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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