Envestnet(US:ENV)2024-08-09 16:06PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The company's Q2 net loss widened to $79.2 million due to a goodwill impairment, despite an 11% revenue growth Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,794,972 | $1,877,252 | | Goodwill | $690,885 | $806,563 | | Total current assets | $309,118 | $263,808 | | Total Liabilities | $1,278,625 | $1,302,746 | | Debt, net of current portion | $879,079 | $562,080 | | Total current liabilities | $272,224 | $607,066 | | Total Equity | $516,347 | $574,506 | Q2 2024 vs Q2 2023 Performance (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Revenue | $348,273 | $312,434 | | Asset-based Revenue | $219,485 | $185,762 | | Subscription-based Revenue | $117,988 | $114,959 | | Total Operating Expenses | $423,820 | $327,746 | | Goodwill Impairment | $96,269 | $0 | | Loss from Operations | $(75,547) | $(15,312) | | Net Loss | $(79,201) | $(23,132) | | Net Loss Per Share (Basic & Diluted) | $(1.44) | $(0.39) | Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2024 | 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) | | Cash and cash equivalents, end of period | $121,967 | $59,019 | - A clerical error led to a technical event of default on the Convertible Notes due 2025, which required reclassification of $314.5 million of debt to current in the prior year's balance sheet1343197 - A $96.3 million non-cash goodwill impairment charge was recognized for the Envestnet Data & Analytics segment due to a strategic shift in business priorities3592 - Effective April 1, 2024, the company deconsolidated a private company investment after losing majority board representation, resulting in a $19.5 million non-cash gain3793 - On July 11, 2024, Envestnet entered into a merger agreement to be acquired by affiliates of Bain Capital for $63.15 per share in cash798188 - The company is involved in ongoing legal proceedings, including a lawsuit by FinancialApps, LLC and a class action lawsuit related to its subsidiary Yodlee, believing the allegations are without merit737678 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights 11% Q2 revenue growth offset by a large goodwill impairment, while discussing the pending Bain Capital merger - On July 11, 2024, Envestnet agreed to be acquired by affiliates of Bain Capital for $63.15 per share, with the merger expected to close in Q4 20248891 - A strategic shift in the Data & Analytics segment led to a $96.3 million goodwill impairment charge as of June 30, 202492 - James Fox became Interim Chief Executive Officer on April 1, 2024, following the departure of the previous CEO95 Envestnet Wealth Solutions Platform Key Metrics (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Total Platform Assets | $6.27 trillion | | Total AUM/A | $943.5 billion | | Total Platform Accounts | 19.4 million | | Total Advisors | 110,052 | Envestnet Data & Analytics Platform Key Metrics (as of June 30, 2024) | Metric | Value | | :--- | :--- | | Number of paid end-users | 44.3 million | | Number of firms | 1,182 | Consolidated Revenue and Net Loss (Q2 2024 vs Q2 2023, in thousands) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $348,273 | $312,434 | 11% | | Asset-based Revenue | $219,485 | $185,762 | 18% | | Subscription-based Revenue | $117,988 | $114,959 | 3% | | Loss from Operations | $(75,547) | $(15,312) | * | | Net Loss | $(79,201) | $(21,416) | * | - The $96.3 million goodwill impairment was the primary driver of the increased net loss in Q2 2024118 - Depreciation and amortization expense increased 43% YoY, mainly due to a $12.9 million write-off of net capitalized internally developed software costs94117 Segment Revenue and Operating Income (Loss) (Q2 2024, in thousands) | Segment | Total Revenue | Change (%) | Income (Loss) from Operations | | :--- | :--- | :--- | :--- | | Envestnet Wealth Solutions | $312,108 | 13% | $53,171 | | Envestnet Data & Analytics | $36,165 | (1)% | $(101,778) | Non-GAAP Performance (Q2 2024 vs Q2 2023, in thousands) | Metric | Q2 2024 | Q2 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Adjusted EBITDA | $77,809 | $56,044 | 39% | | Adjusted Net Income | $36,360 | $30,391 | 20% | | Adjusted Net Income per Diluted Share | $0.55 | $0.46 | 20% | Free Cash Flow (Six Months Ended June 30, in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,054 | $38,476 | | Free Cash Flow | $47,131 | $(25,060) | - Major adjustments to reconcile GAAP Net Loss to Adjusted EBITDA include adding back goodwill impairment ($96.3M), depreciation & amortization ($45.7M), and non-cash compensation ($17.8M), while subtracting a gain on deconsolidation ($19.5M)187 - The company had $122.0 million in cash and cash equivalents and $500.0 million available under its Revolving Credit Facility as of June 30, 2024198 - A technical event of default on the 2025 Convertible Notes due to a clerical error was fully cured in August 2024, bringing the company back into compliance with all debt covenants197 - Net cash from operating activities for the first six months of 2024 was $91.1 million, a $52.6 million increase from the same period in 2023, primarily due to improved business operations198200 - Net cash used in investing activities decreased by $35.6 million YoY, mainly due to lower capital expenditures and no large loans to private companies as in the prior year202 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market, foreign currency, or interest rate risks since year-end 2023 - There have been no material changes to the company's market, foreign currency, or interest rate risks since the last Annual Report205 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - As of June 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective207 - No material changes were made to the internal control over financial reporting during the six months ended June 30, 2024208 PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is defending several lawsuits but believes a material loss is not probable and has recorded no accrual - The company is defending against a lawsuit from FinancialApps, LLC, which alleges breach of contract and misappropriation of trade secrets73209 - A putative class action lawsuit (Clark, et al., v. Yodlee, Inc.) alleges unlawful collection and sale of financial transaction data7677 - The company has not recorded any accrual for legal claims as of June 30, 2024, believing that while a loss is possible, it is not probable or reasonably estimable78 Item 1A. Risk Factors Key risks stem from the pending Bain Capital merger, including business uncertainty and potential transaction failure - The pending merger with Bain Capital introduces significant risks, including business uncertainty, contractual restrictions, and potential harm to customer and employee relationships210211 - Failure to complete the merger could adversely affect the business and stock price, and may require Envestnet to pay a termination fee of $90.65 million under certain circumstances213214 - The merger process requires substantial costs and management resources, and the company is at risk of stockholder litigation that could delay or prevent the transaction216218 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in the first half of 2024, with 0.3 million shares remaining under the authorized program - No shares were repurchased during the six months ended June 30, 2024222 - As of June 30, 2024, 0.3 million shares are still available for purchase under the existing share repurchase program222 Item 6. Exhibits Filed exhibits include the definitive merger agreement with Bain Capital and required CEO/CFO certifications - Key exhibits filed include the merger agreement with BCPE Pequod Buyer, Inc. (an affiliate of Bain Capital)224