Envestnet Reports Fourth Quarter 2020 Financial Results

Envestnet (NYSE: ENV), a leading provider of intelligent systems for wealth management and financial wellness, today reported financial results for its quarter and year ended December 31, 2020.

 

Three Months Ended

 

 

 

Year Ended

 

 

Key Financial Metrics

 

December 31,

 

%

 

December 31,

 

%

(in millions except per share data)

 

2020

 

2019

 

Change

 

2020

 

 

2019

 

 

Change

GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

263.8

 

 

$

239.9

 

 

10

%

 

$

998.2

 

 

 

$

900.1

 

 

 

11

%

Net income (loss)

 

$

7.7

 

 

$

3.4

 

 

126

%

 

$

(2.6

)

 

 

$

(17.2

)

 

 

(85

)%

Net income (loss) per diluted share attributable to Envestnet, Inc.

 

$

0.13

 

 

$

0.07

 

 

86

%

 

$

(0.06

)

 

 

$

(0.33

)

 

 

(82

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP:

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted revenues⁽¹⁾

 

$

263.9

 

 

$

242.5

 

 

9

%

 

$

998.9

 

 

 

$

909.4

 

 

 

10

%

Adjusted EBITDA⁽¹⁾

 

$

65.0

 

 

$

61.5

 

 

6

%

 

$

242.9

 

 

 

$

193.3

 

 

 

26

%

Adjusted net income⁽¹⁾

 

$

38.3

 

 

$

37.1

 

 

3

%

 

$

141.5

 

 

 

$

113.4

 

 

 

25

%

Adjusted net income per diluted share⁽¹⁾

 

$

0.69

 

 

$

0.69

 

 

0

%

 

$

2.57

 

 

 

$

2.15

 

 

 

20

%

“Fourth quarter results were strong, with revenue, adjusted EBITDA and adjusted earnings per share exceeding our expectations,” said Bill Crager, Chief Executive Officer.

“We enter 2021 with an expanded strategic purpose, and a bold investment plan to capture the sizable opportunity before us, as we work to make financial wellness a reality for everyone.” concluded Mr. Crager.

Financial Results for the Fourth Quarter of 2020 Compared to the Fourth Quarter of 2019:

Total revenues increased 10% to $263.8 million for the fourth quarter of 2020 from $239.9 million for the fourth quarter of 2019. Asset-based recurring revenues increased 14% from the prior year period, and represented 55% of total revenues for the fourth quarter of 2020, compared to 54% of total revenues for the same period in 2019. Subscription-based recurring revenues increased 6% from the prior year period, and represented 41% of total revenues for the fourth quarter of 2020, compared to 43% of total revenues for the same period in 2019. Professional services and other non-recurring revenues increased 3% from the prior year period.

Total operating expenses for the fourth quarter of 2020 increased 11% to $252.4 million from $226.9 million in the prior year period. Cost of revenues increased 14% to $83.6 million for the fourth quarter of 2020 from $73.2 million for the fourth quarter of 2019. Compensation and benefits increased 1% to $98.5 million for the fourth quarter of 2020 from $98.0 million for the prior year period. Compensation and benefits were 37% of total revenues for the fourth quarter of 2020, compared to 41% in the prior year period. General and administration expenses increased 51% to $41.7 million for the fourth quarter of 2020 from $27.6 million for the prior year period. General and administration expenses were 16% of total revenues for the fourth quarter of 2020, compared to 12% in the prior year period.

Income from operations was $11.4 million for the fourth quarter of 2020 compared to income from operations of $13.0 million for the fourth quarter of 2019. Net income attributable to Envestnet, Inc. was $7.2 million, or $0.13 per diluted share, for the fourth quarter of 2020 compared to net income of $3.6 million, or $0.07 per diluted share, for the fourth quarter of 2019.

Adjusted revenues⁽¹⁾ for the fourth quarter of 2020 increased 9% to $263.9 million from $242.5 million for the prior year period. Adjusted EBITDA⁽¹⁾ for the fourth quarter of 2020 increased 6% to $65.0 million from $61.5 million for the prior year period. Adjusted Net Income⁽¹⁾ for the fourth quarter of 2020 increased 3% to $38.3 million from $37.1 million for the prior year period. Adjusted Net Income per Diluted Share⁽¹⁾ for the fourth quarter of 2020 was $0.69, consistent with the fourth quarter of 2019.

Financial Results for the Full Year of 2020 Compared to the Full Year of 2019:

Total revenues increased 11% to $998.2 million for the year ended December 31, 2020 from $900.1 million for the year ended December 31, 2019. Asset-based recurring revenues increased 12% from the prior year period, and represented 54% of total revenues for the year ended December 31, 2020 consistent with the fourth quarter of 2019. Subscription-based revenues increased 13% from the prior year period, and represented 43% of total revenues for the year ended December 31, 2020 compared to 42% of total revenues for the same period in 2019. Professional services and other non-recurring revenues decreased 17% from the prior year period.

Total operating expenses for the year ended December 31, 2020 increased 7% to $978.8 million from $916.2 million in the prior year period. Cost of revenues increased 10% to $305.9 million for the year ended December 31, 2020 from $278.8 million for the year ended December 31, 2019. Compensation and benefits increased 4% to $399.0 million for the year ended December 31, 2020 from $383.6 million for the prior year period. Compensation and benefits were 40% of total revenues for the year ended December 31, 2020, compared to 43% in the prior year period. General and administration expenses increased 5% to $160.2 million for the year ended December 31, 2020 from $152.6 million for the prior year period. General and administration expenses were 16% of total revenues for the year ended December 31, 2020, compared to 17% in the prior year period.

Income from operations was $19.4 million for the year ended December 31, 2020 compared to loss from operations of $16.1 million for the year ended December 31, 2019. Net loss attributable to Envestnet, Inc. was $3.1 million, or $0.06 per diluted share, for the year ended December 31, 2020 compared to net loss of $16.8 million, or $0.33 per diluted share, for the year ended December 31, 2019.

Adjusted revenues⁽¹⁾ for the year ended December 31, 2020 increased 10% to $998.9 million from $909.4 million for the prior year period. Adjusted EBITDA⁽¹⁾ for the year ended December 31, 2020 increased 26% to $242.9 million from $193.3 million for the prior year period. Adjusted Net Income⁽¹⁾ increased 25% for the year ended December 31, 2020 to $141.5 million from $113.4 million for the prior year period. Adjusted Net Income per Diluted Share⁽¹⁾ for the year ended December 31, 2020 increased 20% to $2.57 from $2.15 in the year ended December 31, 2019.

Outlook

Envestnet provided the following outlook for the first quarter ending March 31, 2021 and full year ending December 31, 2021. This outlook is based on the market value of assets on December 31, 2020. We caution that we cannot predict the market value of our assets on any future date. See “Cautionary Statement Regarding Forward-Looking Statements.”

Highlights:

• Envestnet to surpass $1 billion in revenue for the first time, expecting to grow 10.5% to 12% compared to 2020.

• Accelerated investments in Financial Wellness ecosystem to drive higher long-term growth, resulting in expected Adjusted EBITDA to be slightly down from 2020.

• Adjusted earnings per share negatively impacted by $0.20 in 2021 due to early adoption of new convertible debt accounting standard.

In Millions Except Adjusted EPS		1Q 2021									FY 2021
GAAP:
Revenues:
Asset-based		$	158.5			-		$	159.5
Subscription-based		$	106.5			-		$	107.5
Total recurring revenues		$	265.0			-		$	267.0
Professional services and other revenues		$	5.0			-		$	6.0
Total revenues		$	270.0			-		$	273.0		$	1,104.7		-		$	1,119.7
Asset-based cost of revenues		$	85.0			-		$	85.5
Total cost of revenues		$	91.5			-		$	92.5
Net income		(a)				-		(a)			(a)			-		(a)
Diluted shares outstanding						65.4								65.9
Net Income per diluted share		(a)				-		(a)			(a)			-		(a)
Non-GAAP:
Adjusted revenues(1):
Asset-based		$	158.5			-		$	159.5
Subscription-based		$	106.5			-		$	107.5
Total recurring revenues		$	265.0			-		$	267.0
Professional services and other revenues		$	5.0			-		$	6.0
Total revenues		$	270.0			-		$	273.0		$	1,105.0		-		$	1,120.0
Adjusted EBITDA(1)		$	63.0			-		$	65.0		$	225.0		-		$	235.0
Adjusted net income per diluted share(1)					$	0.61					$	1.95		-		$	2.08

(a) 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.

Conference Call

Envestnet will host a conference call to discuss fourth quarter 2020 financial results today at 5:00 p.m. ET. The live webcast and accompanying presentation can be accessed from Envestnet’s investor relations website at http://ir.envestnet.com/. A replay of the webcast will be available on the investor relations website following the call.

About Envestnet

Envestnet, Inc. (NYSE: ENV) is transforming the way financial advice and wellness are delivered. Our mission is to empower advisors and financial service providers with innovative technology, solutions, and intelligence to make financial wellness a reality for everyone. Over 106,000 advisors and more than 5,100 companies including: 17 of the 20 largest U.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest RIAs and hundreds of FinTech companies, leverage Envestnet technology and services that 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 revenues has limitations as a financial measure, should be considered as supplemental in nature and are not meant as a substitute for revenues prepared in accordance with GAAP.

“Adjusted EBITDA” represents net income (loss) 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, fair market value adjustment on contingent consideration liability, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, non-recurring gains, loss allocation from equity method investments and (income) 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, fair market value adjustment on contingent consideration liability, amortization of acquired intangibles, litigation and regulatory related expenses, foreign currency, non-income tax expense adjustment, non-recurring gains, loss allocation from equity method investments and (income) 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. The normalized tax rate is based solely on the estimated blended statutory income tax rates in the jurisdictions in which we operate. We monitor the normalized tax rate based on events or trends that could materially impact the rate, including tax legislation changes and changes in the geographic mix of our operations.

“Adjusted net income per share” represents adjusted net income attributable to common stockholders divided by the diluted number of weighted‑average shares outstanding.

See reconciliation of Non-GAAP Financial Measures on pages 11-17 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 (loss) or net income (loss) 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 first quarter and full year of 2021, 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, a pandemic or health crisis, including the COVID-19 pandemic, and its impact on the global economy and capital markets, as well as our products, clients, vendors and employees, and our results of operations, the full extent of which may be unknown; the concentration 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 revenue; the renegotiation of fees by our clients; changes in the estimates of fair value of reporting units or of long-lived assets; the amount of our debt and our ability to service our debt; limitations on our ability to access information from third parties or charges for accessing such information; the targeting of some of our sales efforts at large financial institutions and large internet services companies which prolongs sales cycles, requires substantial upfront sales costs and results in less predictability in completing some of our sales; changes in investing patterns on the assets on which we derive revenue and the freedom of investors to redeem or withdraw investments generally at any time; 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; our ability to keep up with rapid technological change, evolving industry standards or changing requirements of clients; risks associated with our international operations; the competitiveness of our solutions and services as compared to those of others; liabilities associated with potential, perceived or actual breaches of fiduciary duties and/or conflicts of interest; harm to our reputation; our ability to successfully identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies; our ability to successfully execute the conversion of clients’ assets from their technology platform to our technology platforms in a timely and accurate manner; the failure to protect our intellectual property rights; our ability to introduce new solutions and services and enhancements; our ability to maintain the security and integrity of our systems and facilities and to maintain the privacy of personal information and potential liabilities for data security breaches; the effect of privacy laws and regulations, industry standards and contractual obligations and changes to these laws, regulations, standards and obligations on how we operate our business and the negative effects of failure to comply with these requirements; regulatory compliance failures; failure by our customers to obtain proper permissions or waivers for our use of disclosure of information; adverse judicial or regulatory proceedings against us; failure of our solutions, services or systems, or those of third parties on which we rely, to work properly; potential liability for use of inaccurate information by third parties provided by us; the occurrence of a deemed “change of control”; the uncertainty of the application and interpretation of certain tax laws; issuances of additional shares of common stock or issuances of shares of preferred stock or convertible securities on our existing stockholders; general economic conditions, political and regulatory conditions; global events, natural disasters, environmental disasters, terrorist attacks and pandemics, including their impact on the economy and trading markets; and management’s response to these factors. More information regarding these and other risks, uncertainties and factors is contained in our filings with the Securities and Exchange Commission (“SEC”) which are available on the SEC’s website at www.sec.gov or our 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 February 25, 2021 and, unless required by law, we undertake 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)
		December 31,					December 31,
		2020					2019
Assets
Current assets:
Cash and cash equivalents		$	384,565				$	82,505
Fees receivable, net		80,064					67,815
Prepaid expenses and other current assets		40,570					32,183
Total current assets		505,199					182,503
Property and equipment, net		47,969					53,756
Internally developed software, net		96,501					60,263
Intangible assets, net		435,041					505,589
Goodwill		906,773					879,850
Operating lease right-of-use assets, net		105,249					82,796
Other non-current assets		47,558					37,127
Total assets		$	2,144,290				$	1,801,884
Liabilities and Equity
Current liabilities:
Accrued expenses and other liabilities		$	158,548				$	137,944
Accounts payable		18,003					17,277
Operating lease liabilities		13,649					13,816
Contingent consideration		11,251					—
Deferred revenue		34,918					34,753
Total current liabilities		236,369					203,790
Convertible Notes		756,503					305,513
Revolving credit facility		—					260,000
Contingent consideration		1,308					9,045
Deferred revenue		1,813					5,754
Non-current operating lease liabilities		112,182					88,365
Deferred tax liabilities, net		34,740					29,481
Other non-current liabilities		25,557					32,360
Total liabilities		1,168,472					934,308
Equity:
Total stockholders’ equity		976,337					869,094
Non-controlling interest		(519		)			(1,518		)
Total liabilities and equity		$	2,144,290				$	1,801,884

Envestnet, Inc. Condensed Consolidated Statements of Operations (in thousands, except share and per share information) (unaudited)
		Three Months Ended										Year Ended
		December 31,										December 31,
		2020					2019					2020					2019
Revenues:
Asset-based		$	146,146				$	128,717				$	540,947				$	484,312
Subscription-based		109,080					102,885					426,507					378,813
Total recurring revenues		255,226					231,602					967,454					863,125
Professional services and other revenues		8,593					8,334					30,776					37,002
Total revenues		263,819					239,936					998,230					900,127
Operating expenses:
Cost of revenues		83,602					73,216					305,929					278,811
Compensation and benefits		98,547					97,964					398,970					383,554
General and administration		41,692					27,603					160,229					152,564
Depreciation and amortization		28,584					28,104					113,661					101,271
Total operating expenses		252,425					226,887					978,789					916,200
Income (loss) from operations		11,394					13,049					19,441					(16,073		)
Other expense, net		(8,940		)			(8,934		)			(27,486		)			(32,022		)
Income (loss) before income tax provision (benefit)		2,454					4,115					(8,045		)			(48,095		)
Income tax provision (benefit)		(5,240		)			698					(5,401		)			(30,893		)
Net income (loss)		7,694					3,417					(2,644		)			(17,202		)
Add: Net (income) loss attributable to non-controlling interest		(454		)			173					(466		)			420
Net income (loss) attributable to Envestnet, Inc.		$	7,240				$	3,590				$	(3,110	)			$	(16,782	)
Net income (loss) per share attributable to Envestnet, Inc.:
Basic		$	0.13				$	0.07				$	(0.06	)			$	(0.33	)
Diluted		$	0.13				$	0.07				$	(0.06	)			$	(0.33	)
Weighted average common shares outstanding:
Basic		53,960,769					52,574,128					53,589,232					50,937,919
Diluted		55,733,419					54,034,972					53,589,232					50,937,919

Envestnet, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
		Year Ended
		December 31,
		2020					2019
OPERATING ACTIVITIES:
Net loss		$	(2,644	)			$	(17,202	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		113,661					101,271
Deferred rent and lease incentive amortization		—					—
Provision for doubtful accounts		2,817					2,855
Deferred income taxes		(1,884		)			(39,630		)
Release of uncertain tax positions		(7,101		)			—
Non-cash compensation expense		59,637					60,444
Non-cash interest expense		18,515					19,246
Accretion on contingent consideration and purchase liability		1,688					1,772
Payments of contingent consideration		—					(578		)
Fair market value adjustment to contingent consideration liability		(3,105		)			(8,126		)
Gain on acquisition of equity method investment		(4,230		)			—
Loss allocation from equity method investments		5,399					2,361
Gain on life insurance proceeds		—					(5,000		)
Impairment of right of use assets		2,661					—
Other		(729		)			—
Changes in operating assets and liabilities, net of acquisitions:
Fees receivable, net		(15,055		)			1,139
Prepaid expenses and other current assets		(9,666		)			(6,440		)
Other non-current assets		(1,963		)			(5,234		)
Accrued expenses and other liabilities		22,109					(811		)
Accounts payable		(187		)			(2,863		)
Deferred revenue		(4,125		)			727
Other non-current liabilities		(5,962		)			4,795
Net cash provided by operating activities		169,836					108,726
INVESTING ACTIVITIES:
Purchases of property and equipment		(12,088		)			(19,847		)
Capitalization of internally developed software		(54,908		)			(34,096		)
Investments in private companies		(15,640		)			(5,250		)
Acquisitions of businesses, net of cash acquired		(20,257		)			(320,915		)
Proceeds from life insurance policy		—					5,000
Other		2,897					(600		)
Net cash used in investing activities		(99,996		)			(375,708		)

Envestnet, Inc. Condensed Consolidated Statements of Cash Flows (continued) (in thousands) (unaudited)
		Year Ended
		December 31,
		2020					2019
FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Notes due 2025		517,500					—
Convertible Notes due 2025 issuance costs		(14,540		)			—
Payment of Convertible Notes due 2019		—					(184,751		)
Proceeds from borrowings on revolving credit facility		45,000					345,000
Payments on revolving credit facility		(305,000		)			(85,000		)
Revolving credit facility issuance costs		—					(2,103		)
Capital contribution - non-controlling interest		606					—
Payments of deferred consideration on prior acquisitions		(1,879		)			—
Payments of contingent consideration		—					(171		)
Proceeds from exercise of stock options		10,760					10,592
Taxes paid in lieu of shares issued for stock-based compensation		(19,501		)			(23,107		)
Issuance of restricted stock units		4					5
Net cash provided by financing activities		232,950					60,465
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(831		)			(399		)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		301,959					(206,916		)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD		82,755					289,671
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD		$	384,714				$	82,755

The following table reconciles cash, cash equivalents and restricted cash from the consolidated balance sheets to amounts reported in the consolidated statements of cash flows:

		December 31,
		2020				2019
Cash and cash equivalents		$	384,565			$	82,505
Restricted cash included in prepaid expenses and other current assets		—				82
Restricted cash included in other non-current assets		149				168
Total cash, cash equivalents and restricted cash		$	384,714			$	82,755

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures (in thousands) (unaudited)
		Three Months Ended										Year Ended
		December 31,										December 31,
		2020					2019					2020					2019
Total revenues		$	263,819				$	239,936				$	998,230				$	900,127
Deferred revenue fair value adjustment (a)		85					2,601					692					9,271
Adjusted revenues		$	263,904				$	242,537				$	998,922				$	909,398
Net income (loss)		$	7,694				$	3,417				$	(2,644	)			$	(17,202	)
Add (deduct):
Deferred revenue fair value adjustment (a)		85					2,601					692					9,271
Interest income (b)		(262		)			(488		)			(1,112		)			(3,347		)
Interest expense (b)		9,597					8,175					31,504					32,520
Accretion on contingent consideration and purchase liability (c)		380					532					1,688					1,772
Income tax provision (benefit)		(5,240		)			698					(5,401		)			(30,893		)
Depreciation and amortization		28,584					28,104					113,661					101,271
Non-cash compensation expense (d)		13,916					17,203					57,113					60,444
Restructuring charges and transaction costs (e)		4,922					1,833					19,383					26,558
Severance (f)		6,544					7,220					25,110					15,367
Fair market value adjustment on contingent consideration liability (c)		(1,049		)			(8,126		)			(3,105		)			(8,126		)
Non-recurring litigation and regulatory related expenses (c)		1,796					814					7,825					2,879
Foreign currency (b)		184					(280		)			116					(72		)
Non-income tax expense adjustment (c)		(920		)			(1,106		)			421					374
Non-recurring gains (b)		(1,647		)			—					(5,877		)			—
Loss allocation from equity method investments (b)		1,119					854					5,399					2,361
(Income) loss attributable to non-controlling interest		(727		)			79					(1,830		)			110
Adjusted EBITDA		$	64,976				$	61,530				$	242,943				$	193,287

(a) For the three months ended December 31, 2020 and 2019, $85 and $2,599, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. For the years ended December 31, 2020 and 2019, $690 and $9,263, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. The remaining amounts for all periods were included within professional services and other revenues in the condensed consolidated statements of operations.

(b) Included within other expense, net in the condensed consolidated statements of operations.

(c) Included within general and administration expenses in the condensed consolidated statements of operations.

(d) For the three months ended December 31, 2020, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020, $59,637 was included in compensation and benefits and a fair value adjustment of $(2,524) was included in other expense, net in the condensed consolidated statements of operations. For the three months and year ended December 31, 2019, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations.

(e) For the three months ended December 31, 2020 and 2019, $4,121 and $(1,334), respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the three months ended December 31, 2020 and 2019, $833 and $689, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $15,606 and $14,415, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $3,597 and $11,343, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. The remaining amounts for the 2020 periods were included within other expense, net in the condensed consolidated statements of operations.

(f) Included within compensation and benefits in the condensed consolidated statements of operations.

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures (continued) (in thousands, except share and per share information) (unaudited)
		Three Months Ended										Year Ended
		December 31,										December 31,
		2020					2019					2020					2019
Net income (loss)		$	7,694				$	3,417				$	(2,644	)			$	(17,202	)
Income tax provision (benefit) (a)		(5,240		)			698					(5,401		)			(30,893		)
Loss before income tax provision (benefit)		2,454					4,115					(8,045		)			(48,095		)
Add (deduct):
Deferred revenue fair value adjustment (b)		85					2,601					692					9,271
Accretion on contingent consideration and purchase liability (d)		380					532					1,688					1,772
Non-cash interest expense (c)		6,798					4,475					17,480					18,743
Non-cash compensation expense (f)		13,916					17,203					57,113					60,444
Restructuring charges and transaction costs (e)		4,922					1,833					19,383					26,558
Severance (g)		6,544					7,220					25,110					15,367
Amortization of acquired intangibles and fair value adjustment to property and equipment, net (h)		17,545					19,629					73,559					70,677
Fair market value adjustment on contingent consideration liability (d)		(1,049		)			(8,126		)			(3,105		)			(8,126		)
Non-recurring litigation and regulatory related expenses (d)		1,796					814					7,825					2,879
Foreign currency (c)		184					(280		)			116					(72		)
Non-income tax expense adjustment (d)		(920		)			(1,106		)			421					374
Non-recurring gains (c)		(1,647		)			—					(5,877		)			—
Loss allocation from equity method investments (c)		1,119					854					5,399					2,361
(Income) loss attributable to non-controlling interest		(727		)			79					(1,830		)			110
Adjusted net income before income tax effect		51,400					49,843					189,929					152,263
Income tax effect (i)		(13,107		)			(12,710		)			(48,432		)			(38,827		)
Adjusted net income		$	38,293				$	37,133				$	141,497				$	113,436
Basic number of weighted-average shares outstanding		53,960,769					52,574,128					53,589,232					50,937,919
Effect of dilutive shares:
Options to purchase common stock		290,366					784,361					416,593					1,015,164
Unvested restricted stock units		622,702					591,657					592,033					691,740
Convertible Notes		769,593					84,826					414,398					33,388
Warrants		89,989					951					58,459					—
Diluted number of weighted-average shares outstanding		55,733,419					54,035,923					55,070,715					52,678,211
Adjusted net income per share - diluted		$	0.69				$	0.69				$	2.57				$	2.15

(a) For the three months ended December 31, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled (213.5)% and 17.0%, respectively. For the year ended December 31, 2020 and 2019, the effective tax rate computed in accordance with GAAP equaled 67.1% and 64.2%, respectively.

(b) For the three months ended December 31, 2020 and 2019, $85 and $2,599, respectively, were included within subscription-based revenues, in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $690 and $9,263, respectively, were included within subscription-based revenues in the condensed consolidated statements of operations. The remaining amounts for all periods were included within professional services and other revenues in the condensed consolidated statements of operations.

(c) Included within other expense, net in the condensed consolidated statements of operations.

(d) Included within general and administration expenses in the condensed consolidated statements of operations.

(e) For the three months ended December 31, 2020 and 2019, $4,121 and $345, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the three months ended December 31, 2020 and 2019, $833 and $689, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $15,606 and $14,416, respectively, were included within general and administration expenses in the condensed consolidated statements of operations. For the year ended December 31, 2020 and 2019, $3,597 and $11,343, respectively, were included within compensation and benefits in the condensed consolidated statements of operations. The remaining amounts for the 2020 periods were included within other expense, net in the condensed consolidated statements of operations.

(f) For the three months ended December 31, 2020, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations. For the year ended December 31, 2020, $59,637 included in compensation and benefits and a fair value adjustment of $(2,524) was included in other expense, net, in the condensed consolidated statements of operations. For the three months and year ended December 31, 2019, the entire amount was included in compensation and benefits in the condensed consolidated statements of operations.

(g) Included within compensation and benefits in the condensed consolidated statements of operations.

(h) Included within depreciation and amortization in the condensed consolidated statements of operations.

(i) An estimated normalized effective tax rate of 25.5% have been used to compute adjusted net income for the three months and year ended December 31, 2020 and 2019.

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures Segment Information (in thousands) (unaudited)
		Three Months Ended December 31, 2020
		Envestnet Wealth Solutions					Envestnet Data & Analytics					Nonsegment					Total
Revenues		$	215,691				$	48,128				$	—				$	263,819
Deferred revenue fair value adjustment (a)		85					—					—					85
Adjusted revenues		$	215,776				$	48,128				$	—				$	263,904
Revenues:
Asset-based		$	146,146				$	—				$	—				$	146,146
Subscription-based		64,294					44,786					—					109,080
Total recurring revenues		210,440					44,786					—					255,226
Professional services and other revenues		5,251					3,342					—					8,593
Total revenues		215,691					48,128					—					263,819
Operating expenses:
Cost of revenues:
Asset-based		76,969					—					—					76,969
Subscription-based		1,162					5,398					—					6,560
Professional services and other		28					45					—					73
Total cost of revenues		78,159					5,443					—					83,602
Compensation and benefits		62,792					27,981					7,774					98,547
General and administration		23,322					10,106					8,264					41,692
Depreciation and amortization		20,807					7,777					—					28,584
Total operating expenses		$	185,080				$	51,307				$	16,038				$	252,425
Income (loss) from operations		$	30,611				$	(3,179	)			$	(16,038	)			$	11,394
Add:
Deferred revenue fair value adjustment (a)		85					—					—					85
Accretion on contingent consideration and purchase liability (b)		343					37					—					380
Depreciation and amortization		20,807					7,777					—					28,584
Non-cash compensation expense (c)		8,360					3,267					2,289					13,916
Restructuring charges and transaction costs (d)		1,014					1,815					2,093					4,922
Non-income tax expense adjustment (b)		(1,018		)			98					—					(920		)
Severance (c)		4,024					2,041					479					6,544
Fair market value adjustment on contingent consideration liability (b)		—					(1,049		)			—					(1,049		)
Non-recurring litigation and regulatory related expenses (b)		—					1,796					—					1,796
Income attributable to non-controlling interest		(727		)			—					—					(727		)
Other		46					5					—					51
Adjusted EBITDA		$	63,545				$	12,608				$	(11,177	)			$	64,976

(a) Included within subscription-based revenues in the condensed consolidated statements of operations.

(b) Included within general and administration expenses in the condensed consolidated statements of operations.

(c) Included within compensation and benefits in the condensed consolidated statements of operations.

(d) $4,121 included within general and administration expenses, $833 included within compensation and benefits and $(32) included within other expense, net in the condensed consolidated statements of operations.

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures Segment Information (continued) (in thousands) (unaudited)
		Three Months Ended December 31, 2019
		Envestnet Wealth Solutions				Envestnet Data & Analytics				Nonsegment				Total
Revenues		$	191,639			$	48,297			$	—			$	239,936
Deferred revenue fair value adjustment (a)		2,601				—				—				2,601
Adjusted revenues		$	194,240			$	48,297			$	—			$	242,537
Revenues:
Asset-based		$	128,717			$	—			$	—			$	128,717
Subscription-based		59,149				43,736				—				102,885
Total recurring revenues		187,866				43,736				—				231,602
Professional services and other revenues		3,773				4,561				—				8,334
Total revenues		191,639				48,297				—				239,936
Operating expenses:
Cost of revenues:
Asset-based		65,439				—				—				65,439
Subscription-based		1,361				5,891				—				7,252
Professional services and other		451				74				—				525
Total cost of revenues		67,251				5,965				—				73,216
Compensation and benefits		61,960				26,149				9,855				97,964
General and administration		21,995				9,030				(3,422)				27,603
Depreciation and amortization		19,689				8,415				—				28,104
Total operating expenses		$	170,895			$	49,559			$	6,433			$	226,887
Income (loss) from operations		$	20,744			$	(1,262)			$	(6,433)			$	13,049
Add:
Deferred revenue fair value adjustment (a)		2,601				—				—				2,601
Accretion on contingent consideration and purchase liability (b)		532				—				—				532
Depreciation and amortization		19,689				8,415				—				28,104
Non-cash compensation expense (c)		10,382				3,164				3,657				17,203
Restructuring charges and transaction costs (d)		702				(758)				1,090				1,034
Non-income tax expense adjustment (b)		(907)				(199)				—				(1,106)
Severance (c)		4,071				1,498				1,651				7,220
Fair market value adjustment on contingent consideration liability (b)		—				—				(8,126)				(8,126)
Non-recurring litigation and regulatory related expenses (b)		—				814				—				814
Loss attributable to non-controlling interest		79				—				—				79
Other		128				—				(2)				126
Adjusted EBITDA		$	58,021			$	11,672			$	(8,163)			$	61,530

(a) $2,599 included within subscription-based revenues and $2 included within professional services and other revenues in the condensed consolidated statements of operations.

(b) Included within general and administration expenses in the condensed consolidated statements of operations.

(c) Included within compensation and benefits in the condensed consolidated statements of operations.

(d) $345 included within general and administration expenses and $689 included within compensation and benefits in the condensed consolidated statements of operations.

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures Segment Information (continued) (in thousands) (unaudited)
		Year Ended December 31, 2020
		Envestnet Wealth Solutions				Envestnet Data & Analytics				Nonsegment				Total
Revenues		$	806,090			$	192,140			$	—			$	998,230
Deferred revenue fair value adjustment (a)		692				—				—				692
Adjusted revenues		$	806,782			$	192,140			$	—			$	998,922
Revenues:
Asset-based		$	540,947			$	—			$	—			$	540,947
Subscription-based		248,810				177,697				—				426,507
Total recurring revenues		789,757				177,697				—				967,454
Professional services and other revenues		16,333				14,443				—				30,776
Total revenues		806,090				192,140				—				998,230
Operating expenses:
Cost of revenues:
Asset-based		278,569				—				—				278,569
Subscription-based		4,853				22,081				—				26,934
Professional services and other		75				351				—				426
Total cost of revenues		283,497				22,432				—				305,929
Compensation and benefits		257,698				110,436				30,836				398,970
General and administration		92,680				36,268				31,281				160,229
Depreciation and amortization		80,714				32,947				—				113,661
Total operating expenses		$	714,589			$	202,083			$	62,117			$	978,789
Income (loss) from operations		$	91,501			$	(9,943)			$	(62,117)			$	19,441
Add (deduct):
Deferred revenue fair value adjustment (a)		692				—				—				692
Accretion on contingent consideration and purchase liability (b)		1,430				258				—				1,688
Depreciation and amortization		80,714				32,947				—				113,661
Non-cash compensation expense (c)		35,797				14,932				8,908				59,637
Restructuring charges and transaction costs (d)		6,878				2,304				10,201				19,383
Non-income tax expense adjustment (b)		514				(93)				—				421
Severance (c)		18,617				4,628				1,865				25,110
Fair market value adjustment on contingent consideration liability (b)		—				(3,105)				—				(3,105)
Non-recurring litigation and regulatory related expenses (b)		—				7,825				—				7,825
Loss attributable to non-controlling interest		(1,830)				—				—				(1,830)
Other		15				5				—				20
Adjusted EBITDA		$	234,328			$	49,758			$	(41,143)			$	242,943

(a) consolidated statements of operations.

(b) Included within general and administration expenses in the condensed consolidated statements of operations.

(c) Included within compensation and benefits in the condensed consolidated statements of operations.

(d) $15,606 included within general and administration expenses, $3,597 included within compensation and benefits and $180 included within other expense, net in the condensed consolidated statements of operations.

Envestnet, Inc. Reconciliation of Non-GAAP Financial Measures Segment Information (continued) (in thousands) (unaudited)
		Year Ended December 31, 2019
		Envestnet Wealth Solutions				Envestnet Data & Analytics				Nonsegment				Total
Revenues		$	709,458			$	190,669			$	—			$	900,127
Deferred revenue fair value adjustment (a)		9,271				—				—				9,271
Adjusted revenues		$	718,729			$	190,669			$	—			$	909,398
Revenues:
Asset-based		$	484,312			$	—			$	—			$	484,312
Subscription-based		207,606				171,207				—				378,813
Total recurring revenues		691,918				171,207				—				863,125
Professional services and other revenues		17,540				19,462				—				37,002
Total revenues		709,458				190,669				—				900,127
Operating expenses:
Cost of revenues:
Asset-based		243,913				—				—				243,913
Subscription-based		5,732				23,172				—				28,904
Professional services and other		5,463				531				—				5,994
Total cost of revenues		255,108				23,703				—				278,811
Compensation and benefits		227,570				118,062				37,922				383,554
General and administration		93,321				38,641				20,602				152,564
Depreciation and amortization		65,746				35,525				—				101,271
Total operating expenses		$	641,745			$	215,931			$	58,524			$	916,200
Income (loss) from operations		$	67,713			$	(25,262)			$	(58,524)			$	(16,073)
Add:
Deferred revenue fair value adjustment (a)		9,271				—				—				9,271
Accretion on contingent consideration and purchase liability (b)		1,772				—				—				1,772
Depreciation and amortization		65,746				35,525				—				101,271
Non-cash compensation expense (c)		33,968				14,963				11,513				60,444
Restructuring charges and transaction costs (d)		2,491				635				22,633				25,759
Non-income tax expense adjustment (b)		500				(126)				—				374
Severance (c)		6,315				7,212				1,840				15,367
Fair market value adjustment on contingent consideration liability (b)		—				—				(8,126)				(8,126)
Non-recurring litigation and regulatory related expenses (b)		—				2,879				—				2,879
Loss attributable to non-controlling interest		110				—				—				110
Other		239				—				—				239
Adjusted EBITDA		$	188,125			$	35,826			$	(30,664)			$	193,287

(a) $9,263 included within subscription-based revenues and $8 included within professional services and other revenues in the condensed consolidated statements of operations.

(b) Included within general and administration expenses in the condensed consolidated statements of operations.

(c) Included within compensation and benefits in the condensed consolidated statements of operations.

(d) $14,416 included within general and administration expenses and $11,343 included within compensation and benefits in the condensed consolidated statements of operations.

Envestnet, Inc. Historical Assets, Accounts and Advisors (in millions, except accounts and advisors) (unaudited)
		As of
		December 31,				March 31,				June 30,				September 30,				December 31,
		2019				2020				2020				2020				2020
		(in millions except accounts and advisors data)
Platform Assets
Assets under Management ("AUM")		$	207,083			$	185,065			$	215,994			$	228,905			$	263,043
Assets under Administration ("AUA")		343,505				312,472				344,957				375,860				405,365
Total AUM/A		550,588				497,537				560,951				604,765				668,408
Subscription		3,205,281				2,875,394				3,247,400				3,498,353				3,892,814
Total Platform Assets		$	3,755,869			$	3,372,931			$	3,808,351			$	4,103,118			$	4,561,222
Platform Accounts
AUM		935,039				970,896				1,007,386				1,018,817				1,073,122
AUA		1,193,882				1,254,856				1,252,247				1,318,730				1,276,975
Total AUM/A		2,128,921				2,225,752				2,259,633				2,337,547				2,350,097
Subscription		9,793,175				10,090,172				10,003,156				10,639,399				11,079,048
Total Platform Accounts		11,922,096				12,315,924				12,262,789				12,976,946				13,429,145
Advisors
AUM/A		40,563				40,971				41,206				41,450				41,206
Subscription		61,180				62,077				62,404				63,862				65,104
Total Advisors		101,743				103,048				103,610				105,312				106,310

The following table summarizes the changes in AUM and AUA for the three months ended December 31, 2020:

		As of				Gross									Net				Market				Reclass to					As of
		9/30/2020				Sales				Redemptions					Flows				Impact				Subscription					12/31/2020
		(in millions except account data)
AUM		$	228,905			$	23,762			$	(11,847	)			$	11,915			$	22,223			$	—				$	263,043
AUA		375,860				26,735				(22,808		)			3,927				34,635				(9,057		)			405,365
Total AUM/A		$	604,765			$	50,497			$	(34,655	)			$	15,842			$	56,858			$	(9,057	)			$	668,408
Fee-Based Accounts		2,337,547													49,395								(36,845		)			2,350,097

The above AUM/A gross sales figures include $8.5 billion in new client conversions. We onboarded an additional $36.6 billion in subscription conversions during the fourth quarter, bringing total conversions for the quarter to $45.1 billion.

The following table summarizes the changes in AUM and AUA for the year ended December 31, 2020:

		As of				Gross									Net				Market				Reclass to					As of
		12/31/2019				Sales				Redemptions					Flows				Impact				Subscription					12/31/2020
		(in millions, except account data)
AUM		$	207,083			$	74,118			$	(42,958	)			$	31,160			$	24,800			$	—				$	263,043
AUA		343,505				117,138				(84,328		)			32,810				40,052				(11,002		)			405,365
Total AUM/A		$	550,588			$	191,256			$	(127,286	)			$	63,970			$	64,852			$	(11,002	)			$	668,408
Fee-Based Accounts		2,128,921													278,863								(57,687		)			2,350,097

The above AUM/A gross sales figures include $38.6 billion in new client conversions. We onboarded an additional $119.6 billion in subscription conversions during 2020, bringing total conversions for the year to $158.2 billion.

Asset and account figures in the “Reclass to Subscription” column for the three months and year ended December 31, 2020 represent enterprise customers whose billing arrangements in future periods are subscription-based, rather than asset-based. Such amounts are included in Subscription metrics at the end of the quarter in which the reclassification occurred, with no impact on total platform assets or accounts.

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