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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, 2024

☐ 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.)

1000 Chesterbrook Boulevard, Suite 250, Berwyn, Pennsylvania

19312

(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

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. Yes ☐ No ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 2, 2024, Envestnet, Inc. had 55,236,289 shares of common stock outstanding.

TABLE OF CONTENTS


			Page

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Comprehensive Income (Loss)			5
Condensed Consolidated Statements of Stockholders' Equity			6
Condensed Consolidated Statements of Cash Flows			8
Notes to Unaudited Condensed Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements			27
Overview			27
Results of Operations			33
Liquidity and Capital Resources			55

Item 3. Quantitative and Qualitative Disclosures About Market Risk			56

Item 4. Controls and Procedures			57

PART II - OTHER INFORMATION

Item 1. Legal Proceedings			57

Item 1A. Risk Factors			57

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59

Item 3. Defaults Upon Senior Securities			59

Item 4. Mine Safety Disclosures			59

Item 5. Other Information			59

Item 6. Exhibits			60

Index to Exhibits			61

Glossary of Terms			62

Signatures			63

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	June 30,		December 31,
	2024		2023
Assets
Current assets:
Cash and cash equivalents	$	121,967	$	91,378
Fees receivable, net	129,252		120,958
Prepaid expenses and other current assets	57,899		51,472

Total current assets	309,118		263,808
Property and equipment, net	45,641		48,223
Internally developed software, net	205,090		224,713
Intangible assets, net	311,868		338,068
Goodwill	690,885		806,563
Operating lease right-of-use assets, net	65,257		69,154
Investments in unconsolidated entities	96,755		56,292
Other assets	70,358		70,431
Total assets	$	1,794,972	$	1,877,252
Liabilities and equity
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	225,508	$	241,424
Operating lease liabilities	12,149		12,909
Deferred revenue	34,567		38,201
Current portion of debt	—		314,532

Total current liabilities	272,224		607,066
Debt, net of current portion	879,079		562,080
Operating lease liabilities, net of current portion	95,294		100,830
Deferred tax liabilities, net	15,208		16,568
Other liabilities	16,820		16,202
Total liabilities	1,278,625		1,302,746
Commitments and contingencies
Stockholders' equity
Preferred stock, par value $0.005, 50,000,000 shares authorized; no shares issued and outstanding as of June 30, 2024 and December 31, 2023	—		—
Common stock, par value $0.005, 500,000,000 shares authorized; 71,810,625 and 71,129,801 shares issued as of June 30, 2024 and December 31, 2023, respectively; 55,221,888 and 54,773,662 shares outstanding as of June 30, 2024 and December 31, 2023, respectively	358		355
Treasury stock at cost, 16,588,737 and 16,356,139 shares as of June 30, 2024 and December 31, 2023, respectively	(284,728)		(272,573)
Additional paid-in capital	1,243,483		1,206,627
Accumulated deficit	(434,339)		(357,651)
Accumulated other comprehensive loss	(8,427)		(8,567)
Total stockholders’ equity attributable to Envestnet, Inc.	516,347		568,191
Non-controlling interest	—		6,315
Total equity	516,347		574,506
Total liabilities and equity	$	1,794,972	$	1,877,252

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

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,
	2024		2023		2024		2023
Revenue:
Asset-based	$	219,485	$	185,762	$	422,101	$	362,694
Subscription-based	117,988		114,959		235,450		232,038
Total recurring revenue	337,473		300,721		657,551		594,732
Professional services and other revenue	10,800		11,713		15,672		16,409
Total revenue	348,273		312,434		673,223		611,141
Operating expenses:
Direct expense	144,351		124,209		270,984		233,888
Employee compensation	104,066		117,097		207,718		231,312
General and administrative	52,924		54,375		104,989		108,725
Depreciation and amortization	45,733		32,065		79,625		63,585
Goodwill impairment	96,269		—		96,269		—
Gain on deconsolidation	(19,523)		—		(19,523)		—
Total operating expenses	423,820		327,746		740,062		637,510
Loss from operations	(75,547)		(15,312)		(66,839)		(26,369)
Other expense, net	(4,788)		(5,016)		(9,169)		(10,011)
Loss before income tax provision (benefit) and equity method investments	(80,335)		(20,328)		(76,008)		(36,380)
Income tax provision (benefit)	(652)		418		853		24,187
Gain (loss) from equity method investments	482		(2,386)		(1,801)		(5,326)
Net loss	(79,201)		(23,132)		(78,662)		(65,893)
Add: Net loss attributable to non-controlling interest	—		1,716		1,974		3,249
Net loss attributable to Envestnet, Inc.	$	(79,201)	$	(21,416)	$	(76,688)	$	(62,644)
Net loss attributable to Envestnet, Inc. per share:
Basic and diluted	$	(1.44)	$	(0.39)	$	(1.39)	$	(1.15)

Weighted average common shares outstanding:
Basic and diluted	55,143,013		54,439,733		55,013,544		54,289,443

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net loss attributable to Envestnet, Inc.	$	(79,201)	$	(21,416)	$	(76,688)	$	(62,644)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	144		(96)		140		4,181
Total other comprehensive income (loss), net of tax	144		(96)		140		4,181
Comprehensive loss attributable to Envestnet, Inc.	$	(79,057)	$	(21,512)	$	(76,548)	$	(58,463)

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share information)

(unaudited)


									Accumulated
							Additional		Other				Non-
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Accumulated		Controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity
Balance, December 31, 2023	71,129,801	$	355	(16,356,139)	$	(272,573)	$	1,206,627	$	(8,567)	$	(357,651)	$	6,315	$	574,506
Net income (loss)	—	—		—	—		—		—		2,513		(1,974)		539
Other comprehensive loss, net of tax	—	—		—	—		—		(4)		—		—		(4)
Stock-based compensation expense	—	—		—	—		18,572		—		—		326		18,898
Issuance of common stock, vesting of RSUs and PSUs	483,237	3		—	—		—		—		—		—		3
Net cash paid related to tax withholding for stock-based compensation	—	—		(177,932)	(8,449)		—		—		—		—		(8,449)
Proceeds from the exercise of stock options	20,033	—		—	—		71		—		—		—		71
Proceeds from capital contributions received by non-controlling interest	—	—		—	—		—		—		—		12,012		12,012
Other	—	—		—	—		—		—		—		(258)		(258)
Balance, March 31, 2024	71,633,071	358		(16,534,071)	(281,022)		1,225,270		(8,571)		(355,138)		16,421		597,318
Net loss	—	—		—	—		—		—		(79,201)		—		(79,201)
Other comprehensive income, net of tax	—	—		—	—		—		144		—		—		144
Stock-based compensation expense	—	—		—	—		17,822		—		—		—		17,822
Issuance of common stock, vesting of RSUs and PSUs	161,219	—		—	—		—		—		—		—		—
Net cash paid related to tax withholding for stock-based compensation	—	—		(54,666)	(3,706)		—		—		—		—		(3,706)
Proceeds from the exercise of stock options	16,335	—		—	—		653		—		—		—		653

Deconsolidation of non-controlling interest	—	—		—	—		—		—		—		(16,421)		(16,421)
Other	—	—		—	—		(262)				—		—		(262)
Balance, June 30, 2024	71,810,625	$	358	(16,588,737)	$	(284,728)	$	1,243,483	$	(8,427)	$	(434,339)	$	—	$	516,347


									Accumulated
							Additional		Other				Non-
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Accumulated		Controlling		Total
	Shares	Amount		Shares	Amount		Capital		Loss		Deficit		Interest		Equity
Balance, December 31, 2022	70,025,733	$	350	(16,011,907)	$	(253,551)	$	1,135,284	$	(8,589)	$	(118,927)	$	13,037	$	767,604
Net loss	—	—		—	—		—		—		(41,228)		(1,533)		(42,761)
Other comprehensive income, net of tax	—	—		—	—		—		4,277		—		—		4,277
Stock-based compensation expense	—	—		—	—		19,345		—		—		108		19,453
Issuance of common stock, vesting of RSUs and PSUs	524,316	2		—	—		—		—		—		—		2
Net cash paid related to tax withholding for stock-based compensation	—	—		(173,612)	(10,732)		—		—		—		—		(10,732)
Proceeds from the exercise of stock options	37,454	—		—	—		367		—		—		—		367
Purchase of non-controlling units from third-party shareholders	—	—		—	—		(984)		—		—		(24)		(1,008)
Other	—	—		—	—		—		—		—		(22)		(22)
Balance, March 31, 2023	70,587,503	352		(16,185,519)	(264,283)		1,154,012		(4,312)		(160,155)		11,566		737,180
Net loss	—	—		—	—		—		—		(21,416)		(1,716)		(23,132)
Other comprehensive loss, net of tax	—	—		—	—		—		(96)		—		—		(96)
Stock-based compensation expense	—	—		—	—		21,347		—		—		43		21,390
Issuance of common stock, vesting of RSUs and PSUs	162,770	1		—	—		—		—		—		—		1
Net cash paid related to tax withholding for stock-based compensation	—	—		(55,971)	(3,042)		—		—		—		—		(3,042)
Proceeds from the exercise of stock options	2,500	—		—	—		105		—		—		—		105
Other	—	—		—	—		—		—		—		52		52
Balance, June 30, 2023	70,752,773	$	353	(16,241,490)	$	(267,325)	$	1,175,464	$	(4,408)	$	(181,571)	$	9,945	$	732,458

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2024		2023
Cash flows from operating activities:
Net loss	$	(78,662)	$	(65,893)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	79,625		63,585


Non-cash compensation expense	36,720		40,843
Non-cash interest expense	2,817		2,251
Non-cash goodwill impairment	96,269		—
Non-cash gain on deconsolidation	(19,523)		—
Loss from equity method investments	1,801		5,326


Lease related impairments	—		2,483

Other	2,120		(218)
Changes in operating assets and liabilities:
Fees receivable, net	(12,813)		(22,357)
Prepaid expenses and other assets	(5,745)		(6,762)
Accounts payable, accrued expenses and other liabilities	(14,049)		20,070
Deferred revenue	2,494		(852)
Net cash provided by operating activities	91,054		38,476
Cash flows from investing activities:
Purchases of property and equipment	(5,172)		(16,735)
Capitalization of internally developed software	(38,751)		(46,801)

Deconsolidation of non-controlling interest	(11,073)		—
Investments in private companies	(3,055)		(1,450)
Acquisition of proprietary technology	(3,000)		(12,000)
Issuance of loan receivable to private company	—		(20,000)

Other	—		319
Net cash used in investing activities	(61,051)		(96,667)
Cash flows from financing activities:
Proceeds from borrowings on Revolving Credit Facility	—		40,000
Payments related to Revolving Credit Facility	—		(20,000)
Payments related to Convertible Notes	—		(45,000)

Proceeds from exercise of stock options	724		472
Payments related to tax withholdings for stock-based compensation	(12,155)		(13,774)
Payments related to share repurchases	—		(9,289)
Proceeds from capital contributions received by non-controlling interest	12,012		—
Purchase of non-controlling units from third-party shareholders	—		(1,008)

Other	3		3
Net cash provided by (used in) financing activities	584		(48,596)
Effect of exchange rate on changes on cash and cash equivalents	2		3,633

Net change in cash and cash equivalents	30,589		(103,154)
Cash and cash equivalents, beginning of period	91,378		162,173
Cash and cash equivalents, end of period	$	121,967	$	59,019

Supplemental disclosures of cash flow information
Net cash paid for income taxes	$	6,098	$	3,223
Cash paid for interest	$	9,370	$	10,600
Supplemental disclosure of non-cash activities
Conversion of equity method investee loan to shares	$	—	$	4,129
Right-of-use assets obtained in exchange for lease liabilities, net	$	—	$	380

Purchase of property and equipment included in accounts payable, accrued expenses and other liabilities	$	—	$	2,029

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1.Organization and Description of Business

Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Its mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that its clients can better serve their clients.

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. Financial information about each business segment is contained in “Note 18—Segment Information” to the condensed consolidated financial statements and is described in detail within the Company's Annual Report.

For a summary of commonly used industry terms and abbreviations used in this Quarterly Report, see the Glossary of Terms.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 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 the Company's audited consolidated financial statements for the year ended December 31, 2023 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, 2024 and results of operations, equity, comprehensive income (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 revenue 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, 2024 are not necessarily indicative of the results of operations 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 SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. References to GAAP in these notes are to the FASB ASC and ASUs. 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, filed with the SEC on February 28, 2024.

Segment Reporting

On October 1, 2023, the Company changed the composition of its reportable segments to reflect the way that the Company's chief operating decision maker reviews the operating results, assesses performance and allocates resources. All segment information presented within this Quarterly Report is presented in conjunction with the current organizational structure, with prior periods adjusted accordingly.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Correction of Immaterial Errors

In July 2024, the Company identified that as a result of a clerical error an event of default had occurred pursuant to the indenture under which the Convertible Notes due 2025 had been issued, and therefore the Convertible Notes due 2025 should have been classified as current debt instead of as non-current debt as previously recorded in the condensed consolidated balance sheets. Upon identification, the Company promptly cured the technical default. Upon analysis, the Company concluded that the classification error was immaterial in prior period financial statements as the event of default was caused by a clerical error and was not reflective of noncompliance with any factors impacting the Company’s liquidity or financial covenants. If the Company had identified the technical default in the prior period and classified the debt as current, the matter would have been disclosed and promptly resolved. Therefore, amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior year reported within this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024. This adjustment resulted in an increase in Current portion of debt of $314.5 million and a corresponding decrease to Debt, net of current portion of $314.5 million in the condensed consolidated balance sheets as of December 31, 2023.

During the fourth quarter of 2023, the Company identified that the arrangement with a third-party for the use of cloud hosted virtual servers which was previously accounted for as a finance lease transaction and included as a component of property and equipment, net in the condensed consolidated balance sheets should have been recognized as a prepayment included within prepaid expenses and other current assets and other assets in the condensed consolidated balance sheets. The Company concluded that the classification of these transactions was immaterial in prior period financial statements and that amendment of previously filed reports was not required. However, the Company corrected this immaterial error in the prior period reported within this Quarterly Report.

In the condensed consolidated statements of operations these adjustments resulted in an increase in direct expense of $0.7 million, an increase in general and administrative expense of $1.1 million and a corresponding decrease in depreciation and amortization expense of $1.8 million for the three months ended June 30, 2023 and an increase in direct expense of $1.4 million, an increase in general and administrative expense of $1.8 million and a corresponding decrease in depreciation and amortization expense of $3.2 million for the six months ended June 30, 2023. In the condensed consolidated statements of cash flows for the six months ended June 30, 2023, these adjustments resulted in a decrease in net cash provided by operating activities of $0.8 million and a corresponding decrease in net cash provided by (used in) financing activities of $0.8 million.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions.

Reclassifications

Certain amounts in the condensed consolidated balance sheets as of December 31, 2023, the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and the condensed consolidated statements of cash flows for the six months ended June 30, 2023 have been reclassified to conform to the current period presentation. These reclassifications did not change the previously reported total assets, total liabilities and equity, net income (loss) attributable to Envestnet, Inc., or net change in cash and cash equivalents and did not affect the condensed consolidated statements of comprehensive income (loss) or condensed consolidated statements of stockholders' equity.

Related Party Transactions

The Company has an approximate 3.7% membership interest in a private services company that it accounts for using the equity method of accounting and is considered to be a related party. Revenue from the private services company totaled $2.1 million and $3.3 million for the three months ended June 30, 2024 and 2023, respectively. Revenue from the private services company totaled $4.7 million and $6.9 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company recorded a net receivable from the private services company of $0.4 million and $1.7 million, respectively.

The Company has an approximate 40.0% membership interest in another private company that it accounts for using the equity method of accounting and is considered to be a related party (See "Note 9—Investments in Unconsolidated Entities").

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Investments

The Company has investments in private companies for which it has significant influence that are recorded using the equity method of accounting. The Company uses the equity method of accounting because of its less than 50% ownership and/or lack of control in these companies. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records the portion of its earnings or losses in these privately held companies’ net income or loss on a one quarter lag from the actual results of operations in gain (loss) from equity method investments in the condensed consolidated statements of operations.

The Company owns equity interests in various privately held companies for which it does not have significant influence, there is no readily determinable fair value, and its investment qualifies for recognition under the measurement alternative at cost minus impairment, if any, plus or minus fair value changes when there are observable price changes. These investments are included in investments in unconsolidated entities in the condensed consolidated balance sheets. The Company records fair value adjustments resulting from observable price changes in other income (expense), net in the condensed consolidated statements of operations.

Recently Adopted Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842): Common Control Arrangements.” This update amends ASC 842 and the accounting for leasehold improvements associated with common control leases. The Company adopted this standard as of January 1, 2024 and it did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." This update amends the requirements for segment disclosures. This standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This update amends the requirements for income tax disclosures. This standard is effective for fiscal years beginning after December 15, 2024. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In March 2024, the FASB issued ASU 2024-01, "Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards." This update clarifies how to account for profits interest and similar awards. This standard is effective for fiscal years beginning after December 15, 2024, and interim periods within those fiscal years. Early adoption of the standard is permitted. The Company is analyzing the impact of the adoption, but does not expect it to have a material impact on the Company's consolidated financial statements.

In March 2024, the SEC adopted “The Enhancement and Standardization of Climate-Related Disclosures for Investors” that requires public companies to disclose information about the material impacts of climate-related risks on their business, financial condition and governance. These rules are effective, pending judicial review, starting with fiscal year 2025. The Company is analyzing the impact of these rules and has not yet determined the impact on the Company's consolidated financial statements and related disclosures.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

3.Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:


	June 30,		December 31,
	2024		2023

	(in thousands)
Prepaid technology	$	17,495	$	14,630
Income tax prepayments and receivables	12,223		9,625
Prepaid data servers	6,132		7,991

Non-income tax receivable	4,030		4,041
Prepaid insurance	3,816		2,785
Other	14,203		12,400
Total prepaid expenses and other current assets	$	57,899	$	51,472

4.Internally Developed Software, Net

Internally developed software, net consisted of the following:


		June 30,		December 31,
	Estimated Useful Life	2024		2023

		(in thousands)
Internally developed software	5 years	$	416,849	$	405,078
Less: accumulated amortization		(211,759)		(180,365)
Internally developed software, net		$	205,090	$	224,713

Due to a change in technology needs of the business, $12.9 million of net capitalized internally developed software costs, the majority of which was included within the Envestnet Wealth Solutions segment, was written off and included within depreciation and amortization expense in the condensed consolidated statements of operations during the three and six months ended June 30, 2024.

5.Geographical Information

The following table sets forth certain long-lived assets including property and equipment, net and internally developed software, net by geographic area:


	June 30,		December 31,
	2024		2023

	(in thousands)
United States	$	248,351	$	270,381
India	2,380		2,555

Total long-lived assets, net	$	250,731	$	272,936

See “Note 14—Revenue and Direct Expense” for detail of revenue by geographic area.

Table of Contents

Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

6.Intangible Assets, Net

Intangible assets, net consisted of the following:


			June 30, 2024						December 31, 2023
			Gross				Net		Gross				Net
			Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
			Amount		Amortization		Amount		Amount		Amortization		Amount

			(in thousands)
Customer lists			$	593,200	$	(335,834)	$	257,366	$	604,080	$	(327,042)	$	277,038
Proprietary technologies			89,857		(39,605)		50,252		93,058		(37,052)		56,006
Trade names			11,000		(6,750)		4,250		15,700		(10,676)		5,024
Total intangible assets	$	694,057	$	(382,189)	$	311,868	$	712,838	$	(374,770)	$	338,068

During the six months ended June 30, 2024 and 2023, the Company retired fully amortized intangible assets with historical costs of $21.8 million and $17.5 million, respectively.

The estimated future amortization expense of the Company's intangible assets as of June 30, 2024 was as follows (in thousands):



Remainder of 2024	$	28,595
2025	54,573
2026	47,048
2027	38,272
2028	30,896
Thereafter	112,484
Total	$	311,868

7.Depreciation and Amortization Expense

Depreciation and amortization expense consisted of the following:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
Intangible asset amortization	$	14,457	$	15,720	$	29,199	$	32,660
Internally developed software amortization (1)	28,238		12,398		44,106		23,488
Property and equipment depreciation	3,038		3,947		6,320		7,437
Total depreciation and amortization	$	45,733	$	32,065	$	79,625	$	63,585

_________________________________________________________

(1) $12.9 million of net capitalized internally developed software costs was written off and included within internally developed software amortization expense during the three and six months ended June 30, 2024. See Note 4—Internally Developed Software, Net for further information.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

8.Goodwill

Changes in the carrying amount of goodwill by reportable segment were as follows:


	Envestnet Wealth Solutions		Envestnet Data & Analytics		Total

	(in thousands)
Balance as of December 31, 2023	$	710,326	$	96,237	$	806,563



Deconsolidation of non-controlling interest	(19,409)		—		(19,409)
Goodwill impairment	—		(96,269)		(96,269)
Foreign currency translation and other	(32)		32		—
Balance as of June 30, 2024	$	690,885	$	—	$	690,885

Goodwill Impairment

Due to a strategic shift of business priorities for the Envestnet Data & Analytics segment, which was considered an event or change in circumstance that required an assessment of goodwill for impairment as of June 30, 2024, the Company performed a quantitative goodwill impairment analysis for the reporting unit to determine whether there was an impairment as of June 30, 2024. The impairment test identified that the carrying value of the Envestnet Data & Analytics reporting unit exceeded its fair value, which resulted in the recognition of a non-cash impairment charge to goodwill of $96.3 million in the condensed consolidated statements of operations for the three and six months ended June 30, 2024. Although the Company recorded this impairment charge in the second quarter of 2024, future charges may occur if certain estimates and assumptions change significantly, and such charges could be material.

9.Investments in unconsolidated entities

As of December 31, 2023, the Company held a controlling financial interest in a private company due to its majority representation on the company’s board and, as such, used the consolidation method of accounting to include this private company’s assets, liabilities and results of operations within the Envestnet Wealth Solutions segment of the Company’s condensed consolidated financial statements.

Effective April 1, 2024, the Company no longer had majority representation of the company's board and therefore no longer had a controlling financial interest in this private company. This resulted in the deconsolidation of this private company's assets, liabilities and results of operations and the recognition of a $19.5 million non-cash gain included within gain on deconsolidation in the condensed consolidated statements of operations during the three and six months ended June 30, 2024. This transaction did not represent a strategic shift and therefore did not meet the criteria to be classified as discontinued operations. The Company applied the equity method to account for its non-controlling investment in this private company starting April 1, 2024 and included the fair value of the investment of $41.9 million in investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

10.Other Assets

On January 31, 2023, the Company entered into a Convertible Promissory Note with a customer of the Company's business, a privately held company, whereby the Company was issued a convertible promissory note with a principal amount of $20.0 million and a stated interest rate of 8.0% per annum. The Convertible Promissory Note has a maturity date of January 31, 2026 and is convertible into common stock or preferred stock of the privately held company upon qualified financing events or corporate transactions. During the three months ended June 30, 2024 and 2023, interest income related to the Convertible Promissory Note included in other expense, net in the condensed consolidated statements of operations was $0.4 million and $0.4 million, respectively. During the six months ended June 30, 2024 and 2023, interest income related to the Convertible Promissory Note was $0.8 million and $0.7 million, respectively.

The Company accounts for this Convertible Promissory Note as a loan receivable in accordance with ASC 310 as it is not a security and includes it in other assets in the condensed consolidated balance sheets. Credit impairment is measured as the difference between this loan receivable’s amortized cost and its estimated recoverable value, which is the present value of its expected future cash flows discounted at the effective interest rate. There was no impairment for this investment during the six months ended June 30, 2024.

11.Accounts Payable, Accrued Expenses and Other Current Liabilities

Accounts payable, accrued expenses and other current liabilities consisted of the following:


	June 30,		December 31,
	2024		2023

	(in thousands)
Accrued investment manager fees	$	125,529	$	106,612
Accrued compensation and related taxes	52,136		72,466
Accounts payable	19,437		35,738
Accrued professional services	17,132		14,289
Accrued technology	4,142		4,151
Accrued interest	2,473		2,473





Other accrued expenses	4,659		5,695
Total accounts payable, accrued expenses and other current liabilities	$	225,508	$	241,424

As of June 30, 2024, the Company had an ending liability balance of $4.5 million primarily in connection with a reduction in force initiative that began during the first quarter of 2023. The Company anticipates approximately $1.9 million to be paid during the remainder of 2024, $1.7 million to be paid throughout 2025, with the remaining balance paid through 2030. Expenses related to this reduction in force initiative are included in employee compensation expense in the condensed consolidated statements of operations.

The following table presents a reconciliation of the beginning and ending liability balance related to this effort, of which $2.8 million is included within accrued compensation and related taxes in the table above:


	Envestnet Wealth Solutions		Envestnet Data & Analytics		Nonsegment		Total

	(in thousands)
Balance as of December 31, 2023	$	9,793	$	486	$	—	$	10,279
Severance expense	2,436		13		1,645		4,094
Cash payments	(7,754)		(499)		(1,645)		(9,898)

Balance as of June 30, 2024	$	4,475	$	—	$	—	$	4,475

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

12.Debt

The following tables set forth the carrying value and estimated fair value of the Company's debt obligations as of June 30, 2024 and December 31, 2023:


	June 30, 2024
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2025	317,500		(2,060)		315,440		307,778
Convertible Notes due 2027	575,000		(11,361)		563,639		614,244
Total debt	$	892,500	$	(13,421)	$	879,079	$	922,022


	December 31, 2023
	Issuance Amount		Unamortized Issuance Costs		Carrying Value		Fair Value (Level II)

	(in thousands)

Revolving Credit Facility	$	—	$	—	$	—	$	—
Convertible Notes due 2025	317,500		(2,968)		314,532		294,958
Convertible Notes due 2027	575,000		(12,920)		562,080		571,746
Total debt	$	892,500	$	(15,888)	$	876,612	$	866,704

The Company issued $517.5 million aggregate principal amount of 0.75% Convertible Notes due 2025 in August 2020. As of June 30, 2024, $317.5 million aggregate principal of the Convertible Notes due 2025 remained outstanding. Pursuant to the indenture under which the Convertible Notes due 2025 were issued, the Company was required to remove a restrictive legend on the Convertible Notes due 2025 relating to restrictions on transfer under the Securities Act of 1933, as amended, on or before September 9, 2021. Due to a clerical error, the restrictive legend was not removed until June 18, 2022. As a result of its failure to remove the legend on a timely basis, the Company was required to pay certain amounts of additional interest and interest thereon after February 15, 2022. Failure to pay the Additional Interest constituted an event of default under the Indenture. The event of default under the Indenture was cured with the payment of an immaterial amount of Additional Interest, as well as certain penalties, in August 2024. In addition, the event of default under the Indenture resulted in an event of default under the Revolving Credit Facility due to a cross-default provision in the Revolving Credit Facility. The resulting event of default was waived by the required lenders under the Revolving Credit Facility in August 2024. As a result, the Company was in compliance with the covenants contained in the Indenture and the Revolving Credit Facility as of August 9, 2024 and any and all existing defaults and events of default that had arisen or may have arisen therefrom were cured.

Revolving Credit Facility

The Revolving Credit Facility provides for a $500.0 million revolving line of credit, including a sub-facility for a $20.0 million letter of credit. There were no amounts outstanding under the Revolving Credit Facility as of June 30, 2024 and December 31, 2023.

As of June 30, 2024 and December 31, 2023, debt issuance costs related to the Revolving Credit Facility included in prepaid expenses and other current assets in the condensed consolidated balance sheets were $0.7 million and $0.7 million, respectively, and included in other assets in the condensed consolidated balance sheets were $1.1 million and $1.5 million, respectively.

The Revolving Credit Facility contains customary conditions, representations and warranties, affirmative and negative covenants, mandatory prepayment provisions and events of default. The covenants include certain financial covenants requiring the Company to maintain compliance with a maximum total leverage ratio and a minimum interest coverage ratio.

On February 20, 2024, the Company entered into a Waiver with respect to the Revolving Credit Facility, between the Company, the Guarantors party thereto from time to time, the Lenders party thereto from time to time and Bank of Montreal, as

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

administrative agent. Under the Waiver, the Lenders party thereto waived the events of default resulting from the non-compliance with the Total Leverage Ratio financial covenant for the fiscal quarters ended on March 31, 2023 and June 30, 2023. The Company was in compliance with all other covenants in the Revolving Credit Facility as of June 30, 2024.

Interest Expense

Interest expense was comprised of the following and is included in other expense, net in the condensed consolidated statements of operations:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
Convertible Notes interest	$	4,369	$	4,543	$	8,738	$	9,108
Amortization of debt discount and issuance costs	1,412		1,427		2,817		2,869
Undrawn and other fees	316		311		631		624
Revolving Credit Facility interest	—		250		—		250
Total interest expense	$	6,097	$	6,531	$	12,186	$	12,851

The effective interest rate of the Convertible Notes was equal to the stated interest rate plus the amortization of the debt issuance costs and is set forth below:



	June 30,
	2024		2023

Convertible Notes due 2025	1.3	%	1.3	%
Convertible Notes due 2027	3.2	%	3.2	%

13.Fair Value Measurements

The following tables set forth the Company's financial assets and liabilities measured at fair value on a recurring basis, based on the three-tier fair value hierarchy, as described in detail within the Company's Annual Report:


	June 30, 2024
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	56,680	$	56,680	$	—	$	—

Assets to fund deferred compensation liability	11,444		—		—		11,444
Total assets	$	68,124	$	56,680	$	—	$	11,444
Liabilities:

Deferred compensation liability	$	8,917	$	8,917	$	—	$	—
Total liabilities	$	8,917	$	8,917	$	—	$	—

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)


	December 31, 2023
	Fair Value		Level I		Level II		Level III

	(in thousands)
Assets:
Money market funds	$	51,653	$	51,653	$	—	$	—
Assets to fund deferred compensation liability	10,961		—		—		10,961
Total assets	$	62,614	$	51,653	$	—	$	10,961
Liabilities:

Deferred compensation liability	$	8,045	$	8,045	$	—	$	—
Total liabilities	$	8,045	$	8,045	$	—	$	—

The Company assesses the categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or when changes in circumstances cause the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the six months ended June 30, 2024.

Fair Value of Assets Used to Fund the Deferred Compensation Liability

The table below presents a reconciliation of the assets used to fund the Company's deferred compensation liability, which is measured at fair value on a recurring basis using significant unobservable inputs (Level III):


	Fair Value of Assets Used to Fund Deferred Compensation Liability

	(in thousands)
Balance as of December 31, 2023	$	10,961

Fair value adjustments and fees	483
Balance as of June 30, 2024	$	11,444

The fair market value of the assets used to fund the Company's deferred compensation liability is measured using the cash surrender value of the Company's life insurance premiums and is included in other assets in the condensed consolidated balance sheets. Changes in fair value, if any, are recognized in the Company's earnings and included in general and administrative expense in the condensed consolidated statements of operations.

Fair Value of Debt Agreements

The Company considered its Convertible Notes to be Level II liabilities as of June 30, 2024 and December 31, 2023, and used a market approach to calculate their respective fair values. The estimated fair value for each convertible note was determined based on estimated or actual bids and offers in an over-the-counter market on June 30, 2024 and December 31, 2023, respectively (See “Note 12—Debt”).

Fair Value of Other Financial Assets and Liabilities

The Company considered the recorded value of its other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities as of June 30, 2024 and December 31, 2023, based upon the short-term nature of these assets and liabilities.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

14.Revenue and Direct Expense

Disaggregation of Revenue

The following table presents the Company’s revenue by segment disaggregated by major source:


	Three Months Ended June 30,
	2024						2023
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Total		Envestnet Wealth Solutions		Envestnet Data & Analytics		Total

	(in thousands)
Revenue:
Asset-based	$	219,485	$	—	$	219,485	$	185,762	$	—	$	185,762
Subscription-based	84,734		33,254		117,988		79,744		35,215		114,959
Total recurring revenue	304,219		33,254		337,473		265,506		35,215		300,721
Professional services and other revenue	7,889		2,911		10,800		10,318		1,395		11,713
Total revenue	$	312,108	$	36,165	$	348,273	$	275,824	$	36,610	$	312,434


	Six Months Ended June 30,
	2024						2023
	Envestnet Wealth Solutions		Envestnet Data & Analytics		Total		Envestnet Wealth Solutions		Envestnet Data & Analytics		Total

	(in thousands)
Revenue:
Asset-based	$	422,101	$	—	$	422,101	$	362,694	$	—	$	362,694
Subscription-based	168,902		66,548		235,450		160,214		71,824		232,038
Total recurring revenue	591,003		66,548		657,551		522,908		71,824		594,732
Professional services and other revenue	10,915		4,757		15,672		13,565		2,844		16,409
Total revenue	$	601,918	$	71,305	$	673,223	$	536,473	$	74,668	$	611,141

The following table presents the Company’s revenue disaggregated by geography, based on the billing address of the customer:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
United States	$	342,749	$	306,946	$	662,320	$	600,160
International	5,524		5,488		10,903		10,981
Total revenue	$	348,273	$	312,434	$	673,223	$	611,141

Remaining Performance Obligations

As of June 30, 2024, the Company's estimated revenue expected to be recognized in the future related to performance obligations associated with existing customer contracts that are partially or wholly unsatisfied is approximately $546.9 million. The Company expects to recognize approximately 22% of this revenue during the remainder of 2024, approximately 56% throughout 2025 and 2026, with the balance recognized thereafter. These remaining performance obligations are not indicative of revenue for future periods.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Contract Balances

Total deferred revenue as of June 30, 2024 decreased by $4.0 million from December 31, 2023, primarily the result of timing of cash receipts and revenue recognition. The majority of the Company's deferred revenue as of June 30, 2024 will be recognized over the course of the next twelve months.

The amount of revenue recognized for the three months ended June 30, 2024 and 2023 that was included in the opening deferred revenue balance was $8.0 million and $11.5 million, respectively. The amount of revenue recognized for the six months ended June 30, 2024 and 2023 that was included in the opening deferred revenue balance was $23.9 million and $28.2 million, respectively. The majority of this revenue consists of subscription-based services and professional services arrangements. The amount of revenue recognized from performance obligations satisfied in prior periods was not material.

Deferred Sales Incentive Compensation

Deferred sales incentive compensation was $10.5 million and $11.5 million as of June 30, 2024 and December 31, 2023, respectively. Amortization expense for deferred sales incentive compensation was $1.2 million for the three months ended June 30, 2024 and 2023. Amortization expense for deferred sales incentive compensation was $2.4 million and $2.3 million for the six months ended June 30, 2024 and 2023, respectively. Deferred sales incentive compensation is included in other assets in the condensed consolidated balance sheets and amortization expense is included in employee compensation expense in the condensed consolidated statements of operations. No significant impairment loss for capitalized costs was recorded during the six months ended June 30, 2024 and 2023.

Direct Expense

The following table summarizes direct expense by revenue category:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
Asset-based	$	130,116	$	108,532	$	248,519	$	211,155
Subscription-based	8,648		7,645		16,878		14,697
Professional services and other	5,587		8,032		5,587		8,036
Total direct expense	$	144,351	$	124,209	$	270,984	$	233,888

15.Stock-Based Compensation

On March 14, 2024, the Board of Directors approved the 2024 Plan, effective upon the approval at the 2024 annual meeting. The 2024 Plan provides for the grant of options, stock appreciation rights, Full Value Awards (as defined in the 2024 Plan agreement) and cash incentive awards to employees, consultants and non-employee directors to purchase common stock, which vest over time and have a ten-year contractual term. The maximum number of shares of common stock that may be delivered under the 2024 Plan is equal to the sum of 5,100,000 plus any shares represented by awards granted under the prior plan that are forfeited, expire or are canceled after the effective date without delivery of shares of stock.

The Company has stock options, RSUs and PSUs outstanding under the 2010 Plan, 2019 Equity Plan, and the 2024 Plan. As of June 30, 2024, the maximum number of common shares available for future issuance under the Company's plans is 5,134,325.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Stock-based compensation expense under the Company’s plans was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
Stock-based compensation expense	$	17,822	$	21,390	$	36,720	$	40,843
Tax effect on stock-based compensation expense	(4,545)		(5,454)		(9,364)		(10,415)
Net effect on income (loss)	$	13,277	$	15,936	$	27,356	$	30,428

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the three and six months ended June 30, 2024 and 2023.

Stock Options

The following table summarizes option activity under the Company’s plans:


		Weighted		Weighted Average
		Average		Remaining	Aggregate
	Options	Exercise Price		Contractual Life	Intrinsic Value

				(in years)	(in thousands)
Outstanding as of December 31, 2023	202,166	$	45.22

Exercised	(36,368)	$	40.39
Forfeited	(186)	$	72.52
Outstanding and exercisable as of June 30, 2024	165,612	$	46.25	1.1	$	2,706

As of June 30, 2024, there was no amount of unrecognized stock-based compensation expense related to stock options.

Restricted Stock Units and Performance Stock Units

The following table summarizes RSU and PSU activity under the Company’s plans:


	RSUs			PSUs
	Number of Shares	Weighted Average Grant Date Fair Value per Share		Number of Shares	Weighted Average Grant Date Fair Value per Share

Non-vested as of December 31, 2023	1,449,253	$	65.78	223,058	$	72.92
Granted	1,322,799	$	51.56	37,270	$	83.76
Vested	(616,133)	$	66.15	(28,323)	$	69.82
Forfeited	(155,652)	$	59.00	(91,712)	$	70.76
Non-vested as of June 30, 2024	2,000,267	$	56.79	140,293	$	77.84

As of June 30, 2024, there was $93.4 million of unrecognized stock-based compensation expense related to RSUs, which the Company expects to recognize over a weighted average period of 2.0 years. As of June 30, 2024, there was $2.9 million of unrecognized stock-based compensation expense related to PSUs, which the Company expects to recognize over a weighted average period of 2.0 years.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

16. Income Taxes

The following table presents the calculation for the Company’s effective tax rate:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands, except for effective tax rate)
Loss before income tax provision (benefit) and equity method investments	$	(80,335)	$	(20,328)	$	(76,008)	$	(36,380)
Gain (loss) from equity method investments	482		(2,386)		(1,801)		(5,326)
Loss before income tax provision (benefit)	$	(79,853)	$	(22,714)	$	(77,809)	$	(41,706)
Income tax provision (benefit)	$	(652)	$	418	$	853	$	24,187
Effective tax rate	0.8%		(1.8)%		(1.1)%		(58.0)%

Under ASC 740-270-25, the Company is required to report income tax expense by applying a projected AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change.

For the three and six months ended June 30, 2024 and 2023, the Company's effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

17.Net Loss Per Share

Securities that were anti-dilutive and therefore excluded from the computation of diluted net loss per share were as follows:


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2024	2023	2024	2023

Convertible Notes	10,811,884	11,253,471	10,811,884	11,361,458
Non-vested RSUs and PSUs	2,140,560	2,206,000	2,140,560	2,206,000
Options to purchase common stock	165,612	237,556	165,612	237,556

Total anti-dilutive securities	13,118,056	13,697,027	13,118,056	13,805,014

18.Segment Information

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. The Company's business segments are:

•Envestnet Wealth Solutions – a leading provider of comprehensive and unified wealth management software, services and solutions to empower financial advisors and institutions to enable them to deliver holistic advice to their clients.

•Envestnet Data & Analytics – a leading provider of financial data aggregation, analytics and digital experiences to meet the needs of financial institutions, enterprise FinTech firms and market investment research firms worldwide.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.

See “Note 14—Revenue and Direct Expense” for detail of revenue by segment.

The following table presents a reconciliation from income (loss) from operations by segment to consolidated net loss attributable to Envestnet, Inc.:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

	(in thousands)
Envestnet Wealth Solutions	$	53,171	$	22,705	$	92,101	$	45,303
Envestnet Data & Analytics	(101,778)		(10,299)		(107,517)		(17,214)
Nonsegment operating expenses	(26,940)		(27,718)		(51,423)		(54,458)
Loss from operations	(75,547)		(15,312)		(66,839)		(26,369)
Other expense, net	(4,788)		(5,016)		(9,169)		(10,011)
Loss before income tax provision (benefit) and equity method investments	(80,335)		(20,328)		(76,008)		(36,380)
Income tax provision (benefit)	(652)		418		853		24,187
Gain (loss) from equity method investments	482		(2,386)		(1,801)		(5,326)
Net loss	(79,201)		(23,132)		(78,662)		(65,893)
Add: Net loss attributable to non-controlling interest	—		1,716		1,974		3,249
Net loss attributable to Envestnet, Inc.	$	(79,201)	$	(21,416)	$	(76,688)	$	(62,644)

The following table presents a summary of consolidated total assets by segment:


	June 30,		December 31,
	2024		2023

	(in thousands)
Envestnet Wealth Solutions	$	1,585,678	$	1,562,600
Envestnet Data & Analytics	209,294		314,652
Consolidated total assets	$	1,794,972	$	1,877,252

19.Commitments and Contingencies

Purchase Obligations and Indemnifications

The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability associated with these arrangements in the condensed consolidated balance sheets.

The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In connection with the Redi2 acquisition, the Company has agreed to pay up to $20.0 million in performance bonuses based upon the achievement of certain performance targets. These performance bonuses will be recognized as employee compensation in the condensed consolidated statements of operations. The Company recognized $1.7 million and $1.1 million related to these bonuses for the three months ended June 30, 2024 and 2023, respectively. The Company recognized $1.7 million and $1.5 million related to these bonuses for the six months ended June 30, 2024 and 2023, respectively.

Legal Proceedings

The Company and its subsidiary, Yodlee, have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief.

On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.

On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps' claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps' claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery concluded on September 30, 2022. The parties’ respective summary judgment and motions to exclude the presentation of expert testimony (a “Daubert Motion”) are fully briefed and are awaiting final ruling. On July 25, 2023, the Magistrate Judge issued a report and recommendation that the Court grant FinancialApps’ summary judgment motion on Envestnet’s defamation counterclaim. The Magistrate Judge did not make a ruling as to Yodlee’s defamation counterclaim. On July 28, 2023, the Magistrate Judge denied Envestnet and Yodlee's Daubert motion to exclude FinancialApps' technical expert, Isaac Pflaum. On July 31, 2023, the Magistrate Judge issued a report and recommendation that the Court grant in part and deny in part Envestnet's summary judgment motion. The Magistrate Judge recommended that the motion be denied as to FinancialApps' vicarious liability theory and direct liability theory but recommended that the motion be granted with respect to the unjust enrichment count. The reports and recommendations are not final rulings, however, and the Company has filed objections against their adoption by the District Court. Those objections are fully briefed and pending before the District Court. On August 14, 2023, the Magistrate Judge granted-in-part and denied-in-part FinancialApps' Daubert motion to exclude Envestnet and Yodlee's technical expert. On September 13, 2023, the Magistrate Judge granted-in-part and denied-in-part Envestnet and Yodlee's Daubert motion to exclude FinancialApps' damages expert. On January 18, 2024, FinancialApps filed a motion seeking sanctions for purported spoliation of evidence against Yodlee and Envestnet. Yodlee and Envestnet filed a brief opposing the motion on February 22, 2024. The motion is fully briefed and pending before the Magistrate Judge. The Company believes FinancialApps' allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.

The Company and Yodlee were named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption currently is Clark, et al., v. Yodlee, Inc. Case No. 3:20-cv-5991-SK (formerly entitled Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK). Plaintiffs alleged that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s Instant Account Verification API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleged violations of certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present.

On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court granted Yodlee’s motion for reconsideration and dismissed one additional claim. Plaintiffs filed an amended complaint on September 19, 2023, which Yodlee answered on October 3, 2023. Discovery is closed. On May 22, 2024, Plaintiffs filed a motion for class certification, which Yodlee opposed on June 12, 2024; motion is pending. Yodlee believes the allegations are without merit and will continue to vigorously defend the remaining claims against it.

In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of June 30, 2024. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company’s results of operations or cash flow in a particular quarter or year.

20.Subsequent Event

On July 11, 2024, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with BCPE Pequod Buyer, Inc., a Delaware corporation (“Parent”), and BCPE Pequod Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of Parent (“Merger Sub”). Parent and Merger Sub are affiliates of vehicles managed or advised by Bain Capital Private Equity, LP. Pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

The Company's Board has unanimously (i) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, (ii) determined that the terms of Merger Agreement and the transactions contemplated thereby are fair to, and in the best interests of, the Company and the Company’s shareholders, (iii) directed that the adoption of the Merger Agreement be submitted to a vote of the Company’s shareholders in accordance with the Merger Agreement, and (iv) subject to the terms and conditions of the Merger Agreement, resolved to recommend that the Company’s shareholders

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Envestnet, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

approve the adoption of the Merger Agreement and approve the Merger on the terms and subject to the conditions set forth therein (such recommendation, the “Board Recommendation”).

Upon the terms and subject to the conditions set forth in the Merger Agreement, upon the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.005 per share, of the Company (the “Common Shares”) that is issued and outstanding as of immediately prior to the Effective Time (other than any Common Shares (i) owned by Parent (or any of its Affiliates), Merger Sub or the Company or any direct or indirect wholly owned subsidiaries of Parent (or any of its Affiliates), Merger Sub or the Company, (ii) that are Rollover Shares (as defined in the Merger Agreement), (iii) held in treasury of the Company, and (iv) as to which appraisal rights have been properly exercised in accordance with Delaware law), will be automatically cancelled, extinguished and converted into the right to receive $63.15, without interest thereon (the “Merger Consideration”).

If the Merger is consummated, the Common Shares will be delisted from The New York Stock Exchange and deregistered under the Exchange Act, as promptly as practicable after the Effective Time.

The closing of the Merger is expected in the fourth quarter of 2024 subject to the satisfaction of customary closing conditions including receipt of approval by Envestnet’s shareholders and required regulatory approvals.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q for the quarter ended June 30, 2024 and the consolidated financial statements and related notes included on Form 10-K for the year ended December 31, 2023.

This Quarterly Report contains forward-looking statements regarding future events and our future results within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, in particular, statements about our plans, strategies and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. These statements are based on our current expectations and projections about future events and are identified by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “expected,” “intend,” “will,” “may,” or “should” or the negative of those terms or variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to our pending merger with affiliates of vehicles managed or advised by Bain Capital Private Equity, LP., projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report are set forth in Part I, Item 1A.“Risk Factors” in our Annual Report; accordingly, investors should not place undue reliance upon our forward-looking statements. We undertake no obligation to update any of the forward-looking statements after the date of this report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

You should read this Quarterly Report and Annual Report completely and with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect and that these differences may be material. We qualify all of our forward-looking statements by these cautionary statements, Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below.

Unless otherwise indicated, the terms “Envestnet,” the “Company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries as a whole.

Overview

Envestnet, through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence. Envestnet is a leader in helping transform wealth management, working towards its goal of expanding a holistic financial wellness ecosystem so that our clients can better serve their clients.

Envestnet's clients include more than 110,000 advisors, 17 of the 20 largest U.S. banks, 48 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs, and hundreds of FinTech companies, all of which leverage Envestnet technology and services that help drive better outcomes for enterprises, advisors and their clients.

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

Envestnet, a Delaware corporation originally founded in 1999, serves clients from its headquarters in Berwyn, Pennsylvania, as well as other locations throughout the United States, India and other international locations.

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Recent Developments

Plan of Merger

If the Merger is consummated, the Common Shares will be delisted from The New York Stock Exchange and deregistered under the Exchange Act, as promptly as practicable after the Effective Time.

Goodwill Impairment

Deconsolidation of Non-Controlling Interest

Effective April 1, 2024, the Company no longer had majority representation of a private company's board and therefore no longer had a controlling financial interest in the private company. This resulted in the deconsolidation of the private company's assets, liabilities and results of operations and the recognition of a $19.5 million non-cash gain included within gain on deconsolidation in the condensed consolidated statements of operations during the three and six months ended June 30, 2024. This transaction did not represent a strategic shift and therefore did not meet the criteria to be classified as discontinued operations. The Company applied the equity method to account for its non-controlling investment in this private company starting April 1, 2024 and included the fair value of the investment of $41.9 million in investments in unconsolidated entities in the condensed consolidated balance sheets as of June 30, 2024.

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Internally Developed Software, Net

Leadership Update

On January 7, 2024, the Company entered into a separation and release agreement with Mr. Crager in which it was agreed that Mr. Crager would step down as chief executive officer on March 31, 2024 and as a member of the Company’s Board of Directors promptly following Envestnet’s 2024 Annual Meeting. On April 1, 2024, Mr. Crager began serving as a senior advisor, focusing on client and partner relationships. James Fox began serving as our Interim Chief Executive Officer on April 1, 2024 and will continue to serve this role until our Board of Directors appoints a new chief executive officer. Mr. Fox has served as a member of our Board of Directors since February 2015 and Chair of the Board of Directors since March 2020.

Operating Results

Beginning in the three months ended December 31, 2021 through June 30, 2024, the Company reported a loss from operations and loss before income tax provision (benefit) in every quarter with the exception of the three months ended September 30, 2023 and the three months ended March 31, 2024. We incurred these quarterly losses as a result of several factors as described below.

Revenue Factors: Throughout 2022, the financial markets experienced a broad downturn and our redemption rates were higher than our historical average, and as a result, in our Envestnet Wealth Solutions segment, our asset-based recurring revenue was materially adversely affected. Beginning in the three months ended March 31, 2023 asset-based recurring revenue has been increasing steadily. In addition, as a result of competitive pricing pressures in our Envestnet Data & Analytics segment research business, beginning in the three months ended December 31, 2022 subscription-based recurring revenue has been materially adversely affected.

Expense Factors: We have incurred certain expenses that are not recurring in nature and that are a direct result of significant, distinct enterprise-wide strategic initiatives that we have taken in order to reshape and streamline the organization, which we believe will increase our operational efficiencies and to reduce future operating expenses, while negatively impacting our operating results in the short-term. These actions include both internal and external related expenses associated with office closures announced in the second quarter of 2022, severance and office closure related expenses associated with an organizational realignment and entry into an outsourcing arrangement announced in the fourth quarter of 2022, as well as severance expense for a reduction in force initiative announced in the first quarter of 2023 which continued throughout 2023. In addition, the Company recognized a non-cash impairment charge to goodwill of $96.3 million and wrote off $12.9 million of net capitalized internally developed software costs included within depreciation and amortization expense during the second quarter of 2024.

Our business is directly and indirectly affected by macroeconomic conditions and the state of global financial markets. The return to recurring positive income before income taxes, largely depends on a combination of improved industry dynamics, including overall technology and data spending by financial institutions and an improvement in capital market valuations, including asset flows and redemption rates, both of which are outside of the Company’s control, as well as a reduction in future operating expenses, as a result of the actions taken by management as discussed above.

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Segments

Envestnet is organized around two business segments based on clients served and products provided to meet those needs. Financial information about each business segment is contained in "Note 18—Segment Information” to the condensed consolidated financial statements. Our business segments are as follows:

The Company also incurs expenses not directly attributable to the segments listed above. These nonsegment operating expenses primarily consist of employee compensation for certain corporate officers, certain types of professional service expenses, insurance, acquisition related transaction costs, certain restructuring charges and other non-recurring and/or non-operationally related expenses.

Key Metrics

Envestnet Wealth Solutions Segment

The following table provides information regarding the amount of assets and number of accounts and advisors supported by the Envestnet Wealth Solutions platform:


	As of
	June 30,		September 30,		December 31,		March 31,		June 30,
	2023		2023		2023		2024		2024

	(in millions, except accounts and advisors data)
Platform Assets
Assets under Management (“AUM”)	$	384,773	$	375,408	$	416,001	$	452,464	$	471,978
Assets under Administration (“AUA”)	394,078		398,082		430,846		471,401		471,479
Total AUM/A	778,851		773,490		846,847		923,865		943,457
Subscription	4,643,313		4,579,248		4,959,514		5,158,180		5,327,939
Total Platform Assets	$	5,422,164	$	5,352,738	$	5,806,361	$	6,082,045	$	6,271,396
Platform Accounts
AUM	1,609,677		1,614,873		1,640,879		1,688,044		1,752,768
AUA	1,144,375		1,257,094		1,254,962		1,315,442		1,325,370
Total AUM/A	2,754,052		2,871,967		2,895,841		3,003,486		3,078,138
Subscription	15,916,955		16,072,848		16,248,598		16,641,631		16,364,088
Total Platform Accounts	18,671,007		18,944,815		19,144,439		19,645,117		19,442,226
Advisors
AUM/A	38,809		38,078		38,697		38,814		38,484
Subscription	68,439		69,318		69,973		70,262		71,568
Total Advisors	107,248		107,396		108,670		109,076		110,052

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The following tables summarize the changes in the amount of AUM/A assets and number of AUM/A accounts:


	Asset Rollforward - Three Months Ended June 30, 2024
	As of March 31,		Gross				Net		Market				As of June 30,
	2024		Sales		Redemptions		Flows		Impact		Reclassifications		2024

	(in millions, except account data)
AUM	$	452,464	$	32,468	$	(18,900)	$	13,568	$	4,186	$	1,760	$	471,978
AUA	471,401		32,847		(35,790)		(2,943)		6,032		(3,011)		471,479
Total AUM/A	$	923,865	$	65,315	$	(54,690)	$	10,625	$	10,218	$	(1,251)	$	943,457
Fee-Based Accounts	3,003,486						82,230				(7,578)		3,078,138

The above AUM/A gross sales figures for the three months ended June 30, 2024 include $18.2 billion in new client conversions. We onboarded an additional $149.6 billion in subscription conversions during the three months ended June 30, 2024 bringing total conversions for the three months ended June 30, 2024 to $167.8 billion.


	Asset Rollforward - Six Months Ended June 30, 2024
	As of December 31,		Gross				Net		Market				As of June 30,
	2023		Sales		Redemptions		Flows		Impact		Reclassifications		2024

	(in millions, except account data)
AUM	$	416,001	$	64,595	$	(38,501)	$	26,094	$	26,880	$	3,003	$	471,978
AUA	430,846		78,443		(61,192)		17,251		28,715		(5,333)		471,479
Total AUM/A	$	846,847	$	143,038	$	(99,693)	$	43,345	$	55,595	$	(2,330)	$	943,457
Fee-Based Accounts	2,895,841						194,863				(12,566)		3,078,138

The above AUM/A gross sales figures for the six months ended June 30, 2024 include $48.0 billion in new client conversions. We onboarded an additional $180.7 billion in subscription conversions during the six months ended June 30, 2024 bringing total conversions for the six months ended June 30, 2024 to $228.7 billion.

Asset and account figures in the “Reclassifications” column for the three and six months ended June 30, 2024 represent immaterial amounts that were reclassified between AUM, AUA and subscription to reflect updated customer billing arrangements. These reclassifications have no impact on total platform assets or accounts.

Envestnet Data & Analytics Segment

The following table provides information regarding the number of paid end-users and firms using the Envestnet Data & Analytics platform:


	As of
	June 30,	September 30,	December 31,	March 31,	June 30,
	2023	2023	2023	2024	2024

	(in millions, except number of firms data)
Number of paid end-users	38.0	42.3	38.3	43.8	44.3
Number of firms	1,339	1,322	1,324	1,323	1,182

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Operational Highlights


	Three Months Ended
	June 30,
	2024		2023		$ Change		% Change

	(in thousands, except percentages)
Revenue:
Envestnet Wealth Solutions:
Asset-based	$	219,485	$	185,762	$	33,723	18	%
Subscription-based	84,734		79,744		4,990		6	%
Total recurring revenue	304,219		265,506		38,713		15	%
Professional services and other revenue	7,889		10,318		(2,429)		(24)	%
Total Envestnet Wealth Solutions revenue	$	312,108	$	275,824	$	36,284	13	%

Envestnet Data & Analytics:
Subscription-based	$	33,254	$	35,215	$	(1,961)	(6)	%
Total recurring revenue	33,254		35,215		(1,961)		(6)	%
Professional services and other revenue	2,911		1,395		1,516		109	%
Total Envestnet Data & Analytics revenue	$	36,165	$	36,610	$	(445)	(1)	%

Total revenue	$	348,273	$	312,434	$	35,839	11	%

Net loss attributable to Envestnet, Inc.	$	(79,201)	$	(21,416)	$	(57,785)	*
Net loss attributable to Envestnet, Inc. per share - basic and diluted	$	(1.44)	$	(0.39)	$	(1.05)	*

Adjusted EBITDA**	$	77,809	$	56,044	$	21,765	39	%
Adjusted net income**	$	36,360	$	30,391	$	5,969	20	%
Adjusted net income per diluted share**	$	0.55	$	0.46	$	0.09	20	%

__________________________________________________________

* Not meaningful

**Non-GAAP financial measure. See "Non-GAAP Financial Measures" below for definitions and reconciliations of non-GAAP measures.

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Results of Operations

Three months ended June 30, 2024 compared to three months ended June 30, 2023


	Three Months Ended June 30,
	2024			2023
		Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change

	(in thousands)			(in thousands)				(in thousands)
Revenue:
Asset-based		$	219,485	63	%	$	185,762	59	%	$	33,723	18	%
Subscription-based		117,988		34	%	114,959		37	%	3,029		3	%
Total recurring revenue		337,473		97	%	300,721		96	%	36,752		12	%
Professional services and other revenue		10,800		3	%	11,713		4	%	(913)		(8)	%
Total revenue		348,273		100	%	312,434		100	%	35,839		11	%
Operating expenses:
Direct expense		144,351		41	%	124,209		40	%	20,142		16	%
Employee compensation		104,066		30	%	117,097		37	%	(13,031)		(11)	%
General and administrative		52,924		15	%	54,375		17	%	(1,451)		(3)	%
Depreciation and amortization		45,733		13	%	32,065		10	%	13,668		43	%
Goodwill impairment		96,269		28	%	—		—	%	96,269		100	%
Gain on deconsolidation		(19,523)		(6)	%	—		—	%	(19,523)		(100)	%
Total operating expenses		423,820		122	%	327,746		105	%	96,074		29	%
Loss from operations		(75,547)		(22)	%	(15,312)		(5)	%	(60,235)		*
Other expense, net		(4,788)		(1)	%	(5,016)		(2)	%	228		5	%
Loss before income tax provision (benefit) and equity method investments		(80,335)		(23)	%	(20,328)		(7)	%	(60,007)		*
Income tax provision (benefit)		(652)		—	%	418		—	%	(1,070)		*
Gain (loss) from equity method investments		482		—	%	(2,386)		(1)	%	$	2,868	120	%
Net loss		(79,201)		(23)	%	(23,132)		(7)	%	(56,069)		*
Add: Net loss attributable to non-controlling interest		—		—	%	1,716		1	%	(1,716)		(100)	%
Net loss attributable to Envestnet, Inc.		$	(79,201)	(23)	%	$	(21,416)	(7)	%	$	(57,785)	*

__________________________________________________________

*Not meaningful

Asset-based recurring revenue

Asset-based recurring revenue increased $33.7 million, or 18%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

The number of financial advisors with asset-based recurring revenue on our technology platforms decreased from approximately 39,000 as of June 30, 2023 to approximately 38,000 as of June 30, 2024, and the number of AUM/A client accounts increased from approximately 2.8 million as of June 30, 2023 to approximately 3.1 million as of June 30, 2024.

As a percentage of total revenue, asset-based recurring revenue increased 4% points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

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Subscription-based recurring revenue

Subscription-based recurring revenue increased $3.0 million, or 3%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to an increase of $5.0 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of $2.0 million in the Envestnet Data & Analytics segment, which is primarily attributable to a loss in access to data in the research business and continued impact from the regional banking crisis.

As a percentage of total revenue, subscription-based recurring revenue decreased 3% points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to the increase in total revenue period over period.

Professional services and other revenue

Professional services and other revenue decreased $0.9 million, or 8%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to timing of the completion of customer projects and deployments, partially offset by an increase in revenue recognized in the Envestnet Data & Analytics segment as a result of point in time revenue recognized on customer deployments.

Direct expense

Direct expense increased $20.1 million, or 16%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to an increase in asset-based direct expense, which directly correlates with the increase to asset-based recurring revenue during the period.

Employee compensation

Employee compensation decreased $13.0 million, or 11%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to decreases in severance expense of $7.6 million, salaries, benefits and related payroll taxes of $5.7 million and stock-based compensation of $3.6 million primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $5.0 million.

As a percentage of total revenue, employee compensation expense decreased 7% points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to the decrease in employee compensation expense coupled with the increase in total revenue period over period.

General and administrative

General and administrative expense decreased $1.5 million, or 3%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to decreases in professional fees of $2.3 million, marketing costs of $1.5 million and other immaterial decreases within general and administrative expense, partially offset by increases in restructuring charges and transaction costs of $1.9 million and litigation, regulatory and other governance related expenses of $1.9 million.

Depreciation and amortization

Depreciation and amortization expense increased $13.7 million, or 43%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to an increase in amortization related to internally developed software of $15.8 million primarily a result of writing off $12.9 million of net capitalized internally developed software costs during the three months ended June 30, 2024, partially offset by decreases in amortization related to intangible assets of $1.3 million and depreciation related to property and equipment of $0.9 million.

As a percentage of total revenue, depreciation and amortization expense increased 3% points for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to writing off $12.9 million of net capitalized internally developed software costs during the three months ended June 30, 2024.

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Goodwill impairment

Goodwill impairment increased $96.3 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 as a result of the recognition of a non-cash impairment charge to goodwill within the Envestnet Data & Analytics segment during the three months ended June 30, 2024.

Gain on deconsolidation

Gain on deconsolidation increased $19.5 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 due to the recognition of a non-cash gain on deconsolidation of a non-controlling financial interest during the three months ended June 30, 2024.

Other expense, net

Other expense, net decreased $0.2 million, or 5%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to a $1.4 million decrease in interest expense, net and other immaterial decreases within other expense, net, partially offset by a $1.4 million increase in fair market value adjustments to investments in private companies.

Income tax provision (benefit)

For the three months ended June 30, 2024 and 2023, our effective tax rate of 0.8% and (1.8)%, respectively, differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

In December 2021, the Organization for Economic Co-Operation and Development released Model Global Anti-Base Erosion rules under Pillar Two. These rules provide for the taxation of certain large multinational corporations at a minimum rate of 15%, calculated on a jurisdictional basis. Certain countries in which we operate have enacted legislation to implement many aspects of the Pillar Two rules beginning on January 1, 2024, with certain remaining impacts to be effective from January 1, 2025. We do not currently anticipate that Pillar Two legislation will have a material impact on our consolidated financial statements, but we will continue to monitor future legislation and any additional guidance that is issued.

Gain (loss) from equity method investments

Gain from equity method investments increased $2.9 million, or 120%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to a $2.1 million increase in dilution gain on equity method investee share issuances.

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Six months ended June 30, 2024 compared to six months ended June 30, 2023


	Six Months Ended June 30,
	2024			2023
		Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change

	(in thousands)			(in thousands)				(in thousands)
Revenue:
Asset-based		$	422,101	63	%	$	362,694	59	%	$	59,407	16	%
Subscription-based		235,450		35	%	232,038		38	%	3,412		1	%
Total recurring revenue		657,551		98	%	594,732		97	%	62,819		11	%
Professional services and other revenue		15,672		2	%	16,409		3	%	(737)		(4)	%
Total revenue		673,223		100	%	611,141		100	%	62,082		10	%
Operating expenses:
Direct expense		270,984		40	%	233,888		38	%	37,096		16	%
Employee compensation		207,718		31	%	231,312		38	%	(23,594)		(10)	%
General and administrative		104,989		16	%	108,725		18	%	(3,736)		(3)	%
Depreciation and amortization		79,625		12	%	63,585		10	%	16,040		25	%
Goodwill impairment		96,269		14	%	—		—	%	96,269		100	%
Gain on deconsolidation		(19,523)		(3)	%	—		—	%	(19,523)		(100)	%
Total operating expenses		740,062		110	%	637,510		104	%	102,552		16	%
Loss from operations		(66,839)		(10)	%	(26,369)		(4)	%	(40,470)		*
Other expense, net		(9,169)		(1)	%	(10,011)		(2)	%	842		8	%
Loss before income tax provision and equity method investments		(76,008)		(11)	%	(36,380)		(6)	%	(39,628)		(109)	%
Income tax provision		853		—	%	24,187		4	%	(23,334)		(96)	%
Loss from equity method investments		(1,801)		—	%	(5,326)		(1)	%	$	3,525	66	%
Net loss		(78,662)		(12)	%	(65,893)		(11)	%	(12,769)		(19)	%
Add: Net loss attributable to non-controlling interest		1,974		—	%	3,249		1	%	(1,275)		(39)	%
Net loss attributable to Envestnet, Inc.		$	(76,688)	(11)	%	$	(62,644)	(10)	%	$	(14,044)	(22)	%

__________________________________________________________

*Not meaningful

Asset-based recurring revenue

Asset-based recurring revenue increased $59.4 million, or 16%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to an increase in asset values applicable to our quarterly billing cycles, which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter.

As a percentage of total revenue, asset based recurring revenue increased 4% points for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the increase in asset-based recurring revenue period over period.

Subscription-based recurring revenue

Subscription-based recurring revenue increased $3.4 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to an increase of $8.7 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of $5.3 million in the Envestnet Data & Analytics segment, which is primarily attributable to a loss in access to data in the research business and continued impact from the regional banking crisis.

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As a percentage of total revenue, subscription-based recurring revenue decreased 3% points for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the increase in total revenue period over period.

Professional services and other revenue

Professional services and other revenue decreased $0.7 million, or 4%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to timing of the completion of customer projects and deployments, partially offset by an increase in revenue recognized in the Envestnet Data & Analytics segment as a result of point in time revenue recognized on customer deployments.

Direct expense

Direct expense increased $37.1 million, or 16%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to an increase in asset-based direct expense, which directly correlates with the increase to asset-based recurring revenue during the period.

Employee compensation

Employee compensation decreased $23.6 million, or 10%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to decreases in salaries, benefits and related payroll taxes of $12.4 million, severance expense of $10.3 million and stock-based compensation of $4.1 million primarily related to the reduction in force initiative that began in the first quarter of 2023, as well as a fourth quarter 2022 organizational realignment, and other immaterial decreases within employee compensation, partially offset by an increase in incentive compensation of $4.3 million.

As a percentage of total revenue, employee compensation expense decreased 7% points for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to the decrease in employee compensation expense coupled with the increase in total revenue period over period.

General and administrative

General and administrative expense decreased $3.7 million, or 3%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to decreases in professional fees of $2.9 million and marketing costs of $2.4 million, partially offset by increases in litigation, regulatory and other governance related expenses of $1.1 million and other immaterial increases within general and administrative expense.

Depreciation and amortization

Depreciation and amortization expense increased $16.0 million, or 25%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to an increase in amortization related to internally developed software of $20.6 million primarily a result of writing off $12.9 million of net capitalized internally developed software costs during the three months ended June 30, 2024, partially offset by decreases in amortization related to intangible assets of $3.5 million and depreciation related to property and equipment of $1.1 million.

Goodwill impairment

Goodwill impairment increased $96.3 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 as a result of the recognition of a non-cash impairment charge to goodwill within the Envestnet Data & Analytics segment during the six months ended June 30, 2024.

Gain on deconsolidation

Gain on deconsolidation increased $19.5 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 due to the recognition of a non-cash gain on deconsolidation of a non-controlling financial interest during the six months ended June 30, 2024.

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Other expense, net

Other expense, net decreased $0.8 million, or 8%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due to a $2.2 million decrease in interest expense, net, partially offset by a $1.4 million increase in fair market value adjustments to investments in private companies.

Income tax provision

For the six months ended June 30, 2024 and 2023, our effective tax rate of (1.1)% and (58.0)%, respectively, differed from the statutory rate primarily due to the increase in the valuation allowance the Company has placed on a portion of its U.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, uncertain tax positions and the impact of state and local taxes offset by federal and state R&D credits.

Loss from equity method investments

Loss from equity method investments decreased $3.5 million, or 66%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily due a $2.1 million increase in dilution gain on equity method investee share issuances and a $1.4 million decrease in loss allocations from equity method investments.

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Segment Results

Envestnet Wealth Solutions

Three months ended June 30, 2024 compared to three months ended June 30, 2023


	Three Months Ended June 30,
	2024			2023
		Amount		% of Revenue		Amount		% of Revenue		$ Change		% Change

	(in thousands)			(in thousands)				(in thousands)
Revenue:
Asset-based		$	219,485	70	%	$	185,762	67	%	$	33,723	18	%
Subscription-based		84,734		27	%	79,744		29	%	4,990		6	%
Total recurring revenue		304,219		97	%	265,506		96	%	38,713		15	%
Professional services and other revenue		7,889		3	%	10,318		4	%	(2,429)		(24)	%
Total revenue		312,108		100	%	275,824		100	%	36,284		13	%
Operating expenses:
Direct expense		137,177		44	%	118,421		43	%	18,756		16	%
Employee compensation		77,210		25	%	77,898		28	%	(688)		(1)	%
General and administrative		25,698		8	%	31,225		11	%	(5,527)		(18)	%
Depreciation and amortization		38,375		12	%	25,575		9	%	12,800		50	%
Gain on deconsolidation		(19,523)		(6)	%	—		—	%	(19,523)		(100)	%
Total operating expenses		258,937		83	%	253,119		92	%	5,818		2	%
Income from operations		$	53,171	17	%	$	22,705	8	%	$

ENVESTNET, INC. 10-Q