Envestnet(ENV) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Envestnet, Inc., including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes providing context on accounting policies, segment information, and key financial components Condensed Consolidated Balance Sheets The company's total assets slightly decreased from $1,877.25 million at December 31, 2023, to $1,864.05 million at March 31, 2024. Total liabilities also decreased, while total equity increased, primarily driven by an increase in additional paid-in capital and a reduction in accumulated deficit | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $1,864,045 | $1,877,252 | | Total Liabilities | $1,266,727 | $1,302,746 | | Total Equity | $597,318 | $574,506 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2024, the company reported a significant turnaround from a net loss of $42.76 million in the prior year to a net income of $0.54 million, primarily driven by increased asset-based revenue and reduced operating expenses, particularly employee compensation and general & administrative costs | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Total Revenue | $324,950 | $298,707 | $26,243 | 9% | | Income (loss) from operations | $8,708 | $(11,057) | $19,765 | N/A | | Net income (loss) | $539 | $(42,761) | $43,300 | 101% | | Net income (loss) attributable to Envestnet, Inc. per share (Basic) | $0.05 | $(0.76) | $0.81 | 107% | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive income of $2.51 million for the three months ended March 31, 2024, a significant improvement from a comprehensive loss of $36.95 million in the same period last year, mainly due to the shift from net loss to net income | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net income (loss) attributable to Envestnet, Inc. | $2,513 | $(41,228) | | Total other comprehensive income (loss), net of tax | $(4) | $4,277 | | Comprehensive income (loss) attributable to Envestnet, Inc. | $2,509 | $(36,951) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity attributable to Envestnet, Inc. increased from $568.19 million at December 31, 2023, to $580.90 million at March 31, 2024, primarily due to net income, stock-based compensation expense, and capital contributions from non-controlling interests, partially offset by treasury stock purchases for tax withholdings | Metric | December 31, 2023 (in thousands) | March 31, 2024 (in thousands) | | :------------------------------------------ | :----------------------------- | :---------------------------- | | Total stockholders' equity, attributable to Envestnet, Inc. | $568,191 | $580,897 | | Non-controlling interest | $6,315 | $16,421 | | Total equity | $574,506 | $597,318 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $1.94 million for Q1 2024 from a use of $33.67 million in Q1 2023. Net cash used in investing activities decreased by $34.1 million, and net cash provided by financing activities turned positive, increasing by $24.3 million, primarily due to capital contributions and reduced share repurchases | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $1,944 | $(33,673) | | Net cash used in investing activities | $(24,658) | $(58,756) | | Net cash provided by (used in) financing activities | $3,637 | $(20,660) | | Net change in cash and cash equivalents | $(30,152) | $(109,509) | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's accounting policies, financial statement components, segment information, and commitments and contingencies, offering crucial context for the unaudited condensed consolidated financial statements Note 1. Organization and Description of Business Envestnet aims to transform financial advice delivery by empowering advisors with technology, solutions, and intelligence, expanding a holistic financial wellness ecosystem. The company operates through two segments: Envestnet Wealth Solutions and Envestnet Data & Analytics - Envestnet's mission is to empower financial advisors and service providers with innovative technology, solutions, and intelligence to transform wealth management and expand a holistic financial wellness ecosystem[19] - The company is organized into two business segments: Envestnet Wealth Solutions and Envestnet Data & Analytics[20] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed consolidated financial statements, including segment reporting changes, correction of an immaterial error in prior periods, policies for assets held for sale, use of estimates, reclassifications, related party transactions, and recently adopted and not-yet-adopted accounting pronouncements - The company changed its reportable segments on October 1, 2023, to align with how the chief operating decision maker reviews operating results and allocates resources[25] - An immaterial error in accounting for cloud-hosted virtual servers was corrected, reclassifying it from a finance lease to a prepayment, impacting direct expense, general and administrative expense, and depreciation and amortization for Q1 2023[28][29] - The company adopted ASU 2023-01 (Leases) as of January 1, 2024, with no material impact, and is analyzing ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Taxes), and ASU 2024-01 (Stock Compensation), none of which are expected to have a material impact. The SEC's climate-related disclosure rules (effective FY2025) are also being analyzed[34][35][37][38][39][40] Note 3. Assets and Liabilities Held for Deconsolidation As of March 31, 2024, Envestnet classified assets and liabilities of a private company as held for deconsolidation, as it will no longer hold a controlling financial interest effective April 1, 2024. This will result in derecognition of these balances and potential recognition of a gain in Q2 2024 - Envestnet classified $55.02 million in assets and $9.00 million in liabilities of a private company as held for deconsolidation as of March 31, 2024, due to losing controlling financial interest effective April 1, 2024[42][43] | Item | March 31, 2024 (in thousands) | | :------------------------------------------ | :----------------------------- | | Total assets held for deconsolidation | $55,016 | | Total liabilities held for deconsolidation | $8,998 | Note 4. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased to $53.33 million as of March 31, 2024, from $51.47 million at December 31, 2023, primarily due to an increase in prepaid technology and Elevate Summit prepayments | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Prepaid technology | $17,275 | $14,630 | | Elevate Summit prepayments and deposits | $3,932 | $773 | | Total prepaid expenses and other current assets | $53,330 | $51,472 | Note 5. Internally Developed Software, Net Net internally developed software decreased to $214.51 million as of March 31, 2024, from $224.71 million at December 31, 2023, reflecting ongoing amortization | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Internally developed software, net | $214,507 | $224,713 | Note 6. Geographical Information The majority of the company's long-lived assets are located in the United States, totaling $259.09 million as of March 31, 2024, with a smaller portion in India | Region | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------- | :----------------------------- | :----------------------------- | | United States | $259,085 | $270,381 | | India | $2,278 | $2,555 | | Total long-lived assets, net | $261,363 | $272,936 | Note 7. Intangible Assets, Net Net intangible assets decreased to $323.33 million as of March 31, 2024, from $338.07 million at December 31, 2023, primarily due to amortization, with customer lists and proprietary technologies being the largest components | Item | March 31, 2024 (Net Carrying Amount, in thousands) | December 31, 2023 (Net Carrying Amount, in thousands) | | :---------------------- | :--------------------------------------------- | :--------------------------------------------- | | Customer lists | $267,107 | $277,038 | | Proprietary technologies | $51,582 | $56,006 | | Trade names | $4,637 | $5,024 | | Total intangible assets | $323,326 | $338,068 | | Year | Estimated Future Amortization Expense (in thousands) | | :---------------- | :------------------------------------------- | | Remainder of 2024 | $42,626 | | 2025 | $53,973 | | 2026 | $46,448 | | 2027 | $37,672 | | 2028 | $30,296 | | Thereafter | $112,311 | | Total | $323,326 | Note 8. Depreciation and Amortization Expense Total depreciation and amortization expense increased by 8% to $33.89 million for Q1 2024 compared to Q1 2023, driven by higher internally developed software amortization, partially offset by lower intangible asset amortization | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | % Change | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | :------- | | Internally developed software amortization | $15,868 | $11,090 | $4,778 | 43% | | Intangible asset amortization | $14,742 | $16,940 | $(2,198) | (13)% | | Total depreciation and amortization | $33,892 | $31,520 | $2,372 | 8% | Note 9. Goodwill Goodwill decreased to $779.92 million as of March 31, 2024, from $806.56 million at December 31, 2023, primarily due to a reclassification of $26.65 million to assets held for deconsolidation. A qualitative impairment assessment was performed, and no impairment was recorded | Segment | December 31, 2023 (in thousands) | March 31, 2024 (in thousands) | | :------------------------ | :----------------------------- | :----------------------------- | | Envestnet Wealth Solutions | $710,326 | $683,679 | | Envestnet Data & Analytics | $96,237 | $96,237 | | Total Goodwill | $806,563 | $779,916 | - Goodwill reclassified to assets held for deconsolidation amounted to $26.65 million, primarily impacting the Envestnet Wealth Solutions segment[53] Note 10. Other Assets The company holds a $20.0 million Convertible Promissory Note with a private company, accounted for as a loan receivable. Interest income from this note was $0.4 million for Q1 2024, with no impairment recorded - The company holds a $20.0 million Convertible Promissory Note with a private company, generating $0.4 million in interest income for Q1 2024[55] - No impairment was recorded for the Convertible Promissory Note during the three months ended March 31, 2024[56] Note 11. Accounts Payable, Accrued Expenses and Other Current Liabilities Total accounts payable, accrued expenses, and other current liabilities decreased to $201.13 million as of March 31, 2024, from $241.42 million at December 31, 2023, primarily due to a decrease in accrued compensation and accounts payable. The company also has a $7.16 million liability related to a reduction in force initiative | Item | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Accrued investment manager fees | $116,092 | $106,612 | | Accrued compensation and related taxes | $36,603 | $72,466 | | Accounts payable | $22,765 | $35,738 | | Total accounts payable, accrued expenses and other current liabilities | $201,126 | $241,424 | - A liability of $7.16 million as of March 31, 2024, is primarily related to a reduction in force initiative that began in Q1 2023, with payments anticipated through 2030[57][59] Note 12. Debt The company's total debt, primarily consisting of Convertible Notes due 2025 and 2027, increased slightly to $877.84 million as of March 31, 2024, from $876.61 million at December 31, 2023. The company was in compliance with all Revolving Credit Facility covenants as of March 31, 2024, after receiving a waiver for prior non-compliance | Debt Type | March 31, 2024 (Carrying Value, in thousands) | December 31, 2023 (Carrying Value, in thousands) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Convertible Notes due 2025 | $314,986 | $314,532 | | Convertible Notes due 2027 | $562,856 | $562,080 | | Total debt | $877,842 | $876,612 | - The company has a $500.0 million Revolving Credit Facility with no outstanding amounts as of March 31, 2024[62][184] - A waiver was obtained on February 20, 2024, for non-compliance with the Total Leverage Ratio financial covenant for Q1 and Q2 2023, and the company was in compliance with all other covenants as of March 31, 2024[65] Interest Expense Total interest expense decreased by 3.7% to $6.09 million for Q1 2024 compared to Q1 2023, primarily due to lower Convertible Notes interest and amortization of debt discount and issuance costs | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Convertible Notes interest | $4,369 | $4,565 | | Amortization of debt discount and issuance costs | $1,405 | $1,442 | | Total interest expense | $6,089 | $6,320 | Note 13. Fair Value Measurements The company's financial assets and liabilities measured at fair value include money market funds (Level I) and assets to fund deferred compensation liability (Level III). Convertible Notes are classified as Level II liabilities | Item | March 31, 2024 (Fair Value, in thousands) | December 31, 2023 (Fair Value, in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Money market funds (Level I) | $30,347 | $51,653 | | Assets to fund deferred compensation liability (Level III) | $11,373 | $10,961 | | Deferred compensation liability (Level I) | $9,291 | $8,045 | Fair Value of Assets Used to Fund the Deferred Compensation Liability The fair value of assets used to fund deferred compensation liability increased to $11.37 million as of March 31, 2024, from $10.96 million at December 31, 2023, measured using the cash surrender value of life insurance premiums (Level III) - The fair value of assets used to fund deferred compensation liability increased to $11.37 million as of March 31, 2024, measured using the cash surrender value of life insurance premiums (Level III)[70] Fair Value of Debt Agreements Convertible Notes are considered Level II liabilities, with fair values determined based on market bids and offers - Convertible Notes are classified as Level II liabilities, with fair values determined based on estimated or actual bids and offers in an over-the-counter market[71] Fair Value of Other Financial Assets and Liabilities The recorded values of other financial assets and liabilities (cash, receivables, payables) approximate their fair values due to their short-term nature - The recorded value of other financial assets and liabilities, such as cash and cash equivalents, accounts receivable, and accounts payable, approximates their fair value due to their short-term nature[72] Note 14. Revenue and Direct Expense This note disaggregates revenue by segment and geography, details remaining performance obligations, contract balances, deferred sales incentive compensation, and direct expenses by revenue category Disaggregation of Revenue Total revenue increased by 9% to $324.95 million for Q1 2024, with asset-based revenue growing 15% and subscription-based revenue remaining flat. The majority of revenue is from the United States | Revenue Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Asset-based | $202,616 | $176,932 | | Subscription-based | $117,462 | $117,079 | | Total recurring revenue | $320,078 | $294,011 | | Professional services and other revenue | $4,872 | $4,696 | | Total revenue | $324,950 | $298,707 | | Geography | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------------- | :--------------------------------------------- | :--------------------------------------------- | | United States | $319,571 | $293,214 | | International | $5,379 | $5,493 | Remaining Performance Obligations As of March 31, 2024, estimated future revenue from remaining performance obligations is approximately $554.5 million, with 31% expected in the remainder of 2024 and 50% in 2025-2026 - Estimated revenue from remaining performance obligations is approximately $554.5 million as of March 31, 2024, with 31% expected in the remainder of 2024 and 50% in 2025-2026[75] Contract Balances Deferred revenue decreased by $4.1 million from December 31, 2023, primarily due to timing of cash receipts and revenue recognition, with most expected to be recognized within the next twelve months - Deferred revenue decreased by $4.1 million from December 31, 2023, primarily due to timing of cash receipts and revenue recognition, with the majority expected to be recognized over the next twelve months[76] Deferred Sales Incentive Compensation Deferred sales incentive compensation was $11.3 million as of March 31, 2024, with amortization expense of $1.2 million for Q1 2024 - Deferred sales incentive compensation was $11.3 million as of March 31, 2024, with amortization expense of $1.2 million for the three months ended March 31, 2024[78][80] Direct Expense Total direct expense increased by 15% to $126.63 million for Q1 2024, primarily driven by a rise in asset-based direct expense, correlating with increased asset-based recurring revenue | Expense Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------------- | :--------------------------------------------- | :--------------------------------------------- | | Asset-based | $118,403 | $102,623 | | Subscription-based | $8,230 | $7,052 | | Total direct expense | $126,633 | $109,679 | Note 15. Stock-Based Compensation Stock-based compensation expense decreased slightly to $18.90 million for Q1 2024. The company has outstanding stock options, RSUs, and PSUs, with significant unrecognized compensation expense for RSUs and PSUs | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Stock-based compensation expense | $18,898 | $19,453 | Stock Options As of March 31, 2024, there were 181,947 stock options outstanding and exercisable, with an aggregate intrinsic value of $2.22 million. No unrecognized stock-based compensation expense remains for stock options - As of March 31, 2024, 181,947 stock options were outstanding and exercisable, with an aggregate intrinsic value of $2.22 million[84] - There was no unrecognized stock-based compensation expense related to stock options as of March 31, 2024[84] Restricted Stock Units and Performance Stock Units As of March 31, 2024, there was $112.4 million of unrecognized stock-based compensation expense for RSUs and $4.0 million for PSUs, expected to be recognized over a weighted-average period of 2.1 years for both - As of March 31, 2024, unrecognized stock-based compensation expense for RSUs was $112.4 million, and for PSUs was $4.0 million, both expected to be recognized over a weighted-average period of 2.1 years[85] Note 16. Income Taxes The effective tax rate for Q1 2024 was 73.6%, significantly different from the statutory rate primarily due to valuation allowance on U.S. deferred tax assets, IRC Section 174 impact, permanent book-tax differences, and uncertain tax positions. The company does not anticipate a material impact from Pillar Two legislation | Item | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Income (loss) before income tax provision | $2,044 | $(18,992) | | Income tax provision | $1,505 | $23,769 | | Effective tax rate | 73.6% | (125.2)% | - The effective tax rate differed from the statutory rate primarily due to the increase in valuation allowance on U.S. deferred tax assets, impact of IRC Section 174, permanent book-tax differences, uncertain tax positions, and state/local taxes offset by R&D credits[87] - The company does not currently anticipate a material impact from Pillar Two legislation, effective January 1, 2024, in certain operating countries[141] Note 17. Net Income (Loss) Per Share Basic and diluted net income per share attributable to Envestnet, Inc. was $0.05 for Q1 2024, a significant improvement from a loss of $0.76 per share in Q1 2023 | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net income (loss) attributable to Envestnet, Inc. per share (Basic) | $0.05 | $(0.76) | | Net income (loss) attributable to Envestnet, Inc. per share (Diluted) | $0.05 | $(0.76) | | Basic weighted average common shares outstanding | 54,884,074 | 54,143,259 | | Diluted weighted average common shares outstanding | 55,385,066 | 54,143,259 | Note 18. Segment Information Envestnet operates through two segments: Envestnet Wealth Solutions and Envestnet Data & Analytics. The Wealth Solutions segment reported a significant increase in income from operations, while Data & Analytics reduced its loss. Nonsegment operating expenses decreased - Envestnet Wealth Solutions provides comprehensive wealth management software, services, and solutions to financial advisors and institutions[92] - Envestnet Data & Analytics offers financial data aggregation, analytics, and digital experiences to financial institutions, FinTech firms, and market investment research firms[92] | Segment | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Envestnet Wealth Solutions (Income from operations) | $38,930 | $22,598 | | Envestnet Data & Analytics (Loss from operations) | $(5,739) | $(6,915) | | Nonsegment operating expenses | $(24,483) | $(26,740) | | Consolidated total assets (Wealth Solutions) | $1,550,105 | $1,562,600 | | Consolidated total assets (Data & Analytics) | $313,940 | $314,652 | Note 19. Commitments and Contingencies The company has various purchase obligations and indemnification clauses, but no material payments are anticipated. It is involved in two significant legal proceedings: a lawsuit by FinancialApps alleging breach of contract and trade secret misappropriation, and a class action lawsuit by Clark et al. against Yodlee regarding data collection. The company believes these allegations are without merit and has not recorded any accruals for potential losses - The company has various indemnification and guarantee clauses but does not anticipate material payments and has not recorded contingent liabilities[95] - Envestnet and its subsidiary Yodlee are defendants in a lawsuit by FinancialApps alleging breach of contract, trade secret misappropriation, and other claims, seeking significant monetary damages[98][99][100] - Yodlee is a defendant in a putative class action lawsuit (Clark, et al., v. Yodlee, Inc.) alleging unlawful collection and sale of financial transaction data. Envestnet was dismissed from this lawsuit[101][103][104] - The company believes the allegations in both legal proceedings are without merit and has not recorded any accruals for potential losses, though 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[100][104][105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2024, including an overview of the business, detailed analysis of consolidated and segment-level performance, non-GAAP financial measures, and a discussion of liquidity and capital resources Forward-Looking Statements This section contains forward-looking statements based on current expectations and projections, which involve risks and uncertainties. Investors are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to update them - The report contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from expectations[107][108] Overview Envestnet is a leader in wealth management technology, empowering financial advisors and service providers with innovative solutions. It serves over 109,000 advisors and major financial institutions, aiming to expand a holistic financial wellness ecosystem. Recent developments include a CEO transition and factors affecting operating results - Envestnet's mission is to empower financial advisors and service providers with innovative technology, solutions, and intelligence to transform wealth management[110] - The company serves over 109,000 advisors, 17 of the 20 largest U.S. banks, 48 of the 50 largest wealth management and brokerage firms, and over 500 large RIAs[111] - James Fox began serving as Interim Chief Executive Officer on April 1, 2024, following the stepping down of Mr. Crager[113] Recent Developments William Crager stepped down as CEO on March 31, 2024, and James Fox was appointed Interim CEO on April 1, 2024 - Mr. Crager stepped down as CEO on March 31, 2024, and James Fox was appointed Interim Chief Executive Officer on April 1, 2024[113] Operating Results The company reported a loss from operations and before income tax provision in most quarters from Q4 2021 to Q4 2023, with exceptions in Q3 2023 and Q1 2024. This was due to market downturns affecting asset-based revenue, competitive pricing in Data & Analytics, and non-recurring expenses from strategic initiatives like office closures and workforce reductions - The company experienced quarterly losses from Q4 2021 to Q4 2023 (except Q3 2023 and Q1 2024) due to financial market downturns, high redemption rates, competitive pricing in Data & Analytics, and non-recurring expenses from strategic initiatives[114][115][116] - Asset-based recurring revenue has been steadily increasing since Q1 2023, while subscription-based recurring revenue in Data & Analytics has been adversely affected by competitive pricing pressures[115] Segments Envestnet operates two segments: Envestnet Wealth Solutions, providing wealth management software and services, and Envestnet Data & Analytics, offering financial data aggregation and analytics. Nonsegment expenses cover corporate and non-operational costs - Envestnet Wealth Solutions provides comprehensive wealth management software, services, and solutions[119] - Envestnet Data & Analytics provides financial data aggregation, analytics, and digital experiences[119] - The company changed its reportable segments on October 1, 2023, with prior periods adjusted for comparability[120] Key Metrics Total Platform Assets reached $6.08 billion as of March 31, 2024, an increase from $5.81 billion at December 31, 2023. AUM/A increased to $923.87 million, driven by net flows and market impact. The number of paying users in Data & Analytics increased to 43.8 million | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------- | :----------------------------- | :----------------------------- | | Total Platform Assets | $6,082,045 | $5,806,361 | | Total AUM/A | $923,865 | $846,847 | | Total Advisors | 109,076 | 108,670 | | Metric | Three Months Ended March 31, 2024 (in thousands) | | :---------------- | :------------------------------------------- | | AUM Net Flows | $12,526 | | AUA Net Flows | $20,194 | | Total AUM/A Net Flows | $32,720 | | Total AUM/A Market Impact | $45,377 | | New client conversions (AUM/A) | $29,800 | | Subscription conversions | $31,100 | | Total conversions | $60,900 | | Metric | March 31, 2024 (in millions/firms) | December 31, 2023 (in millions/firms) | | :-------------------- | :-------------------------------- | :-------------------------------- | | Number of paying users | 43.8 | 38.3 | | Number of firms | 1,323 | 1,324 | Results of Operations The company achieved a 9% increase in total revenue for Q1 2024 compared to Q1 2023, reaching $324.95 million, driven by a 15% rise in asset-based recurring revenue. Operating expenses increased by 2%, but net income attributable to Envestnet, Inc. significantly improved from a loss of $41.23 million to a gain of $2.51 million | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total revenue | $324,950 | $298,707 | | Total operating expenses | $316,242 | $309,764 | | Income (loss) from operations | $8,708 | $(11,057) | | Net income (loss) attributable to Envestnet, Inc. | $2,513 | $(41,228) | Consolidated Results Consolidated revenue growth was primarily driven by a 15% increase in asset-based recurring revenue, while subscription-based revenue remained flat due to growth in Wealth Solutions offset by declines in Data & Analytics. Operating expenses saw a decrease in employee compensation and general & administrative costs, contributing to the improved operating income | Revenue Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Asset-based recurring revenue | $202,616 | $176,932 | | Subscription-based recurring revenue | $117,462 | $117,079 | | Professional services and other revenue | $4,872 | $4,696 | | Expense Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Direct expense | $126,633 | $109,679 | | Employee compensation | $103,652 | $114,215 | | General and administrative | $52,065 | $54,350 | | Depreciation and amortization | $33,892 | $31,520 | Segment Results The Wealth Solutions segment saw a 72% increase in income from operations, driven by asset-based revenue growth and reduced employee compensation. The Data & Analytics segment reduced its operating loss by 17%, despite a decline in subscription-based revenue, due to significant reductions in employee compensation. Nonsegment operating expenses decreased by 8% Envestnet Wealth Solutions The Wealth Solutions segment's total revenue increased by 11% to $289.81 million, primarily due to a 15% rise in asset-based recurring revenue. Income from operations surged by 72% to $38.93 million, benefiting from reduced employee compensation and efficient direct expense management | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total revenue | $289,810 | $260,649 | | Asset-based recurring revenue | $202,616 | $176,932 | | Subscription-based recurring revenue | $84,168 | $80,470 | | Income from operations | $38,930 | $22,598 | | Expense Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Direct expense | $119,834 | $104,405 | | Employee compensation | $75,196 | $79,047 | Envestnet Data & Analytics The Data & Analytics segment's total revenue decreased by 8% to $35.14 million, primarily due to a 9% decline in subscription-based recurring revenue from data access loss and regional banking crisis impacts. Despite increased direct expenses, the operating loss improved by 17% to $(5.74) million, largely due to a significant 39% reduction in employee compensation | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Total revenue | $35,140 | $38,058 | | Subscription-based recurring revenue | $33,294 | $36,609 | | Loss from operations | $(5,739) | $(6,915) | | Expense Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Direct expense | $6,799 | $5,274 | | Employee compensation | $11,692 | $19,242 | | General and administrative | $15,314 | $14,429 | Nonsegment Nonsegment operating expenses decreased by 8% to $24.48 million for Q1 2024, primarily due to a $3.1 million reduction in general and administrative expenses, driven by lower governance-related expenses and restructuring charges. Employee compensation, however, increased by $0.8 million due to higher severance expense | Expense Type | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Employee compensation | $16,764 | $15,926 | | General and administrative | $7,719 | $10,814 | | Nonsegment operating expenses | $24,483 | $26,740 | Non-GAAP Financial Measures The company provides non-GAAP financial measures, including Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Diluted Share, and Free Cash Flow, to offer greater transparency into operating performance by excluding non-cash or non-recurring items. These measures are used by management for performance assessment, planning, resource allocation, and compensation decisions - Non-GAAP measures (Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Diluted Share, Free Cash Flow) are used to enhance understanding of operating performance by excluding non-cash or non-recurring items[166] - Adjusted EBITDA represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, income tax provision, depreciation and amortization, non‑cash compensation expense, restructuring charges and transaction costs, severance expense, litigation, regulatory and other governance related expenses, foreign currency, non-income tax expense adjustment, loss allocations from equity method investments and loss attributable to non‑controlling interest[166] - Free cash flow represents net cash provided by (used in) operating activities less purchases of property and equipment and capitalization of internally developed software[168] | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Adjusted EBITDA | $70,378 | $54,003 | | Adjusted net income | $39,407 | $30,149 | | Adjusted net income per diluted share | $0.60 | $0.46 | | Free cash flow | $(19,909) | $(61,739) | Liquidity and Capital Resources The company's primary liquidity sources are cash from operations and external capital. It believes existing cash and operating cash flows will be sufficient for the next twelve months and beyond, despite the first quarter typically being the lowest for operating cash. Net cash provided by operating activities significantly improved, while investing and financing activities also saw positive shifts - Primary liquidity sources include cash from operating activities and access to external capital[181] - The company believes existing cash and cash generated from operations will be sufficient to fund current operations, capital expenditures, and debt service obligations for the next twelve months and beyond[182] - The first quarter typically has the lowest cash provided by operating activities due to annual bonus payments and prepayments for the Advisor Summit[181] | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $61,226 | $91,378 | | Revolving Credit Facility (available) | $500,000 | $500,000 | Cash Flows Net cash provided by operating activities increased by $35.6 million, net cash used in investing activities decreased by $34.1 million, and net cash provided by financing activities increased by $24.3 million for Q1 2024 compared to Q1 2023 | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $1,944 | $(33,673) | | Net cash used in investing activities | $(24,658) | $(58,756) | | Net cash provided by (used in) financing activities | $3,637 | $(20,660) | Commitments and Off-Balance Sheet Arrangements The company has purchase obligations and indemnification clauses, as detailed in Note 19, and performance bonuses related to the Redi2 acquisition, which were immaterial for Q1 2024 - The company has purchase obligations and indemnification clauses, as detailed in Note 19, and performance bonuses related to the Redi2 acquisition, which were immaterial for Q1 2024[189] Critical Accounting Policies and Estimates The preparation of financial statements requires significant judgments and estimates, particularly for revenue recognition, goodwill and intangible asset impairment, and income taxes, as detailed in Note 2 and the Annual Report - Significant judgments and estimates are required for financial statement preparation, particularly for revenue recognition, impairment of goodwill and acquired intangible assets, and income taxes[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's market, foreign currency, or interest rate risks as discussed in its Annual Report - No material changes to market, foreign currency, or interest rate risks have occurred since the Annual Report[192] Item 4. Controls and Procedures Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024. There were no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2024[194] - There were no material changes to internal control over financial reporting during the three months ended March 31, 2024[195] PART II - OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, exhibits, glossary of terms, and signatures Item 1. Legal Proceedings This section incorporates by reference the legal proceedings details from Note 19, which include lawsuits by FinancialApps and Clark et al. against Yodlee - Legal proceedings information is incorporated by reference from Note 19—Commitments and Contingencies, Legal Proceedings[197] Item 1A. Risk Factors Investment in the company's securities involves risks, which are summarized here and detailed in the Annual Report. No material changes to risk factors have occurred since the Annual Report filing - Investment in the company's securities involves risks, and the risk factors disclosed in the Annual Report have not materially changed[198] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company has a share repurchase program authorized for up to 2.0 million shares, with 0.3 million shares remaining available as of March 31, 2024. No shares were repurchased during Q1 2024 - The company has a share repurchase program authorized for up to 2.0 million shares[199] - As of March 31, 2024, 0.3 million shares are still available for repurchase under the program[200] - No purchases of equity securities were made under the share repurchase program during the three months ended March 31, 2024[200] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities were reported[201] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[202] Item 5. Other Information No other information is reported in this section - No other information was reported in this section[203] Item 6. Exhibits This section refers to the exhibit index for a list of all exhibits filed with the report - A list of exhibits is provided in the exhibit index[204] Glossary of Terms This section provides definitions for abbreviations and acronyms used throughout the Quarterly Report - The glossary defines abbreviations and acronyms used in the Quarterly Report[209][210] Signatures The report is signed by James L. Fox (Interim Chief Executive Officer), Joshua B. Warren (Chief Financial Officer), and Matthew J. Majoros (Senior Vice President, Financial Reporting) on May 8, 2024 - The report was signed by James L. Fox (Interim Chief Executive Officer), Joshua B. Warren (Chief Financial Officer), and Matthew J. Majoros (Senior Vice President, Financial Reporting) on May 8, 2024[214]