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| ENV > SEC Filings for ENV > Form 10-Q on 9-Aug-2012 | All Recent SEC Filings |
9-Aug-2012
Quarterly Report
Unless otherwise indicated, the terms "Envestnet", the "Company", "we", "us" and "our" refer to Envestnet, Inc. and its subsidiaries. All amounts are in thousands, except share and per share information, financial advisors and client accounts.
Forward-Looking Statements
This quarterly report on Form 10-Q 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 other comparable terminology. Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations.
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 our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K") under "Risk Factors"; 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 quarterly report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.
You should read this quarterly report on Form 10-Q and our 2011 Form 10-K 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.
The following discussion and analysis should also be read along with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and the audited consolidated financial statements and the related notes included in our 2011 Form 10-K. 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.
Overview
We are a leading independent provider of integrated wealth management software and services to financial advisors and institutions. Envestnet AdvisorSuite® software empowers advisors to better manage client outcomes and strengthen their practice. Envestnet® also offers advanced portfolio solutions through Envestnet | PMC®. Envestnet | Vantage™ gives advisors an in-depth view of clients' various investments, empowering them to give holistic, personalized advice. Envestnet | Prima™ provides institutional-quality research and due diligence on investment and fund managers and Envestnet | Tamarac™ provides leading rebalancing, reporting and practice management software.
By integrating a wide range of investment solutions and services, our Web-based technology platform provides financial advisors with the flexibility to address their clients' needs. We work with financial advisors who are independent, as well as those who are associated with financial advisory firms and financial institutions, which we refer to as enterprise clients. We focus our technology development efforts and our sales and marketing approach on addressing financial advisors' front-, middle- and back-office needs. We believe that our investment solutions and services allow financial advisors to be more efficient and effective in the activities critical to their businesses by facilitating client interactions, supporting and enhancing portfolio management and analysis, and enabling reliable account support and administration. In addition, we are not controlled by a financial institution, broker-dealer or other entity operating in the securities or wealth management industry, which we believe affords us a greater level of independence and impartiality.
Operational Highlights
Revenues from assets under management ("AUM") or assets under administration ("AUA") increased 22% from $25,427 in the three months ended June 30, 2011 to $31,012 in the three months ended June 30, 2012. Revenues from assets under management ("AUM") or assets under administration ("AUA") increased 22% from $48,698 in the six months ended June 30, 2011 to $59,275 in the six months ended June 30, 2012. The increase in revenues from assets under management or administration were a result of the positive effects of new account growth and positive net flows of AUM or AUA, as well as an increase in revenues related to the FundQuest acquisition.
Total revenues, which include licensing and professional service fees, increased 21% from $31,334 in the three months ended June 30, 2011 to $37,962 in the three months ended June 30, 2012. Total revenues, which include licensing and professional service fees, increased 17% from $60,596 in the six months ended June 30, 2011 to $70,604 in the six months ended June 30, 2012. The overall increase in revenues were also favorably impacted by revenues related to acquired companies.
Net loss for the three months ended June 30, 2012 was ($668), or ($0.02) per diluted share, compared to net income of $2,447, or $0.07 per diluted share for the three months ended June 30, 2011. Net income for the six months ended June 30, 2012 was $72, or $0.00 per diluted share, compared to net income of $3,851, or $0.12 per diluted share for the six months ended June 30, 2011.
Adjusted revenues for the three months ended June 30, 2012 was $38,579, an increase of 23% from $31,334 in the prior year period. Adjusted revenue for the six months ended June 30, 2012 was $71,221, an increase of 18% from $60,596 in the prior year period.
Adjusted EBITDA for the three months ended June 30, 2012 was $5,314, a decrease of 25% from $7,122 in the prior year period. Adjusted EBITDA for the six months ended June 30, 2012 was $10,408, a decrease of 22% from $13,346 in the prior year period.
Adjusted net income for the three months ended June 30, 2012 was $2,230, or $0.07 per diluted share, compared to adjusted net income of $3,479, or $0.11 per diluted share in the prior year period. Adjusted net income for the six months ended June 30, 2012 was $4,431, or $0.13 per diluted share, compared to adjusted net income of $6,443, or $0.20 per diluted share in the prior year period.
Adjusted EBITDA and Adjusted net income are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a discussion of non-GAAP measures and a reconciliation of such measures to GAAP.
Recent Events
Prima Capital Holding, Inc. Acquisition
On April 5, 2012, we completed the acquisition of Prima Capital Holding, Inc. ("Prima"). In accordance with the stock purchase agreement, we acquired all of the outstanding shares of Prima for consideration of approximately $13,925. Prima provides investment management due diligence, research applications, asset allocation modeling and multi-manager portfolios to the wealth management and retirement industries. Prima's clientele includes seven of the top 20 banks in the U.S. as measured by total assets, independent RIAs, regional broker-dealers, family offices and trust companies.
Tamarac, Inc. Acquisition
On May 1, 2012, the Company completed the acquisition of Tamarac, Inc. ("Tamarac"). In accordance with the merger agreement, a newly formed subsidiary of Envestnet merged with and into Tamarac, and Tamarac became a wholly owned subsidiary of Envestnet. Under the terms of the merger agreement, total consideration was approximately $48,427 for all of the outstanding stock of Tamarac. Such shares vest at pre-established intervals, but in no event later than May 15, 2015, based upon Tamarac meeting certain financial targets. Tamarac is a provider of sophisticated portfolio management technology that enables RIAs to efficiently deliver customized individual account management to their clients.
As a result of the merger with Tamarac, we adopted the Envestnet, Inc. Management Incentive Plan for Envestnet | Tamarac Management Employees (the "2012 Plan"). The 2012 Plan provides for the grant of up to 559,551 shares of unvested common stock. The unvested common stock vests based upon Tamarac meeting certain performance conditions and then a subsequent two year service condition (Note 13). We also granted to certain Tamarac employees, 232,150 stock options to acquire Envestnet common stock at an exercise price of $12.51. These stock options vest on the second anniversary of the grant date.
In accordance with the terms of the merger agreement between Envestnet and Tamarac, Tamarac senior management were required to apply at least 50% (up to 100%) of the aggregate proceeds of the Tamarac change of control payment totaling $2,759 to purchase registered shares of Envestnet common stock (232,150 shares) in an amount equal to 95% multiplied by the Envestnet closing market price on the day before the merger closed.
Key Operating Metrics
The following table provides information regarding the amount of assets utilizing our platform, financial advisors and investor accounts in the periods indicated.
Licensing metrics in the table below, include Envestnet | Tamarac, which added approximately $149 billion in assets, 550,000 accounts and 1,700 advisors as of May 1, 2012.
As of
June 30, September 30, December 31, March 31, June 30,
2011 2011 2011 2012 2012
Platform Assets
Assets Under Management (AUM) $ 16,493 $ 15,560 $ 22,936 $ 26,084 $ 26,758
Assets Under Administration (AUA) 54,261 50,607 47,148 54,336 60,511
Subtotal AUM/A 70,754 66,167 70,084 80,420 87,269
Licensing 68,531 61,571 69,514 76,235 229,268
Total Platform Assets $ 139,285 $ 127,738 $ 139,598 $ 156,655 $ 316,537
Platform Accounts
AUM 77,302 83,073 124,636 134,294 141,695
AUA 254,995 254,100 216,038 229,942 274,322
Subtotal AUM/A 332,297 337,173 340,674 364,236 416,017
Licensing 572,612 572,791 588,038 588,936 1,138,233
Total Platform Accounts 904,909 909,964 928,712 953,172 1,554,250
Advisors
AUM/A 14,613 14,206 13,887 14,386 15,045
Licensing 6,201 5,522 5,709 5,351 6,758
Total Advisors 20,814 19,728 19,596 19,737 21,803
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The following table provides information regarding the degree to which gross sales, redemptions, net flows and changes in the market values of assets contributed to changes in AUM or AUA in the periods indicated.
Asset Rollforward - Three Months Ended June 30, 2012
As of Gross Net Market As of
3/31/12 Sales Redemptions Flows Impact 6/30/12
(in millions except account data, unaudited)
Assets under Management (AUM) $ 26,084 $ 3,120 $ (1,843 ) $ 1,277 $ (603 ) $ 26,758
Assets under Administration (AUA) 54,336 10,011 (2,826 ) 7,185 (1,010 ) 60,511
Subtotal AUM/A $ 80,420 $ 13,131 $ (4,669 ) $ 8,462 $ (1,613 ) $ 87,269
Fee-Based Accounts 364,236 70,079 (18,298 ) 51,781 416,017
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Gross sales for the three months ended June 30, 2012 included $4.6 billion in new client conversions.
Asset Rollforward - Six Months Ended June 30, 2012
As of Gross Net Market As of
12/31/11 Sales Redemptions Flows Impact 6/30/12
(in millions except account data, unaudited)
Assets under Management (AUM) $ 22,936 $ 6,213 $ (3,374 ) $ 2,839 $ 983 $ 26,758
Assets under Administration (AUA) 47,148 17,130 (5,578 ) 11,552 1,811 60,511
Subtotal AUM/A $ 70,084 $ 23,343 $ (8,952 ) $ 14,391 $ 2,794 $ 87,269
Fee-Based Accounts 340,674 112,399 (37,056 ) 75,343 416,017
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Gross sales for the six months ended June 30, 2012 included $8.7 billion in new client conversions
The mix of AUM and AUM was as follows for the periods indicated:
June 30, September 30, December 31, March 31, June 30,
2011 2011 2011 2012 2012
Assets under management (AUM) 23 % 24 % 33 % 32 % 31 %
Assets under administration (AUA) 77 % 76 % 67 % 68 % 69 %
100 % 100 % 100 % 100 % 100 %
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Results of Operations
Three months ended June 30, 2012 compared to three months ended June 30, 2011
Three Months Ended Increase
June 30, (Decrease)
2012 2011 Amount %
(In thousands, unaudited)
Revenues:
Assets under management or administration $ 31,012 $ 25,427 $ 5,585 22 %
Licensing and professional services 6,950 5,907 1,043 18 %
Total revenues 37,962 31,334 6,628 21 %
Operating expenses:
Cost of revenues 13,549 10,917 2,632 24 %
Compensation and benefits 14,085 10,387 3,698 36 %
General and administration 8,148 5,258 2,890 55 %
Depreciation and amortization 3,224 1,578 1,646 104 %
Restructuring charges 88 43 45 105 %
Total operating expenses 39,094 28,183 10,911 39 %
Income (loss) from operations (1,132 ) 3,151 (4,283 ) -136 %
Other income (expense):
Interest income 14 20 (6 ) -30 %
Interest expense - (204 ) 204 -100 %
Other income - 1,100 (1,100 ) -100 %
Gain on investments - 1 (1 ) -100 %
Total other income (expense) 14 917 (903 ) -98 %
Income (loss) before income tax provision (benefit) (1,118 ) 4,068 (5,186 ) -127 %
Income tax provision (benefit) (450 ) 1,621 (2,071 ) -128 %
Net income (loss) $ (668 ) $ 2,447 $ (3,115 ) -127 %
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Revenues
Total revenues increased 21% from $31,334 in the three months ended June 30, 2011 to $37,962 in the three months ended June 30, 2012. The increase was primarily due to an increase in revenues from AUM or AUA of $5,585. Revenues from assets under management or administration were 82% and 81% of total revenues in the three months ended June 30, 2012 and 2011, respectively.
Assets under management or administration
Revenues earned from AUM or AUA increased 22% from $25,427 in the three months ended June 30, 2011 to $31,012 in the three months ended June 30, 2012. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycle in 2012, relative to the corresponding period in 2011. In the second quarter of 2012, revenues were positively affected by new account growth and positive net flows of AUM or AUA during 2011 and 2012, as well as an increase in revenues related to the FundQuest acquisition.
The number of financial advisors with AUM or AUA that had client accounts on our technology platform increased from 14,613 as of June 30, 2011 to 15,045 as of June 30, 2012 and the number of AUM or AUA client accounts increased from approximately 332,000 as of June 30, 2011 to approximately 416,000 as of June 30, 2012.
Licensing and professional services
Licensing and professional services revenues increased 18% from $5,907 in the three months ended June 30, 2011 to $6,950 in the three months ended June 30, 2012, primarily due to an increase in net licensing revenue of $576. This increase was a result of the acquisitions of Prima and Tamarac, offset by the renegotiated license agreement with Fidelity.
Cost of revenues
Cost of revenues increased 24% from $10,917 in the three months ended June 30, 2011 to $13,549 in the three months ended June 30, 2012, primarily due to a corresponding increase in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues increased from 35% in the three months ended June 30, 2011 to 36% in the three months ended June 30, 2012.
Compensation and benefits
Compensation and benefits increased 36% from $10,387 in the three months ended June 30, 2011 to $14,085 in the three months ended June 30, 2012, primarily due to an increase in salaries, benefits and commissions of $3,180 related to an increase in headcount as a result of the FundQuest, Prima and Tamarac acquisitions. As a percentage of total revenues, compensation and benefits increased from 33% in the three months ended June 30, 2011 to 37% in the three months ended June 30, 2012.
General and administration
General and administration expenses increased 55% from $5,258 in the three months ended June 30, 2011 to $8,148 in the three months ended June 30, 2012, primarily due to increases in transaction related costs of $1,265, occupancy costs of $472, professional and other legal fees of $260 and communication, research and data services expense of $286. Transaction related costs were not material in the prior year period. As a percentage of total revenues, general and administration expenses increased from 17% in the three months ended June 30, 2011 to 21% in the three months ended June 30, 2012.
Depreciation and amortization
Depreciation and amortization expense increased 104% from $1,578 in the three months ended June 30, 2011 to $3,224 in the three months ended June 30, 2012, primarily due to an increase in intangible asset amortization of $1,394 and fixed asset depreciation of $252. The increase in intangible asset amortization was due to an increase in intangible asset amortization as a result of the FundQuest, Prima and Tamarac acquisitions (see note 3 to the unaudited condensed consolidated financial statements). The increase in fixed asset depreciation expense was primarily due to increases in computer equipment and software to support the growth of our operations. As a percentage of total revenues, depreciation and amortization expense increased from 5% in the three months ended June 30, 2011 to 8% in the three months ended June 30, 2012.
Interest expense
Interest expense decreased from $204 in the three months ended June 30, 2011 to zero in the three months ended June 30, 2012, primarily due to three months of imputed interest on payments due to FundQuest compared to no imputed interest in the current year period. As discussed in notes 3 and 4 to the unaudited consolidated financial statements, due to the FundQuest acquisition and the related termination of the Platform Services Agreement with FundQuest, we have ceased imputing interest expense as of the date of acquisition.
Other income
Other income decreased from $1,100 in the three months ended June 30, 2011 to zero in the three months ended June 30, 2012. In 2011, the Company received proceeds from an insurance recovery.
Income tax provision (benefit)
Three Months Ended
June 30,
2012 2011
(in thousands, unaudited)
Income tax provision (benefit) $ (450 ) $ 1,621
Effective tax rate 40.2 % 39.8 %
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For the three months ended June 30, 2012 and June 30, 2011, our effective tax rate differs from the statutory rate primarily due to the effect of state taxes and permanent differences.
Six months ended June 30, 2012 compared to six months ended June 30, 2011
Six Months Ended Increase
June 30, (Decrease)
2012 2011 Amount %
(In thousands, unaudited)
Revenues:
Assets under management or administration $ 59,275 $ 48,698 $ 10,577 22 %
Licensing and professional services 11,329 11,898 (569 ) -5 %
Total revenues 70,604 60,596 10,008 17 %
Operating expenses:
Cost of revenues 25,075 21,045 4,030 19 %
Compensation and benefits 24,770 20,533 4,237 21 %
General and administration 14,921 10,134 4,787 47 %
Depreciation and amortization 5,623 3,126 2,497 80 %
Restructuring charges 115 53 62 117 %
Total operating expenses 70,504 54,891 15,613 28 %
Income from operations 100 5,705 (5,605 ) -98 %
Other income (expense):
Interest income 23 46 (23 ) -50 %
Interest expense (3 ) (415 ) 412 -99 %
Other income - 1,100 (1,100 ) -100 %
Gain on investments - 4 (4 ) -100 %
Total other income (expense) 20 735 (715 ) -97 %
Income before income tax provision 120 6,440 (6,320 ) -98 %
Income tax provision 48 2,589 (2,541 ) -98 %
Net income $ 72 $ 3,851 $ (3,779 ) -98 %
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Revenues
Total revenues increased 17% from $60,596 in the six months ended June 30, 2011 to $70,604 in the six months ended June 30, 2012. The increase was primarily due to an increase in revenues from AUM or AUA of $10,577. Revenues from assets under management or administration were 84% and 80% of total revenues in the six months ended June 30, 2012 and 2011, respectively.
Assets under management or administration
Revenues earned from AUM or AUA increased 22% from $48,698 in the six months ended June 30, 2011 to $59,275 in the six months ended June 30, 2012. The increase was primarily due to an increase in asset values applicable to our quarterly billing cycle in 2012, relative to the corresponding period in 2011. In 2012, revenues were positively affected by new account growth and positive net flows of AUM or AUA during 2011 and the first quarter of 2012, as well as an increase in revenues related to the FundQuest acquisition.
The number of financial advisors with AUM or AUA that had client accounts on our technology platform increased from 14,613 as of June 30, 2011 to 15,045 as of June 30, 2012 and the number of AUM or AUA client accounts increased from approximately 332,000 as of June 30, 2011 to approximately 416,000 as of June 30, 2012.
Licensing and professional services
Licensing and professional services revenues decreased 5% from $11,898 in the six months ended June 30, 2011 to $11,329 in the six months ended June 30, 2012, primarily due to a net decrease in licensing revenue of $1,486 and an increase in professional services revenue of $913. The decrease in licensing revenue was a result of the renegotiated license agreement with Fidelity, offset by the acquisitions of Prima and Tamarac.
Cost of revenues
Cost of revenues increased 19% from $21,045 in the six months ended June 30, 2011 to $25,075 in the six months ended June 30, 2012, primarily due to a corresponding increase in revenues from AUM or AUA. As a percentage of total revenues, cost of revenues increased from 35% in the six months ended June 30, . . .
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