Envestnet Reports Third Quarter 2012 Financial Results

Envestnet (NYSE: ENV), a leading provider of technology-enabled wealth management solutions to investment advisors, today reported financial results for its third quarter ended September 30, 2012.
Key Financial Metrics   Third Quarter   %

(in millions except per share data)
2012   2011 Change
 
Revenues from AUM/A $ 33.2 $ 26.0 28 %
Total Revenues $ 42.3 $ 32.0 32 %
Adjusted Revenues (1) $ 42.7 $ 32.0 33 %
Adjusted EBITDA (1) $ 6.4 $ 7.6 -16 %
Adjusted Net Income per Share (1) $ 0.09 $ 0.12 -25 %

Financial results for the third quarter of 2012 compared to the third quarter of 2011:
  • Revenues from assets under management (AUM) or assets under administration (AUA) increased 28% to $33.2 million for the third quarter of 2012 from $26.0 million for the third quarter of 2011; total revenues, which include licensing and professional services fees, increased 32% to $42.3 million for the third quarter of 2012 from $32.0 million for the third quarter of 2011.
  • Adjusted revenues, which exclude the effect of purchase accounting on the fair value of acquired deferred revenue, increased 33% to $42.7 million for the third quarter of 2012 from $32.0 million for the third quarter of 2011.
  • Net income was $0.6 million, or $0.02 per diluted share, for the third quarter of 2012 compared to net income of $1.9 million, or $0.06 per diluted share, for the third quarter of 2011.
  • Adjusted EBITDA (1) was $6.4 million for the third quarter of 2012 compared to $7.6 million for the third quarter of 2011.
  • Adjusted Net Income (1) was $2.9 million, or $0.09 per diluted share, for the third quarter of 2012 compared to $3.8 million, or $0.12 per diluted share, for the third quarter of 2011.

“We continue to enable and benefit from the trends in our business toward fee-based advice and advisor service models that highlight transparency and are free from conflicts,” said Jud Bergman, chairman and chief executive officer of Envestnet. “Our opportunity to grow revenue and profits is substantial, as Envestnet empowers advisors to improve client outcomes and strengthen their practices.”

Key Operating Metrics as of and for the quarter ended September 30, 2012:

  • AUM/A of $93.5 billion, up 41% from September 30, 2011
  • Accounts (AUM/A only) of 427,112, up 27% from September 30, 2011
  • Advisors (AUM/A only) served totaled 15,735, up 11% from September 30, 2011
  • Gross sales of AUM/A of $7.9 billion, resulting in net flows of $2.9 billion

The following table summarizes the changes in AUM and AUA for the quarter ended September 30, 2012:
In Millions Except Account Data     6/30/12   Gross Sales  

Redemptions
  Net Flows   Market Impact     9/30/12
   
Assets under Management (AUM) $ 26,758 $ 2,955 $ (1,568 ) $ 1,387 $ 1,087 $ 29,232
Assets under Administration (AUA)   60,511   4,914   (3,377 )   1,537   2,181   64,229
Total AUM/A $ 87,269 $ 7,869   $ (4,945 )   $ 2,924 $ 3,268 $ 93,461
Fee-Based Accounts 416,017 35,620 (24,525 ) 11,095 427,112

During the third quarter, the Company added $0.2 billion of conversions included in the above AUM/A gross sales figures, and an additional $4.1 billion of conversions in Licensing.

Review of Financial Results

Adjusted revenues increased 33% to $42.7 million for the third quarter of 2012 from $32.0 million for the third quarter of 2011. The increase was primarily due to a 28% increase in revenues from AUM or AUA to $33.2 million from $26.0 million in the prior year period, as well as higher licensing and professional services revenues related to the acquisitions of Tamarac Inc. and Prima Capital Holding, Inc., both of which closed during the second quarter of 2012.

Total operating expenses in the third quarter of 2012 increased 44% to $41.4 million from $28.8 million in the prior year period. Cost of revenues increased 32% to $15.1 million in the third quarter of 2012 from $11.4 million in the third quarter of 2011 due to the increase in revenue from AUM or AUA and additional cost from acquired businesses. Compensation and benefits increased 50% to $15.3 million in the third quarter of 2012 from $10.2 million in the prior year period due to higher personnel cost from completed acquisitions, as well as higher stock-based compensation expense. General and administration expenses increased 34% to $7.6 million in the third quarter of 2012 from $5.7 million in the prior year period, primarily due to transaction costs related to the completed acquisitions, and ongoing expense from the acquired companies.

Income from operations was $0.9 million for the third quarter of 2012 compared to $3.2 million for the third quarter of 2011. Net income was $0.6 million, or $0.02 per diluted share, for the third quarter of 2012 compared to $1.9 million, or $0.06 per diluted share, for the third quarter of 2011.

Adjusted EBITDA (1) in the third quarter of 2012 was $6.4 million, compared to $7.6 million in the prior year period. Adjusted Net Income (1) was $2.9 million, compared to $3.8 million in the third quarter of 2011. Adjusted Net Income Per Share (1) was $0.09 per diluted share, compared to $0.12 per diluted share in the third quarter of 2011.

Conference Call

The Company will host a conference call to discuss third quarter 2012 financial results today at 5:00 p.m. ET. The live webcast can be accessed from the Company's investor relations website at http://ir.envestnet.com/. The conference call can also be accessed live over the phone by dialing (888) 401-4691, or (719) 325-2333 for international callers. A replay will be available beginning one hour after the call and can be accessed from the Company’s investor relations website, or by dialing (877) 870-5176, or (858) 384-5517 for international callers; the conference ID is 5587845. The dial-in replay will be available for one week and the webcast replay will be available for one month following the date of the conference call.

About Envestnet

Envestnet, Inc. (NYSE: ENV) is a leading provider of technology-enabled wealth management solutions to investment advisors. Envestnet's Advisor Suite software empowers advisors to better manage client outcomes and strengthen their practice. Envestnet offers advanced portfolio solutions through its Portfolio Management Consultants Group, Envestnet | PMC. Envestnet | Tamarac provides leading rebalancing, reporting and practice management software. Envestnet | Prima provides institutional-quality research and due diligence on investment and fund managers. Envestnet | Vantage gives advisors an in-depth view of clients’ investments, empowering them to give holistic, personalized advice.

For more information on Envestnet, please visit www.envestnet.com.

(1) Non-GAAP Financial Measures

“Adjusted revenues” exclude the effect of purchase accounting on the fair value of acquired deferred revenue. Under U.S. 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 EBITDA” represents net income before deferred revenue fair value adjustment, interest income, interest expense, income tax provision, depreciation and amortization, non-cash stock-based compensation expense, gain on investments, other income, restructuring charges and transaction costs, severance, customer inducement costs, and litigation related expense.

“Adjusted net income” represents net income before deferred revenue fair value adjustment, non-cash stock-based compensation expense, restructuring expense and transaction costs, severance, amortization of acquired intangibles, customer inducement costs, imputed interest expense and litigation related expense. Reconciling items are tax effected using the income tax rates in effect on the applicable date.

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

See reconciliation of Non-GAAP Financial Measures at the end of this press release. These measures should not be viewed as a substitute for revenues or net income determined in accordance with United States generally accepted accounting principles (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 (the “Company”) expected financial performance and outlook, 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, difficulty in sustaining rapid revenue growth, which may place significant demands on the Company’s administrative, operational and financial resources, fluctuations in the Company’s revenue, the concentration of nearly all of the Company’s revenues from the delivery of investment solutions and services to clients in the financial advisory industry, the Company’s reliance on a limited number of clients for a material portion of its revenue, the renegotiation of fee percentages or termination of the Company’s services by its clients, the Company’s ability to identify potential acquisition candidates, complete acquisitions and successfully integrate acquired companies, the impact of market and economic conditions on the Company’s revenues, compliance failures, regulatory actions against the Company, the failure to protect the Company’s intellectual property rights, the Company’s inability to successfully execute the conversion of its clients’ assets from their technology platform to the Company’s technology platform in a timely and accurate manner, general economic, political and regulatory conditions, as well as 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 November 8, 2012 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, except share information)
(Unaudited)
 
September 30, December 31,
2012 2011
Assets
Current assets:
Cash and cash equivalents $ 21,133 $ 64,909
Fees receivable 10,692 9,644
Deferred tax assets, net 611 192
Prepaid expenses and other current assets   2,936   4,040
Total current assets   35,372   78,785
 
Property and equipment, net 12,294 11,091
Internally developed software, net 4,053 3,524
Intangible assets, net 28,910 12,225
Goodwill 66,152 22,223
Deferred tax assets, net 7,187 6,692
Other non-current assets   3,544   3,162
Total assets $ 157,512 $ 137,702
 
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses $ 18,892 $ 14,919
Accounts payable 2,519 1,974
Note payable - 171
Deferred revenue   5,340   79
Total current liabilities   26,751   17,143
 
Deferred rent liability 2,038 1,414
Lease incentive liability 4,020 2,933
Other non-current liabilities   752   573
Total liabilities 33,561 22,063
 
Stockholders' equity   123,951   115,639
Total liabilities and stockholders' equity $ 157,512 $ 137,702

Envestnet, Inc.
Condensed Consolidated Statements of Operations

(In thousands, except share and per share information)
(Unaudited)
     
Three Months Ended Nine Months Ended
September 30, September 30,
  2012   2011     2012     2011  
 
Revenues:
Assets under management or administration $ 33,223 $ 25,971 $ 92,498 $ 74,669
Licensing and professional services   9,060   6,069     20,389     17,967  
Total revenues   42,283   32,040     112,887     92,636  
 
Operating expenses:
Cost of revenues 15,088 11,429 40,163 32,474
Compensation and benefits 15,261 10,160 40,031 30,693
General and administration 7,621 5,675 22,542 15,809
Depreciation and amortization 3,393 1,550 9,016 4,676
Restructuring charges   -   -     115     53  
Total operating expenses   41,363   28,814     111,867     83,705  
 
Income from operations   920   3,226     1,020     8,931  
 
Other income (expense):
Interest income 3 19 26 65
Interest expense - (206 ) (3 ) (621 )
Other income - - - 1,100
Loss on investments   -   (8 )   -     (4 )
Total other income (expense)   3   (195 )   23     540  
 
Income before income tax provision   923   3,031     1,043     9,471  
 
Income tax provision   372   1,106     420     3,695  
 
Net income $ 551 $ 1,925   $ 623   $ 5,776  
 
 
Net income per share:
Basic $ 0.02 $ 0.06   $ 0.02   $ 0.18  
 
Diluted $ 0.02 $ 0.06   $ 0.02   $ 0.18  
 
Weighted average common shares outstanding:
Basic   32,296,636   31,760,998     32,102,386     31,589,279  
 
Diluted   33,358,706   32,871,269     33,179,044     32,937,601  

Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
 
Nine Months Ended
September 30,
  2012     2011  
 
OPERATING ACTIVITIES:
Net income $ 623 $ 5,776
Adjustments to reconcile net income to net cash

provided by operating activities:
Depreciation and amortization 9,016 4,676
Amortization of customer inducements - 3,620
Deferred rent and lease incentive 1,366 357
Gain on investments - 4
Impairment of customer inducement asset 174
Deferred income taxes (562 ) 2,794
Stock-based compensation 3,125 2,359
Interest expense 3 621
Changes in operating assets and liabilities:
Fees receivable (487 ) 544
Prepaid expenses and other current assets 3,084 (872 )
Customer inducements - (1,077 )
Other non-current assets (194 ) (1,000 )
Accrued expenses 1,791 441
Accounts payable 545 306
Deferred revenue 600 (119 )
Other non-current liabilities   179     204  
Net cash provided by operating activities   19,089     18,808  
 
INVESTING ACTIVITIES:
Purchase of property and equipment (4,098 ) (4,257 )
Capitalization of internally developed software (1,698 ) (1,135 )
Repayment of notes payable assumed in acquisition (174 ) (162 )
Proceeds from investments 4 23
Goodwill - working capital settlement 889 -
Acquisition of businesses, net   (62,352 )   -  
Net cash used in investing activities   (67,429 )   (5,531 )
 
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,927 2,702
Issuance of restricted stock 2,759 -
Purchase of treasury stock   (122 )   (94 )
Net cash provided by financing activities   4,564     2,608  
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (43,776 )   15,885  
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,909 67,668
   
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,133   $ 83,553  

Envestnet, Inc.
Reconciliation of Non-GAAP Financial Measures
(in thousands, unaudited)
       
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2012     2011     2012     2011  
 
Revenue $ 42,283 $ 32,040 $ 112,887 $ 92,636
Deferred revenue fair value adjustment   401     -     1,018     -  
Adjusted revenues $ 42,684   $ 32,040   $ 113,905   $ 92,636  
 
 
Net income $ 551 $ 1,925 $ 623 $ 5,776
Deferred revenue fair value adjustment 401 - 1,018 -
Interest income (3 ) (19 ) (26 ) (65 )
Interest expense - 206 3 621
Income tax provision 372 1,106 420 3,695
Depreciation and amortization 3,393 1,550 9,016 4,676
Stock-based compensation expense 1,195 714 3,125 2,359
Restructuring charges and transaction costs 215 302 2,212 365
Severance 146 370 229 673
Litigation related expense 92 24 150 115
Gain on investments - 8 - 4
Impairment of customer inducement asset - 174 - 174
Other income - - - (1,100 )
Customer inducement costs   -     1,207     -     3,620  
Adjusted EBITDA $ 6,362   $ 7,567   $ 16,770   $ 20,913  
 
 
Net income $ 551 $ 1,925 $ 623 $ 5,776
Deferred revenue fair value adjustment 240 - 609 -
Stock-based compensation expense 714 427 1,868 1,411
Restructuring charges and transaction costs 129 181 1,322 218
Severance 87 221 137 402
Amortization of acquired intangibles 1,077 76 2,633 383
Litigation related expense 55 14 90 69
Customer inducement costs - 722 - 2,165
Impairment of customer inducement asset - 104 - 104
Other income - - - (658 )
Imputed interest expense   -     121     -     364  
Adjusted net income $ 2,853   $ 3,791   $ 7,282   $ 10,234  
 
Diluted number of weighted-average shares outstanding   33,358,706     32,871,269     33,179,044     32,937,601  
 
Adjusted net income per share $ 0.09   $ 0.12   $ 0.22   $ 0.31  
 
* Adjustments are tax effected using an income tax rate of 40.2% for 2012 and 2011, respectively.

Envestnet, Inc.
Historical Assets, Accounts and Advisors
(in millions, except account and advisor data; unaudited)
       
As of

September 30, 2011
December 31, 2011 March 31, 2012 June 30, 2012 September 30, 2012
 
Platform Assets
Assets Under Management (AUM) $ 15,560 $ 22,936 $ 26,084 $ 26,758 $ 29,232
Assets Under Administration (AUA)   50,607   47,148   54,336   60,511   64,229
Subtotal AUM/A 66,167 70,084 80,420 87,269 93,461
Licensing   61,571   69,514   76,235   229,268   254,256
Total Platform Assets $ 127,738 $ 139,598 $ 156,655 $ 316,537 $ 347,717
 
Platform Accounts
AUM 83,073 124,636 134,294 141,695 148,920
AUA   254,100   216,038   229,942   274,322   278,192
Subtotal AUM/A 337,173 340,674 364,236 416,017 427,112
Licensing   572,791   588,038   588,936   1,138,233   1,170,978
Total Platform Accounts   909,964   928,712   953,172   1,554,250   1,598,090
 
Advisors
AUM/A 14,206 13,887 14,386 15,045 15,735
Licensing   5,522   5,709   5,351   6,758   6,878
Total Advisors   19,728   19,596   19,737   21,803   22,613

Copyright Business Wire 2010