Envestnet Reports First Quarter 2019 Financial Results

CHICAGO–(BUSINESS WIRE)–Envestnet (NYSE: ENV), a leading provider of intelligent systems for
wealth management and financial wellness, today reported financial
results for its quarter ended March 31, 2019.

  Three months ended  
Key Financial Metrics March 31, %
(in millions except per share data) 2019   2018 Change
GAAP:
Total revenues $ 199.7 $ 198.0 1%
Net income (loss) $ (18.3 ) $ 8.0 n/m
Net income (loss) per diluted share attributable to Envestnet, Inc. $ (0.38 ) $ 0.17 n/m
 
Non-GAAP:
Adjusted net revenues(1) $ 145.8 $ 140.4 4%
Adjusted EBITDA(1) $ 34.0 $ 32.8 4%
Adjusted net income(1) $ 19.4 $ 17.7 10%
Adjusted net income per diluted share(1) $ 0.39 $ 0.37 5%
 

n/m – Not meaningful

 

“In the first quarter, Envestnet grew revenue, adjusted EBITDA and
adjusted earnings per share, overcoming the impact of challenging
capital markets in the fourth quarter of 2018,” said Jud Bergman,
Chairman and CEO.

“We continue to execute on our vision for enabling financial wellness,
having recently formed the Advisor Credit Exchange and closed on our
acquisition of PIEtech®, creator of MoneyGuide financial planning
applications. We are focused on enabling advisors’ delivery of unified
advice to their clients, as they achieve better financial outcomes and
improve the lives of millions of investors,” concluded Mr. Bergman.

Financial Results for the First Quarter of 2019:

Asset-based recurring revenues decreased 10% from the prior year period,
and represented 55% of total revenues for the first quarter of 2019,
compared to 61% of total revenues for the same period in 2018.
Subscription-based recurring revenues increased 19% from the prior year
period, and represented 42% of total revenues the first quarter of 2019
compared to 35% for the same period in 2018. Professional services and
other non-recurring revenues increased 7% from the prior year period.
Total revenues increased 1% to $199.7 million for the first quarter of
2019 from $198.0 million for the first quarter of 2018.

Total operating expenses for the first quarter of 2019 increased 5% to
$208.4 million from $198.7 million in the prior year period. Cost of
revenues decreased 2% to $61.6 million for the first quarter of 2019
from $62.9 million for the prior year period. Compensation and benefits
increased 4% to $86.7 million for the first quarter of 2019 from $83.5
million for the prior year period. Compensation and benefits were 43% of
total revenues for the first quarter of 2019, compared to 42% in the
prior year period. General and administration expenses increased 24% to
$40.5 million for the first quarter of 2019 from $32.7 million for the
prior year period. General and administrative expenses were 20% of total
revenues for the first quarter of 2019, compared to 17% in the prior
year period.

Loss from operations was $8.7 million for the first quarter of 2019
compared to $0.7 million for the first quarter of 2018. Net loss was
$18.3 million for the first quarter of 2019 compared to net income of
$8.0 million for the first quarter of 2018. Net loss per share
attributable to Envestnet, Inc. was $0.38 for the first quarter of 2019
compared to net income per diluted share attributable to Envestnet, Inc.
of $0.17 for the first quarter of 2018.

Adjusted net revenues(1) for the first quarter of 2019
increased 4% to $145.8 million from $140.4 million for the prior year
period. Adjusted EBITDA(1) for the first quarter of 2019
increased 4% to $34.0 million from $32.8 million for the prior year
period. Adjusted net income(1) increased 10% for the first
quarter of 2019 to $19.4 million from $17.7 million for the prior year
period. Adjusted net income per diluted share(1) for the
first quarter of 2019 increased 5% to $0.39 from $0.37 in the first
quarter of 2018.

Outlook

The Company provided the following outlook for the second quarter ended
June 30, 2019 and full year ended December 31, 2019. This outlook is
based on the market value of assets on March 31, 2019 and includes the
contribution from PIEtech®, Inc. beginning May 1, 2019, the date the
acquisition was closed.

In Millions Except Adjusted EPS   2Q 2019   FY 2019
GAAP:        
Revenues:
Asset-based $ 118.0 $ 119.0
Subscription-based (a) (a)
Total recurring revenues (a) (a)
Professional services and other revenues (a) (a)
Total revenues (a) (a) (a)

  –  

(a)
 
Asset-based cost of revenues $ 59.0 $ 60.0 $ 236.0 $ 237.0
Total cost of revenues $ 72.0 $ 73.0
 
Net income (b) (b) (b) (b)
 
Diluted shares outstanding 52.8
Net income per diluted share (b) (b) (b) (b)
 
Non-GAAP:
Adjusted revenues (1):
Asset-based $ 118.0 $ 119.0
Subscription-based 95.0   96.0  
Total recurring revenues $ 213.0 $ 215.0
Professional services and other revenues 10.5   11.5  
Total revenues $ 223.5 $ 226.5 $ 902.0 $ 912.0
 
Adjusted net revenues (1) $ 165.0 $ 168.0 $ 665.0 $ 676.0
 
Adjusted EBITDA(1) $ 42.5 $ 43.0 $ 190.0 $ 195.0
Adjusted net income per diluted share(1) $

0.44

$

2.08

$

2.15

(a)

 

The Company does not currently forecast these GAAP revenue
measures, due to pending purchase accounting for the recently
completed PortfolioCenter and PIEtech acquisitions. Accordingly,
the Company also does not provide reconciliations of guidance for
adjusted revenues to comparable GAAP measures due to the
uncertainty of the deferred revenue fair value adjustment related
to acquisitions.

 

(b)

The Company does not forecast net income and net income per
diluted share due to the unpredictable nature of various items
adjusted for non-GAAP disclosure purposes, including the periodic
GAAP income tax provision.

Adjusted net revenues is a new non-GAAP financial metric – see footnote
1 on page 3 for more information.

Conference Call

Envestnet will host a conference call to discuss first quarter 2019
financial results today at 5:00 p.m. ET. The live webcast can be
accessed from Envestnet’s investor relations website at http://ir.envestnet.com/.
The call can also be accessed live over the phone by dialing (800)
289-0438, or for international callers (323) 794-2423. A replay will be
available two hours after the call and can be accessed by dialing (844)
512-2921 or (412) 317-6671 for international callers; the conference ID
is 6181257. The replay will be available until Wednesday, May 15, 2019.

About Envestnet

Envestnet, Inc. (NYSE: ENV) is a leading provider of intelligent systems
for wealth management and financial wellness. Envestnet’s unified
technology empowers enterprises and advisors to more fully understand
their clients and deliver actionable intelligence that drives better
outcomes and improves lives

Envestnet Wealth enables enterprises and advisors to better
manage client outcomes and strengthen their practices through its
leading Wealth Management Operating System and advanced portfolio
solutions. Envestnet | Tamarac provides portfolio
management, reporting, trading, rebalancing and client portal solutions
for registered independent advisors (“RIAs”). Envestnet
MoneyGuide
provides goals-based financial planning applications. Envestnet
Data & Analytics
 enables innovation and insights through its Envestnet
| Yodlee
 data aggregation platform.

Nearly 97,000 advisors and more than 3,800 companies including: 17 of
the 20 largest U.S. banks, 43 of the 50 largest wealth management and
brokerage firms, over 500 of the largest RIAs and hundreds of Internet
services companies, leverage Envestnet technology and services.
Envestnet solutions enhance knowledge of the client, accelerate client
on-boarding, improve client digital experiences and help drive better
outcomes for enterprises, advisors and their clients.

For more information on Envestnet, please visit www.envestnet.com
and follow us on twitter @ENVintel.

(1) Non-GAAP Financial Measures

“Adjusted revenues” excludes the effect of purchase accounting on the
fair value of acquired deferred revenue. Under GAAP, we record at fair
value the acquired deferred revenue for contracts in effect at the time
the entities were acquired. Consequently, revenue related to acquired
entities for periods subsequent to the acquisition does not reflect the
full amount of revenue that would have been recorded by these entities
had they remained stand-alone entities.

“Adjusted net revenues” represents adjusted revenues less asset-based
cost of revenues. Under GAAP, we are required to recognize as revenue
certain fees paid to investment managers and other third parties needed
for implementation of investment solutions included in our assets under
management. Those same fees also are required to be recorded as cost of
revenues. This non-GAAP metric presents adjusted revenues without such
fees included, as they have no impact on our profitability.

“Adjusted EBITDA” represents net income before deferred revenue fair
value adjustment, interest income, interest expense, accretion on
contingent consideration and purchase liability, income tax provision
(benefit), depreciation and amortization, non-cash compensation expense,
restructuring charges and transaction costs, severance, litigation
related expense, foreign currency, non-income tax expense adjustment,
loss allocation from equity method investment and loss attributable to
non-controlling interest.

“Adjusted net income” represents net income before deferred revenue fair
value adjustment, accretion on contingent consideration and purchase
liability, non-cash interest expense, non-cash compensation expense,
restructuring charges and transaction costs, severance, amortization of
acquired intangibles, litigation related expense, foreign currency,
non-income tax expense adjustment, loss allocation from equity method
investment and loss attributable to non-controlling interest.
Reconciling items are presented gross of tax, and a normalized tax rate
is applied to the total of all reconciling items to arrive at adjusted
net income.

“Adjusted net income per diluted share” represents adjusted net income
divided by the diluted number of weighted-average shares outstanding.

See reconciliation of Non-GAAP Financial Measures on pages 9-11 of this
press release. Reconciliations are not provided for guidance on such
measures as the Company is unable to predict the amounts to be adjusted,
such as the GAAP tax provision. The Company’s Non-GAAP Financial
Measures should not be viewed as a substitute for revenues, net income
or net income per share determined in accordance with GAAP.

Cautionary Statement Regarding Forward-Looking Statements

The forward-looking statements made in this press release and its
attachments concerning, among other things, Envestnet, Inc.’s expected
financial performance and outlook for the second quarter and full year
of 2019, its strategic operational plans and growth strategy are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements involve risks and
uncertainties and the Company’s actual results could differ materially
from the results expressed or implied by such forward-looking
statements. Furthermore, reported results should not be considered as an
indication of future performance. The potential risks, uncertainties and
other factors that could cause actual results to differ from those
expressed by the forward-looking statements in this press release
include, but are not limited to, the possibility that the anticipated
benefits of the Company’s acquisitions of FolioDynamix and PIEtech, Inc.
will not be realized to the extent or when expected, difficulty in
sustaining rapid revenue growth, which may place significant demands on
the Company’s administrative, operational and financial resources, the
concentration of nearly all of our revenues from the delivery of our
solutions and services to clients in the financial services industry,
our reliance on a limited number of clients for a material portion of
our revenues, the renegotiation of fee percentages or termination of our
services by our clients, our ability to identify potential acquisition
candidates, complete acquisitions and successfully integrate acquired
companies, the impact of market and economic conditions on revenues, our
inability to successfully execute the conversion of clients’ assets from
their technology platform to our technology platforms in a timely and
accurate manner, our ability to expand our relationships with existing
customers, grow the number of customers and derive revenue from new
offerings such as our data analytics solutions and market research
services and premium financial applications (“FinApps”), compliance
failures, adverse judicial or regulatory proceedings against
us, liabilities associated with potential, perceived or actual breaches
of fiduciary duties and/or conflicts of interest, changes in laws and
regulations, including tax laws and regulations, general economic
conditions, political and regulatory conditions, the impact of
fluctuations in market condition and interest rates on the demand for
our products and services and the value of assets under management or
administration, the impact of market conditions on our ability to issue
debt and equity, the impact of fluctuations in interest rates on our
cost of borrowing, our financial performance, the results of our
investments in research and development, our data center and other
infrastructure, our ability to maintain the security and integrity of
our systems and facilities and to maintain the privacy of personal
information, failure of our systems to work properly, our ability to
realize operating efficiencies, the advantages of our solutions as
compared to those of others, the failure to protect our intellectual
property rights, our ability to establish and maintain intellectual
property rights, our ability to retain and hire necessary employees and
appropriately staff our operations and management’s response to these
factors. More information regarding these and other risks, uncertainties
and factors is contained in the Company’s filings with the Securities
and Exchange Commission (“SEC”) which are available on the SEC’s website
at www.sec.gov
or the Company’s Investor Relations website at http://ir.envestnet.com/.
You are cautioned not to unduly rely on these forward-looking
statements, which speak only as of the date of this press release. All
information in this press release and its attachments is as of May 8,
2019 and, unless required by law, the Company undertakes no obligation
to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this press release or to
report the occurrence of unanticipated events.

Envestnet, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

   
March 31, December 31,
2019 2018
Assets
Current assets:
Cash and cash equivalents $ 245,735 $ 289,345
Fees receivable, net 66,365 68,004
Prepaid expenses and other current assets 36,916   23,557  
Total current assets 349,016   380,906  
 
 
Property and equipment, net 46,794 44,991
Internally developed software, net 42,771 38,209
Intangible assets, net 296,813 305,241
Goodwill 540,524 519,102
Operating lease right-of-use-assets, net 67,728
Other non-current assets 26,945   25,298  
Total assets $ 1,370,591   $ 1,313,747  
 
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities 101,457 133,298
Accounts payable 25,135 19,567
Operating lease liabilities 12,309
Convertible Notes due 2019 167,442 165,711
Contingent consideration 744 732
Deferred revenue 31,639   23,988  
Total current liabilities 338,726   343,296  
 
Convertible Notes due 2023 297,392 294,725
Contingent consideration 7,717
Deferred revenue 6,580 6,910
Non-current lease liabilities 73,377
Deferred rent and lease incentive 17,569
Deferred tax liabilities, net 809 640
Other non-current liabilities 24,452   18,005  
Total liabilities 749,053   681,145  
 
Equity:
Stockholders’ equity 622,719 633,700
Non-controlling interest (1,181 ) (1,098 )
Total liabilities and equity $ 1,370,591   $ 1,313,747  
 

Envestnet, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share information)

(unaudited)

 
Three Months Ended
March 31,
2019   2018
Revenues:
Asset-based $ 108,934 $ 121,153
Subscription-based 83,087   69,695  
Total recurring revenues 192,021 190,848
Professional services and other revenues 7,645   7,163  
Total revenues 199,666   198,011  
 
Operating expenses:
Cost of revenues 61,645 62,934
Compensation and benefits 86,717 83,540
General and administration 40,524 32,729
Depreciation and amortization 19,517   19,546  
Total operating expenses 208,403   198,749  
 
Loss from operations (8,737 ) (738 )
Other expense, net (5,763 ) (5,254 )
Loss before income tax provision (benefit) (14,500 ) (5,992 )
 
Income tax provision (benefit) 3,768   (13,994 )
 
Net income (loss) (18,268 ) 8,002
Add: Net loss attributable to non-controlling interest 83   102  
Net income (loss) attributable to Envestnet, Inc. $ (18,185 ) $ 8,104  
 
Net income (loss) per share attributable to Envestnet, Inc.:
Basic $ (0.38 ) $ 0.18  
 
Diluted $ (0.38 ) $ 0.17  
 
Weighted average common shares outstanding:
Basic 48,237,265   44,782,982  
 
Diluted 48,237,265   47,145,560  
 

Envestnet, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
Three Months Ended
March 31,
2019   2018
OPERATING ACTIVITIES:
Net income (loss) $ (18,268 ) $ 8,002
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 19,517 19,546
Deferred rent and lease incentive amortization 385
Provision for doubtful accounts 451 461
Deferred income taxes 169 (17,923 )
Stock-based compensation expense 12,864 8,495
Non-cash interest expense 6,880 3,209
Accretion on contingent consideration and purchase liability 240 101
Loss allocation from equity method investment 203 660
Changes in operating assets and liabilities, net of acquisitions:
Fees receivables, net 1,198 (10,191 )
Prepaid expenses and other current assets (13,346 ) (3,665 )
Other non-current assets (1,060 ) (2,461 )
Accrued expenses and other liabilities (34,495 ) (17,404 )
Accounts payable 5,179 1,594
Deferred revenue 7,039 7,056
Other non-current liabilities 854   1,382  
Net cash used in operating activities (12,575 ) (753 )
 
INVESTING ACTIVITIES:
Purchase of property and equipment (5,247 ) (4,988 )
Capitalization of internally developed software (7,185 ) (4,599 )
Acquisition of business (11,061 ) (178,583 )
Other (1,000 )  
Net cash used in investing activities (24,493 ) (188,170 )
 
FINANCING ACTIVITIES:
Proceeds from borrowings on revolving credit facility 195,000
Payments on revolving credit facility (15,000 )
Proceeds from exercise of stock options 3,163 2,404
Purchase of treasury stock for stock-based tax withholdings (9,819 ) (9,296 )
Issuance of restricted stock units 2   2  
Net cash provided by (used in) financing activities (6,654 ) 173,110
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH 112 (109 )
 
DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (43,610 ) (15,922 )
 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 289,671 62,115
   
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD (a) $ 246,061   $ 46,193  
 

(a) The following table provides a reconciliation of cash, cash
equivalents and restricted cash to amounts reported within the Condensed
Consolidated Balance Sheets:

  March 31,   December 31,
2019 2018
Cash and cash equivalents $ 245,735 $ 289,345
Restricted cash included in prepaid expenses and other current assets 158 158
Restricted cash included in other non-current assets 168   168
Total cash, cash equivalents and restricted cash $ 246,061   $ 289,671
 

Reconciliation of Non-GAAP Financial Measures

(in thousands)

(unaudited)

 
Three Months Ended
March 31,
2019   2018
Total revenues $ 199,666 $ 198,011
Deferred revenue fair value adjustment 6   4  
Adjusted revenues 199,672 198,015
Asset-based cost of revenues (53,842 ) (57,572 )
Adjusted net revenues $ 145,830   $ 140,443  
 
Net income (loss) $ (18,268 ) $ 8,002
Add (deduct):
Deferred revenue fair value adjustment 6 4
Interest income (1,510 ) (410 )
Interest expense 7,096 5,236
Accretion on contingent consideration and purchase liability 240 101
Income tax provision (benefit) 3,768 (13,994 )
Depreciation and amortization 19,517 19,546
Non-cash compensation expense 12,864 8,495
Restructuring charges and transaction costs 7,366 2,592
Severance 2,480 2,812
Foreign currency (1 ) (232 )
Non-income tax expense adjustment 210 (128 )
Loss allocation from equity method investment 203 660
Loss attributable to non-controlling interest 31     69  
Adjusted EBITDA $ 34,002   $ 32,753  
 

Envestnet, Inc.

Reconciliation of Non-GAAP Financial Measures

(in thousands, except share and per share information)

(unaudited)

 
Three Months Ended
March 31,
2019   2018
Net income (loss) $ (18,268 ) $ 8,002
Income tax provision (benefit) (1)   3,768     (13,994 )
Loss before income tax provision (benefit) (14,500 ) (5,992 )
Add (deduct):
Deferred revenue fair value adjustment 6 4
Accretion on contingent consideration and purchase liability 240 101
Non-cash interest expense 4,616 1,868
Non-cash compensation expense 12,864 8,495
Restructuring charges and transaction costs 7,366 2,592
Severance 2,480 2,812
Amortization of acquired intangibles 12,528 13,935
Foreign currency (1 ) (232 )
Non-income tax expense adjustment 210 (128 )
Loss allocation from equity method investment 203 660
Loss attributable to non-controlling interest   31     69  
Adjusted net income before income tax effect 26,043 24,184
Income tax effect (2)   (6,632 )   (6,530 )
Adjusted net income $ 19,411   $ 17,654  
 
Basic number of weighted-average shares outstanding 48,237,265 44,782,982
Effect of dilutive shares:
Options to purchase common stock 1,198,197 1,396,091
Unvested restricted stock units   656,798     966,487  
Diluted number of weighted-average shares outstanding   50,092,260     47,145,560  
 
Adjusted net income per share – diluted $ 0.39   $ 0.37  

____________________________________

(1)   For the three months ended March 31, 2019 and 2018, the effective
tax rate computed in accordance with US GAAP equaled (26.0)% and
233.5%, respectively.
(2) Estimated normalized effective tax rates of 25.5% and 27% have been
used to compute adjusted net income for the three months ended March
31, 2019 and 2018, respectively.
 

Reconciliation of Non-GAAP Financial Measures

Segment Information

(in thousands)

(unaudited)

 
Three months ended March 31, 2019
Envestnet Wealth  

Envestnet Data
& Analytics

  Nonsegment   Total
Revenues $ 152,705 $ 46,961 $ $ 199,666
Deferred revenue fair value adjustment 6       6  
Adjusted revenues 152,711 46,961 199,672
Less: Asset-based cost of revenues (53,842 )     (53,842 )
Adjusted net revenues $ 98,869   $ 46,961   $   $ 145,830  
 
Income (loss) from operations $ 16,844 $ (7,928 ) $ (17,653 ) $ (8,737 )
Add:
Deferred revenue fair value adjustment 6 6
Accretion on contingent consideration and purchase liability 240 240
Depreciation and amortization 11,267 8,250 19,517
Non-cash compensation expense 5,677 4,188 2,999 12,864
Restructuring charges and transaction costs 262 965 6,139 7,366
Non-income tax expense adjustment 200 10 210
Severance 350 2,048 82 2,480
Other 22 1 2 25
Loss attributable to non-controlling interest 31       31  
Adjusted EBITDA $ 34,899   $ 7,534   $ (8,431 ) $ 34,002  
 
 
Three Months Ended March 31, 2018
Envestnet Wealth

Envestnet Data
& Analytics

Nonsegment Total
Revenues $ 155,988 $ 42,023 $ $ 198,011
Deferred revenue fair value adjustment (2 ) 6     4  
Adjusted revenues 155,986 42,029 198,015
Less: Asset-based cost of revenues (57,572 )     (57,572 )
Adjusted net revenues $ 98,414   $ 42,029   $   $ 140,443  
 
Income (loss) from operations $ 15,861 $ (4,409 ) $ (12,190 ) $ (738 )
Add:
Deferred revenue fair value adjustment (2 ) 6 4
Accretion on contingent consideration and purchase liability 101 101
Depreciation and amortization 11,473 8,073 19,546
Non-cash compensation expense 4,054 2,464 1,977 8,495
Restructuring charges and transaction costs 37 200 2,355 2,592
Non-income tax expense adjustment (128 ) (128 )
Severance 2,429 383 2,812
Loss attributable to non-controlling interest 69       69  
Adjusted EBITDA $ 33,894   $ 6,717   $ (7,858 ) $ 32,753  
 

Contacts

Investor Relations
[email protected]
(312)
827-3940

Media Relations
[email protected]

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