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Envestnet Reports Second Quarter 2012 Financial Results

CHICAGO--(BUSINESS WIRE)--Aug. 8, 2012-- Envestnet (NYSE: ENV), a leading provider of technology-enabled wealth management solutions to investment advisors, today reported financial results for its second quarter ended June 30, 2012.

                     
Key Financial Metrics Second Quarter %
(in millions except per share data)     2012     2011     Change
 
Revenues from AUM/A $31.0 $25.4 22%
Total Revenues $38.0 $31.3 21%
Adjusted Revenues(1) $38.6 $31.3 23%
Adjusted EBITDA(1) $5.3 $7.1 -25%
Adjusted Net Income per Share(1) $ 0.07 $ 0.11 -36%
 

Financial results for the second quarter of 2012 compared to the second quarter of 2011:

  • Revenues from assets under management (AUM) or assets under administration (AUA) increased 22% to $31.0 million for the second quarter of 2012 from $25.4 million for the second quarter of 2011; total revenues, which include licensing and professional services fees, increased 21% to $38.0 million for the second quarter of 2012 from $31.3 million for the second quarter of 2011.
  • Adjusted revenues, which exclude the effect of purchase accounting on the fair value of acquired deferred revenue, increased 23% to $38.6 million for the second quarter of 2012 from $31.3 million for the second quarter of 2011.
  • Net loss was $(0.7) million, or $(0.02) per diluted share, for the second quarter of 2012 compared to net income of $2.4 million, or $0.07 per diluted share, for the second quarter of 2011.
  • Adjusted EBITDA(1) was $5.3 million for the second quarter of 2012 compared to $7.1 million for the second quarter of 2011.
  • Adjusted Net Income(1) was $2.2 million, or $0.07 per diluted share, for the second quarter of 2012 compared to $3.5 million, or $0.11 per diluted share, for the second quarter of 2011.

“During the second quarter we achieved record levels of gross sales and net flows, and conversion activity continued at a high level, reflecting growing support from fee-based advisors,” said Jud Bergman, chairman and chief executive officer of Envestnet. “Our integration efforts of both Tamarac and Prima Capital remain on schedule, better enabling Envestnet to empower advisors to improve client outcomes and strengthen their practices.”

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

  • AUM/A of $87.3 billion, up 23% from June 30, 2011
  • Accounts (AUM/A only) of 416,017, up 25% from June 30, 2011
  • Advisors (AUM/A only) served totaled 15,045
  • Gross sales of AUM/A of $13.1 billion, resulting in net flows of $8.5 billion

The following table summarizes the changes in AUM and AUA for the quarter ended June 30, 2012:

 

        Gross     Redemp-    

Net

    Market    

In Millions Except Account Data

3/31/12 Sales     tions    

Flows

Impact 6/30/12
 
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
Total 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
 

During the second quarter, the Company added $4.6 billion of conversions, which are included in the above AUM/A gross sales figures.

Review of Financial Results

Adjusted revenues increased 23% to $38.6 million for the second quarter of 2012 from $31.3 million for the second quarter of 2011. The increase was primarily due to a 22% increase in revenues from assets under management or administration to $31.0 million from $25.4 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 second quarter of 2012 increased 39% to $39.1 million from $28.2 million in the prior year period. After certain non-GAAP adjustments(2) included in our Adjusted EBITDA reconciliation, total operating expenses increased 31% compared to the prior year period. Cost of revenues increased 24% to $13.5 million in the second quarter of 2012 from $10.9 million in the second quarter of 2011 due to the increase in revenue from AUM or AUA and additional cost from Tamarac. Compensation and benefits increased 36% to $14.1 million in the second quarter of 2012 from $10.4 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 55% to $8.2 million in the second quarter of 2012 from $5.3 million in the prior year period, primarily due to transaction costs related to the completed acquisitions, and ongoing expense from the acquired companies.

Loss from operations was $(1.1) million for the second quarter of 2012 compared to income from operations of $3.2 million for the second quarter of 2011. Net loss was $(0.7) million, or $(0.02) per diluted share, for the second quarter of 2012 compared to net income of $2.4 million, or $0.07 per diluted share, for the second quarter of 2011. The loss in the current period was due to acquisition-related expenses noted above.

Adjusted EBITDA(1) in the second quarter of 2012 was $5.3 million, compared to $7.1 million in the prior year period. Adjusted Net Income(1) was $2.2 million, compared to $3.5 million in the second quarter of 2011. Adjusted Net Income Per Share(1) was $0.07 per diluted share, compared to $0.11 per diluted share in the second quarter of 2011.

Conference Call

The Company will host a conference call to discuss second 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) 417-8525, or (719) 457-2702 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 2615847. 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 net income determined in accordance with United States generally accepted accounting principles (GAAP).

(2) Adjustments include stock-based compensation expense, restructuring charges and transaction costs, severance and litigation related expense.

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 August 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)
 
June 30, December 31,
2012 2011
Assets
Current assets:
Cash and cash equivalents $ 13,400 $ 64,909
Fees receivable 8,631 9,644
Deferred tax assets, net 610 192
Prepaid expenses and other current assets   7,036   4,040
Total current assets   29,677   78,785
 
Property and equipment, net 12,377 11,091
Internally developed software, net 3,752 3,524
Intangible assets, net 30,712 12,225
Goodwill 66,152 22,223
Deferred tax assets, net 7,058 6,692
Other non-current assets   3,284   3,162
Total assets $ 153,012 $ 137,702
 
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses $ 16,485 $ 14,919
Accounts payable 2,683 1,974
Note payable - 171
Deferred revenue   5,214   79
Total current liabilities   24,382   17,143
 
Deferred rent liability 1,891 1,414
Lease incentive liability 4,163 2,933
Other non-current liabilities   689   573
Total liabilities 31,125 22,063
 
Stockholders' equity   121,887   115,639
Total liabilities and stockholders' equity $ 153,012 $ 137,702
 
             
Envestnet, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share information)
(Unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
 
Revenues:
Assets under management or administration $ 31,012 $ 25,427 $ 59,275 $ 48,698
Licensing and professional services   6,950     5,907     11,329     11,898  
Total revenues   37,962     31,334     70,604     60,596  
 
Operating expenses:
Cost of revenues 13,549 10,917 25,075 21,045
Compensation and benefits 14,085 10,387 24,770 20,533
General and administration 8,148 5,258 14,921 10,134
Depreciation and amortization 3,224 1,578 5,623 3,126
Restructuring charges   88     43     115     53  
Total operating expenses   39,094     28,183     70,504     54,891  
 
Income (loss) from operations   (1,132 )   3,151     100     5,705  
 
Other income (expense):
Interest income 14 20 23 46
Interest expense - (204 ) (3 ) (415 )
Other income - 1,100 - 1,100
Gain on investments   -     1     -     4  
Total other income (expense)   14     917     20     735  
 
Income (loss) before income tax provision (benefit)   (1,118 )   4,068     120     6,440  
 
Income tax provision (benefit)   (450 )   1,621     48     2,589  
 
Net income (loss) $ (668 ) $ 2,447   $ 72   $ 3,851  
 
 
Net income (loss) per share:
Basic $ (0.02 ) $ 0.08   $ 0.00   $ 0.12  
 
Diluted $ (0.02 ) $ 0.07   $ 0.00   $ 0.12  
 
Weighted average common shares outstanding:
Basic   32,149,957     31,591,412     32,004,386     31,502,139  
 
Diluted   32,149,957     32,969,824     33,054,632     32,912,916  
 
       
Envestnet, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, unaudited)
 
Six Months Ended
June 30,
2012 2011
 
OPERATING ACTIVITIES:
Net income $ 72 $ 3,851

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 5,623 3,126
Amortization of customer inducements - 2,413
Deferred rent and lease incentive 1,362 (110 )
Gain on investments - (4 )
Deferred income taxes (432 ) 2,117
Stock-based compensation 1,930 1,645
Interest expense 3 415
Changes in operating assets and liabilities:
Fees receivable 1,574 442
Prepaid expenses and other current assets (1,016 ) (422 )
Customer inducements - (1,000 )
Other non-current assets 67 -
Accrued expenses (616 ) 119
Accounts payable 709 51
Deferred revenue 474 (130 )
Other non-current liabilities   116     132  
Net cash provided by operating activities   9,866     12,645  
 
INVESTING ACTIVITIES:
Purchase of property and equipment (2,999 ) (2,917 )
Capitalization of internally developed software (988 ) (817 )
Repayment of notes payable assumed in acquisition (174 ) (162 )
Proceeds from investments 3 17
Goodwill - working capital settlement 889 -
Acquisition of businesses, net   (62,352 )   -  
Net cash used in investing activities   (65,621 )   (3,879 )
 
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 1,565 2,260
Issuance of restricted stock 2,759 -
Purchase of treasury stock   (78 )   (94 )
Net cash provided by financing activities   4,246     2,166  
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (51,509 )   10,932  
 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 64,909 67,668
   
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,400   $ 78,600  
 
               
Envestnet, Inc.
Reconciliation of Non-GAAP Financial Measures
(in thousands, unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
 
Revenue $ 37,962 $ 31,334 $ 70,604 $ 60,596
Deferred revenue fair value adjustment   617     -     617     -  
Adjusted revenues $ 38,579   $ 31,334   $ 71,221   $ 60,596  
 
 
Net income (loss) $ (668 ) $ 2,447 $ 72 $ 3,851
Deferred revenue fair value adjustment 617 - 617 -
Interest income (14 ) (20 ) (23 ) (46 )
Interest expense - 204 3 415
Income tax provision (benefit) (450 ) 1,621 48 2,589
Depreciation and amortization 3,224 1,578 5,623 3,126
Stock-based compensation expense 1,135 829 1,930 1,645
Restructuring charges and transaction costs 1,353 53 1,997 63
Severance 78 246 83 303
Litigation related expense 39 58 58 91
Gain on investments - (1 ) - (4 )
Other income - (1,100 ) - (1,100 )
Customer inducement costs   -     1,207     -     2,413  
Adjusted EBITDA $ 5,314   $ 7,122   $ 10,408   $ 13,346  
 
 
Net income (loss) $ (668 ) $ 2,447 $ 72 $ 3,851
Deferred revenue fair value adjustment 369 - 369 -
Stock-based compensation expense 679 496 1,154 984
Restructuring charges and transaction costs 809 32 1,194 38
Severance 47 147 50 181
Amortization of acquired intangibles 971 137 1,557 307
Litigation related expense 23 35 35 54
Customer inducement costs - 722 - 1,443
Other income - (658 ) - (658 )
Imputed interest expense   -     121     -     243  
Adjusted net income $ 2,230   $ 3,479   $ 4,431   $ 6,443  
 
Diluted number of weighted-average shares outstanding   33,173,778     32,969,824     33,054,632     32,912,916  
 
Adjusted net income per share - diluted $ 0.07   $ 0.11   $ 0.13   $ 0.20  
 
* 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
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
 

Note: Licensing metrics include Envestnet | Tamarac, which added approximately $149 billion in assets, 550,000 accounts and 1,700 advisors as of May 1, 2012.

Source: Envestnet

Investor Relations:
312-827-3940
investor.relations@envestnet.com
or
Media Relations:
mediarelations@envestnet.com

Information is current only as of the date(s) indicated on the materials. We do not have any current intention, and expressly disclaim any obligation, to supplement, update or revise any of the information in these documents. The information contained in these documents should be considered accurate only as of the date of the relevant document. This information may change over time; therefore, visitors to this web site should not assume that the information contained in these documents remains accurate at a later time. Envestnet, Inc.'s press releases, presentations and printed remarks are included on this website for historical purposes only.

Except for historical information and discussions, statements set forth throughout this web site may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 or other applicable laws. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially, as discussed in the company's filings with the U.S. Securities and Exchange Commission.

Envestnet, Inc.'s financial performance is subject to risks and uncertainties, some of which are discussed in forward-looking statements contained in its reports filed with the U.S. Securities and Exchange Commission. Actual results may differ materially from those described in the forward-looking statements. The stock data above is presented for informational purposes only and is not intended for trading purposes. Stock information may be delayed and reflects stock splits. Historical investment performance is not an indication of future performance.

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