Envestnet(ENV) - 2024 Q2 - Quarterly Results

markdown [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Envestnet reported strong top-line growth in the second quarter of 2024, with total revenue increasing 11% year-over-year to $348.3 million. While the company recorded a significant GAAP net loss of $79.2 million, primarily due to a goodwill impairment charge, its non-GAAP metrics showed robust performance. Adjusted EBITDA grew 39% to $77.8 million, and Adjusted EPS rose 20% to $0.55. The company also highlighted its pending acquisition by Bain Capital Q2 & H1 2024 Key Financial Metrics (YoY) | Key Metric (in millions, except per share) | Q2 2024 | Q2 2023 | % Change | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **GAAP** | | | | | | | | Total Revenue | $348.3 | $312.4 | 11% | $673.2 | $611.1 | 10% | | Net Loss | $(79.2) | $(21.4) | * | $(76.7) | $(62.6) | (22)% | | Net Loss per Diluted Share | $(1.44) | $(0.39) | * | $(1.39) | $(1.15) | (21)% | | **Non-GAAP** | | | | | | | | Adjusted EBITDA | $77.8 | $56.0 | 39% | $148.2 | $110.0 | 35% | | Adjusted Net Income | $36.4 | $30.4 | 20% | $75.8 | $60.5 | 25% | | Adjusted Net Income per Diluted Share | $0.55 | $0.46 | 20% | $1.14 | $0.91 | 25% | | Free Cash Flow | $67.0 | $36.7 | 83% | $47.1 | $(25.1) | * | - The company expressed its commitment to its clients and looks forward to the successful completion of its pending transaction with Bain Capital, which is expected to deliver value to shareholders[2](index=2&type=chunk) [Detailed Financial Results (Q2 2024 vs Q2 2023)](index=2&type=section&id=Detailed%20Financial%20Results%20%28Q2%202024%20vs%20Q2%202023%29) In Q2 2024, total revenue grew 11% to $348.3 million, driven by an 18% increase in asset-based recurring revenue, which now constitutes 63% of total revenue. However, total operating expenses surged 29% to $423.8 million, largely due to a one-time non-cash goodwill impairment charge of $96.3 million. This resulted in a significantly wider loss from operations of $75.5 million compared to $15.3 million in the prior-year quarter Q2 2024 Revenue Breakdown (YoY) | Revenue Type | Q2 2024 Value (M) | % of Total Revenue | YoY Change | | :--- | :--- | :--- | :--- | | Asset-based recurring | $219.5 | 63% | +18% | | Subscription-based recurring | $118.0 | 34% | +3% | | Professional services & other | $10.8 | 3% | -8% | | **Total Revenue** | **$348.3** | **100%** | **+11%** | - Total operating expenses increased by **29% YoY**, primarily driven by a non-cash goodwill impairment charge of **$96.3 million** and a **16% increase** in direct expenses. This was partially offset by an **11% decrease** in employee compensation[4](index=4&type=chunk) - The company recorded a loss from operations of **$75.5 million** and a net loss of **$79.2 million** in Q2 2024, compared to a loss from operations of **$15.3 million** and a net loss of **$21.4 million** in Q2 2023[5](index=5&type=chunk) [Balance Sheet and Liquidity](index=2&type=section&id=Balance%20Sheet%20and%20Liquidity) As of June 30, 2024, Envestnet held $122.0 million in cash and cash equivalents. The company had $892.5 million in outstanding debt, consisting of convertible notes. Its $500.0 million revolving credit facility remained undrawn, providing significant available liquidity Liquidity Position as of June 30, 2024 | Item | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $122.0 | | Outstanding Debt | $892.5 | | Revolving Credit Facility (undrawn) | $500.0 | [Segment Performance](index=12&type=section&id=Segment%20Performance) Effective October 1, 2023, the company changed its reportable segments. In Q2 2024, Envestnet Wealth Solutions was the primary revenue and profit driver, generating $312.1 million in revenue and $86.0 million in Adjusted EBITDA. Envestnet Data & Analytics generated $36.2 million in revenue but recorded a significant operating loss of $101.8 million due to a goodwill impairment charge - The company changed the composition of its reportable segments on October 1, 2023, to reflect how the chief operating decision maker reviews results and allocates resources. Prior periods have been adjusted accordingly[6](index=6&type=chunk) Q2 2024 Segment Financials (in thousands) | Segment | Total Revenue | Income (Loss) from Operations | Adjusted EBITDA | | :--- | :--- | :--- | :--- | | Envestnet Wealth Solutions | $312,108 | $53,171 | $86,039 | | Envestnet Data & Analytics | $36,165 | $(101,778) | $7,833 | [Envestnet Wealth Solutions](index=18&type=section&id=Envestnet%20Wealth%20Solutions) The Wealth Solutions segment demonstrated strong performance, with total platform assets growing to $6.27 trillion as of June 30, 2024. Total AUM/A reached $943.5 billion, reflecting positive net flows of $10.6 billion and market appreciation in Q2 2024. The segment successfully onboarded $18.2 billion in new client AUM/A conversions during the quarter Platform Assets Growth (in millions) | As of | Total AUM/A | Subscription | Total Platform Assets | | :--- | :--- | :--- | :--- | | Dec 31, 2023 | $846,847 | $4,959,514 | $5,806,361 | | Mar 31, 2024 | $923,865 | $5,158,180 | $6,082,045 | | Jun 30, 2024 | $943,457 | $5,327,939 | $6,271,396 | Q2 2024 AUM/A Rollforward (in millions) | Metric | Amount | | :--- | :--- | | AUM/A at March 31, 2024 | $923,865 | | Gross Sales | $65,315 | | Redemptions | $(54,690) | | **Net Flows** | **$10,625** | | Market Impact | $10,218 | | Reclassifications | $(1,251) | | **AUM/A at June 30, 2024** | **$943,457** | - AUM/A gross sales for Q2 2024 included **$18.2 million** in new client conversions. Total conversions for the quarter, including subscription assets, amounted to **$167.8 million**[32](index=32&type=chunk) [Envestnet Data & Analytics](index=19&type=section&id=Envestnet%20Data%20%26%20Analytics) The Data & Analytics segment's performance was mixed. While the number of paid end-users grew to 44.3 million in Q2 2024, the number of firms on the platform decreased significantly from 1,323 to 1,182 during the quarter. The segment's financial results were heavily impacted by a $96.3 million goodwill impairment charge - The segment's operating loss of **$101.8 million** in Q2 2024 was primarily due to a **$96.3 million** goodwill impairment charge[25](index=25&type=chunk) Key Metrics Trend | As of | Number of paid end-users (millions) | Number of firms | | :--- | :--- | :--- | | Dec 31, 2023 | 38.3 | 1,324 | | Mar 31, 2024 | 43.8 | 1,323 | | Jun 30, 2024 | 44.3 | 1,182 | [Key Updates and Disclosures](index=2&type=section&id=Key%20Updates%20and%20Disclosures) The company disclosed several key items, including the correction of two immaterial errors in prior period financial statements related to debt classification and lease accounting. It also issued a standard forward-looking statement caution, emphasizing risks related to the pending merger with Bain Capital, market conditions, and other operational factors - The company corrected an immaterial error where Convertible Notes due 2025 were misclassified as non-current debt due to a clerical error that caused a technical default, which has since been cured[7](index=7&type=chunk) - A second immaterial error was corrected regarding the accounting for a cloud-hosted virtual server arrangement, which was reclassified from a finance lease to a prepayment[8](index=8&type=chunk) - Forward-looking statements highlight potential risks, including the non-completion of the pending merger with Bain Capital, diversion of management's attention, and adverse economic conditions[16](index=16&type=chunk) [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements as of and for the periods ended June 30, 2024. It includes the Balance Sheets, Statements of Operations, and Statements of Cash Flows, providing a detailed view of the company's financial position and performance [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2024, total assets stood at $1.8 billion, a decrease from $1.9 billion at year-end 2023, primarily due to a reduction in goodwill. Total liabilities were $1.3 billion, and total stockholders' equity was $516.3 million Balance Sheet Summary (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $309,118 | $263,808 | | Goodwill | $690,885 | $806,563 | | **Total assets** | **$1,794,972** | **$1,877,252** | | Total current liabilities | $272,224 | $607,066 | | Debt, net of current portion | $879,079 | $562,080 | | **Total liabilities** | **$1,278,625** | **$1,302,746** | | **Total stockholders' equity** | **$516,347** | **$568,191** | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the second quarter of 2024, Envestnet generated $348.3 million in total revenue. The company reported a net loss attributable to Envestnet of $79.2 million, or ($1.44) per diluted share, which includes a $96.3 million goodwill impairment charge and a $19.5 million gain on deconsolidation Q2 Statement of Operations Summary (in thousands) | Account | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total revenue | $348,273 | $312,434 | | Total operating expenses | $423,820 | $327,746 | | Loss from operations | $(75,547) | $(15,312) | | **Net loss attributable to Envestnet, Inc.** | **$(79,201)** | **$(21,416)** | | **Net loss per share (diluted)** | **$(1.44)** | **$(0.39)** | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2024, net cash provided by operating activities was $91.1 million, a significant increase from $38.5 million in the prior-year period. After accounting for capital expenditures, free cash flow was $47.1 million, reversing a negative flow of $25.1 million from the first half of 2023 Six Months Cash Flow Summary (in thousands) | Cash Flow Activity | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,054 | $38,476 | | Net cash used in investing activities | $(61,051) | $(96,667) | | Net cash provided by (used in) financing activities | $584 | $(48,596) | | **Net change in cash and cash equivalents** | **$30,589** | **$(103,154)** | [Non-GAAP Financial Measures and Reconciliations](index=9&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Reconciliations) This section details the company's non-GAAP financial measures, which management believes provide a clearer picture of core operating performance. It provides definitions for measures such as Adjusted EBITDA and Adjusted Net Income, and reconciles them to the nearest GAAP figures. Key adjustments include excluding goodwill impairment, non-cash compensation, and amortization of acquired intangibles - Adjusted EBITDA is calculated by taking net loss and adding back items such as interest, taxes, depreciation, amortization, goodwill impairment, non-cash compensation, and other specified expenses[11](index=11&type=chunk) - Free cash flow is defined as net cash provided by operating activities less purchases of property and equipment and capitalization of internally developed software[13](index=13&type=chunk) Q2 2024 Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Description | Amount | | :--- | :--- | | Net loss | $(79,201) | | Goodwill impairment | $96,269 | | Depreciation and amortization | $45,733 | | Non-cash compensation expense | $17,822 | | Gain on deconsolidation | $(19,523) | | Other adjustments (net) | $16,709 | | **Adjusted EBITDA** | **$77,809** |