1,306    (28,382)   (658)   (24,614)  
Net income (loss) (5,471)   613    (12,661)   (17,655)  
Add: Net loss attributable to non-controlling interest 547    280    401    363   
Net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    $ (12,260)   $ (17,292)  
Net income (loss) per share attributable to Envestnet, Inc.:
Basic $ (0.09)   $ 0.02    $ (0.23)   $ (0.35)  
Diluted $ (0.09)   $ 0.02    $ (0.23)   $ (0.35)  
Weighted average common shares outstanding:
Basic 53,562,850    50,870,296    53,288,741    49,526,774   
Diluted 53,562,850    52,982,688    53,288,741    49,526,774   

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
4


Envestnet, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
Net income (loss) attributable to Envestnet, Inc.
$ (4,924)   $ 893    $ (12,260)   $ (17,292)  
Foreign currency translation gains (losses), net of taxes
1,575    112    (1,449)   334   
Comprehensive income (loss) attributable to Envestnet, Inc. $ (3,349)   $ 1,005    $ (13,709)   $ (16,958)  

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

5


Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(in thousands, except share information)
(unaudited)
 
Accumulated
Common Stock Treasury Stock Additional Other Non-
Common Paid-in Comprehensive Accumulated controlling Total
Shares Amount Shares Amount Capital Income (Loss) Deficit Interest Equity
Balance, December 31, 2019 66,320,706    $ 331    (13,479,000)   $ (90,965)   $ 1,037,141    $ (1,749)   $ (75,664)   $ (1,518)   $ 867,576   
Adoption of ASC 326 —    —    —    —    —    —    (1,141)   —    $ (1,141)  
Exercise of stock options 357,974      —    —    3,406    —    —    —    3,408   
Issuance of common stock - vesting of restricted stock units 398,881      —    —    —    —    —    —     
Stock-based compensation expense —    —    —    —    13,765    —    —    —    13,765   
Purchase of treasury stock for stock-based tax withholdings —    —    (130,164)   (9,199)   —    —    —    —    (9,199)  
Foreign currency translation gain (loss) —    —    —    —    —    (3,024)   —    —    (3,024)  
Net income (loss) —    —    —    —    —    —    (7,336)   146    (7,190)  
Balance, March 31, 2020 67,077,561    $ 335    (13,609,164)   $ (100,164)   $ 1,054,312    $ (4,773)   $ (84,141)   $ (1,372)   $ 864,197   
Exercise of stock options 184,475      —    —    3,274    —    —    —    3,275   
Issuance of common stock - vesting of restricted stock units 134,207      —    —    —    —    —    —     
Stock-based compensation expense —    —    —    —    13,006    —    —    —    13,006   
Purchase of treasury stock for stock-based tax withholdings —    —    (43,697)   (3,617)   —    —    —    —    (3,617)  
Transfer of non-controlling units —    —    —    —    910    —    —    (139)   771   
Foreign currency translation gain (loss) —    —    —    —    —    1,575    —    —    1,575   
Net income (loss) —    —    —    —    —    —    (4,924)   (547)   (5,471)  
Balance, June 30, 2020 67,396,243    $ 337    (13,652,861)   $ (103,781)   $ 1,071,502    $ (3,198)   $ (89,065)   $ (2,058)   $ 873,737   

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

6


Envestnet, Inc.
Condensed Consolidated Statements of Stockholders' Equity (continued)
(in thousands, except share information)
(unaudited)
Accumulated
Common Stock Treasury Stock Additional Other Non-
Common Paid-in Comprehensive Accumulated controlling Total
Shares Amount Shares Amount Capital Income (Loss) Deficit Interest Equity
Balance, December 31, 2018 61,238,898    $ 306    (13,117,098)   $ (67,858)   $ 761,128    $ (994)   $ (58,882)   $ (1,098)   $ 632,602   
Exercise of stock options 200,326      —    —    3,162    —    —    —    3,163   
Issuance of common stock - vesting of restricted stock units 479,479      —    —    —    —    —    —     
Acquisition of business 15,755    —    —    —    772    —    —    —    772   
Stock-based compensation expense —    —    —    —    12,864    —    —    —    12,864   
Purchase of treasury stock for stock-based tax withholdings —    —    (160,456)   (9,819)   —    —    —    —    (9,819)  
Foreign currency translation gain (loss) —    —    —    —    —    222    —    —    222   
Net income (loss) —    —    —    —    —    —    (18,185)   (83)   (18,268)  
Balance, March 31, 2019 61,934,458    309    (13,277,554)   (77,677)   777,926    (772)   (77,067)   (1,181)   621,538   
Exercise of stock options 114,109      —    —    1,750    —    —    —    1,751   
Issuance of common stock - vesting of restricted stock units 182,390      —    —    —    —    —    —     
Acquisition of business 3,184,713    16    —    —    222,468    —    —    —    222,484   
Stock-based compensation expense —    —    —    —    13,434    —    —    —    13,434   
Purchase of treasury stock for stock-based tax withholdings —    —    (67,960)   (6,143)   —    —    —    —    (6,143)  
Foreign currency translation gain (loss) —    —    —    —    —    112    —    —    112   
Net income (loss) —    —    —    —    —    —    893    (280)   613   
Balance, June 30, 2019 65,415,670    $ 327    (13,345,514)   $ (83,820)   $ 1,015,578    $ (660)   $ (76,174)   $ (1,461)   $ 853,790   

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
7


Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
2020 2019
OPERATING ACTIVITIES:
Net loss $ (12,661)   $ (17,655)  
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 56,126    46,432   
Provision for doubtful accounts 1,515    713   
Deferred income taxes (1,598)   (28,991)  
Non-cash compensation expense 29,869    27,852   
Non-cash interest expense 5,907    9,896   
Accretion on contingent consideration and purchase liability 910    742   
Payments of contingent consideration —    (578)  
Fair market value adjustment to contingent consideration liability (1,982)   —   
Gain on acquisition of equity method investment (4,230)   —   
Loss allocation from equity method investments 3,286    550   
Impairment of right of use assets 1,426    —   
Other 556    —   
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net (8,560)   (536)  
Prepaid expenses and other current assets (7,756)   (15,507)  
Other non-current assets (353)   (3,241)  
Accrued expenses and other liabilities (4,484)   (19,060)  
Accounts payable (2,130)   (4,768)  
Deferred revenue 7,236    3,940   
Other non-current liabilities 1,946    2,602   
Net cash provided by operating activities 65,023    2,391   
INVESTING ACTIVITIES:
Purchases of property and equipment (4,329)   (8,815)  
Capitalization of internally developed software (25,703)   (15,583)  
Investments in private companies (12,625)   (2,000)  
Acquisitions of businesses, net of cash acquired (20,257)   (321,571)  
Net cash used in investing activities (62,914)   (347,969)  
FINANCING ACTIVITIES:
Proceeds from borrowings on revolving credit facility 45,000    175,000   
Payments on revolving credit facility (30,000)   (30,000)  
Payments of contingent consideration —    (171)  
Proceeds from exercise of stock options 6,683    4,914   
Purchase of treasury stock for stock-based tax withholdings (12,816)   (15,962)  
Issuance of restricted stock units    
Net cash provided by financing activities 8,870    133,784   
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,342)   166   
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 9,637    (211,628)  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 82,755    289,671   
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (See Note 2) $ 92,392    $ 78,043   
See accompanying notes to unaudited Condensed Consolidated Financial Statements.
8


Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands)
(unaudited)
Six Months Ended
June 30,
2020 2019
Supplemental disclosure of cash flow information - net cash paid during the period for income taxes $ 2,136    $ 6,121   
Supplemental disclosure of cash flow information - cash paid during the period for interest 7,861    5,952   
Supplemental disclosure of non-cash operating, investing and financing activities:
Common stock issued in acquisition of business —    222,484   
Contingent consideration issued in acquisition of businesses 5,239    15,880   
Purchase liabilities included in other non-current liabilities —    5,468   
Purchase liabilities included in accrued expenses and other liabilities 632    —   
Purchase of fixed assets included in accounts payable and accrued expenses and other liabilities 1,139    1,567   
Membership interest liabilities included in other non-current liabilities 3,098    1,480   
Common stock issued to settle purchase liability —    772   
Leasehold improvements funded by lease incentive 1,710    648   
Transfer of non-controlling units 771    —   

See accompanying notes to unaudited Condensed Consolidated Financial Statements.
9

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)

1.Organization and Description of Business

Envestnet, Inc. (“Envestnet”) and its subsidiaries (collectively, the “Company”) provide intelligent systems for wealth management and financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management process. Through a combination of platform enhancements, partnerships and acquisitions, Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.

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

2.Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2020 and for the three and six months ended June 30, 2020 and 2019 have not been audited by an independent registered public accounting firm. These unaudited condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements for the year ended December 31, 2019 and reflect all normal recurring adjustments which are, in the opinion of management, necessary to present fairly the Company’s financial position as of June 30, 2020 and the results of operations, equity, comprehensive loss and cash flows for the periods presented herein. The unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany transactions and balances have been eliminated in consolidation. Accounts for the Envestnet Wealth Solutions segment that are denominated in a non-U.S. currency have been re-measured using the U.S. dollar as the functional currency. Certain accounts within the Envestnet Data & Analytics segment are recorded and measured in foreign currencies. The assets and liabilities for those subsidiaries with a functional currency other than the U.S. dollar are translated at exchange rates in effect at the balance sheet date, and revenues and expenses are translated at average exchange rates. Differences arising from these foreign currency translations are recorded in the unaudited condensed consolidated balance sheets as accumulated other comprehensive income (loss) within stockholders' equity. The Company is also subject to gains and losses from foreign currency denominated transactions and the remeasurement of foreign currency denominated balance sheet accounts, both of which are included in other expense, net in the condensed consolidated statements of operations.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results to be expected for other interim periods or for the full fiscal year.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, sometimes referred to as the codification or “ASC.” These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 28, 2020.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
 
The following table reconciles cash, cash equivalents and restricted cash from the condensed consolidated balance sheets to amounts reported within the condensed consolidated statements of cash flows:
June 30, June 30,
2020 2019
Cash and cash equivalents $ 92,244    $ 77,717   
Restricted cash included in prepaid expenses and other current assets —    158   
Restricted cash included in other non-current assets 148    168   
Total cash, cash equivalents and restricted cash $ 92,392    $ 78,043   
 
10

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
Financial Impacts Related To COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak is causing major disruptions to businesses and markets worldwide as the virus spreads. The extent of the effect on the Company’s operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, and governmental, regulatory and private sector responses, all of which are uncertain and difficult to predict. Although the Company is unable to estimate the overall financial effect of the pandemic at this time, if the pandemic continues, it could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows. As of June 30, 2020, these condensed consolidated financial statements do not reflect any adjustments as a result of the pandemic.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326).” This update significantly changes the way that entities will be required to measure credit losses. This standard requires that entities estimate credit losses based upon an “expected credit loss” approach rather than the “incurred loss” approach, which is currently used. The new approach will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable forecasts of collectability. The change in approach is anticipated to impact the timing of recognition of credit losses. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. These changes became effective for the Company's fiscal year beginning January 1, 2020. The Company recognized the cumulative effect of the initial application of ASU 2016-13 as an adjustment of $1,141, net of tax, to the opening balance of accumulated deficit. The Company does not expect the adoption of ASU 2016-13 to have a material impact to the results of its operations on an ongoing basis.
Not Yet Adopted Accounting Pronouncements—In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This update aims to reduce complexity within the accounting for income taxes as part of the simplification initiative. This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2020. Early adoption of the standard is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

3. Acquisitions and Other Investments

Investment in Private Services Company

On January 8, 2020, the Company acquired a 4.25% membership interest in a private services company for cash consideration of $11,000. The private services company partners with independent network advisory firms to help them grow, become more profitable and run more efficiently. The Company will use the equity method of accounting to record its portion of the private services 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 and lack of control and does not otherwise exercise control over the significant economic decisions of the private services company.

The private services company is and remains a client of the Company and has thus been determined to be a related party. Revenues from the private services company totaled $2,384 and $5,073 in the three and six months ended June 30, 2020. As of June 30, 2020, the Company had recorded a net receivable of $1,468 from the private services company.

Acquisition of Private Technology Company

On February 18, 2020, the Company, through it's 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 Envestnet Data & Analytics segment.

11

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
In connection with the Private Technology Company Acquisition, the Company acquired all of the outstanding shares and paid cash consideration of $2,343, net of cash acquired, subject to certain closing and post-closing adjustments, plus up to an additional $6,750 in contingent consideration, based upon achieving certain performance targets. The Company recorded a liability as of the date of acquisition of $5,239, which represented the estimated fair value of contingent consideration on the date of acquisition.

In June 2020, the Company determined that certain performance targets for this acquisition would not be met. As a result, the Company reduced the contingent consideration liability plus accrued interest associated with this acquisition by $1,982 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 earnings of the Company.

The Company recorded estimated goodwill of $7,017, which is not deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible assets acquired and liabilities assumed were not material.

The results of the private technology company's operations are included in the condensed consolidated statements of operations beginning February 18, 2020 and were not considered material to the Company’s results of operations.

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 our Envestnet Wealth Solutions segment.

In connection with the Private Cloud Technology Company Acquisition, the Company paid estimated consideration of $11,968, net of cash acquired. In connection with the acquisition, the Company recorded estimated goodwill of $10,932, 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 condensed consolidated statements of operations beginning March 2, 2020 and were not considered material to the Company’s results of operations.

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 $11,026, the Company paid estimated consideration of $5,946, net of cash acquired, for the remaining outstanding units. As a result of the acquisition, the Company recognized a gain of $4,230 in the first quarter of 2020 on the re-measurement to fair value of its previously held interest, which is included in other expense, net in the condensed consolidated statements of operations
In connection with the Private Financial Technology Design Company Acquisition, the Company recorded estimated total goodwill of $9,241, of which approximately $1,800 is deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $2,000. 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 condensed consolidated statements of operations beginning March 3, 2020 and were not considered material to the Company’s results of operations.

12

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
For the three and six months ended June 30, 2020, acquisition related costs for the Company's 2020 acquisitions were not material, and are included in general and administration expenses. The Company may incur additional acquisition related costs over the remainder of 2020.

The goodwill arising from these 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 existing technologies.

For the Company's 2020 acquisitions, the estimated fair values of certain of the assets and liabilities acquired are provisional and based on the information that was available to the Company as of the acquisition date. The estimated fair values of these provisional items are based on certain valuation and other studies and are in progress and not yet at the point where there is sufficient information for a definitive measurement. The Company believes the preliminary information provides a reasonable basis for estimating the fair values of these amounts, but is waiting for additional information necessary to finalize those fair values. Therefore, provisional measurements of fair values reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation of these estimated assets and liabilities as soon as reasonably practicable but no later than one year from the acquisition date.

Pro Forma Financial Information

On April 1, 2019, the Company acquired certain of the assets, primarily consisting of intangible assets, and the assumption of certain liabilities of the PortfolioCenter business (“PortfolioCenter”) from Performance Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation. On May 1, 2019, the Company acquired all of the outstanding shares of capital stock of PIEtech, Inc. (“PIEtech”). The following pro forma financial information presents the combined results of operations of Envestnet, PortfolioCenter and PIEtech for the three and six months ended June 30, 2019 and assumes the acquisitions of PortfolioCenter and PIEtech had occurred as of the beginning of 2018. The results of the Company's other acquisitions since January 1, 2019 are not included in the pro forma financial information presented below as they were not considered material to the Company's results of operations.

The unaudited pro forma results presented below include amortization charges for acquired intangible assets, interest expense, stock-based compensation expense and income tax. The Company's pro forma information below includes the reversal of a valuation allowance on its deferred tax assets as of January 1, 2018 and the reversal of transaction costs that were incurred in 2019 as a result of these acquisitions and reverses these amounts from the appropriate periods in 2019. All intercompany revenues have been eliminated within this pro forma information.

Pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place as of the beginning of 2018.
Three Months Ended June 30, Six Months Ended June 30,
2019 2019
Revenues $ 228,522    $ 443,275   
Net loss attributable to Envestnet, Inc. $ (7,612)   $ (18,857)  
Net loss per share attributable to Envestnet, Inc.:
Basic $ (0.15)   $ (0.37)  
Diluted $ (0.15)   $ (0.37)  


13

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
4.Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets consisted of the following:
June 30, December 31,
  2020 2019
Prepaid technology $ 9,611    $ 8,178   
Non-income tax receivables 5,851    5,555   
Advance payroll taxes and benefits 4,922    5,446   
Income tax receivables 3,124    —   
Prepaid outside information services 2,553    2,209   
Prepaid insurance 1,976    1,919   
Other 10,628    8,876   
Total prepaid expenses and other current assets $ 38,665    $ 32,183   
 
5.Property and Equipment, Net
 
Property and equipment, net consists of the following:
    June 30, December 31,
  Estimated Useful Life 2020 2019
Cost:      
Computer equipment and software 3 years $ 71,090    $ 72,190   
Leasehold improvements Shorter of the lease term or useful life of the asset 37,271    34,645   
Office furniture and fixtures
3-7 years
10,668    10,832   
Office equipment and other
3-5 years
6,925    6,850   
Building and building improvements
7-39 years
2,669    2,647   
Land Not applicable 940    940   
    129,563    128,104   
Less: accumulated depreciation and amortization (79,811)   (74,348)  
Total property and equipment, net $ 49,752    $ 53,756   
 
During the three and six months ended June 30, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $2,903 and $4,495, respectively. During the three and six months ended June 30, 2020, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $117 and $684, respectively.

During the three and six months ended June 30, 2019, the Company retired property and equipment that was no longer in service for the Envestnet Wealth Solutions segment with an historical cost of $2,396 and $3,642, respectively. During the three and six months ended June 30, 2019, the Company retired property and equipment that was no longer in service for the Envestnet Data & Analytics segment with an historical cost of $1,640 and $4,121, respectively.

Gains and losses on asset retirements during the three and six months ended June 30, 2020 and 2019 were not material.
 
Depreciation and amortization expense was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Depreciation and amortization expense $ 5,363    $ 6,751    $ 10,680    $ 11,117   
 
14

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
6.Internally Developed Software
 
Internally developed software consists of the following:
    June 30, December 31,
  Estimated Useful Life 2020 2019
Internally developed software 5 years $ 130,406    $ 104,703   
Less: accumulated amortization   (52,382)   (44,440)  
Internally developed software, net   $ 78,024    $ 60,263   
 
Amortization expense was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Amortization expense $ 4,334    $ 3,110    $ 7,942    $ 5,733   
 
7.Goodwill and Intangible Assets, Net
 
Changes in the carrying amount of goodwill were as follows:
  Envestnet Wealth Solutions Envestnet Data & Analytics Total
Balance at December 31, 2019 $ 583,247    $ 296,603    $ 879,850   
Acquisitions 20,173    7,017    27,190   
Foreign currency and other (70)   (471)   (541)  
Balance at June 30, 2020 $ 603,350    $ 303,149    $ 906,499   

Intangible assets, net consist of the following:
  June 30, 2020 December 31, 2019
  Gross   Net Gross   Net
  Carrying Accumulated Carrying Carrying Accumulated Carrying
  Amount Amortization Amount Amount Amortization Amount
Customer lists $ 591,520    $ (173,895)   $ 417,625    $ 591,520    $ (148,517)   $ 443,003   
Proprietary technologies 90,714    (53,822)   36,892    87,714    (44,165)   43,549   
Trade names 33,700    (17,126)   16,574    33,700    (14,663)   19,037   
Total intangible assets $ 715,934    $ (244,843)   $ 471,091    $ 712,934    $ (207,345)   $ 505,589   

There were no material retirements of intangible assets during the three and six months ended June 30, 2020 and 2019.

Amortization expense was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Amortization expense $ 18,746    $ 17,054    $ 37,504    $ 29,582   
 
15

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
8.Accrued Expenses and Other Liabilities
 
Accrued expenses and other liabilities consisted of the following:
June 30, December 31,
  2020 2019
Accrued investment manager fees $ 56,061    $ 48,720   
Accrued compensation and related taxes 44,231    53,627   
Non-income tax payables 10,307    11,040   
Accrued professional services 5,321    3,833   
Accrued technology 3,521    3,042   
Accrued transaction costs 2,761    2,482   
Accrued charitable contribution —    5,020   
Other accrued expenses 12,561    10,180   
Total accrued expenses and other liabilities $ 134,763    $ 137,944   

In the fourth quarter of 2019, the Company offered a voluntary early retirement program (the “Early Retirement Program”) to employees over a certain age, who have a combined age and years of experience with the Company of at least 65 years. Employees had until January 31, 2020 to voluntarily accept the program with separation of service no later than March 31, 2020. In connection with this program, the Company recorded approximately $12,000 of severance expense during the six months ended June 30, 2020. As of June 30, 2020, the Company has accrued approximately $868 in accrued compensation and related taxes and $2,336 recorded in other non-current liabilities. As of December 31, 2019, the Company had accrued approximately $1,733 in accrued compensation and related taxes and $599 recorded in other non-current liabilities. These payments will extend through 2030.
 
9.Debt
 
The Company’s outstanding debt obligations as of June 30, 2020 and December 31, 2019 were as follows: 
  June 30, December 31,
  2020 2019
Revolving credit facility balance $ 275,000    $ 260,000   
Convertible Notes due 2023 $ 345,000    $ 345,000   
Unaccreted discount on Convertible Notes due 2023 (28,811)   (33,491)  
Unamortized issuance costs on Convertible Notes due 2023 (5,158)   (5,996)  
Convertible Notes due 2023 carrying value(1)
$ 311,031    $ 305,513   
(1) The effective interest rate on the liability component of the Convertible Notes due 2023 was 6% for the three and six months ended June 30, 2020 and 2019.

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statement of operations:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Accretion of debt discount $ 2,349    $ 3,784    $ 4,680    $ 7,542   
Interest on revolving credit facility 2,009    1,196    4,527    1,196   
Coupon interest 1,510    2,264    3,011    4,528   
Amortization of issuance costs 633    862    1,264    1,720   
Undrawn and other fees 133    157    286    373   
 Total interest expense $ 6,634    $ 8,263    $ 13,768    $ 15,359   
 
The credit agreement under which the above revolving credit facility was issued (the “Amended Credit Agreement”) includes certain financial covenants and, as of June 30, 2020, the Company was in compliance with these requirements.
16

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
See “Note 14—Net Income (Loss) Per Share” for further discussion of the effect of conversion on net income (loss) per common share.

10.Fair Value Measurements
  
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, based on the three-tier fair value hierarchy: 
  June 30, 2020
  Fair Value Level I Level II Level III
Assets:        
Money market funds $ 47,351    $ 47,351    $ —    $ —   
Assets to fund deferred compensation liability 9,076    —    —    9,076   
Total assets $ 56,427    $ 47,351    $ —    $ 9,076   
Liabilities:        
Contingent consideration $ 13,025    $ —    $ —    $ 13,025   
Deferred compensation liability 7,596    7,596    —    —   
Total liabilities $ 20,621    $ 7,596    $ —    $ 13,025   
  December 31, 2019
  Fair Value Level I Level II Level III
Assets:        
Money market funds $ 37,730    $ 37,730    $ —    $ —   
Assets to fund deferred compensation liability 8,390    —    —    8,390   
Total assets $ 46,120    $ 37,730    $ —    $ 8,390   
Liabilities:        
Contingent consideration $ 9,045    $ —    $ —    $ 9,045   
Deferred compensation liability 8,208    8,208    —    —   
Total liabilities $ 17,253    $ 8,208    $ —    $ 9,045   
 
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 as defined in ASC 820, “Fair Value Measurements and Disclosures.” The significant inputs in the Company's Level III fair value measurement not supported by market activity included its assessments of expected future cash flows related to these acquisitions and their ability to meet the target performance objectives during the subsequent periods from the date of acquisition, which management believes are appropriately discounted considering the uncertainties associated with these obligations, and are calculated in accordance with the terms of their respective agreements.

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

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, 2019 to June 30, 2020: 
  Fair Value of Contingent Consideration Liabilities
Balance at December 31, 2019 $ 9,045   
Private technology company acquisition 5,239   
Fair market value adjustment on contingent consideration liability (1,982)  
Accretion on contingent consideration 723   
Balance at June 30, 2020 $ 13,025   
17

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The table below presents a reconciliation of the assets used to fund deferred the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2019 to June 30, 2020:
  Fair Value of Assets to Fund Deferred Compensation Liability
Balance at December 31, 2019 $ 8,390   
Contributions 1,060   
Fair value adjustments (374)  
Balance at June 30, 2020 $ 9,076   
 
The fair market value of the assets used to fund the Company's deferred compensation liability is based upon the cash surrender value of the Company's life insurance premiums. The value of the assets used to fund the Company's deferred compensation liability, which are included in other non-current assets in the condensed consolidated balance sheets, increased due to funding of the plan, partially offset by losses on the underlying investment vehicles. These losses are recognized in the Company's earnings and included in general and administration expenses in the condensed 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 caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the six months ended June 30, 2020.
 
As of June 30, 2020 and December 31, 2019, the carrying value of the Convertible Notes due 2023 equaled $311,031 and $305,513, respectively, and represented the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of June 30, 2020 and December 31, 2019, the estimated fair value of the Convertible Notes due 2023 was $419,430 and $414,852, respectively. The Company considered the Convertible Notes due 2023 to be a Level II liability at June 30, 2020 and used a market approach to calculate the fair value. The estimated fair value was determined based on estimated or actual bids and offers of the Convertible Notes due 2023 in an over-the-counter market on June 30, 2020 (See “Note 9—Debt”).

As of June 30, 2020 and December 31, 2019, there was $275,000 and $260,000, respectively, outstanding on the revolving credit facility under the Amended Credit Agreement. As of June 30, 2020, the outstanding balance on the revolving credit facility approximated fair value as borrowings under the revolving credit facility bore interest at variable rates and the Company believes its credit risk quality was consistent with when the debt originated. The Company considered the revolving credit facility to be a Level I liability as of June 30, 2020 and December 31, 2019 (See “Note 9—Debt”).

The Company considered the recorded value of our 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 June 30, 2020 based upon the short-term nature of these assets and liabilities.
18

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
11.Revenues and Cost of Revenues

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

Three Months Ended June 30,
2020 2019
Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
Revenues:
Asset-based $ 122,246    $ —    $ 122,246    $ 120,070    $ —    $ 120,070   
Subscription-based 61,410    43,569    104,979    50,078    42,180    92,258   
Total recurring revenues 183,656    43,569    227,225    170,148    42,180    212,328   
Professional services and other revenues 4,029    4,059    8,088    6,742    5,375    12,117   
Total revenues $ 187,685    $ 47,628    $ 235,313    $ 176,890    $ 47,555    $ 224,445   
 
  Six Months Ended June 30,
  2020 2019
  Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated Envestnet Wealth Solutions Envestnet Data & Analytics Consolidated
Revenues:            
Asset-based $ 257,057    $ —    $ 257,057    $ 229,004    $ —    $ 229,004   
Subscription-based 121,733    87,797    209,530    91,104    84,241    175,345   
Total recurring revenues 378,790    87,797    466,587    320,108    84,241    404,349   
Professional services and other revenues 7,315    7,950    15,265    9,487    10,275    19,762   
Total revenues $ 386,105    $ 95,747    $ 481,852    $ 329,595    $ 94,516    $ 424,111   

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

  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Fidelity 15  % 15  % 15  % 15  %
 
Fidelity accounted for 18% and 18% of the Envestnet Wealth Solutions segment's revenues for the three and six months ended June 30, 2020, respectively. Fidelity accounted for 19% and 20% of the Envestnet Wealth Solutions segment's revenues for the three and six months ended June 30, 2019, respectively.

No single customer accounted for over 10% of the Envestnet Data & Analytics segment's revenue for any period presented.


19

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table presents the Company’s revenues disaggregated by geography, based on the billing address of the customer:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
United States $ 230,102    $ 217,462    $ 470,554    $ 409,581   
International (1)
5,211    6,983    11,298    14,530   
Total revenues $ 235,313    $ 224,445    $ 481,852    $ 424,111   
(1) No foreign country accounted for more than 10% of the Company's total revenues.

Remaining Performance Obligations
 
The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2020: 
Years ending December 31,  
Remainder of 2020 $ 114,905   
2021 181,322   
2022 135,410   
2023 65,759   
2024 35,319   
Thereafter 35,393   
Total $ 568,108   

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

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

Contract Balances

Total deferred revenue as of June 30, 2020 increased by $7,585 during the six months ended June 30, 2020, primarily the result of revenue growth, timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue will be recognized over the course of the next twelve months.

The amount of revenue recognized that was included in the opening deferred revenue balance was $10,350 and $6,865 for the three months ended June 30, 2020 and 2019, respectively. The amount of revenue recognized that was included in the opening deferred revenue balance was $25,829 and $16,588 for the six months ended June 30, 2020 and 2019, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was $10,072 and $9,387 as of June 30, 2020 and December 31, 2019, respectively. Amortization expense for the deferred sales incentive compensation was $1,043 and $753 for the three months ended June 30, 2020, and 2019, respectively. Amortization expense for the deferred sales incentive compensation was $2,072 and $1,404 for the six months ended June 30, 2020, and 2019, respectively. Deferred sales incentive compensation is included in other non-current assets on the condensed consolidated balance sheets and amortization expense is included in compensation and benefits expenses on the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the periods.

20

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The Company has applied the practical expedient to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period would have been one year or less. These costs are included in compensation and benefits expenses in the condensed consolidated statements of operations.

Cost of Revenues

The following table summarizes cost of revenues by revenue category:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Asset-based $ 61,875    $ 60,293    $ 130,467    $ 114,135   
Subscription-based 6,807    6,697    13,084    14,374   
Professional services and other 167    5,090    231    5,216   
Total cost of revenues $ 68,849    $ 72,080    $ 143,782    $ 133,725   

12.Stock-Based Compensation
 
The Company has stock options, restricted stock units (“RSUs”) and performance stock units (“PSUs”) outstanding under the 2004 Stock Incentive Plan (the “2004 Plan”), the 2010 Long-Term Incentive Plan (the “2010 Plan”) and the Envestnet, Inc. 2019 Acquisition Equity Incentive Plan (the “2019 Equity Plan”).

As of June 30, 2020, the maximum number of common shares available for future issuance under the Company’s plans is 1,372,807.  
 
Stock-based compensation expense under the Company’s plans was as follows:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Stock-based compensation expense $ 13,006    $ 13,434    $ 26,771    $ 26,298   
Tax effect on stock-based compensation expense (3,317)   (3,504)   (6,826)   (6,859)  
Net effect on income $ 9,689    $ 9,930    $ 19,945    $ 19,439   
 
The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% and 26.1% for the three and six months ended June 30, 2020 and 2019, respectively.

Stock Options
 
The following weighted average assumptions were used to value options granted during the periods indicated:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Grant date fair value of options $ —    $ —    $ —    $ 21.55   
Volatility —  % —  % —  % 40.0  %
Risk-free interest rate —  % —  % —  % 2.5  %
Dividend yield —  % —  % —  % —  %
Expected term (in years) 0.0 0.0 0.0 6.5
 
21

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table summarizes option activity under the Company’s plans:
      Weighted-Average  
    Weighted- Remaining  
    Average Contractual Life Aggregate
  Options Exercise Price (Years) Intrinsic Value
Outstanding as of December 31, 2019 1,150,586    $ 25.66    3.4 $ 50,590   
Granted —    —   
Exercised (542,449)   16.97     
Forfeited (7,213)   48.70     
Outstanding as of June 30, 2020 600,924    33.23    4.0 24,225   
Options exercisable 560,745    $ 32.10    3.7 $ 23,238   
 
Exercise prices of stock options outstanding as of June 30, 2020 range from $9.00 to $55.29. At June 30, 2020, there was $468 of unrecognized stock-based compensation expense related to unvested stock options, which the Company expects to recognize over a weighted-average period of 1.6 years.
 
Restricted Stock Units and Restricted Stock Awards
 
Periodically, the Company grants restricted stock units and awards and performance-based stock units and awards to employees. Performance-based stock units and awards vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based stock units and awards provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 50% to 150%. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.

The following is a summary of the activity for unvested restricted stock units and performance stock units granted under the Company’s plans:
RSUs PSUs
  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    $ 58.88    254,118    $ 67.96   
Granted 951,428    74.52    67,793    81.42   
Vested (533,088)   56.77    —    —   
Forfeited (103,133)   59.89    (33,010)   64.70   
Outstanding as of June 30, 2020 1,634,077    68.61    288,901    71.49   

At June 30, 2020, there was $99,676 of unrecognized stock-based compensation expense related to unvested restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 2.2 years. At June 30, 2020, there was $9,578 of unrecognized stock-based compensation expense related to unvested performance-based restricted stock units and awards, which the Company expects to recognize over a weighted-average period of 2.1 years.
 
13. Income Taxes

The following table includes the Company’s loss before income tax provision (benefit), income tax provision (benefit) and effective tax rate:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Loss before income tax provision (benefit) $ (4,165)   $ (27,769)   $ (13,319)   $ (42,269)  
Income tax provision (benefit) 1,306    (28,382)   (658)   (24,614)  
Effective tax rate (31.4) % 102.2  % 4.9  % 58.2  %
22

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
 For the three and six months ended June 30, 2020, the Company’s effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) related to net operating loss carryback, and research and experimentation credits.

For the three and six months ended June 30, 2019, the Company's effective tax rate differed from the statutory rate primarily due to the release of the Company's valuation allowance of $21,907 as a result of additional deferred tax liabilities recorded from the PIEtech acquisition, the windfall from stock-based compensation, federal and state research and development credits, and additional accruals for uncertain tax positions.

The Company's total gross liability for unrecognized tax benefits, exclusive of interest and penalties, was $20,261 and $18,939 at June 30, 2020 and December 31, 2019, respectively. Of this amount, a portion of the unrecognized tax benefits was recorded as a reduction of deferred tax assets instead of a non-current liability. The portion of the unrecognized tax benefits, exclusive of interest and penalties, recorded as a non-current liability was $6,977 and $6,504 at June 30, 2020 and December 31, 2019, respectively.
 
At June 30, 2020, the amount of unrecognized tax benefits, including interest and penalties, that would benefit the Company's effective tax rate, if recognized, was $14,618. The Company estimates that the liability for unrecognized tax benefits could decrease by $12,000 in the next twelve months as it is anticipated that reviews by tax authorities will be completed.

The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense. These amounts were not material for the three and six months ended June 30, 2020 and 2019. The Company had accrued interest and penalties of $8,000 and $7,336 as of June 30, 2020 and December 31, 2019, respectively.

14.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 using the treasury stock method, if dilutive. 
The Company accounts for the effect of its convertible notes (See “Note 9—Debt”) on diluted net income (loss) per share 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 will have no effect on diluted net income (loss) per share until the Company’s stock price exceeds the conversion price of $68.31 per share and certain other criteria are met, or if the trading price of the convertible notes meets certain criteria. In the period of conversion, the convertible notes will have no impact on diluted net income (loss) per share if they are settled in cash and will have an impact on dilutive net income (loss) per share if they are settled in shares upon conversion.
23

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table provides the numerators and denominators used in computing basic and diluted net income (loss) per share attributable to Envestnet, Inc.:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Basic net income (loss) per share calculation:        
Net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    $ (12,260)   $ (17,292)  
Basic number of weighted-average shares outstanding 53,562,850    50,870,296    53,288,741    49,526,774   
Basic net income (loss) per share $ (0.09)   $ 0.02    $ (0.23)   $ (0.35)  
Diluted net income (loss) per share calculation:
Net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    $ (12,260)   $ (17,292)  
Basic number of weighted-average shares outstanding 53,562,850    50,870,296    53,288,741    49,526,774   
Effect of dilutive shares:
Options to purchase common stock —    1,164,246    —    —   
Unvested restricted stock units —    662,853    —    —   
Convertible notes —    261,075    —    —   
Warrants —    24,218    —    —   
Diluted number of weighted-average shares outstanding 53,562,850    52,982,688    53,288,741    49,526,774   
Diluted net income (loss) per share
$ (0.09)   $ 0.02    $ (0.23)   $ (0.35)  
 Securities that were anti-dilutive and therefore excluded from the computation of diluted net loss per share were as follows:
Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Options to purchase common stock 600,924    —    600,924    1,654,241   
Unvested restricted stock awards and units 1,922,978    —    1,922,978    1,989,437   
Warrants 470,000    —    470,000    470,000   
Convertible Notes 5,050,505    —    5,050,505    7,793,826   
Total anti-dilutive securities 8,044,407    —    8,044,407    11,907,504   
 
15.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.

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

The information in the following tables is derived from the Company’s internal financial reporting used for corporate management purposes. Nonsegment operating expenses include salary and benefits for certain corporate officers, certain types of professional service expenses and insurance, acquisition related transaction costs, restructuring charges, and other non-recurring and/or non-operationally related expenses. Intersegment revenues were not material for the three and six months ended June 30, 2020 and 2019.
 
See “Note 11—Revenues and Cost of Revenues” for detail of revenues by segment.
24

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
The following table presents a reconciliation from Income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Envestnet Wealth Solutions $ 19,867    $ 12,379    $ 31,207    $ 29,223   
Envestnet Data & Analytics (941)   (8,960)   (5,526)   (16,888)  
Nonsegment operating expenses (14,918)   (23,676)   (29,290)   (41,329)  
Income (loss) from operations 4,008    (20,257)   (3,609)   (28,994)  
Other expense, net (8,173)   (7,512)   (9,710)   (13,275)  
Consolidated loss before income tax provision (benefit) (4,165)   (27,769)   (13,319)   (42,269)  
Income tax provision (benefit) 1,306    (28,382)   (658)   (24,614)  
Consolidated net income (loss) (5,471)   613    (12,661)   (17,655)  
Add: Net loss attributable to non-controlling interest 547    280    401    363   
Consolidated net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    $ (12,260)   $ (17,292)  
 
A summary of consolidated total assets, consolidated depreciation and amortization and consolidated capital expenditures follows:
June 30, December 31,
  2020 2019
Segment assets:    
Envestnet Wealth Solutions $ 1,323,409    $ 1,297,891   
Envestnet Data & Analytics 507,996    503,993   
Consolidated assets $ 1,831,405    $ 1,801,884   

  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Segment depreciation and amortization:        
Envestnet Wealth Solutions $ 20,081    $ 16,376    $ 39,501    $ 27,643   
Envestnet Data & Analytics 8,362    10,539    16,625    18,789   
Consolidated depreciation and amortization $ 28,443    $ 26,915    $ 56,126    $ 46,432   
 
Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Segment capital expenditures:        
Envestnet Wealth Solutions $ 11,200    $ 10,027    $ 21,390    $ 20,865   
Envestnet Data & Analytics 5,100    1,939    8,642    3,533   
Consolidated capital expenditures $ 16,300    $ 11,966    $ 30,032    $ 24,398   
 
25

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
16.Geographical Information
 
The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:
  June 30, December 31,
  2020 2019
United States $ 123,130    $ 108,992   
India 3,950    3,988   
Other 696    1,039   
Total long-lived assets, net $ 127,776    $ 114,019   
See “Note 11—Revenues and Cost of Revenues” for detail of revenues by geographic area.

17.Commitments and Contingencies
 
Purchase Obligations and Indemnifications
 
The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability associated with these arrangements in the condensed consolidated balance sheets.
 
The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.
 
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. The motion to dismiss is fully briefed, and the parties are awaiting a decision from the District Court. 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. The motion to dismiss is fully briefed, and the parties are awaiting a decision from the District Court. The Company believes FinancialApps’s allegations are without merit and intends to defend the action and litigate the counterclaims vigorously.

26

Envestnet, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(in thousands, except share and per share amounts)
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 an accrual for any claims as of June 30, 2020. 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.
 
Contingencies  
 
Certain of the Company’s revenues are subject to sales and use taxes in certain jurisdictions where it conducts business in the United States. As of June 30, 2020 and December 31, 2019, the Company estimated a sales and use tax liability of $9,195 and $10,220, respectively, related to revenues in multiple jurisdictions. This amount is included in accrued expenses and other liabilities in the condensed consolidated balance sheets.

As of June 30, 2020 and December 31, 2019, the Company also estimated a sales and use tax receivable of $3,372 and $3,346, respectively, related to the estimated recoverability of a portion of the liability from customers. This amount is included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Additional future information obtained from the applicable jurisdictions may affect the Company's estimate of its sales and use tax liability, but such change in the estimate cannot currently be made.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
 
Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.
 
Unless otherwise indicated, all amounts are in thousands, except share and per share information, numbers of financial advisors and client accounts.

This quarterly report on Form 10-Q 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,” “intend,” “may,” “should” or “will,” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this quarterly report include, but are not limited to,
 
a pandemic or health crisis, including the Coronavirus Disease 2019 (“COVID-19”) pandemic, and its impact on the global economy and capital markets, as well as our products, clients, vendors and employees, and our results of operations, the full extent of which may be unknown;
difficulty in sustaining rapid revenue growth, which may place significant demands on our administrative, operational and financial resources;
our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies;
the possibility that the anticipated benefits of acquisitions will not be realized to the extent or when expected;
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 amount of our debt and our ability to service our debt;
the variability of our revenue from period to period;
the targeting of some of our sales efforts at large financial institutions and large internet services companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales;
the deployment of our solutions by customers and potential delays and risks inherent in the process;
the competitiveness of our solutions and services as compared to those of others;
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 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;
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 renegotiation of fees by our clients;
our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients;
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 and the negative effects of failure to comply with these requirements on how we operate our business;
liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest;
failure of our solutions, services or systems, or those of third parties on which we rely, to work properly;
harm to our reputation;
28


our failure to process transactions effectively or fail to adequately protect against disputed or potential fraudulent activities;
our inability to maintain our payment network with third-party service providers, or difficulties encountered by our disbursement partners;
limitations on our ability to access information from third parties or charges for accessing such information;
potential liability for use of inaccurate information by third parties provided by us;
the failure of our insurance to adequately protect us;
our dependence on our senior management team;
our ability to recruit and retain qualified employees;
regulatory compliance failures;
changes in laws and regulations, including tax laws and regulations, or the inability to continue to rely on exemptions from the applicability of certain laws or regulations;
the occurrence of a deemed “change of control”;
adverse judicial or regulatory proceedings against us;
the failure to protect our intellectual property rights;
potential claims by third parties for infringement of their intellectual property rights;
our use of open source coding;
protection of trade secrets and other proprietary information;
risks associated with our international operations;
the impact of fluctuations in foreign currency exchange rates;
the uncertainty of the application and interpretation of certain tax laws;
changes in accounting principles and standards;
changes in the estimates of fair value of reporting units or of long-lived assets;
issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities;
general economic conditions, political and regulatory conditions;
global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and
management’s response to these factors. 

In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this quarterly report and documents incorporated herein by reference are qualified -in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
 
Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.
 
These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this quarterly report are set forth in Part I, Item 1A.“Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), as updated in Part II, Item 1A.“Risk Factors” of this Form 10-Q; accordingly, investors should not place undue reliance upon our forward-looking statements. We undertake no obligation to update any of the forward-looking statements after the date of this report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.
 
You should read this quarterly report on Form 10-Q and the 2019 Form 10-K completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements.
 
The following discussion and analysis should also be read along with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and the consolidated financial statements and related notes included in our 2019 Form 10-K. Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

29


Overview
 
Envestnet is a leading provider of intelligent systems for wealth management and financial wellness. Envestnet’s unified technology enhances advisor productivity and strengthens the wealth management process. Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.
 
More than 4,900 companies, including 16 of the 20 largest U.S. banks, 46 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers (“RIAs”), and hundreds of internet services companies, leverage Envestnet technology and services. Envestnet solutions enhance knowledge of the client, accelerate client on-boarding, improve client digital experiences, and help drive better outcomes for enterprises, advisors and their clients.

Founded in 1999, Envestnet has been a leader in helping transform wealth management, working towards its goal of building a holistic financial wellness network that supports advisors and their clients.  

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

Envestnet serves clients from its headquarters based in Chicago, Illinois, as well as other locations throughout the United States, India and other international locations.

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

Uncertainties Related to COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic disease. We are closely monitoring developments with the COVID-19 pandemic and are taking proactive measures to ensure business continuity. Our priority is to protect the well-being of our employees, while we continue to provide uninterrupted service and support to our clients. As part of our existing business continuity protocol, we created a pandemic steering committee that meets regularly and communicates information or guidance to our employees and customers.

We have instituted travel bans and are following mandatory stay-at-home orders where applicable. A majority of our employees are working from home as a result of these mandatory stay-at-home orders. Where permissible, we have also implemented in-office work rotations. For employees working at our offices, preventative measures have been taken, including the adapting of work spaces to allow for appropriate social distancing and enhanced cleaning regimens. We also canceled our 2020 annual Advisor Summit Conference, which was set to take place in May 2020. We continue to monitor developments related to COVID-19 and, as the situation evolves, will continue to coordinate our operations response based on existing business continuity plans and on guidance from global health organizations, relevant governments and general response pandemic best practices.

At the start of the COVID-19 pandemic, significant declines occurred within the equity markets. This is significant to us as 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. For the three and six months ended June 30, 2020, approximately 52% and 53% of our revenues resulted from asset-based fee billing arrangements. Asset-based recurring revenues primarily consisted of fees for providing customers access to our platforms. These fees are generally based upon variable percentages of assets managed or administered under our platforms. Our fee percentages vary based on the level and type of services that we provide to our customers, as well as the values of existing customer accounts. The values of our customer accounts are affected by inflows or outflows of customer funds and market fluctuations. Approximately 90% of our asset-based fee arrangements are billed at the beginning of each quarter based on the market value of customer assets on our platforms as of the end of the prior quarter.

As a result of the structure of our revenue arrangements and our customer-types, our revenues during the three months ended March 31, 2020 were not materially impacted by COVID-19. While we experienced a decrease to our asset-based revenues in the second quarter of 2020 compared to the first quarter of 2020 as a result of the decline in the equity markets as of March 31, 2020, we expect minimal negative impact to our asset-based revenues in the third quarter of 2020 as the equity
30


markets have generally recovered to pre-pandemic levels as of June 30, 2020. During the three and six months ended June 30, 2020, we experienced no business interruptions, nor did we lose any significant customers.

For the three and six months ended June 30, 2020, approximately 45% and 43% of revenues were subscription-based. These revenues primarily consisted of fees for providing customers continuous access to our platforms. These subscription-based fees generally include fixed fees or usage-based fees. These fees vary based on the services being offered. Our subscription-based fee arrangements are typically established through multi-year contracts.

In the event that the equity markets fall again as a result of COVID-19 or for any other reason, our revenues will be negatively impacted. Based on our most recent internal forecasts and other qualitative factors, we have determined that we currently have no impairments to our assets as of June 30, 2020. We have also not modified our debt agreement in connection with the COVID-19 pandemic.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law.  One provision of the CARES Act provides a five-year carryback of net operating losses (“NOLs”) generated in tax years beginning after December 31, 2017 and before January 1, 2021. We estimate a refund of approximately $1,200 from the carryback of NOLs. 

Investment in Private Services Company

On January 8, 2020, we acquired a 4.25% membership interest in a private services company for cash consideration of $11,000. The private services company partners with independent network advisory firms to help them grow, become more profitable and run more efficiently. We will account for this investment under the equity method basis of accounting.

Acquisition of Private Technology Company

On February 18, 2020, through our wholly owned subsidiary Yodlee, Inc. (“Yodlee”), we 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 our Envestnet Data & Analytics segment.

In connection with the Private Technology Company Acquisition, we acquired all of the outstanding shares and paid cash consideration of $2,343, net of cash acquired, subject to certain closing and post-closing adjustments, plus up to an additional $6,750 in contingent consideration, based upon achieving certain performance targets. We recorded a liability as of the date of acquisition of approximately $5,239, which represented the estimated fair value of contingent consideration on the date of acquisition.

In June 2020, the Company determined that certain performance targets for this acquisition would not be met. As a result, the Company reduced the contingent consideration liability plus accrued interest associated with this acquisition by $1,982 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.

We recorded estimated goodwill of $7,017, which is not deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $1,000. The tangible assets acquired and liabilities assumed were not material.

Acquisition of Private Cloud Technology Company

On March 2, 2020, we 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 our Envestnet Wealth Solutions segment.

In connection with the Private Cloud Technology Company Acquisition, we paid estimated consideration of $11,968, net of cash acquired. In connection with the acquisition, we recorded estimated goodwill of $10,932, which is deductible for income tax purposes. The tangible assets acquired and liabilities assumed were not material.

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Acquisition of Private Financial Technology Design Company

On March 3, 2020, we 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 ours (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 our Envestnet Wealth Solutions segment.

We 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 $11,026, we paid estimated consideration of $5,946, net of cash acquired, for the remaining outstanding units. As a result of the acquisition, we recognized a gain of $4,230 on the re-measurement to fair value of its previously held interest, which is included in other expense, net in the condensed consolidated statements of operations
In connection with the Private Financial Technology Design Company Acquisition, we recorded estimated total goodwill of $9,241, of which approximately $1,800 is deductible for income tax purposes, and estimated identifiable intangible assets for proprietary technologies of $2,000. The tangible assets acquired and liabilities assumed were not material.

Executive Leadership Appointments

On October 3, 2019, Jud Bergman, our Chairman and Chief Executive Officer, died in an automobile accident. At that time, Bill Crager, President of Envestnet and Chief Executive of Envestnet Wealth Solutions, was named our interim Chief Executive Officer, and Ross Chapin, our lead independent director, was named interim non-executive Chairman of our Board of Directors (the “Board”). On March 30, 2020, Mr. Crager was named Chief Executive Officer of Envestnet and a member of the Board and Stuart DePina, whom has served as Chief Executive of Envestnet Data & Analytics since January 2019, was named President of Envestnet. James Fox, a current member of our Board, was named Chairman of the Board.

Early Retirement Program

In the fourth quarter of 2019, we offered a voluntary early retirement program (the “Early Retirement Program”) to employees over a certain age, who have a combined age and years of experience with the Company of at least 65 years. Employees had until January 31, 2020 to voluntarily accept the program with separation of service no later than March 31, 2020. In connection with this program, we have recorded approximately $12,000 of severance expense during the six months ended June 30, 2020. As of June 30, 2020, we have accrued approximately $868 in accrued compensation and related taxes and $2,336 recorded in other non-current liabilities. These payments will extend through 2030. As of December 31, 2019, we accrued approximately $1,733 in accrued compensation and related taxes and $599 recorded in other non-current liabilities.

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

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

Envestnet Wealth Solutions Segment
 
Envestnet empowers financial advisors at broker-dealers, banks, and RIAs with all the tools they require to deliver holistic wealth management to their end clients. In addition, the firm provides advisors with practice management support so that they can grow their practices and operate more efficiently. By June 30, 2020, Envestnet’s platform assets grew to approximately $4 trillion in 12.3 million accounts overseen by more than 103 thousand 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
32


and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi-custodian performance reporting and communication tools, plus data analytics. We have access to a wide range of leading third-party asset custodians.
We offer these solutions principally through the following product and services suites:
Envestnet | Enterprise provides an end-to-end open architecture wealth management platform through which advisors can construct portfolios for clients. It begins with aggregated household data, which then leads to the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to over 20,000 investment products. Envestnet | Enterprise also sells data aggregation and reporting, data analytics and digital advice capabilities to customers.

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

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

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

Envestnet | PMC®, or Portfolio Management Consultants (“PMC”) provides research and consulting services to assist advisors in creating investment solutions for their clients. These solutions include over 4,600 vetted third party managed account products, multi-manager portfolios, fund strategist portfolios, as well as nearly 1,000 proprietary products, such as quantitative portfolios and fund strategist portfolios. PMC also offers portfolio overlay and tax optimization services.

Key Metrics
 
The following table provides information regarding the amount of assets utilizing our platforms, financial advisors and investor accounts in the periods indicated: 
As of
June 30, September 30, December 31, March 31, June 30,
2019 2019 2019 2020 2020
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”) $ 182,143    $ 188,739    $ 207,083    $ 185,065    $ 215,994   
Assets under Administration (“AUA”) 330,226    316,742    343,505    312,472    344,957   
Total AUM/A 512,369    505,481    550,588    497,537    560,951   
Subscription 2,835,780    2,947,582    3,205,281    2,875,394    3,247,400   
Total Platform Assets $ 3,348,149    $ 3,453,063    $ 3,755,869    $ 3,372,931    $ 3,808,351   
Platform Accounts
AUM 907,034 934,811 935,039 970,896 1,007,386
AUA 1,196,114 1,136,430 1,193,882 1,254,856 1,252,247
Total AUM/A 2,103,148 2,071,241 2,128,921 2,225,752 2,259,633
Subscription 9,492,653 9,692,714 9,793,175 10,090,172 10,003,156
Total Platform Accounts 11,595,801 11,763,955 11,922,096 12,315,924 12,262,789
Advisors
AUM/A 39,727 39,735 40,563 40,971 41,206
Subscription 59,292 60,319 61,180 62,077 62,404
Total Advisors 99,019 100,054 101,743 103,048 103,610
 
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The following tables provide information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated:

Asset Rollforward - Three Months Ended June 30, 2020
As of Gross Net Market As of
3/31/2020 Sales Redemptions Flows Impact 6/30/2020
(in millions, except account data)
AUM $ 185,065    $ 16,843    $ (9,860)   $ 6,983    $ 23,946    $ 215,994   
AUA 312,472    16,526    (23,025)   (6,499)   38,984    344,957   
Total AUM/A $ 497,537    $ 33,369    $ (32,885)   $ 484    $ 62,930    $ 560,951   
Fee-Based Accounts 2,225,752    33,881    2,259,633   

The above AUM/A gross sales figures include $1.6 billion in new client conversions. We onboarded an additional $24.1 billion in subscription conversions during the three months ended June 30, 2020 bringing total conversions for the three months ended June 30, 2020 to $25.7 billion.
 
  Asset Rollforward - Six Months Ended June 30, 2020
  As of Gross Net Market Reclass to As of
  12/31/2019 Sales Redemptions Flows Impact Subscription 6/30/2020
  (in millions, except account data)
AUM $ 207,083    $ 37,829    $ (20,959)   $ 16,870    $ (7,959)   $ —    $ 215,994   
AUA 343,505    56,460    (41,903)   14,557    (11,160)   (1,945)   344,957   
Total AUM/A $ 550,588    $ 94,289    $ (62,862)   $ 31,427    $ (19,119)   $ (1,945)   $ 560,951   
Fee-Based Accounts 2,128,921    151,554    (20,842)   2,259,633   

The above AUM/A gross sales figures include $21.7 billion in new client conversions. We onboarded an additional $49.1 billion in subscription conversions during the six months ended June 30, 2020 bringing total conversions for the six months ended June 30, 2020 to $70.8 billion.

Asset and account figures in the “Reclass to Subscription” columns for the six months ended June 30, 2020 represent enterprise customers whose billing arrangements in future periods are subscription-based, rather than asset-based. Such amounts are included in Subscription metrics at the end of the quarter in which the reclassification occurred, with no impact on total platform assets or accounts. Periodically clients chose to change the way they pay for our solution, whereby they switch from an asset-based pricing model to a subscription-based model, which has increased our subscription-based metrics.
Envestnet Data & Analytics Segment
 
Envestnet Data & Analytics is a leading data aggregation and data intelligence platform. As an artificial intelligence (“AI”) and data specialist, Envestnet Data & Analytics gathers, refines and aggregates a massive set of end-user permissioned transaction level data and combines them with financial applications, reports, market research analysis and application programming interfaces (“APIs”) for its customers.
Over 1,400 financial institutions, financial technology innovators and financial advisory firms, including 15 of the 20 largest U.S. banks, subscribe to the Envestnet Data & Analytics platform to underpin personalized financial apps and services for over 27 million paid subscribers.
 
Envestnet Data & Analytics serves two main customer groups: financial institutions (“FI”) and financial technology innovators, which we refer to as Yodlee Interactive (“YI”) customers.
The Financial Institutions group provides customers with secure access to open APIs, end-user facing applications powered by our platform and APIs (“FinApps”), and reports. Customers receive end-user permissioned transaction data elements that we aggregate and cleanse. Envestnet Data & Analytics also enables customers to develop their own applications through its open APIs, which deliver secure data, money movement solutions, and other functionality. FinApps can be subscribed to individually or in combinations that include personal financial management, wealth management, credit card, payments and small-medium business solutions. They are targeted at the retail financial, wealth management, small business, credit card, lenders, and other financial services sectors. These FinApps help consumers and small businesses simplify and manage their finances, review their
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financial accounts, track their spending, calculate their net worth, and perform a variety of other activities. For example, Yodlee Expense and Income Analysis FinApp helps consumers track their spending, and a Payroll FinApp from a third party helps small businesses process their payroll. The suite of reports is designed to supplement traditional credit reports by utilizing consumer permissioned aggregated data from over 17,000 sources, including banking, investment, loan and credit card information.

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

Both FI and YI channels benefit customers by improving end-user satisfaction and retention, accelerating speed to market, creating technology savings and enhancing their data analytics solutions and market research capabilities. End users receive better access to their financial information and have more control over their finances, leading to more informed and personalized decision making. For customers who are members of the developer community, Envestnet Data & Analytics solutions provide access to critical data and payments solutions, faster speed to market and enhanced distribution.
Envestnet Analytics provides data analytics, mobile sales solutions, and online educational tools to financial advisors, asset managers and enterprises. These tools empower financial services firms to extract key business insights to run their business better and provide timely and focused support to advisors. Our dashboards deliver segmentation analytics, multi-dimensional benchmarking, and practice pattern analyses that provide critical insights to clients.
We believe that our brand leadership, innovative technology and intellectual property, large customer base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to generate strong growth.
Operational Highlights
 
Asset-based recurring revenues increased 2% from $120,070 in the three months ended June 30, 2019 to $122,246 in the three months ended June 30, 2020. Subscription-based recurring revenues increased 14% from $92,258 in the three months ended June 30, 2019 to $104,979 in the three months ended June 30, 2020. Total revenues, which include professional services and other revenues, increased 5% from $224,445 in the three months ended June 30, 2019 to $235,313 in the three months ended June 30, 2020. The Envestnet Wealth Solutions segment's total revenues increased by $10,795 primarily due to an increase in subscription-based revenues of $11,332 and an increase in asset-based revenues of $2,176, partially offset by a decrease in professional services and other revenues of $2,713. The Envestnet Data & Analytics segment's total revenues remained consistent as increases in subscription-based revenues were offset by decreases in professional services and other revenues.

Asset-based recurring revenues increased 12% from $229,004 in the six months ended June 30, 2019 to $257,057 in the six months ended June 30, 2020. Subscription-based recurring revenues increased 19% from $175,345 in the six months ended June 30, 2019 to $209,530 in the six months ended June 30, 2020. Total revenues, which include professional services and other revenues, increased 14% from $424,111 in the six months ended June 30, 2019 to $481,852 in the six months ended June 30, 2020. The acquisitions of PortfolioCenter on April 1, 2019 and PIEtech on May 1, 2019 (collectively, the "2019 Acquisitions"), contributed revenues of $8,649 and $33,487 in the six months ended June 30, 2019 and 2020. The Envestnet Wealth Solutions segment's total revenues, excluding the revenues contributed from the 2019 acquisitions, increased by $31,672 primarily due to an increase in asset-based revenues of $28,053, and an increase in subscription-based revenues of $6,882, partially offset by a decrease in professional services and other revenues of $3,263. The Envestnet Data & Analytics segment's total revenues increased by $1,231 primarily due to an increase in subscription-based revenues of $3,556, partially offset by a decrease in professional services and other revenues of $2,325.

Net loss attributable to Envestnet, Inc. for the three months ended June 30, 2020 was $4,924, or $0.09 per diluted share, compared to net income attributable to Envestnet, Inc. of $893, or $0.02 per diluted share, for the three months ended June 30, 2019.
 
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Net loss attributable to Envestnet, Inc. for the six months ended June 30, 2020 was $12,260, or $0.23 per diluted share, compared to net loss attributable to Envestnet, Inc. of $17,292, or $0.35 per diluted share, for the six months ended June 30, 2019.

Adjusted revenues for the three months ended June 30, 2020 were $235,390, compared to adjusted revenues of $227,859 in the prior year period. Adjusted net revenues were $173,515 for the three months ended June 30, 2020, compared to adjusted net revenues of $167,566 in the prior year period. Adjusted EBITDA for the three months ended June 30, 2020 was $55,808, compared to adjusted EBITDA of $43,211 in the prior year period. Adjusted net income for the three months ended June 30, 2020 was $31,773, or $0.59 per diluted share, compared to adjusted net income of $24,470, or $0.46 per diluted share in the prior year period.

Adjusted revenues for the six months ended June 30, 2020 were $482,368, compared to adjusted revenues of $427,531 in the prior year period. Adjusted net revenues were $351,901 for the six months ended June 30, 2020, compared to adjusted net revenues of $313,396 in the prior year period. Adjusted EBITDA for the six months ended June 30, 2020 was $110,386, compared to adjusted EBITDA of $77,213 in the prior year period. Adjusted net income for the six months ended June 30, 2020 was $62,975, or $1.16 per diluted share, compared to adjusted net income of $43,881, or $0.85 per diluted share in the prior year period.
 
Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are non-GAAP financial measures. See “Non-GAAP Financial Measures” for a discussion of non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures.

Results of Operations
  Three Months Ended   Six Months Ended  
  June 30,
 Percent
June 30,
 Percent
  2020 2019 Change 2020 2019 Change
  (in thousands)   (in thousands)  
Revenues:            
Asset-based $ 122,246    $ 120,070    % $ 257,057    $ 229,004    12  %
Subscription-based 104,979    92,258    14  % 209,530    175,345    19  %
Total recurring revenues 227,225    212,328    % 466,587    404,349    15  %
Professional services and other revenues 8,088    12,117    (33) % 15,265    19,762    (23) %
Total revenues 235,313    224,445    % 481,852    424,111    14  %
Operating expenses:            
Cost of revenues 68,849    72,080    (4) % 143,782    133,725    %
Compensation and benefits 95,565    103,286    (7) % 205,995    190,003    %
General and administration 38,448    42,421    (9) % 79,558    82,945    (4) %
Depreciation and amortization 28,443    26,915    % 56,126    46,432    21  %
Total operating expenses 231,305    244,702    (5) % 485,461    453,105    %
Income (loss) from operations 4,008    (20,257)   * (3,609)   (28,994)   (88) %
Other expense, net (8,173)   (7,512)   % (9,710)   (13,275)   (27) %
Loss before income tax provision (benefit) (4,165)   (27,769)   * (13,319)   (42,269)   (68) %
Income tax provision (benefit) 1,306    (28,382)   * (658)   (24,614)   (97) %
Net income (loss) (5,471)   613    * (12,661)   (17,655)   (28) %
Add: Net loss attributable to non-controlling interest 547    280    95  % 401    363    *
Net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    * $ (12,260)   $ (17,292)   (29) %
*Not meaningful.
 
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Three months ended June 30, 2020 compared to three months ended June 30, 2019
 
Asset-based recurring revenues
 
Asset-based recurring revenues increased 2% from $120,070 in the three months ended June 30, 2019 to $122,246 in the three months ended June 30, 2020. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the three months ended June 30, 2020 compared to the three months ended June 30, 2019, and the impact of new account growth and positive net flows of AUM/A in the second quarter of 2020.
 
 The number of financial advisors with asset-based recurring revenue on our technology platforms increased from 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts increased from approximately 2,100,000 as of June 30, 2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenues decreased from 53% in the three months ended June 30, 2019 to 52% in three months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenue increased 14% from $92,258 in the three months ended June 30, 2019 to $104,979 in the three months ended June 30, 2020. This increase was primarily due to an increase of $11,332 in the Envestnet Wealth Solutions segment and an increase of $1,389 in the Envestnet Data & Analytics segment.

The increase in the Envestnet Wealth Solutions segment was primarily due to one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to the three months ended June 30, 2019, and the addition of new clients and selling additional services to existing clients.
 
The increase in Envestnet Data & Analytics revenue is primarily due to broad increases in revenue from new and existing customers.

Professional services and other revenues
 
Professional services and other revenues decreased 33% from $12,117 in the three months ended June 30, 2019 to $8,088 in the three months ended June 30, 2020. The decrease was primarily due to a decrease in revenues as a result of the cancellation of our 2020 Advisor Summit.

Cost of revenues
 
Cost of revenues decreased 4% from $72,080 in the three months ended June 30, 2019 to $68,849 in the three months ended June 30, 2020. The decrease was primarily due to a decrease in professional services and other cost of revenues of $4,923, primarily a result of the cancellation of our 2020 Advisor Summit, partially offset by an increase in asset-based cost of revenues of $1,582, directly correlated with the increase to asset-based recurring revenues during the period. As a percentage of total revenues, cost of revenues decreased from 32% in the three months ended June 30, 2019 to 29% in three months ended June 30, 2020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.

Compensation and benefits

Compensation and benefits decreased 7% from $103,286 in the three months ended June 30, 2019 to $95,565 in the three months ended June 30, 2020. The decrease was primarily due to decreases in incentive compensation of $5,425, non-cash compensation expense of $1,892, and severance expense of $1,411, partially offset by one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits decreased from 46% in the three months ended June 30, 2019 to 41% in the three months ended June 30, 2020 primarily due to approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition in the three months ended June 30, 2019.
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General and administration
 
General and administration expenses decreased 9% from $42,421 in the three months ended June 30, 2019 to $38,448 in the three months ended June 30, 2020. The decrease was primarily due to decreases in travel and entertainment of $4,525, a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, non-income tax expense of $1,550, occupancy costs of $1,441, professional and legal fees of $1,240 and marketing expense of $828. These decreases were partially offset by increases in litigation related and non-recurring expenses of $5,620 and system development costs of $1,565. As a percentage of total revenues, general and administration expenses decreased from 19% in the three months ended June 30, 2019 to 16% in the three months ended June 30, 2020 primarily due to decreased travel and entertainment expense as a result of actions taken by the Company as a result of COVID-19.

Depreciation and amortization
 
Depreciation and amortization expense increased 6% from $26,915 in the three months ended June 30, 2019 to $28,443 in the three months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $1,693, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions. As a percentage of total revenues, depreciation and amortization expense remained consistent at 12% in the three months ended June 30, 2019 and 2020.

Other expense, net

Other expense, net increased 9% from $7,512 in the three months ended June 30, 2019 to $8,173 in the three months ended June 30, 2020. The increase was primarily due to increased losses recorded for our equity method investees and increased losses on foreign exchange, partially offset by decreased interest expense, net in the three months ended June 30, 2020 as compared to the comparable prior year period.
 
Income tax provision (benefit)
  Three Months Ended
  June 30,
  2020 2019
Loss before income tax provision (benefit) $ (4,165)   $ (27,769)  
Income tax provision (benefit) 1,306    (28,382)  
Effective tax rate (31.4) % 102.2  %

For the three months ended June 30, 2020, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the CARES Act related to net operating loss carryback, and research and experimentation credits.

For the three months ended June 30, 2019, our effective tax rate differed from the statutory rate primarily due to the release of our valuation allowance of $21,907 as a result of additional deferred tax liabilities recorded with the PIEtech Acquisition, the windfall from stock-based compensation, federal and state research and development (“R&D”) credits, and additional accruals for uncertain tax positions.

Six months ended June 30, 2020 compared to six months ended June 30, 2019
 
Asset-based recurring revenues
 
Asset-based recurring revenues increased 12% from $229,004 in the six months ended June 30, 2019 to $257,057 in the six months ended June 30, 2020. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, due to the impact of new account growth and positive net flows of AUM/A in the first half of 2020.
 
 The number of financial advisors with asset-based recurring revenue on our technology platforms increased from 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts increased from approximately 2,100,000 as of June 30, 2019 to approximately 2,300,000 as of June 30, 2020.

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Asset-based recurring revenues decreased from 54% of total revenue in the six months ended June 30, 2019 to 53% of total revenue in the six months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenue increased 19% from $175,345 in the six months ended June 30, 2019 to $209,530 in the six months ended June 30, 2020. This increase was primarily due to an increase of $30,629 in the Envestnet Wealth Solutions segment and an increase of $3,556 in the Envestnet Data & Analytics segment.

The increase in the Envestnet Wealth Solutions segment was primarily due to the 2019 Acquisitions, which contributed incremental revenues of $23,747 to subscription-based recurring revenues in the six months ended June 30, 2020. The remaining increase of $6,882 within the Envestnet Wealth Solutions segment is a result of continuing to add clients and selling additional services to existing clients.
 
The increase in Envestnet Data & Analytics revenue is primarily due to broad increases in revenue from new and existing customers.

Professional services and other revenues
 
Professional services and other revenues decreased 23% from $19,762 in the six months ended June 30, 2019 to $15,265 in the six months ended June 30, 2020. The decrease was primarily due to a decrease in revenues resulting from the cancellation of our 2020 Advisor Summit.

Cost of revenues
 
Cost of revenues increased 8% from $133,725 in the six months ended June 30, 2019 to $143,782 in the six months ended June 30, 2020. The increase was primarily due to an increase in asset-based cost of revenues of $16,332, directly correlated with the increase to asset-based recurring revenues during the period. This increase was partially offset by a decrease in professional services and other cost of revenues of $4,985, primarily a result of the cancellation of our 2020 Advisor Summit. The 2019 Acquisitions had an immaterial impact to cost of revenues in the six months ended June 30, 2020. As a percentage of total revenues, cost of revenues decreased from 32% in the six months ended June 30, 2019 to 30% in six months ended June 30, 2020.
 
Compensation and benefits
 
Compensation and benefits increased 8% from $190,003 in the six months ended June 30, 2019 to $205,995 in the six months ended June 30, 2020. The increase was primarily due to increases in severance expense of $10,091, salaries, benefits and related payroll taxes of $4,654, and non-cash compensation expense of $1,275, partially offset by a decrease in incentive compensation of $1,849. The increase in severance expense is primarily related the Early Retirement Program in the three months ended March 31, 2020. The 2019 Acquisitions contributed compensation and benefit expenses of $5,656 and $15,798 to total compensation and benefits expense in the six months ended June 30, 2019 and 2020, respectively. As a percentage of total revenues, compensation and benefits decreased from 45% in the six months ended June 30, 2019 to 43% in the six months ended June 30, 2020.

General and administration
 
General and administration expenses decreased 4% from $82,945 in the six months ended June 30, 2019 to $79,558 in the six months ended June 30, 2020. The decrease was primarily due to decreases in travel and entertainment expense of $4,830, a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, non-income tax expense of $1,572, marketing expenses of $1,174 and occupancy costs of $1,100. These decreases were partially offset by increases in system development costs of $2,147, trade errors expense of $1,813, litigation related and non-recurring expenses of $881, bad debt expense of $804, permits, licenses and fees of $602 and other miscellaneous increases. General and administration expenses contributed from the 2019 Acquisitions remained consistent in the six months ended June 30, 2019 and 2020. As a percentage of total revenues, general and administration expenses decreased from 20% in the six months ended June 30, 2019 to 17% in the six months ended June 30, 2020 primarily due to decreased travel and entertainment expense as a result of actions taken by the Company as a result of COVID-19.

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Depreciation and amortization
 
Depreciation and amortization expense increased 21% from $46,432 in the six months ended June 30, 2019 to $56,126 in the six months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $7,922, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, and an increase in internally developed software amortization expense of $2,209. As a percentage of total revenues, depreciation and amortization expense increased from 11% in the six months ended June 30, 2019 to 12% in the six months ended June 30, 2020.

Other expense, net

Other expense, net decreased 27% from $13,275 in the six months ended June 30, 2019 to $9,710 in the six months ended June 30, 2020. The decrease was primarily due to a gain of $4,230 recognized in the three months ended March 31, 2020 on the remeasurement of our previously held interest in the private financial technology design company combined with a gain of $2,524 recorded in the three months ended March 31, 2020 as a result of a fair value adjustment upon settlement of our former Chief Executive Officer's stock options, partially offset by increased losses recorded for our equity method investees in the six months ended June 30, 2020 as compared to six months ended June 30, 2019.
 
Income tax provision (benefit)
  Six Months Ended
  June 30,
  2020 2019
Loss before income tax provision (benefit) $ (13,319)   $ (42,269)  
Income tax provision (benefit) (658)   (24,614)  
Effective tax rate 4.9  % 58.2  %

For the six months ended June 30, 2020, our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion of US deferred tax assets and the impact of state and local taxes, partially offset by the permanent book tax differences, the windfall from stock-based compensation, impact of the CARES Act related to net operating loss carryback, and research and experimentation credits.

For the six months ended June 30, 2019, our effective tax rate differed from the statutory rate primarily due to the release of our valuation allowance of $21,907 as a result of additional deferred tax liabilities recorded from the PIEtech Acquisition, the windfall from stock-based compensation, federal and state R&D credits, and additional accruals for uncertain tax positions.

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

The following table reconciles income (loss) from operations by segment to consolidated net income (loss) attributable to Envestnet, Inc.:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Envestnet Wealth Solutions $ 19,867    $ 12,379    $ 31,207    $ 29,223   
Envestnet Data & Analytics (941)   (8,960)   (5,526)   (16,888)  
Nonsegment operating expenses (14,918)   (23,676)   (29,290)   (41,329)  
Income (loss) from operations 4,008    (20,257)   (3,609)   (28,994)  
Other expense, net (8,173)   (7,512)   (9,710)   (13,275)  
Consolidated loss before income tax provision (benefit) (4,165)   (27,769)   (13,319)   (42,269)  
Income tax provision (benefit) 1,306    (28,382)   (658)   (24,614)  
Consolidated net income (loss) (5,471)   613    (12,661)   (17,655)  
Add: Net loss attributable to non-controlling interest 547    280    401    363   
Consolidated net income (loss) attributable to Envestnet, Inc. $ (4,924)   $ 893    $ (12,260)   $ (17,292)  
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 Envestnet Wealth Solutions
 
The following table presents income from operations for the Envestnet Wealth Solutions segment:
  Three Months Ended   Six Months Ended  
  June 30, Percent June 30, Percent
  2020 2019 Change 2020 2019 Change
  (in thousands)   (in thousands)  
Revenues:            
Asset-based $ 122,246    $ 120,070    % $ 257,057    $ 229,004    12  %
Subscription-based 61,410    50,078    23  % 121,733    91,104    34  %
Total recurring revenues 183,656    170,148    % 378,790    320,108    18  %
Professional services and other revenues 4,029    6,742    (40) % 7,315    9,487    (23) %
Total revenues 187,685    176,890    % 386,105    329,595    17  %
Operating expenses:
Cost of revenues 63,111    66,250    (5) % 132,903    122,105    %
Compensation and benefits 62,796    56,219    12  % 135,384    104,774    29  %
General and administration 21,830    25,666    (15) % 47,110    45,850    %
Depreciation and amortization 20,081    16,376    23  % 39,501    27,643    43  %
Total operating expenses 167,818    164,511    % 354,898    300,372    18  %
Income from operations
$ 19,867    $ 12,379    60  % $ 31,207    $ 29,223    %

Three months ended June 30, 2020 compared to three months ended June 30, 2019 for the Envestnet Wealth Solutions segment
  
Asset-based recurring revenues
 
Asset-based recurring revenues increased 2% from $120,070 in the three months ended June 30, 2019 to $122,246 in the three months ended June 30, 2020. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the three months ended June 30, 2020 compared to the three months ended June 30, 2019, due to the impact of new account growth and positive net flows of AUM/A in the second quarter of 2020.
 
The number of financial advisors with asset-based recurring revenue on our technology platforms increased from 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts increased from approximately 2,100,000 as of June 30, 2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenue decreased from 68% of total revenue in the three months ended June 30, 2019 to 65% of total revenue in the three months ended June 30, 2020 primarily due to growth in subscription-based revenues.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 23% from $50,078 in the three months ended June 30, 2019 to $61,410 in the three months ended June 30, 2020.

The increase was primarily due to one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to the three months ended June 30, 2019, and the addition of new clients and selling additional services to existing clients.
 
Professional services and other revenues
 
Professional services and other revenues decreased 40% from $6,742 in the three months ended June 30, 2019 to $4,029 in the three months ended June 30, 2020. The decrease was primarily due to a decrease in revenues resulting from the cancellation of our 2020 Advisor Summit.
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Cost of revenues
 
Cost of revenues decreased 5% from $66,250 in the three months ended June 30, 2019 to $63,111 in the three months ended June 30, 2020. The decrease was primarily due to a decrease in professional services and other cost of revenues of $4,832, primarily a result of the cancellation of our 2020 Advisor Summit, partially offset by an increase in asset-based cost of revenues of $1,582, directly correlated with the increase to asset-based recurring revenues during the period. As a percentage of total revenues, cost of revenues decreased from 37% in the three months ended June 30, 2019 to 34% in the three months ended June 30, 2020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.
 
Compensation and benefits
 
Compensation and benefits increased 12% from $56,219 in the three months ended June 30, 2019 to $62,796 in the three months ended June 30, 2020. The increase is primarily due to increases in salaries, benefits and related payroll taxes of $3,523, incentive compensation of $2,496 and one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to the three months ended June 30, 2019. As a percentage of total revenues, compensation and benefits increased from 32% in the three months ended June 30, 2019 to 33% in the three months ended June 30, 2020.

General and administration
 
General and administration expenses decreased 15% from $25,666 in the three months ended June 30, 2019 to $21,830 in the three months ended June 30, 2020. The decrease was primarily due to decreases in travel and entertainment expense of $3,107, non-income tax expense of $1,480, professional and legal fees of $1,437, occupancy costs of $980 and marketing expense of $798, partially offset by a increases in restructuring charges and transaction related expenses of $2,598, system development costs of $1,050 and one additional month of operations from PIEtech in the three months ended June 30, 2020 compared to the three months ended June 30, 2019. As a percentage of total revenues, general and administration expenses decreased from 15% in the three months ended June 30, 2019 to 12% in the three months ended June 30, 2020 primarily due to decreased travel and entertainment expense as a result of actions taken by the Company as a result of COVID-19.
 
Depreciation and amortization
 
Depreciation and amortization expense increased 23% from $16,376 in the three months ended June 30, 2019 to $20,081 in the three months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $1,800, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, an increase in internally developed software amortization expense of $1,078 and an increase in property and equipment depreciation expense of $827. As a percentage of revenues, depreciation and amortization expense increased from 9% in the three months ended June 30, 2019 to 11% in the three months ended June 30, 2020.

Six months ended June 30, 2020 compared to six months ended June 30, 2019 for the Envestnet Wealth Solutions segment
  
Asset-based recurring revenues
 
Asset-based recurring revenues increased 12% from $229,004 in the six months ended June 30, 2019 to $257,057 in the six months ended June 30, 2020. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles in the six months ended June 30, 2020 compared to the six months ended June 30, 2019, due to the impact of new account growth and positive net flows of AUM/A in the first half of 2020.
 
The number of financial advisors with asset-based recurring revenue on our technology platforms increased from 39,727 as of June 30, 2019 to 41,206 as of June 30, 2020 and the number of AUM/A client accounts increased from approximately 2,100,000 as of June 30, 2019 to approximately 2,300,000 as of June 30, 2020.

As a percentage of total revenues, asset-based recurring revenue decreased from 69% of total revenue in the six months ended June 30, 2019 to 67% of total revenue in the six months ended June 30, 2020.
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 34% from $91,104 in the six months ended June 30, 2019 to $121,733 in the six months ended June 30, 2020.

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The 2019 Acquisitions contributed incremental revenues of $23,747 to subscription-based recurring revenues in the six months ended June 30, 2020. The remaining increase of $6,882 is a result of continuing to add clients and selling additional services to existing clients.
 
Professional services and other revenues
 
Professional services and other revenues decreased 23% from $9,487 in the six months ended June 30, 2019 to $7,315 in the six months ended June 30, 2020. The decrease was primarily due to a decrease in revenues as a result of the cancellation of our 2020 Advisor Summit.

Cost of revenues
 
Cost of revenues increased 9% from $122,105 in the six months ended June 30, 2019 to $132,903 in the six months ended June 30, 2020. The increase was primarily due to an increase in asset-based cost of revenues of $16,332, directly correlated with the increase to asset-based recurring revenues during the period. This increase was partially offset by a decrease in professional services and other cost of revenues of $4,829, primarily a result of the cancellation of our 2020 Advisor Summit. The 2019 Acquisitions had an immaterial impact to cost of revenues in the six months ended June 30, 2020. As a percentage of total revenues, cost of revenues decreased from 37% in the six months ended June 30, 2019 to 34% in the six months ended June 30, 2020, primarily due to the relative increase in subscription-based revenues, which generally carries a lower cost of revenue than asset-based revenues.
 
Compensation and benefits
 
Compensation and benefits increased 29% from $104,774 in the six months ended June 30, 2019 to $135,384 in the six months ended June 30, 2020. The increase is primarily due to increases in severance expense of $11,276, salaries, benefits and related payroll taxes of $9,739, incentive compensation of $5,137 and non-cash compensation expense of $3,741. The increase in severance expense is primarily related to several employees entering into the Early Retirement Program in the three months ended March 31, 2020. The 2019 Acquisitions contributed compensation and benefit expenses of $5,656 and $15,798 to total compensation and benefits expense in the six months ended June 30, 2019 and 2020, respectively. As a percentage of total revenues, compensation and benefits increased from 32% in the six months ended June 30, 2019 to 35% in the six months ended June 30, 2020, primarily related to the increase in severance expense related to the Early Retirement Program.

General and administration
 
General and administration expenses increased 3% from $45,850 in the six months ended June 30, 2019 to $47,110 in the six months ended June 30, 2020. The increase was primarily due to increases in restructuring charges and transaction related expenses of $2,628, systems development costs of $1,843, trade errors expense of $1,768 and other miscellaneous increases. These increases were partially offset by decreases in travel and entertainment expenses of $3,001, non-income tax expense of $1,429 and professional and legal fees of $1,338. General and administration expenses contributed from the 2019 Acquisitions remained consistent in the six months ended June 30, 2019 and 2020. As a percentage of total revenues, general and administration expenses decreased from 14% in the six months ended June 30, 2019 to 12% in the six months ended June 30, 2020.
 
Depreciation and amortization
 
Depreciation and amortization expense increased 43% from $27,643 in the six months ended June 30, 2019 to $39,501 in the six months ended June 30, 2020. The increase was primarily due to an increase in intangible asset amortization expense of $8,228, the direct result of amortizing additional intangible assets related to our 2019 Acquisitions, an increase in internally developed software amortization expense of $1,986 and an increase in property and equipment depreciation expense of $1,643. As a percentage of revenues, depreciation and amortization expense increased from 8% in the six months ended June 30, 2019 to 10% in the six months ended June 30, 2020.
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Envestnet Data & Analytics

The following table presents loss from operations for the Envestnet Data & Analytics segment:
  Three Months Ended   Six Months Ended  
  June 30, Percent June 30, Percent
  2020 2019 Change 2020 2019 Change
  (in thousands)   (in thousands)  
Revenues:            
Subscription-based $ 43,569    $ 42,180    % $ 87,797    $ 84,241    %
Professional services and other revenues 4,059    5,375    (24) % 7,950    10,275    (23) %
Total revenues 47,628    47,555    —  % 95,747    94,516    %
Operating expenses:    
Cost of revenues 5,738    5,830    (2) % 10,879    11,620    (6) %
Compensation and benefits 25,802    31,593    (18) % 55,915    62,957    (11) %
General and administration 8,667    8,553    % 17,854    18,038    (1) %
Depreciation and amortization 8,362    10,539    (21) % 16,625    18,789    (12) %
Total operating expenses 48,569    56,515    (14) % 101,273    111,404    (9) %
Loss from operations $ (941)   $ (8,960)   * $ (5,526)   $ (16,888)   (67) %
 
Three months ended June 30, 2020 compared to three months ended June 30, 2019 for the Envestnet Data & Analytics segment
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 3% from $42,180 in the three months ended June 30, 2019 to $43,569 in the three months ended June 30, 2020, primarily due to broad increases in revenue from new and existing customers. 
 
Professional services and other revenues
 
Professional services and other revenues decreased 24% from $5,375 in the three months ended June 30, 2019 to $4,059 in the three months ended June 30, 2020 due to timing of the completion of customer projects and deployments.

Cost of revenues
 
Cost of revenues decreased 2% from $5,830 in the three months ended June 30, 2019 to $5,738 in the three months ended June 30, 2020. As a percentage of total revenues, cost of revenues remained consistent at 12% in the three months ended June 30, 2019 and 2020.
 
Compensation and benefits
 
Compensation and benefits decreased 18% from $31,593 in the three months ended June 30, 2019 to $25,802 in the three months ended June 30, 2020. The decrease is primarily due to decreases in salaries, benefits and related payroll taxes of $4,678, severance expense of $2,017 and non-cash compensation expense of $798, partially offset by an increase in incentive compensation of $1,242. As a percentage of total revenues, compensation and benefits decreased from 66% in the three months ended June 30, 2019 to 54% in the three months ended June 30, 2020. The decrease in compensation and benefits as a percentage of total revenues is primarily driven by increased capitalized labor costs related to internally developed software, decreased severance expense, and decreased salaries, benefits and related taxes due to lower headcount for the three months ended June 30, 2020 in comparison to the three months ended June 30, 2019.

General and administration
 
General and administration expenses increased 1% from $8,553 in the three months ended June 30, 2019 to $8,667 in the three months ended June 30, 2020, primarily due to an increase in legal and regulatory matters of $3,517, partially offset by a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, decreases in travel and entertainment expense of $1,239 and other miscellaneous decreases. As a percentage of total revenues, general and administration expenses remained consistent at 18% in the three months ended June 30, 2019 and 2020.
 
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Depreciation and amortization
 
Depreciation and amortization expense decreased 21% from $10,539 in the three months ended June 30, 2019 to $8,362 in the three months ended June 30, 2020. The decrease is primarily due to a decrease in depreciation of property and equipment of $2,224 resulting from a purchase price accounting adjustment that occurred in the three months ended June 30, 2019. As a percentage of total revenues, depreciation and amortization expense decreased from 22% in the three months ended June 30, 2019 to 18% in the three months ended June 30, 2020 primarily related to the purchase price accounting adjustment in the prior year.

Six months ended June 30, 2020 compared to six months ended June 30, 2019 for the Envestnet Data & Analytics segment
 
Subscription-based recurring revenues
 
Subscription-based recurring revenues increased 4% from $84,241 in the six months ended June 30, 2019 to $87,797 in the six months ended June 30, 2020, primarily due to broad increases in revenue from new and existing customers. 
 
Professional services and other revenues
 
Professional services and other revenues decreased 23% from $10,275 in the six months ended June 30, 2019 to $7,950 in the six months ended June 30, 2020 due to timing of the completion of customer projects and deployments.

Cost of revenues
 
Cost of revenues decreased 6% from $11,620 in the six months ended June 30, 2019 to $10,879 in the six months ended June 30, 2020, primarily due to decreases in third party vendor expenses. As a percentage of total revenues, cost of revenues decreased from 12% in the six months ended June 30, 2019 to 11% in the six months ended June 30, 2020.
 
Compensation and benefits
 
Compensation and benefits decreased 11% from $62,957 in the six months ended June 30, 2019 to $55,915 in the six months ended June 30, 2020, primarily due to decreases in salaries, benefits, and related payroll taxes of $7,248 and severance expense of $2,404, partially offset by an increase in incentive compensation of $2,624. As a percentage of total revenues, compensation and benefits decreased from 67% in the six months ended June 30, 2019 to 58% in the six months ended June 30, 2020. The decrease in compensation and benefits as a percentage of total revenues is primarily driven by increased capitalized labor costs related to internally developed software, decreased severance expense, and decreased salaries, benefits and related taxes due to lower headcount for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

General and administration
 
General and administration expenses decreased 1% from $18,038 in the six months ended June 30, 2019 to $17,854 in the six months ended June 30, 2020, primarily due to a decrease of $1,982 to contingent consideration liability related to a fair value adjustment, decreases in travel and entertainment expense of $1,576, occupancy costs of $614 and communication, research and data services costs of $523, partially offset by an increase to legal and regulatory matters of $4,220. As a percentage of total revenues, general and administration expenses remained consistent at 19% in the six months ended June 30, 2019 and 2020.
 
Depreciation and amortization
 
Depreciation and amortization expense decreased from $18,789 in the six months ended June 30, 2019 to $16,625 in the six months ended June 30, 2020. The decrease is primarily due to a decrease in depreciation of property and equipment of $2,224 resulting from a purchase price accounting adjustment that occurred in the six months ended June 30, 2019. As a percentage of total revenues, depreciation and amortization expense decreased from 20% in the six months ended June 30, 2019 to 17% in the six months ended June 30, 2020 primarily due to the purchase price accounting adjustment in the prior year.  
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Nonsegment
 
The following table presents nonsegment operating expenses: 
  Three Months Ended   Six Months Ended  
  June 30, Percent June 30, Percent
  2020 2019 Change 2020 2019 Change
  (in thousands)   (in thousands)  
Operating expenses:            
Compensation and benefits $ 6,967    $ 15,474    (55) % $ 14,696    $ 22,272    (34) %
General and administration 7,951    8,202    (3) % 14,594    19,057    (23) %
Nonsegment operating expenses $ 14,918    $ 23,676    (37) % $ 29,290    $ 41,329    (29) %


Three months ended June 30, 2020 compared to three months ended June 30, 2019 for Nonsegment
 
Compensation and benefits
 
Compensation and benefits decreased 55% from $15,474 in the three months ended June 30, 2019 to $6,967 in the three months ended June 30, 2020, primarily due to decreases in incentive compensation of $9,163 and non-cash compensation expense of $799, partially offset by increases in salaries, benefits and related payroll taxes of $1,018. The decrease in incentive compensation is primarily a result of approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition in three months ended June 30, 2019.
 
General and administration
 
General and administration expenses decreased 3% from $8,202 in the three months ended June 30, 2019 to $7,951 in the three months ended June 30, 2020, primarily due to a decrease in restructuring charges and transaction related expenses of $962, partially offset by immaterial increases in insurance and bank charges, systems development costs, and professional and legal fees. 

Six months ended June 30, 2020 compared to six months ended June 30, 2019 for Nonsegment
 
Compensation and benefits
 
Compensation and benefits decreased 34% from $22,272 in the six months ended June 30, 2019 to $14,696 in the six months ended June 30, 2020, primarily due to decreases in incentive compensation of $9,610 and non-cash compensation expense of $1,718, partially offset by increases in salaries, benefits and related payroll taxes of $2,163 and severance expense of $1,219. The decrease in incentive compensation is primarily a result of approximately $8,800 in retention bonuses paid in connection with the PIEtech Acquisition in the six months ended June 30, 2019.
 
General and administration
 
General and administration expenses decreased 23% from $19,057 in the six months ended June 30, 2019 to $14,594 in the six months ended June 30, 2020, primarily due to a decrease in restructuring charges and transaction related expenses of $5,654, partially offset by increases in professional and legal fees of $674 and permits, licenses and fees of $552.
 
Non-GAAP Financial Measures

In addition to reporting results according to U.S. generally accepted accounting principles (“GAAP”), we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include “adjusted revenues,” “adjusted net revenues,” “adjusted EBITDA,” “adjusted net income” and “adjusted net income per share.”

“Adjusted revenues” excludes the effect of purchase accounting on the fair value of acquired deferred revenue. Under GAAP, we record at fair value the acquired deferred revenue for contracts in effect at the time the entities were acquired. Consequently, revenue related to acquired entities for periods subsequent to the acquisition does not reflect the full amount of revenue that would have been recorded by these entities had they remained stand-alone entities.

“Adjusted net revenues” represents adjusted revenues less asset-based cost of revenues. Under GAAP, we are required to recognize as revenue certain fees paid to investment managers and other third parties needed for implementation of
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investment solutions included in our assets under management. Those fees also are required to be recorded as cost of revenues. This non-GAAP metric presents adjusted revenues without such fees included, as they have no impact on our profitability. Adjusted revenues and Adjusted net revenues have limitations as financial measures, should be considered as supplemental in nature and are not meant as a substitute for revenue prepared in accordance with GAAP.
 
“Adjusted EBITDA” represents net income 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 on contingent consideration liability, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, gain on acquisition of equity method investment, loss allocation 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, non-cash compensation expense, restructuring charges and transaction costs, severance, fair market value adjustment on contingent consideration liability, amortization of acquired intangibles, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, gain on acquisition of equity method investment, loss allocation 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 share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted-average shares outstanding.
 
Our Board and management use these non-GAAP financial measures:
 
As measures of operating performance;
For planning purposes, including the preparation of annual budgets;
To allocate resources to enhance the financial performance of our business;
To evaluate the effectiveness of our business strategies; and
In communications with our Board concerning our financial performance.

Our Compensation Committee, our Board and our management may also consider adjusted EBITDA, among other factors, when determining management’s incentive compensation.
 
We also present adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per 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 net revenues provide comparisons from period to period by excluding the effects of asset-based cost of revenues. While the amounts included in the calculation of adjusted net revenues are disclosed in our condensed consolidated financial statements and footnotes, management believes providing more transparency into this metric is beneficial to investors who wish to evaluate our performance in this fashion. Adjusted EBITDA provides comparisons from period to period by excluding potential differences caused by variations in the age and book depreciation of fixed assets affecting relative depreciation expense and amortization of internally developed software, amortization of acquired intangible assets, deferred revenue fair value adjustment, income tax provision (benefit), non-income tax expense, restructuring charges and transaction costs, accretion on contingent consideration and purchase liability, severance, fair market value adjustment on contingent consideration liability, litigation and regulatory related expenses, foreign currency, gain on acquisition of equity method investment, loss allocation from equity method investments, (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 net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share are useful to investors in evaluating our operating performance because securities analysts use adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investor and analyst presentations will include adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share.
 
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Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per 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 net revenues, adjusted EBITDA, adjusted net income and adjusted net income per 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 net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

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

Adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per 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 made net tax payments of $2,136 and $6,121 for the six months ended June 30, 2020 and 2019, respectively. In the event that we begin to generate taxable income and our existing net operating loss carryforwards for federal and state income taxes have been fully utilized or have expired, income tax payments will be higher; and

Other companies in our industry may calculate adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share differently than we do, limiting their usefulness as a comparative measure.

Management compensates for the inherent limitations associated with using adjusted revenues, adjusted net revenues, adjusted EBITDA, adjusted net income and adjusted net income per share through disclosure of such limitations, presentation of our financial statements in accordance with GAAP and reconciliation of adjusted revenues and adjusted net revenues to revenues, the most directly comparable GAAP measure and adjusted EBITDA, adjusted net income and adjusted net income per share to net income and net income per share, the most directly comparable GAAP measure. Further, our management also reviews GAAP measures and evaluates individual measures that are not included in some or all of our non-GAAP financial measures, such as our level of capital expenditures and interest income, among other measures.
 
The following table sets forth a reconciliation of total revenues to adjusted revenues and adjusted net revenues based on our historical results:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(in thousands) (in thousands)
Total revenues $ 235,313    $ 224,445    $ 481,852    $ 424,111   
Deferred revenue fair value adjustment 77    3,414    516    3,420   
Adjusted revenues 235,390    227,859    482,368    427,531   
Less: Asset-based cost of revenues (61,875)   (60,293)   (130,467)   (114,135)  
Adjusted net revenues $ 173,515    $ 167,566    $ 351,901    $ 313,396   

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The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:
Three Months Ended Six Months Ended
June 30, June 30,
2020 2019 2020 2019
(in thousands) (in thousands)
Net income (loss) $ (5,471)   $ 613    $ (12,661)   $ (17,655)  
Add (deduct):        
Deferred revenue fair value adjustment 77    3,414    516    3,420   
Interest income (197)   (901)   (588)   (2,411)  
Interest expense 6,634    8,263    13,768    15,359   
Accretion on contingent consideration and purchase liability 311    502    910    742   
Income tax provision (benefit) 1,306    (28,382)   (658)   (24,614)  
Depreciation and amortization 28,443    26,915    56,126    46,432   
Non-cash compensation expense 13,875    14,988    27,345    27,852   
Restructuring charges and transaction costs 6,648    13,208    9,468    20,574   
Severance 1,869    3,280    15,851    5,760   
Fair market value adjustment on contingent consideration liability (1,982)   —    (1,982)   —   
Litigation and regulatory related expenses 3,517    —    4,220    —   
Foreign currency 463    (154)   (31)   (155)  
Non-income tax expense adjustment (642)   908    (454)   1,118   
Gain on acquisition of equity method investment —    —    (4,230)   —   
Loss allocation from equity method investments 1,256    347    3,286    550   
(Income) loss attributable to non-controlling interest (299)   210    (500)   241   
Adjusted EBITDA $ 55,808    $ 43,211    $ 110,386    $ 77,213   

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The following table sets forth the reconciliation of net income (loss) to adjusted net income and adjusted net income per diluted share based on our historical results:
  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
  (in thousands) (in thousands)
Net income (loss) $ (5,471)   $ 613    $ (12,661)   $ (17,655)  
Income tax provision (benefit) (1)
1,306    (28,382)   (658)   (24,614)  
Loss before income tax provision (benefit) (4,165)   (27,769)   (13,319)   (42,269)  
Add (deduct):
Deferred revenue fair value adjustment 77    3,414    516    3,420   
Accretion on contingent consideration and purchase liability 311    502    910    742   
Non-cash interest expense 2,983    4,646    5,945    9,262   
Non-cash compensation expense 13,875    14,988    27,345    27,852   
Restructuring charges and transaction costs 6,648    13,208    9,468    20,574   
Severance 1,869    3,280    15,851    5,760   
Fair market value adjustment on contingent consideration liability (1,982)   —    (1,982)   —   
Amortization of acquired intangibles 18,746    19,278    37,504    31,806   
Litigation and regulatory related expenses 3,517    —    4,220    —   
Foreign currency 463    (154)   (31)   (155)  
Non-income tax expense adjustment (642)   908    (454)   1,118   
Gain on acquisition of equity method investment —    —    (4,230)   —   
Loss allocation from equity method investments 1,256    347    3,286    550   
(Income) loss attributable to non-controlling interest (299)   210    (500)   241   
Adjusted net income before income tax effect 42,657    32,858    84,529    58,901   
Income tax effect (2)
(10,884)   (8,388)   (21,554)   (15,020)  
Adjusted net income $ 31,773    $ 24,470    $ 62,975    $ 43,881   
Basic number of weighted-average shares outstanding 53,562,850    50,870,296    53,288,741    49,526,774   
Effect of dilutive shares:
Options to purchase common stock 374,070    1,164,246    519,886    1,185,480   
Unvested restricted stock units 322,140    662,853    475,990    666,116   
Convertible notes —    261,075    11,719    12,532   
Warrants —    24,218    22,714    —   
Diluted number of weighted-average shares outstanding 54,259,060    52,982,688    54,319,050    51,390,902   
Adjusted net income per share - diluted $ 0.59    $ 0.46    $ 1.16    $ 0.85   
(1)For the three months ended June 30, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled (31.4)% and 102.2%, respectively. For the six months ended June 30, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled 4.9% and 58.2%, respectively.
(2)An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for the three and six months ended June 30, 2020 and 2019.

Note on Income Taxes: As of December 31, 2019 we had NOL carryforwards of approximately $261,000 and $211,000 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.


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The following tables set forth the reconciliation of revenues to adjusted revenues and income (loss) from operations to adjusted EBITDA based on our historical results for each segment for the three and six months ended June 30, 2020 and 2019:

  Three Months Ended June 30, 2020
  Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
  (in thousands)
Revenues $ 187,685    $ 47,628    $ —    $ 235,313   
Deferred revenue fair value adjustment 77    —    —    77   
Adjusted revenues 187,762    47,628    —    235,390   
Less: Asset-based cost of revenues (61,875)   —    —    (61,875)  
Adjusted net revenues $ 125,887    $ 47,628    $ —    $ 173,515   
Income (loss) from operations $ 19,867    $ (941)   $ (14,918)   $ 4,008   
Add:
Deferred revenue fair value adjustment 77    —    —    77   
Accretion on contingent consideration and purchase liability 373    (62)   —    311   
Depreciation and amortization 20,081    8,362    —    28,443   
Non-cash compensation expense 9,055    2,981    1,839    13,875   
Restructuring charges and transaction costs 3,731    271    2,646    6,648   
Non-income tax expense adjustment (578)   (64)   —    (642)  
Severance 1,437    432    —    1,869   
Fair market value adjustment on contingent consideration liability —    (1,982)   —    (1,982)  
Litigation and regulatory related expenses —    3,517    —    3,517   
Income attributable to non-controlling interest (299)   —    —    (299)  
Other (17)   —    —    (17)  
Adjusted EBITDA $ 53,727    $ 12,514    $ (10,433)   $ 55,808   

  Three Months Ended June 30, 2019
  Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
  (in thousands)
Revenues $ 176,890    $ 47,555    $ —    $ 224,445   
Deferred revenue fair value adjustment 3,414    —    —    3,414   
Adjusted revenues 180,304    47,555    —    227,859   
Less: Asset-based cost of revenues (60,293)   —    —    (60,293)  
Adjusted net revenues $ 120,011    $ 47,555    $ —    $ 167,566   
Income (loss) from operations $ 12,379    $ (8,960)   $ (23,676)   $ (20,257)  
Add:
Deferred revenue fair value adjustment 3,414    —    —    3,414   
Accretion on contingent consideration and purchase liability 502    —    —    502   
Depreciation and amortization 16,376    10,539    —    26,915   
Non-cash compensation expense 8,592    3,767    2,629    14,988   
Restructuring charges and transaction costs 794    (196)   12,610    13,208   
Non-income tax expense adjustment 908    —    —    908   
Severance 818    2,448    14    3,280   
Loss attributable to non-controlling interest 210    —    —    210   
Other 43    —    —    43   
Adjusted EBITDA $ 44,036    $ 7,598    $ (8,423)   $ 43,211   


51


  Six Months Ended June 30, 2020
  Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
  (in thousands)
Revenues $ 386,105    $ 95,747    $ —    $ 481,852   
Deferred revenue fair value adjustment 516    —    —    516   
Adjusted revenues 386,621    95,747    —    482,368   
Less: Asset-based cost of revenues (130,467)   —    —    (130,467)  
Adjusted net revenues $ 256,154    $ 95,747    $ —    $ 351,901   
Income (loss) from operations $ 31,207    $ (5,526)   $ (29,290)   $ (3,609)  
Add:
Deferred revenue fair value adjustment 516    —    —    516   
Accretion on contingent consideration and purchase liability 746    164    —    910   
Depreciation and amortization 39,501    16,625    —    56,126   
Non-cash compensation expense 18,752    7,207    3,910    29,869   
Restructuring charges and transaction costs 4,920    456    4,092    9,468   
Non-income tax expense adjustment (328)   (126)   —    (454)  
Severance 12,439    2,092    1,320    15,851   
Fair market value adjustment on contingent consideration liability —    (1,982)   —    (1,982)  
Litigation and regulatory related expenses —    4,220    —    4,220   
Income attributable to non-controlling interest (500)   —    —    (500)  
Other (29)   —    —    (29)  
Adjusted EBITDA $ 107,224    $ 23,130    $ (19,968)   $ 110,386   


  Six Months Ended June 30, 2019
  Envestnet Wealth Solutions Envestnet Data & Analytics Nonsegment Total
  (in thousands)
Revenues $ 329,595    $ 94,516    $ —    $ 424,111   
Deferred revenue fair value adjustment 3,420    —    —    3,420   
Adjusted revenues 333,015    94,516    —    427,531   
Less: Asset-based cost of revenues (114,135)   —    —    (114,135)  
Adjusted net revenues $ 218,880    $ 94,516    $ —    $ 313,396   
Income (loss) from operations $ 29,223    $ (16,888)   $ (41,329)   $ (28,994)  
Add:
Deferred revenue fair value adjustment 3,420    —    —    3,420   
Accretion on contingent consideration and purchase liability 742    —    —    742   
Depreciation and amortization 27,643    18,789    —    46,432   
Non-cash compensation expense 14,269    7,955    5,628    27,852   
Restructuring charges and transaction costs 1,056    769    18,749    20,574   
Non-income tax expense adjustment 1,108    10    —    1,118   
Severance 1,168    4,496    96    5,760   
Loss attributable to non-controlling interest 241    —    —    241   
Other 65        68   
Adjusted EBITDA $ 78,935    $ 15,132    $ (16,854)   $ 77,213   
52


Liquidity and Capital Resources
 
As of June 30, 2020, we had total cash and cash equivalents of $92,244 compared to $82,505 as of December 31, 2019. We plan to use existing cash, cash generated in the ongoing operations of our business and amounts under our revolving credit facility to fund our current operations, capital expenditures and possible acquisitions or other strategic activity, and to meet our debt service obligations. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to borrow under our revolving credit facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. 

As of June 30, 2020, we had $225,000 available to borrow under our revolving credit facility, subject to covenant compliance.

Cash Flows
 
The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the periods indicated:
  Six Months Ended
  June 30,
  2020 2019
  (in thousands)
Net cash provided by operating activities $ 65,023    $ 2,391   
Net cash used in investing activities (62,914)   (347,969)  
Net cash provided by financing activities 8,870    133,784   
Effect of exchange rate on changes on cash (1,342)   166   
Net increase (decrease) in cash, cash equivalents and restricted cash 9,637    (211,628)  
Cash, cash equivalents and restricted cash, end of period 92,392    78,043   
 
Operating Activities
 
Net cash provided by operating activities for the six months ended June 30, 2020 was $65,023 compared to net cash provided by operating activities of $2,391 for the same period in 2019. The increase was primarily due to:

A decrease in net losses period over period of $4,994;
A decrease in deferred taxes period over period of $27,393 primarily due to the 2019 reversal of a valuation allowance on certain of our deferred tax assets;
An increase period over period for noncash addbacks for depreciation and amortization expense of $9,694; and
An increase in the change in operating assets and liabilities of $22,469 which is primarily timing related.

These increases were partially offset by a net decrease of $938 of non-cash activity related to our equity method investments and a non-cash gain of $1,982 related to a fair market value adjustment to an outstanding contingent consideration liability.
 
Investing Activities
 
Net cash used in investing activities for the six months ended June 30, 2020 was $62,914 compared to net cash used in investing activities of $347,969 for the same period in 2019. The change was primarily a result of a decrease in cash disbursements for business acquisitions of $301,314. In January 2020, we also used $11,000 to acquire a 4.25% interest in a privately held company.
 
Financing Activities
 
Net cash provided by financing activities for the six months ended June 30, 2020 was $8,870 compared to net cash provided by financing activities of $133,784 for the same period in 2019. The change was primarily the result of decreased borrowings on our revolving credit facility of $130,000.
 
 

53


Critical Accounting Policies and Estimates
 
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. “Note 2—Summary of Significant Accounting Policies” to the consolidated financial statements in our 2019 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2019 Form 10-K include, but are not limited to, the discussion of estimates used for recognition of revenues, the determination of the period of benefit for deferred sales incentive commissions, purchase accounting, impairment of goodwill and acquired intangible assets and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements, and actual results could differ materially from the amounts reported.

Commitments and Off-Balance Sheet Arrangements
 
Purchase Obligations and Indemnifications
 
See “Part I, Note 17—Commitments and Contingencies, Legal Proceedings” for purchase obligations and indemnifications details.
 
Legal Proceedings
 
See “Part I, Note 17—Commitments and Contingencies, Legal Proceedings” for legal proceedings details.
 
Item 3. 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 three and six months ended June 30, 2020, 52% and 53% 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 and our net loss to increase. If there are continued 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 three and six months ended June 30, 2020, we estimate that a hypothetical 10% change in the value of various foreign currencies to the U.S. dollar would result in a corresponding increase or decrease of approximately $325 and $843 to pre-tax earnings, respectively.

The expenses of our India subsidiary, which primarily consist of expenditures related to compensation and benefits, are paid using the Indian Rupee. We are directly exposed to changes in foreign currency exchange rates through the translation of these monthly expenditures into U.S. dollars. For the three and six months ended June 30, 2020, 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 $1,922 and $3,374 to pre-tax earnings, respectively, and a hypothetical 10% decrease in the value of the Indian Rupee to the U.S. dollar would result in an increase of approximately $1,573 and $2,760 to pre-tax earnings, respectively.
 
Interest Rate Risk
 
We are subject to market risk from changes in interest rates. We have a revolving credit facility that bears interest at LIBOR plus an applicable margin between 1.50% and 3.25%. As LIBOR rates fluctuate, so too will the interest expense on amounts borrowed under the Amended Credit Agreement. Interest charged on the revolving credit facility for the second quarter of 2020 was approximately 2.6%. As of June 30, 2020, there was $275,000 of revolving credit amounts outstanding under the Amended Credit Agreement. We incurred interest expense of $2,142 and $4,813 for the three and six months ended June 30, 2020, respectively, related to the Amended Credit Agreement. A sensitivity analysis performed on the interest expense indicated that a hypothetical 0.25% increase or decrease in our interest rate would increase or decrease interest expense by approximately $578 on an annual basis.
54



Item 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Based on their evaluation of our disclosure controls and procedures as of June 30, 2020, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes to our internal control over financial reporting during the three months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
 
PART II — OTHER INFORMATION

Item 1. Legal Proceedings
 
The information in Part I, Note 17—Commitments and Contingencies - Legal Proceedings is incorporated herein by reference.

Item 1A. Risk Factors
 
Investment in our securities involves risk. An investor or potential investor should consider the risks summarized below and under the caption “Risk Factors” in Part I, Item 1A of our 2019 Form 10-K when making investment decisions regarding our securities. Other than as provided below, the risk factors that were disclosed in our 2019 Form 10-K have not materially changed since the date our 2019 Form 10-K was filed.

The COVID-19 pandemic has caused, and is causing, significant harm to the global economy and may adversely affect our business, including our operations and financial condition, and may cause our assets under management or administration, revenue and earnings to decline.
On March 11, 2020, the World Health Organization declared Coronavirus Disease 2019 (“COVID-19”) a pandemic disease. The COVID-19 pandemic has resulted in authorities implementing numerous measures attempting to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including closures. These measures are, among other things, severely restricting global economic activity, which is disrupting supply chains, lowering asset and equity market valuations, significantly increasing unemployment and underemployment levels, decreasing liquidity in markets for certain securities and causing significant volatility and disruption in the financial markets.
In response to COVID-19 concerns, the Company has instituted a travel ban for all of its domestic and international employees and is following mandatory stay-at-home orders where applicable. A majority of the Company's employees are working from home as a result of these mandatory stay-at-home orders. Remote work-from-home restrictions makes us more dependent on certain technologies that allow us to operate our business remotely and collaborate without face-to-face meetings both internally and with our customers. To the extent we experience a technological disruption in our work-from-home capabilities, we would anticipate a negative impact on our business operations. Further, to the extent supply chains are disrupted, it may become more difficult to provide necessary technology to our employees working from remote locations.
55


For the six months ended June 30, 2020, approximately 53% of the Company's revenues result from asset-based fee billing arrangements. These fees are generally based upon variable percentages of assets managed or administered under the Company's platforms. Approximately 90% of the Company's asset-based fee arrangements are billed at the beginning of each quarter based on the market value of customer assets on its platforms as of the end of the prior quarter. If current economic conditions deteriorate, there may be an ongoing adverse effect on our business, including our results of operations and financial condition, as a result of, among other things:
adverse equity market conditions, volatility in the financial markets and unforeseen investment trends resulting in a reduction in our asset-based fees;
a decline in new client conversions as a result of extended sales cycles and longer implementation periods as clients work remotely;
the negative impact of the pandemic on our clients and key vendors, market participants and other third-parties with whom we do business;
the disruption to our workforce due to illness and health concerns, potential limitations on our remote work environment, and government-imposed restrictions, laws and regulations.
The extent to which COVID-19, and the related global economic crisis, affect our business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties in response to the pandemic, and the effects on our products, clients, employees and vendors. If we are not able to respond to and manage the impact of such events effectively, our business, results of operations and financial condition may be materially and adversely affected.
The COVID-19 pandemic, and the related global economic crisis, could also precipitate or aggravate the other risk factors discussed in our Annual Report on Form 10-K, which could materially and adversely affect our business, results of operations and financial condition. Further, the COVID-19 pandemic may also affect our operating and financial results in a manner that is not presently known to us or that we currently do not consider to present significant risks. For additional discussion of the impacts of the COVID-19 pandemic, which could be materially adverse to our operations and financial results, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations, Recent Developments, Uncertainties Related to COVID-19” section in Item 2 of Part I of this Quarterly Report on Form 10-Q.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
(c)Issuer Purchases of Equity Securities
 
There were no purchases of equity securities made under our share repurchase program in the three months ended June 30, 2020. As of June 30, 2020, 1,956,390 of shares could still be purchased under this program.

Item 3. Defaults Upon Senior Securities
 
None.

Item 4. Mine Safety Disclosures
 
Not applicable.

Item 5. Other Information
 
None.

Item 6. Exhibits
 
(a)Exhibits
 
See the exhibit index, which is incorporated herein by reference.
56


INDEX TO EXHIBITS
Exhibit
No.
Description
31.1
31.2
32.1
32.2
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document *
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document *
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document *
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document *
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document *
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
________________________________

* The following materials are formatted in Inline XBRL (Extensible Business Reporting Language): (i) the cover page; (ii) the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019; (iii) the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019; (iv) the Condensed Consolidated Statement of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019; (v) the Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2020 and 2019; (vi) the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019; (vii) Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

57


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 10, 2020.
 
  ENVESTNET, INC.
     
  By: /s/ William C. Crager
    William C. Crager
    Chief Executive Officer
    Principal Executive Officer
     
  By: /s/ Peter H. D’Arrigo
    Peter H. D’Arrigo
    Chief Financial Officer
    Principal Financial Officer
     
  By: /s/ Matthew J. Majoros
    Matthew J. Majoros
    Senior Vice President, Financial Reporting
    Principal Accounting Officer
58
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