ENVESTNET, INC. Forward-Looking Statements
Unless otherwise indicated, the terms "
This quarterly report on Form 10-Q for the quarter endedJune 30, 2022 ("Quarterly Report") 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 variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business and other characteristics of future events or circumstances are forward-looking statements. The potential risks, uncertainties and other factors that could cause actual results to differ from those expressed by the forward-looking statements in this Quarterly Report include, but are not limited to, •a pandemic or health crisis, including the COVID-19 pandemic; •the conflict betweenRussia andUkraine including related sanctions, and their impact on the global economy and capital markets; •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 financial technology ("FinTech") 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 conditions 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; 29 -------------------------------------------------------------------------------- •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, 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. In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this Quarterly Report and documents incorporated herein by reference are qualified -in their entirety by this cautionary statement. Forward-looking statements speak only as of the date they are made, and we do not intend to update or otherwise revise the forward-looking statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events, except as required by applicable law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.
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 Part I, Item 1A."Risk Factors" in our annual report on Form 10-K for the year endedDecember 31, 2021 (the "2021 Form 10-K"); 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 report to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law. You should read this Quarterly Report and the 2021 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 condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report and the consolidated financial statements and related notes included in our 2021 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. 30 --------------------------------------------------------------------------------
Overview
Envestnet , through its subsidiaries, is transforming the way financial advice and insight are delivered. Our mission is to empower financial advisors and service providers with innovative technology, solutions and intelligence.Envestnet has been a leader in helping transform wealth management, working towards our goal of expanding a holistic financial wellness ecosystem so that our clients can deliver an intelligent financial life to their clients ("Intelligent Financial Life"). More than 6,500 companies, including 16 of the 20 largestU.S. banks, 47 of the 50 largest wealth management and brokerage firms, over 500 of the largest registered investment advisers ("RIAs"), and hundreds of FinTech companies, leverageEnvestnet technology and services that help drive better outcomes for enterprises, advisors and their clients. Through a combination of platform enhancements, partnerships and acquisitions,Envestnet uniquely provides a financial network connecting technology, solutions and data, delivering better intelligence and enabling its customers to drive better outcomes.Envestnet , aDelaware corporation originally founded in 1999, serves clients from its headquarters based inBerwyn, Pennsylvania as well as other locations throughoutthe United States ,India and other international locations. We also operate five registered investment advisers ("RIAs") registered with theU.S. Securities and Exchange Commission ("SEC"). We believe that our business model results in a high degree of recurring and predictable financial results. Recent DevelopmentsRussia and Ukraine Conflict InFebruary 2022 , military conflict escalated betweenRussia andUkraine which continues as of the date of this quarterly report. The uncertainty over the extent and duration of the ongoing conflict continues to cause disruptions to businesses and markets worldwide. The extent of the effect on our financial performance will continue to depend on future developments, including the extent and duration of the conflict, economic sanctions imposed, further governmental and private sector responses and the timing and extent normal economic conditions resume, all of which are uncertain and difficult to predict. Although we are unable to estimate the overall financial effect of the conflict at this time, as the conflict continues, it could have a material adverse effect on our business, results of operations, financial condition and cash flows. As ofJune 30, 2022 , these condensed consolidated financial statements do not reflect any adjustments as a result of the conflict.
Credit Agreement Amendment
OnFebruary 4, 2022 , we entered into a Third Amended and Restated Credit Agreement (the "Third Credit Agreement") with a group of banks. The Third Credit Agreement amends and restates, in its entirety, our prior Amended and Restated Credit Agreement, dated as ofJuly 18, 2017 , as amended (the "Prior Credit Agreement"). The Third Credit Agreement amended certain provisions under the Prior Credit Agreement to, among other things, (i) extend the maturity of loans and the revolving credit commitments, (ii) reduce the interest rate payable on the loans and (iii) increase capacity and flexibility under certain of the negative covenants. The Third Credit Agreement provides, subject to certain customary conditions, for a revolving credit facility (the "Credit Facility"), in an aggregate amount of$500.0 million , with a$20.0 million sub-facility for letters of credit.
The Credit Facility matures on
Outstanding loans under the Credit Facility accrue interest, atEnvestnet's option, at a rate equal to either (i) a base rate plus an applicable margin ranging from 0.25% to 1.75% per annum or (ii) an adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.25% to 2.75% per annum, based upon the total net leverage ratio, as calculated pursuant to the Third Credit Agreement. The undrawn portion of the commitments under the Credit Facility is subject to a commitment fee at a rate ranging from 0.25% to 0.30% per annum, based upon the total net leverage ratio as calculated pursuant to the Credit Agreement. The obligations ofEnvestnet under the Third Credit Agreement are guaranteed by substantially all ofEnvestnet's domestic subsidiaries and are secured by a first-priority lien on substantially all of the personal property (other than intellectual property) ofEnvestnet and the guarantors, subject to certain exclusions. 31 --------------------------------------------------------------------------------
In connection with entering the Third Credit Agreement, we capitalized
Accelerated Investment Plan
In
•Capturing more of the addressable market; •Modernizing the digital engagement marketplace; and •Opening the platform.
We expect to incur an additional$35 to$40 million over the remainder of 2022 as we continue to invest in our ecosystem. The majority of these charges will be recorded to compensation and benefits expense in our condensed consolidated statement of operations. For the six months endedJune 30, 2022 , we recorded approximately$22 million of compensation and benefit expense related to this plan.
Procurement of Technology Solutions
OnApril 1, 2022 , we entered into a purchase agreement with a privately held company to acquire the technology solutions being developed by this privately held company for a purchase price of$9.0 million , including an advance of$4.0 million . This advance is included in other non-current assets in the condensed consolidated balance sheets.
Office Closures
InApril 2022 , in response to changing needs and an increase in employees working remotely, we closed three offices inthe United States . We are currently exploring alternative uses for these properties, including sublease options. In connection with these closures, we recognized$3.7 million of losses on asset retirements in the three and six months endedJune 30, 2022 which are included in general and administration expense in the condensed consolidated statement of operations. Additionally, we recognized$13.0 million of lease restructuring costs in the three and six months endedJune 30, 2022 which are included in general and administration expense in the condensed consolidated statement of operations.
Investment in
OnMay 20, 2022 , we acquired a 25.0% interest in a privately held company for cash consideration of$5.0 million . Subject to the occurrence of certain conditions, we agreed to invest up to an additional$10.0 million for additional units in the future. We use the equity method of accounting to record our portion of this privately held company's net income or loss on a one quarter lag from the actual results of operations. We use the equity method of accounting because of our less than 50% ownership interest and lack of control and we do not otherwise exercise control over the significant economic and operating decisions of the privately held company.
Acquisition of 401kplans.com
On
401kplans.com provides a digital 401(k) retirement plan marketplace that streamlines retirement plan distribution and due diligence among financial advisors and third-party administrators. The acquisition demonstrates our commitment to the retirement plan industry and is expected to create a more seamless experience and enhance productivity for advisors by helping them shop, compare and select the best-fitting 401(k) plan for their client.
In connection with the 401kplans.com acquisition, we paid estimated
consideration of
32
--------------------------------------------------------------------------------Dilution gain on equity method investee share issuance
We have an ownership interest in a privately held company that is accounted for under the equity method. During the six months endedJune 30, 2022 , we funded a$2.5 million convertible loan to this privately held company. During the three months endedJune 30, 2022 , this privately held company raised additional preferred equity which reduced our ownership to 41.0% and our convertible loan was converted. As a result of this transaction, we recorded a$6.9 million dilution gain during the three months endedJune 30, 2022 , which is included in other income (expense), net in the condensed consolidated statements of operations.
Acquisition of Truelytics
OnJuly 1, 2022 , we acquiredTruelytics, Inc. ("Truelytics"). The acquisition of Truelytics aligns with our strategy to further connect our ecosystem by creating transformative progress for our advisors and clients. Truelytics is an Advisor Transition Management platform and the first end-to-end data-driven system to help wealth management and insurance enterprises attract, grow, and retain advisory businesses, while also reducing the costs related to advisor transitions. The Truelytics platform combines our data, analytics, and wealth technology to further support advisors across the ecosystem. We expect to integrate Truelytics into the Envestnet Data & Analytics segment. In connection with the acquisition of Truelytics, we paid estimated cash consideration of approximately$21 million , net of cash acquired, subject to certain post-closing adjustments. We funded the Truelytics acquisition with cash on hand.
Acquisition of Redi2 Technologies
OnJuly 1, 2022 , we acquiredRedi2 Technologies Inc. ("Redi2 Technologies"). Redi2 Technologies provides revenue management and hosted fee-billing solutions. Its platform enables fee calculation, invoice creation, payouts and accounting, and billing compliance. We expect to integrate Redi2 Technologies into the Envestnet Wealth segment. In connection with the Redi2 Technologies Acquisition, we paid estimated consideration of approximately$70 million in cash. We funded the Redi2 Technologies Acquisition with cash on hand. In addition, certain executives may earn up to$20 million based upon the achievement of certain target financial and non-financial metrics.
Exercise of Membership Interests
We granted membership interests in certain of our equity investments to two legacy PIEtech executives as part of the 2019 acquisition of PIEtech. These interests, which were fully vested as ofMay 1, 2020 , became exercisable onMay 1, 2022 . InJuly 2022 , these executives exercised their respective put options and sold these membership interests to us for approximately$10 million .
Segments
Envestnet is organized around two primary, complementary business segments. Financial information about each business segment is contained in Part I, Item 1, "Note 15-Segment Information" to the condensed consolidated financial statements included in Item 1 of this Quarterly Report. Our business segments are as follows: •Envestnet Wealth Solutions - a leading provider of unified wealth management software and services to empower financial advisors and institutions to enable them to deliver an Intelligent Financial Life to their clients. •Envestnet Data & Analytics - a leading data aggregation, intelligence, and experiences platform that powers data connectivity and business intelligence across digital financial services to enable them to deliver an Intelligent Financial Life to their clients.
Envestnet Wealth Solutions Segment
Envestnet Wealth Solutions empowers financial advisors at broker-dealers, banks, and RIAs with all the tools they require to deliver holistic wealth management to their end clients, enabling them to deliver an Intelligent Financial Life to their clients. In addition, the firm provides advisors with practice management support so that they can grow their practices and operate more efficiently. ByJune 30, 2022 ,Envestnet's platform assets were approximately$5.0 trillion in nearly 18 million accounts overseen by more than 105,000 advisors. 33 -------------------------------------------------------------------------------- Services provided to advisors include: financial planning, risk assessment tools, investment strategies and solutions, asset allocation models, research, portfolio construction, proposal generation and paperwork preparation, model management and account rebalancing, account monitoring, customized fee billing, overlay services covering asset allocation, tax management and socially responsible investing, aggregated multi-custodian performance reporting and communication tools, plus data analytics. We have access to a wide range of leading third-party asset custodians.
We offer these solutions principally through the following product and services suites:
•Envestnet | Enterprise provides an end-to-end open architecture wealth management platform through which advisors can construct portfolios for clients. It begins with aggregated household data, which then leads to the creation of a financial plan, asset allocation, investment strategy, portfolio management, rebalancing and performance reporting. Advisors have access to more than 22,000 investment products.Envestnet | Enterprise also sells data aggregation and reporting, data analytics and digital advice capabilities to customers.
•Envestnet | Tamarac™ provides leading trading, rebalancing, portfolio accounting, performance reporting and client relationship management software, principally to high-end RIAs.
•Envestnet | MoneyGuide provides leading goals-based financial planning solutions to the financial services industry. The highly adaptable software helps financial advisors add significant value for their clients using best-in-class technology with enhanced integrations to generate financial plans.
•Envestnet | Retirement Solutions ("ERS") offers a comprehensive suite of
services for advisor-sold retirement plans. Leveraging integrated technology,
ERS addresses the regulatory, data, and investment needs of retirement plans and
delivers the information holistically.
•Envestnet | PMC®, or Portfolio Management Consultants ("PMC") provides research
and consulting services to assist advisors in creating investment solutions for
their clients. These solutions include more than 4,900 vetted third party
managed account products, multi-manager portfolios, and fund strategist
portfolios, as well as approximately 900 proprietary products, such as
quantitative portfolios and fund strategist portfolios. PMC also offers
portfolio overlay and tax optimization services.
34
--------------------------------------------------------------------------------Key Metrics
The following table provides information regarding the amount of assets
utilizing our platforms, financial advisors and investor accounts in the periods
indicated:
As of
June 30, September 30, December 31, March 31, June 30,
2021 2021 2021 2022(1) 2022
(in millions, except accounts and advisors data)
Platform Assets
Assets under Management ("AUM") $ 315,422 $
327,279
426,416 431,040 456,316 432,141 352,840
Total AUM/A 741,838 758,319 818,354 793,392 678,049
Subscription 4,447,733 4,670,827 4,901,662 4,736,537 4,312,114
Total Platform Assets $ 5,189,571 $ 5,429,146 $ 5,720,016 $ 5,529,929 $ 4,990,163
Platform Accounts
AUM 1,209,761 1,276,066 1,345,274 1,459,093 1,491,861
AUA 1,163,991 1,193,069 1,217,076 1,186,180 1,061,484
Total AUM/A 2,373,752 2,469,135 2,562,350 2,645,273 2,553,345
Subscription 11,712,573 14,810,664 14,986,531 15,151,569 15,312,144
Total Platform Accounts 14,086,325 17,279,799 17,548,881 17,796,842 17,865,489
Advisors
AUM/A 41,259 41,696 39,735 39,800 38,394
Subscription 66,597 66,489 68,808 67,168 66,838
Total Advisors 107,856 108,185 108,543 106,968 105,232
(1) Certain assets and accounts have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.
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
As of Gross Net Market Reclass to As of
3/31/2022 Sales Redemptions Flows Impact Subscription 6/30/2022
(in millions, except account data)
AUM $ 361,251 $ 24,829 $ (18,962) $ 5,867 $ (41,909) $ - $ 325,209
AUA 432,141 27,323 (27,662) (339) (50,499) (28,463) 352,840
Total AUM/A $ 793,392 $ 52,152 $ (46,624) $ 5,528 $ (92,408) $ (28,463) $ 678,049
Fee-Based Accounts 2,645,273 19,494 (111,422) 2,553,345
The above AUM/A gross sales figures include
Asset and account figures in the "Reclass to Subscription" columns for the three months endedJune 30, 2022 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. 35 --------------------------------------------------------------------------------
Asset Rollforward - Six Months Ended June 30, 2022
As of Gross Net Market Reclass to As of
12/31/2021 Sales Redemptions Flows Impact Subscription Reclassification(1) 6/30/2022
(in millions, except account data)
AUM $ 362,038 $ 53,528 $ (34,929) $ 18,599 $ (64,149) $ - $ 8,721 $ 325,209
AUA 456,316 55,664 (47,574) 8,090 (74,382) (28,463) (8,721) 352,840
Total AUM/A $ 818,354 $ 109,192 $ (82,503) $ 26,689 $ (138,531) $ (28,463) $ - $ 678,049
Fee-Based Accounts 2,562,350 102,417 (111,422) - 2,553,345
(1) Certain assets have been reclassified from AUA to AUM to better reflect the nature of the services provided to certain customers.
The above AUM/A gross sales figures include$18.3 billion in new client conversions. We onboarded an additional$58.7 billion in subscription conversions during the six months endedJune 30, 2022 bringing total conversions for the six months endedJune 30, 2022 to$77.0 billion . (Note: We have revised our subscription conversions for the three months endedMarch 31, 2022 to$34.3 billion from the previously reported$32.8 billion .) Asset and account figures in the "Reclass to Subscription" columns for the six months endedJune 30, 2022 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.
Envestnet Data & Analytics Segment
Envestnet Data & Analytics is a leading data aggregation, data intelligence, and
experiences platform. Envestnet Data & Analytics enables consumers to aggregate
financial accounts within client applications and provides to clients the
functionality to gather, refine, and aggregate massive sets of consumer
permissioned data for use in financial applications, reports, market research
analysis, and application programming interfaces ("APIs").
Approximately 1,700 clients, including financial institutions, financial
technology innovators and financial advisory firms, including 13 of the 20
largest
Envestnet Data & Analytics serves four main client groups: financial institutions ("Banking"), financial advisors and institutions ("Wealth"), market intelligence and analytics providers ("Research") and financial technology innovators ("Tech").
These groups serve the following customers:
•Banking - Retail Banks, Credit Unions and credit card providers •Wealth - Wealth management financial advisors and institutions •Research - Research and analyst firms •Tech - Personal financial management, small business accounting, e-commerce, payment solutions providers, small business lending and authentication With the exception of theTech Group , we provide clients with secure access to open APIs, user facing applications powered by our platform, APIs and reports. We aggregate and cleanse client permission consumer data elements.Envestnet Data & Analytics also enables clients to develop their own applications through its open APIs, which deliver secure data, payments solutions, and other functionality. The Tech group enables clients to develop new applications and enhance existing solutions through our APIs. These clients operate in a number of sub-vertical markets, including FinTech, wealth management, personal financial management, small business accounting, small business lending and authentication. We believe that our brand recognition, innovative technology and intellectual property, large client base, and unique data gathering and enrichment provide us with competitive advantages that have enabled us to grow. 36 --------------------------------------------------------------------------------
Operational Highlights
Asset-based recurring revenues increased 13% from$170.1 million in the three months endedJune 30, 2021 to$192.0 million in the three months endedJune 30, 2022 . Subscription-based recurring revenues increased 5% from$112.5 million in the three months endedJune 30, 2021 to$118.1 million in the three months endedJune 30, 2022 . Total revenues, which also includes professional services and other revenues, increased 10% from$288.7 million in the three months endedJune 30, 2021 to$318.9 million in the three months endedJune 30, 2022 . The Envestnet Wealth Solutions segment's total revenues increased 13% from$240.3 million in the three months endedJune 30, 2021 to$272.0 million in the three months endedJune 30, 2022 due to an increase in asset-based revenues of$21.9 million , an increase in subscription-based revenues of$6.9 million and an increase in professional services and other revenues of$2.9 million . The Envestnet Data & Analytics segment's total revenues decreased 3% from$48.4 million in the three months endedJune 30, 2021 to$46.9 million in the three months endedJune 30, 2022 primarily due to a decrease in subscription-based revenues of$1.3 million and a decrease in professional services and other revenues of$0.3 million . Asset-based recurring revenues increased 20% from$329.5 million in the six months endedJune 30, 2021 to$394.7 million in the six months endedJune 30, 2022 . Subscription-based recurring revenues increased 5% from$222.3 million in the six months endedJune 30, 2021 to$232.9 million in the six months endedJune 30, 2022 . Total revenues, which also includes professional services and other revenues, increased 14% from$563.8 million in the six months endedJune 30, 2021 to$640.2 million in the six months endedJune 30, 2022 . The Envestnet Wealth Solutions segment's total revenues increased 17% from$466.7 million in the six months endedJune 30, 2021 to$545.6 million in the six months endedJune 30, 2022 due to an increase in asset-based revenues of$65.2 million , an increase in subscription-based revenues of$11.4 million and an increase in professional services and other revenues of$2.2 million . The Envestnet Data & Analytics segment's total revenues decreased 3% from$97.1 million in the six months endedJune 30, 2021 to$94.6 million in the six months endedJune 30, 2022 primarily due to a decrease in professional services and other revenues of$1.6 million and a decrease in subscription-based revenues of$0.9 million . Net loss attributable toEnvestnet, Inc. for the three months endedJune 30, 2022 was$23.3 million , or$0.42 per diluted share, compared to a net loss attributable toEnvestnet, Inc. of$8.3 million , or$0.15 per diluted share, for the three months endedJune 30, 2021 . Net loss attributable toEnvestnet, Inc. for the six months endedJune 30, 2022 was$37.1 million , or$0.67 per diluted share, compared to net income attributable toEnvestnet, Inc. of$6.7 million , or$0.12 per diluted share, for the six months endedJune 30, 2021 . Adjusted revenues for the three months endedJune 30, 2022 were$318.9 million , compared to adjusted revenues of$288.8 million in the prior year period. Adjusted EBITDA for the three months endedJune 30, 2022 was$57.1 million , compared to adjusted EBITDA of$71.1 million in the prior year period. Adjusted net income for the three months endedJune 30, 2022 was$32.0 million , or$0.49 per diluted share, compared to adjusted net income of$43.5 million , or$0.67 per diluted share in the prior year period. Adjusted revenues for the six months endedJune 30, 2022 were$640.3 million , compared to adjusted revenues of$564.0 million in the prior year period. Adjusted EBITDA for the six months endedJune 30, 2022 was$112.8 million , compared to adjusted EBITDA of$139.3 million in the prior year period. Adjusted net income for the six months endedJune 30, 2022 was$63.0 million , or$0.96 per diluted share, compared to adjusted net income of$85.4 million , or$1.31 per diluted share in the prior year period. Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share are non-GAAP financial measures. See "Non-GAAP Financial Measures" for a discussion of our non-GAAP measures and a reconciliation of such measures to the most directly comparable GAAP measures. 37 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended Six Months Ended
June 30, Percent June 30, Percent
2022 2021 Change 2022 2021 Change
(in thousands) (in thousands)
Revenues:
Asset-based $ 191,972 $ 170,075 13 % $ 394,689 $ 329,450 20 %
Subscription-based 118,120 112,504 5 % 232,854 222,333 5 %
Total recurring revenues 310,092 282,579 10 % 627,543 551,783 14 %
Professional services and other revenues 8,760 6,159 42 % 12,672 12,060 5 %
Total revenues 318,852 288,738 10 % 640,215 563,843 14 %
Operating expenses:
Cost of revenues 126,482 100,494 26 % 251,764 193,363 30 %
Compensation and benefits 125,767 105,548 19 % 252,616 206,262 22 %
General and administration 66,144 41,755 58 % 110,479 78,070 42 %
Depreciation and amortization 32,182 30,010 7 % 63,800 58,402 9 %
Total operating expenses 350,575 277,807 26 % 678,659 536,097 27 %
Income (loss) from operations (31,723) 10,931 * (38,444) 27,746 *
Other income (expense), net 1,622 (3,784) (143) % (4,345) (11,252) (61) %
Income (loss) before income tax provision
(benefit) (30,101) 7,147 * (42,789) 16,494 *
Income tax provision (benefit) (5,833) 15,516 (138) % (3,813) 9,928 (138) %
Net income (loss) (24,268) (8,369) * (38,976) 6,566 *
Add: Net loss attributable to non-controlling
interest 983 88 * 1,832 99 *
Net income (loss) attributable to Envestnet,
Inc. $ (23,285) $ (8,281) * $ (37,144) $ 6,665 *
*Not meaningful.
Three months ended
Asset-based recurring revenues
Asset-based recurring revenues increased 13% from$170.1 million in the three months endedJune 30, 2021 to$192.0 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), the impact of new account growth and positive net flows of AUM/A in the second quarter of 2022.
The number of financial advisors with asset-based recurring revenue on our
technology platforms decreased from approximately 41,000 as of
Asset-based recurring revenues increased from 59% of total revenue in the three months endedJune 30, 2021 to 60% of total revenue in the three months endedJune 30, 2022 .
Subscription-based recurring revenues
Subscription-based recurring revenue increased 5% from$112.5 million in the three months endedJune 30, 2021 to$118.1 million in the three months endedJune 30, 2022 . This increase was primarily due to an increase of$6.9 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth, partially offset by a decrease of$1.3 million in the Envestnet Data & Analytics segment. 38 --------------------------------------------------------------------------------
Professional services and other revenues
Professional services and other revenues increased 42% from$6.2 million in the three months endedJune 30, 2021 to$8.8 million in the three months endedJune 30, 2022 . The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing of the completion of customer projects and deployments within both segments.
Cost of revenues
Cost of revenues increased 26% from$100.5 million in the three months endedJune 30, 2021 to$126.5 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in asset-based cost of revenues of$19.0 million , which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of$6.8 million , primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of total revenues, cost of revenues increased from 35% in the three months endedJune 30, 2021 to 40% in three months endedJune 30, 2022 , primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event in the Envestnet Wealth Solutions segment. Cost of revenues as a percentage of total revenues in theEnvestnet Data & Analytics segment remained consistent.
Compensation and benefits
Compensation and benefits increased 19% from$105.5 million in the three months endedJune 30, 2021 to$125.8 million in the three months endedJune 30, 2022 . The increase is comprised primarily of increases in salaries, benefits and related payroll taxes of$11.8 million , non-cash compensation expense of$6.2 million and severance expense of$1.8 million . As a percentage of total revenues, compensation and benefits increased from 37% in the three months endedJune 30, 2021 to 39% in the three months endedJune 30, 2022 .
General and administration
General and administration expenses increased 58% from$41.8 million in the three months endedJune 30, 2021 to$66.1 million in the three months endedJune 30, 2022 . The increase was primarily due to increases in lease restructuring and asset retirement costs of$15.4 million , software and maintenance charges of$3.7 million , litigation and regulatory related expenses of$2.4 million , marketing expense of$1.6 million and travel and entertainment expense of$1.5 million . These increases were partially offset by a decrease in professional and legal fees of$1.7 million and in occupancy costs of$1.5 million . As a percentage of total revenues, general and administration expenses increased from 14% in the three months endedJune 30, 2021 to 21% in the three months endedJune 30, 2022 , primarily due to lease restructuring and asset retirements charges incurred for three office closures.
Depreciation and amortization
Depreciation and amortization expense increased 7% from$30.0 million in the three months endedJune 30, 2021 to$32.2 million in the three months endedJune 30, 2022 . The increase was primarily due to increases in amortization related to internally developed software of$1.8 million and additional depreciation on fixed assets. As a percentage of total revenues, depreciation and amortization expense remained consistent at 10% in the three months endedJune 30, 2021 and 2022. Other income (expense), net Other income (expense), net increased from other expense of$3.8 million in the three months endedJune 30, 2021 to other income of$1.6 million in the three months endedJune 30, 2022 , primarily due to a$6.9 million dilution gain recorded in 2022 related to an equity method investee's share issuance, which was partially offset by a decrease of$0.8 million related to the fair market value adjustment to investment in private company and an increase in losses of$0.6 million related to equity investments. 39 --------------------------------------------------------------------------------
Income tax provision (benefit)
Three Months Ended
June 30,
2022 2021
(inthousands, except effective tax
rate)
Income (loss) before income tax provision (benefit)$ (30,101) $ 7,147 Income tax provision (benefit) (5,833) 15,516 Effective tax rate 19.4 % 217.1 % Under Accounting Standards Codification ("ASC") 740-270-25, we are required to report income tax expense by applying a projected annual effective tax rate ("AETR") to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The effective tax rate ("ETR") for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the three months endedJune 30, 2022 and 2021, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income. For the three months endedJune 30, 2022 , our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion ofU.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D") credits, and the partial reserve release for an uncertain tax position due to the expiration of a statute of limitations. For the three months endedJune 30, 2021 , our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion ofU.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by the federal and state R&D credits.
Six months ended
Asset-based recurring revenues
Asset-based recurring revenues increased 20% from$329.5 million in the six months endedJune 30, 2021 to$394.7 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), the impact of new account growth and positive net flows of AUM/A in the first six months of 2022.
The number of financial advisors with asset-based recurring revenue on our
technology platforms decreased from approximately 41,000 as of
Asset-based recurring revenues increased from 58% of total revenue in the six months endedJune 30, 2021 to 62% of total revenue in the six months endedJune 30, 2022 , primarily due to a higher increase in asset-based recurring revenues as compared to subscription-based recurring revenues.
Subscription-based recurring revenues
Subscription-based recurring revenue increased 5% from$222.3 million in the six months endedJune 30, 2021 to$232.9 million in the six months endedJune 30, 2022 . This increase was primarily due to an increase of$11.4 million in the Envestnet Wealth Solutions segment, which can be attributed to new and existing customer growth.
Professional services and other revenues
Professional services and other revenues increased 5% from$12.1 million in the six months endedJune 30, 2021 to$12.7 million in the six months endedJune 30, 2022 . The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue in the Envestnet Data & Analytics segment due to the timing of the completion of customer projects and deployments. 40 --------------------------------------------------------------------------------
Cost of revenues
Cost of revenues increased 30% from$193.4 million in the six months endedJune 30, 2021 to$251.8 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in asset-based cost of revenues of$50.2 million , which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of$6.8 million , primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of total revenues, cost of revenues increased from 34% in the six months endedJune 30, 2021 to 39% in six months endedJune 30, 2022 , primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event in the Envestnet Wealth Solutions segment as well as costs incurred to migrate our hosting platforms to a third-party cloud server solution in the Envestnet Data & Analytics segment.
Compensation and benefits
Compensation and benefits increased 22% from$206.3 million in the six months endedJune 30, 2021 to$252.6 million in the six months endedJune 30, 2022 . The increase is primarily comprised of increases in salaries, benefits and related payroll taxes of$28.0 million , non-cash compensation expense of$13.9 million , miscellaneous employee expenses of$1.9 million , contract labor expenses of$1.4 million and short term variable expenses of$1.2 million . As a percentage of total revenues, compensation and benefits increased from 37% in the six months endedJune 30, 2021 to 39% in the six months endedJune 30, 2022 .
General and administration
General and administration expenses increased 42% from$78.1 million in the six months endedJune 30, 2021 to$110.5 million in the six months endedJune 30, 2022 . The increase was primarily due to increases in lease restructuring and asset retirement costs of$15.3 million , software and maintenance charges of$7.2 million , litigation and regulatory related expenses of$3.7 million , marketing expense of$3.2 million , travel and entertainment expense of$2.5 million , and miscellaneous general and administration expense of$2.1 million . These increases were partially offset by decreases in professional and legal fees of$2.1 million , occupancy costs of$2.1 million and bad debt expense of$1.7 million . As a percentage of total revenues, general and administration expenses increased from 14% in the six months endedJune 30, 2021 to 17% in the six months endedJune 30, 2022 , primarily due to lease restructuring and asset retirements charges incurred for three office closures.
Depreciation and amortization
Depreciation and amortization expense increased 9% from$58.4 million in the six months endedJune 30, 2021 to$63.8 million in the six months endedJune 30, 2022 . The increase was primarily due to increases in internally developed software amortization expense of$4.0 million and additional depreciation on fixed assets. As a percentage of total revenues, depreciation and amortization expense remained consistent at 10% in the six months endedJune 30, 2021 and 2022. Other expense, net Other expense, net decreased from$11.3 million in the six months endedJune 30, 2021 to$4.3 million in the six months endedJune 30, 2022 . The decrease was primarily due to a$6.9 million dilution gain recorded in 2022 related to an equity method investee's share issuance and a decrease in losses of$1.1 million related to equity investments. These were partially offset by a decrease of$0.8 million related to the fair market value adjustment to investment in private company.
Income tax provision (benefit)
Six Months Ended
June 30,
2022 2021
(inthousands, except effective tax
rate)
Income (loss) before income tax provision (benefit)$ (42,789) $ 16,494 Income tax provision (benefit) (3,813) 9,928 Effective tax rate 8.9 % 60.2 % 41
-------------------------------------------------------------------------------- Under ASC 740-270-25, we are required to report income tax expense by applying a projected AETR to ordinary pre-tax book income for the interim period. The tax impact of discrete items is accounted for separately in the period in which they occur. The ETR for the quarter is the result of the projected AETR applied to actual pre-tax book income plus discrete items as a percentage of actual pre-tax book income. Therefore, a change in pre-tax book income, either forecasted or actual year-to-date, from one period to the next will cause the ETR to change. For the six months endedJune 30, 2022 and 2021, our ETR was impacted by the change in forecasted and actual year-to-date pre-tax book income. For the six months endedJune 30, 2022 , our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion ofU.S. deferred tax assets which includes the impact of IRC Section 174, permanent book-tax differences, the impact of state and local taxes offset by federal and state research and development ("R&D") credits, and the partial reserve release for an uncertain tax position due to the expiration of a statute of limitations. For the six months endedJune 30, 2021 , our effective tax rate differed from the statutory rate primarily due to the increase in the valuation allowance we had placed on a portion ofU.S. deferred tax assets, including the valuation allowance impact of the Harvest acquisition, permanent book-tax differences, and the impact of state and local taxes offset by federal and state R&D credits.
Segment Results
Business segments are generally organized around our service offerings. Financial information about each of our two business segments is contained in "Note 15-Segment Information" to the condensed consolidated financial statements.
The following table reconciles income from operations by segment to consolidated
net income (loss) attributable to
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Envestnet Wealth Solutions $ 3,968 $ 32,459 $ 29,237 $ 66,656
Envestnet Data & Analytics (3,705) 1,342 (9,292) 2,631
Nonsegment operating expenses (31,986) (22,870) (58,389) (41,541)
Income (loss) from operations (31,723) 10,931 (38,444) 27,746
Other income (expense), net 1,622 (3,784) (4,345) (11,252)
Consolidated income (loss) before income tax benefit (30,101)
7,147 (42,789) 16,494
Income tax provision (benefit) (5,833) 15,516 (3,813) 9,928
Consolidated net income (loss) (24,268) (8,369) (38,976) 6,566
Add: Net loss attributable to non-controlling
interest 983 88 1,832 99
Consolidated net income (loss) attributable to
Envestnet, Inc. $ (23,285) $ (8,281) $ (37,144) $ 6,665
42--------------------------------------------------------------------------------
Envestnet Wealth Solutions
The following table presents income from operations for the Envestnet Wealth
Solutions segment:
Three Months Ended Six Months Ended
June 30, Percent June 30, Percent
2022 2021 Change 2022 2021 Change
(in thousands) (in thousands)
Revenues:
Asset-based $ 191,972 $ 170,075 13 % $ 394,689 $ 329,450 20 %
Subscription-based 73,568 66,663 10 % 142,105 130,675 9 %
Total recurring revenues 265,540 236,738 12 % 536,794 460,125 17 %
Professional services and other revenues 6,460 3,559 82 % 8,774 6,582 33 %
Total revenues 272,000 240,297 13 % 545,568 466,707 17 %
Operating expenses:
Cost of revenues 120,722 94,713 27 % 239,530 182,145 32 %
Compensation and benefits 78,759 65,114 21 % 157,403 127,968 23 %
General and administration 45,001 24,884 81 % 72,361 45,583 59 %
Depreciation and amortization 23,550 23,127 2 % 47,037 44,355 6 %
Total operating expenses 268,032 207,838 29 % 516,331 400,051 29 %
Income from operations $ 3,968 $ 32,459 (88) % $ 29,237 $ 66,656 (56) %
Three months ended
Asset-based recurring revenues
Asset-based recurring revenues increased 13% from$170.1 million in the three months endedJune 30, 2021 to$192.0 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), due to the impact of new account growth and positive net flows of AUM/A in the second quarter of 2022.
The number of financial advisors with asset-based recurring revenue on our
technology platforms decreased from approximately 41,000 as of
As a percentage of segment revenues, asset-based recurring revenue remained
consistent at 71% of segment revenue in the three months ended
Subscription-based recurring revenues
Subscription-based recurring revenues increased 10% from$66.7 million in the three months endedJune 30, 2021 to$73.6 million in the three months endedJune 30, 2022 , primarily due to new and existing customer growth.
Professional services and other revenues
Professional services and other revenues increased 82% from$3.6 million in the three months endedJune 30, 2021 to$6.5 million in the three months endedJune 30, 2022 . The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing and completion of customer projects and deployments. 43 --------------------------------------------------------------------------------
Cost of revenues
Cost of revenues increased 27% from$94.7 million in the three months endedJune 30, 2021 to$120.7 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in asset-based cost of revenues of$19.0 million , which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of$6.8 million , primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of segment revenues, cost of revenues increased from 39% in the three months endedJune 30, 2021 to 44% in the three months endedJune 30, 2022 , primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.
Compensation and benefits
Compensation and benefits increased from$65.1 million in the three months endedJune 30, 2021 to$78.8 million in the three months endedJune 30, 2022 . The increase is primarily due to increases in salaries, benefits and related payroll taxes of$8.7 million , non-cash compensation expense of$3.8 million , severance expense of$1.7 million and other immaterial increases within compensation and benefit accounts, partially offset by a decrease in incentive compensation of$1.0 million . As a percentage of segment revenues, compensation and benefits increased from 27% in the three months endedJune 30, 2021 to 29% in the three months endedJune 30, 2022 . General and administration General and administration expenses increased 81% from$24.9 million in the three months endedJune 30, 2021 to$45.0 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase of$15.4 million related to lease restructuring costs incurred in 2022 driven by the closure of three offices inthe United States , in software and maintenance charges of$3.3 million , marketing expense of$2.3 million , and miscellaneous general and administrative expenses of$1.0 million . These increases were partially offset by decreases in occupancy costs of$1.5 million and professional and legal fees of$1.2 million . As a percentage of segment revenues, general and administration expenses increased from 10% in the three months endedJune 30, 2021 to 17% in the three months endedJune 30, 2022 , primarily due to lease restructuring and asset retirements charges incurred for three office closures inApril 2022 .
Depreciation and amortization
Depreciation and amortization expense increased 2% from$23.1 million in the three months endedJune 30, 2021 to$23.6 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in internally developed software amortization expense of$0.9 million , partially offset by other immaterial decreases within depreciation and amortization accounts. As a percentage of segment revenues, depreciation and amortization expense decreased from 10% in the three months endedJune 30, 2021 to 9% in the three months endedJune 30, 2022 .
Six months ended
Asset-based recurring revenues
Asset-based recurring revenues increased 20% from$329.5 million in the six months endedJune 30, 2021 to$394.7 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in asset values applicable to our quarterly billing cycles (which are based on the market value of the customers' assets on our platforms as of the end of the previous quarter), due to the impact of new account growth and positive net flows of AUM/A in the first six months of 2022.
The number of financial advisors with asset-based recurring revenue on our
technology platforms decreased from approximately 41,000 as of
As a percentage of segment revenues, asset-based recurring revenue increased
from 71% of segment revenue in the six months ended
Subscription-based recurring revenues
Subscription-based recurring revenues increased 9% from$130.7 million in the six months endedJune 30, 2021 to$142.1 million in the six months endedJune 30, 2022 , primarily due to new and existing customer growth. 44 --------------------------------------------------------------------------------
Professional services and other revenues
Professional services and other revenues increased 33% from$6.6 million in the six months endedJune 30, 2021 to$8.8 million in the six months endedJune 30, 2022 . The increase was due to an increase in revenues resulting from the 2022 Advisor Summit, which was held as an in-person event. The 2021 Advisor Summit was virtual due to the COVID-19 pandemic. This increase in Advisor Summit revenues was partially offset by lower professional services revenue due to the timing and completion of customer projects and deployments.
Cost of revenues
Cost of revenues increased 32% from$182.1 million in the six months endedJune 30, 2021 to$239.5 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in asset-based cost of revenues of$50.2 million , which directly correlates with the increase to asset-based recurring revenues during the period, and an increase in professional services and other cost of revenues of$6.8 million , primarily as a result of our 2022 Advisor Summit, which was held in-person. As a percentage of segment revenues, cost of revenues increased from 39% in the six months endedJune 30, 2021 to 44% in the six months endedJune 30, 2022 , primarily due to shifts in pricing and product mix for asset-based revenues and additional costs incurred in 2022 related to the in-person Advisor Summit event.
Compensation and benefits
Compensation and benefits increased from$128.0 million in the six months endedJune 30, 2021 to$157.4 million in the six months endedJune 30, 2022 . The increase is primarily due to increases in salaries, benefits and related payroll taxes of$20.2 million , non-cash compensation expense of$7.2 million and other immaterial increases within compensation and benefit accounts. As a percentage of segment revenues, compensation and benefits increased from 27% in the six months endedJune 30, 2021 to 29% in the six months endedJune 30, 2022 .
General and administration
General and administration expenses increased 59% from$45.6 million in the six months endedJune 30, 2021 to$72.4 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase of$15.3 million related to lease restructuring costs incurred in 2022 driven by the closure of three offices inthe United States , software and maintenance charges of$6.7 million , marketing expense of$3.9 million and miscellaneous general and administration expenses of$2.6 million . These increases were partially offset by decreased occupancy costs of$1.8 million . As a percentage of segment revenues, general and administration expenses increased from 10% in the six months endedJune 30, 2021 to 13% in the six months endedJune 30, 2022 , primarily due to lease restructuring and asset retirements charges incurred for three office closures.
Depreciation and amortization
Depreciation and amortization expense increased 6% from$44.4 million in the six months endedJune 30, 2021 to$47.0 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in internally developed software amortization expense of$2.2 million and an increase in finance lease amortization of$1.2 million , partially offset by other immaterial decreases within depreciation and amortization accounts. As a percentage of segment revenues, depreciation and amortization expense decreased from 10% in the six months endedJune 30, 2021 to 9% in the six months endedJune 30, 2022 . 45 --------------------------------------------------------------------------------
Envestnet Data & Analytics
The following table presents income (loss) from operations for theEnvestnet Data & Analytics segment: Three Months Ended Six Months Ended June 30, Percent June 30, Percent 2022 2021 Change 2022 2021 Change (in thousands) (in thousands) Revenues: Subscription-based$ 44,552 $ 45,841 (3) %$ 90,749 $ 91,658 (1) % Professional services and other revenues 2,300 2,600 (12) % 3,898 5,478 (29) % Total revenues 46,852 48,441 (3) % 94,647 97,136 (3) % Operating expenses: Cost of revenues 5,760 5,781 - % 12,234 11,218 9 % Compensation and benefits 23,994 25,008 (4) % 54,160 51,297 6 % General and administration 12,171 9,427 29 % 20,782 17,943 16 % Depreciation and amortization 8,632 6,883 25 % 16,763 14,047 19 % Total operating expenses 50,557 47,099 7 % 103,939 94,505 10 % Income (loss) from operations$ (3,705) $ 1,342 *$ (9,292) $ 2,631 * *Not meaningful.
Three months ended
Subscription-based recurring revenues
Subscription-based recurring revenues decreased 3% from$45.8 million in the three months endedJune 30, 2021 to$44.6 million in the three months endedJune 30, 2022 , primarily due to decreases in revenue from existing customers.
Professional services and other revenues
Professional services and other revenues decreased 12% from$2.6 million in the three months endedJune 30, 2021 to$2.3 million in the three months endedJune 30, 2022 primarily due to the timing of the completion of customer projects and deployments. Cost of revenues Cost of revenues remained consistent at$5.8 million in the three months endedJune 30, 2021 and 2022. As a percentage of segment revenues, cost of revenues remained consistent at 12% in the three months endedJune 30, 2021 and 2022.
Compensation and benefits
Compensation and benefits decreased 4% from$25.0 million in the three months endedJune 30, 2021 to$24.0 million in the three months endedJune 30, 2022 , primarily due to decreases in severance expense of$2.1 million and non-cash compensation expense of$1.3 million , partially offset by an increase in salaries, benefits, and related payroll taxes of$1.8 million . As a percentage of segment revenues, compensation and benefits decreased from 52% in the three months endedJune 30, 2021 to 51% in the three months endedJune 30, 2022 .
General and administration
General and administration expenses increased 29% from$9.4 million in the three months endedJune 30, 2021 to$12.2 million in the three months endedJune 30, 2022 primarily due to an increase in litigation and regulatory related expense of$2.4 million . As a percentage of segment revenues, general and administration expenses increased from 19% in the three months endedJune 30, 2021 to 26% in the three months endedJune 30, 2022 , primarily due to an increase in litigation and regulatory related expenses incurred during 2022. 46 --------------------------------------------------------------------------------
Depreciation and amortization
Depreciation and amortization expense increased 25% from$6.9 million in the three months endedJune 30, 2021 to$8.6 million in the three months endedJune 30, 2022 . The increase is primarily due to an increase in internally developed software and intangible asset amortization expense. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in the three months endedJune 30, 2021 to 18% in three months endedJune 30, 2022 . The increase in depreciation and amortization as a percentage of total revenues is primarily due to higher amortization expense incurred in 2022 driven by increased capitalization related to internally developed software costs.
Six months ended
Subscription-based recurring revenues
Subscription-based recurring revenues decreased 1% from$91.7 million in the six months endedJune 30, 2021 to$90.7 million in the six months endedJune 30, 2022 , primarily due to decreases in revenue from existing customers.
Professional services and other revenues
Professional services and other revenues decreased 29% from$5.5 million in the six months endedJune 30, 2021 to$3.9 million in the six months endedJune 30, 2022 primarily due to the timing of the completion of customer projects and deployments.
Cost of revenues
Cost of revenues increased 9% from$11.2 million in the six months endedJune 30, 2021 to$12.2 million in the six months endedJune 30, 2022 . As a percentage of segment revenues, cost of revenues increased from 12% in the six months endedJune 30, 2021 to 13% in the six months endedJune 30, 2022 .
Compensation and benefits
Compensation and benefits increased 6% from$51.3 million in the six months endedJune 30, 2021 to$54.2 million in the six months endedJune 30, 2022 , primarily due to an increase in salaries, benefits, and related payroll taxes of$4.2 million , miscellaneous employee expenses of$1.1 million and other immaterial increases within compensation and benefit accounts, partially offset by decreases in severance expense of$2.2 million and in incentive compensation of$1.0 million . As a percentage of segment revenues, compensation and benefits increased from 53% in the six months endedJune 30, 2021 to 57% in the six months endedJune 30, 2022 . The increase in compensation and benefits as a percentage of segment revenues is primarily driven by increased headcount related to domestic employees.
General and administration
General and administration expenses increased 16% from$17.9 million in the six months endedJune 30, 2021 to$20.8 million in the six months endedJune 30, 2022 as an increase in litigation and regulatory related expense of$3.7 million was partially offset by a decrease in bad debt expense of$0.7 million . As a percentage of segment revenues, general and administration expenses increased from 18% in the six months endedJune 30, 2021 to 22% in the six months endedJune 30, 2022 , primarily due to an increase in litigation and regulatory related expenses incurred during 2022.
Depreciation and amortization
Depreciation and amortization expense increased 19% from$14.0 million in the six months endedJune 30, 2021 to$16.8 million in the six months endedJune 30, 2022 . The increase is primarily due to an increase in internally developed software and intangible asset amortization expense. As a percentage of segment revenues, depreciation and amortization expense increased from 14% in the six months endedJune 30, 2021 to 18% in six months endedJune 30, 2022 . The increase in depreciation and amortization as a percentage of total revenues is primarily due to higher amortization expense incurred in 2022 driven by increased capitalization related to internally developed software costs. 47 --------------------------------------------------------------------------------
Nonsegment
The following table presents nonsegment operating expenses:
Three Months Ended Six Months Ended
June 30, Percent June 30, Percent
2022 2021 Change 2022 2021 Change
(in thousands) (in thousands)
Operating expenses:
Compensation and benefits $ 23,014 $ 15,426 49 % $ 41,053 $ 26,997 52 %
General and administration 8,972 7,444 21 % 17,336 14,544 19 %
Nonsegment operating expenses $ 31,986 $ 22,870 40 % $ 58,389 $ 41,541 41 %
Three months ended
Compensation and benefits Compensation and benefits increased 49% from$15.4 million in the three months endedJune 30, 2021 to$23.0 million in the three months endedJune 30, 2022 , primarily due to increased headcount that resulted in increases in non-cash compensation expense of$3.8 million , severance of$2.2 million , and salaries, benefits and related payroll taxes of$1.3 million .
General and administration
General and administration expenses increased 21% from$7.4 million in the three months endedJune 30, 2021 to$9.0 million in the three months endedJune 30, 2022 . The increase was primarily due to an increase in transaction costs of$2.1 million driven by acquisition activity and system implementation costs, partially offset by other immaterial decreases.
Six months ended
Compensation and benefits Compensation and benefits increased 52% from$27.0 million in the six months endedJune 30, 2021 to$41.1 million in the six months endedJune 30, 2022 , primarily due to increased headcount that resulted in increases in non-cash compensation expense of$7.3 million , salaries, benefits and related payroll taxes of$3.5 million , and severance of$2.1 million .
General and administration
General and administration expenses increased 19% from$14.5 million in the six months endedJune 30, 2021 to$17.3 million in the six months endedJune 30, 2022 . The increase was primarily due to an increase in transaction costs of$3.1 million driven by acquisition activity and system implementation costs, partially offset by other immaterial decreases.
Non-GAAP Financial Measures
In addition to reporting results according toU.S. generally accepted accounting principles ("GAAP"), we also disclose certain non-GAAP financial measures to enhance the understanding of our operating performance. Those measures include "adjusted revenues," "adjusted EBITDA," "adjusted net income" and "adjusted net income per diluted share." "Adjusted revenues" excludes the effect of purchase accounting on the fair value of acquired deferred revenue. OnJanuary 1, 2022 , the Company adopted ASU 2021-08 whereby it now accounts for contract assets and contract liabilities obtained upon a business combination in accordance with ASC 606. Prior to the adoption of ASU 2021-08, we recorded 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 did 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 is not meant as a substitute for revenue prepared in accordance with GAAP.
"Adjusted EBITDA" represents net income (loss) before deferred revenue fair value adjustment, interest income, interest expense, income tax provision (benefit), depreciation and amortization, non-cash compensation expense, restructuring charges and transaction costs, severance, accretion on contingent consideration and purchase liability, fair market value
48
--------------------------------------------------------------------------------
adjustment on contingent consideration liability, fair market value adjustment
to investment in private company, litigation and regulatory related expenses,
foreign currency, non-income tax expense adjustment, dilution gain on equity
method investee share issuance, income or loss allocations from equity method
investments and (income) loss attributable to non-controlling interest.
"Adjusted net income" represents net income before deferred revenue fair value
adjustment, non-cash interest expense, cash interest on our convertible notes,
non-cash compensation expense, restructuring charges and transaction costs,
severance, accretion on contingent consideration and purchase liability, fair
market value adjustment on contingent consideration liability, fair market value
adjustment to investment in private company, amortization of acquired
intangibles, litigation and regulatory related expenses, foreign currency,
non-income tax expense adjustment, dilution gain on equity method investee share
issuance, income or loss allocations 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 diluted share" represents adjusted net income attributable to common stockholders divided by the diluted number of weighted average shares outstanding.
Our Board and management use these non-GAAP financial measures:
•As measures of operating performance; •For planning purposes, including the preparation of annual budgets; •To allocate resources to enhance the financial performance of our business; •To evaluate the effectiveness of our business strategies; and •In communications with our Board concerning our financial performance.
Our Compensation Committee, Board of Directors and our management may also consider adjusted EBITDA, among other factors, when determining management's incentive compensation.
We also present adjusted revenues, adjusted EBITDA, adjusted net income and
adjusted net income per diluted share as supplemental performance measures
because we believe that they provide our Board, management and investors with
additional information to assess our performance. Adjusted revenues provide
comparisons from period to period by excluding the effect of purchase accounting
on the fair value of acquired deferred revenue. Adjusted EBITDA provides
comparisons from period to period by excluding potential differences caused by
variations in the age and book depreciation of fixed assets affecting relative
depreciation expense and amortization of internally developed software,
amortization of acquired intangible assets, income tax provision (benefit),
restructuring charges and transaction costs, severance, accretion on contingent
consideration and purchase liability, fair market value adjustment on contingent
consideration liability, litigation and regulatory related expenses, foreign
currency, non-income tax expense, dilution gain on equity method investee share
issuance, income or loss allocations from equity method investments, pre-tax
loss attributable to non-controlling interest, and changes in interest expense
and interest income that are influenced by capital structure decisions and
capital market conditions. Our management also believes it is useful to exclude
non-cash stock-based compensation expense from adjusted EBITDA and adjusted net
income because non-cash equity grants made at a certain price and point in time
do not necessarily reflect how our business is performing at any particular
time.
We believe adjusted revenues, adjusted EBITDA, adjusted net income and adjusted
net income per diluted share are useful to investors in evaluating our operating
performance because securities analysts use adjusted revenues, adjusted EBITDA,
adjusted net income and adjusted net income per diluted share as supplemental
measures to evaluate the overall performance of companies, and we anticipate
that our investors and analyst presentations will include adjusted revenues,
adjusted EBITDA, adjusted net income and adjusted net income per diluted share.
Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income
per diluted share are not measurements of our financial performance under GAAP
and should not be considered as an alternative to revenues, net income,
operating income or any other performance measures derived in accordance with
GAAP, or as an alternative to cash flows from operating activities as a measure
of our profitability or liquidity.
We understand that although adjusted revenues, adjusted EBITDA, adjusted net
income and adjusted net income per diluted share are frequently used by
securities analysts and others in their evaluation of companies, these measures
have
49
--------------------------------------------------------------------------------limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as reported under GAAP. In particular you should consider:
•Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share do not reflect non-cash components of employee compensation;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for such replacements;
•We paid net cash for income taxes of$5.5 million and$3.1 million for the six months endedJune 30, 2022 and 2021, respectively. In the event that we generate taxable income and our existing net operating loss carryforwards for federal and state income taxes have been fully utilized or have expired, income tax payments will be higher; and
•Other companies in our industry may calculate adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income per diluted share differently than we do, limiting their usefulness as a comparative measure.
Management compensates for the inherent limitations associated with using
adjusted revenues, adjusted EBITDA, adjusted net income and adjusted net income
per diluted share through disclosure of such limitations, presentation of our
financial statements in accordance with GAAP and reconciliation of adjusted
revenues to revenues, the most directly comparable GAAP measure and adjusted
EBITDA, adjusted net income and adjusted net income per diluted share to net
income and net income per share, the most directly comparable GAAP measures.
Further, our management also reviews GAAP measures and evaluates individual
measures that are not included in some or all of our non-GAAP financial
measures, such as our level of capital expenditures and interest income, among
other measures.
50
--------------------------------------------------------------------------------The following table sets forth a reconciliation of total revenues to adjusted revenues based on our historical results:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Total revenues $ 318,852 $ 288,738 $ 640,215 $ 563,843
Deferred revenue fair value adjustment 54 80 108 160
Adjusted revenues $ 318,906 $ 288,818 $ 640,323 $ 564,003 The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Net income (loss) $ (24,268) $ (8,369) $ (38,976) $ 6,566
Add (deduct):
Deferred revenue fair value adjustment 54 80 108 160
Interest income (713) (197) (1,034) (367)
Interest expense 4,212 4,225 9,065 8,440
Income tax provision (benefit) (5,833) 15,516 (3,813) 9,928
Depreciation and amortization 32,182 30,010 63,800 58,402
Non-cash compensation expense 23,504 17,285 45,318 31,422
Restructuring charges and transaction costs 21,026 5,028 23,372 7,812
Severance 7,148 5,377 10,254 10,291
Accretion on contingent consideration and
purchase liability - 187 - 575
Fair market value adjustment on contingent
consideration liability - - - (140)
Fair market value adjustment to investment in
private company - (758) - (758)
Litigation and regulatory related expenses 4,306 1,938 7,383 3,647
Foreign currency 413 (138) 305 13
Non-income tax expense adjustment 189 295 213 (271)
Dilution gain on equity method investee share
issuance (6,934) - (6,934) -
Loss allocations from equity method
investments 1,400 757 2,945 4,045
(Income) loss attributable to non-controlling
interest 440 (175) 817 (440)
Adjusted EBITDA $ 57,126 $ 71,061 $ 112,823 $ 139,325
51
--------------------------------------------------------------------------------
The following table sets forth the reconciliation of net income (loss) to
adjusted net income and adjusted net income per diluted share based on our
historical results:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands, except share and per share information) Net income (loss)
$
(24,268)
(5,833) 15,516 (3,813) 9,928
Income (loss) before income tax provision (benefit) (30,101) 7,147 (42,789) 16,494
Add (deduct):
Deferred revenue fair value adjustment 54 80 108 160
Non-cash interest expense 1,415 1,429 3,474 2,852
Cash interest - Convertible Notes 2,480 2,480 4,960 4,960
Non-cash compensation expense 23,504 17,285 45,318 31,422
Restructuring charges and transaction costs 21,026 5,028 23,372 7,812
Severance 7,148 5,377 10,254 10,291
Accretion on contingent consideration and purchase liability
- 187 - 575
Fair market value adjustment on contingent
consideration liability - - - (140)
Fair market value adjustment to investment in private company
- (758) - (758)
Amortization of acquired intangibles 17,645 17,502 35,165 33,980
Litigation and regulatory related expenses 4,306 1,938 7,383 3,647
Foreign currency 413 (138) 305 13
Non-income tax expense adjustment 189 295 213 (271)
Dilution gain on equity method investee share
issuance (6,934) - (6,934) -
Loss allocations from equity method investments 1,400 757 2,945 4,045
(Income) loss attributable to non-controlling
interest 440 (175) 817 (440)
Adjusted net income before income tax effect 42,985 58,434 84,591 114,642
Income tax effect (2) (10,961) (14,901) (21,571) (29,234)
Adjusted net income $
32,024
Basic number of weighted-average shares outstanding 55,203,120 54,440,388 55,054,272
54,325,353
Effect of dilutive shares: Options to purchase common stock 129,217 198,277 142,510 210,381 Unvested restricted stock units 199,853 435,023 381,397 536,186 Convertible notes 9,898,549 9,898,549 9,898,549 9,898,549 Warrants 22,170 53,648 37,473 65,026 Diluted number of weighted-average shares outstanding 65,452,909 65,025,885 65,514,201
65,035,495
Adjusted net income per share - diluted $
0.49
(1)For the three months endedJune 30, 2022 and 2021, the effective tax rate computed in accordance with GAAP equaled 19.4% and 217.1%, respectively. For the six months endedJune 30, 2022 and 2021, the effective tax rate computed in accordance with GAAP equaled 8.9% and 60.2%, respectively. (2)An estimated normalized effective tax rate of 25.5% has been used to compute adjusted net income for both the three and six months endedJune 30, 2022 and 2021. Note on Income Taxes: As ofDecember 31, 2021 , we had NOL carryforwards of approximately$195 million and$233 million for federal and state income tax purposes, respectively, available to reduce future income subject to income taxes. As a result, the amount of actual cash taxes we pay for federal, state and foreign income taxes differs significantly from the effective income tax rate computed in accordance with GAAP, and from the normalized rate shown above. 52 --------------------------------------------------------------------------------
The following tables set forth the reconciliation of revenues to adjusted
revenues and income (loss) from operations to adjusted EBITDA based on our
historical results for each segment for the three and six months ended
Three Months Ended
Envestnet Envestnet Data &
Wealth Analytics Nonsegment Total
Solutions
(in thousands)
Revenues $ 272,000 $
46,852 $ -
54 - - 54
Adjusted revenues $ 272,054 $
46,852 $ -
Income (loss) from operations$ 3,968 $
(3,705)
54 - - 54
Depreciation and amortization 23,550 8,632 - 32,182
Non-cash compensation expense 13,364 1,852 8,288 23,504
Restructuring charges and transaction costs 16,897 753 3,376 21,026
Severance 2,813 (431) 4,766 7,148
Litigation and regulatory related expenses - 4,306 - 4,306
Non-income tax expense adjustment 184 5 - 189
Loss attributable to non-controlling
interest 440 - - 440
Adjusted EBITDA $ 61,270 $ 11,412 $ (15,556) $ 57,126 Three Months Ended
Envestnet Envestnet Data &
Wealth Analytics Nonsegment Total
Solutions
(in thousands)
Revenues $ 240,297 $ 48,441 $ - $ 288,738
Deferred revenue fair value adjustment 80 - - 80
Adjusted revenues $ 240,377 $
48,441 $ -
Income (loss) from operations$ 32,459 $ 1,342 $ (22,870) $ 10,931 Add (deduct): Deferred revenue fair value adjustment 80 - - 80 Depreciation and amortization 23,127 6,883 - 30,010 Non-cash compensation expense 9,590 3,183 4,512 17,285 Restructuring charges and transaction costs 3,821 27 1,180 5,028 Severance 1,096 1,687 2,594 5,377 Accretion on contingent consideration and purchase liability 168 19 - 187 Litigation and regulatory related expenses - 1,938 - 1,938 Non-income tax expense adjustment 105 190 - 295 Income attributable to non-controlling interest (175) - - (175) Other 88 9 8 105 Adjusted EBITDA$ 70,359 $ 15,278 $ (14,576) $ 71,061 53
--------------------------------------------------------------------------------
Six Months Ended
Envestnet Envestnet Data &
Wealth Analytics Nonsegment Total
Solutions
(in thousands)
Revenues $ 545,568 $
94,647 $ -
108 - - 108
Adjusted revenues $ 545,676 $
94,647 $ -
Income (loss) from operations$ 29,237 $
(9,292)
108 - - 108
Depreciation and amortization 47,037 16,763 - 63,800
Non-cash compensation expense 24,654 5,387 15,277 45,318
Restructuring charges and transaction costs 17,181 750 5,441 23,372
Severance 4,223 1,211 4,820 10,254
Litigation and regulatory related expenses - 7,383 - 7,383
Non-income tax expense adjustment 291 (78) - 213
Loss attributable to non-controlling
interest 817 - - 817
Other - 2 - 2
Adjusted EBITDA $ 123,548 $ 22,126$ (32,851) $ 112,823
Six Months Ended
Envestnet Envestnet Data &
Wealth Analytics Nonsegment Total
Solutions
(in thousands)
Revenues $ 466,707 $ 97,136 $ - $ 563,843
Deferred revenue fair value adjustment 160 - - 160
Adjusted revenues $ 466,867 $
97,136 $ -
Income (loss) from operations$ 66,656 $ 2,631 $ (41,541) $ 27,746 Add (deduct): Deferred revenue fair value adjustment 160 - - 160 Depreciation and amortization 44,355 14,047 - 58,402 Non-cash compensation expense 17,419 6,024 7,979 31,422 Restructuring charges and transaction costs 5,186 174 2,452 7,812 Severance 4,183 3,407 2,701 10,291 Accretion on contingent consideration and purchase liability 510 65 - 575 Fair market value adjustment on contingent consideration liability - (140) - (140) Litigation and regulatory related expenses - 3,647 - 3,647 Non-income tax expense adjustment (430) 159 - (271) Income attributable to non-controlling interest (440) - - (440) Other 104 9 8 121 Adjusted EBITDA$ 137,703 $ 30,023 $ (28,401) $ 139,325 54
--------------------------------------------------------------------------------
Liquidity and Capital Resources
As ofJune 30, 2022 , we had total cash and cash equivalents of$338.1 million compared to$429.3 million as ofDecember 31, 2021 . We plan to use existing cash as ofJune 30, 2022 , cash generated in the ongoing operations of our business and amounts under our revolving credit facility to fund our current operations, capital expenditures and possible acquisitions or other strategic activity, and to meet our debt service obligations. If the cash generated in the ongoing operations of our business is insufficient to fund these requirements, we may be required to borrow under our revolving credit facility or incur additional debt to fund our ongoing operations or to fund potential acquisitions or other strategic activities. As ofJune 30, 2022 , we had$500.0 million available to borrow under our revolving credit facility, subject to covenant compliance.
Cash Flows
The following table presents information regarding our cash flows and cash, cash equivalents and restricted cash for the periods indicated:
Six Months Ended
June 30,
2022 2021
(in thousands)
Net cash provided by operating activities $ 52,642 $ 119,159
Net cash used in investing activities (98,008) (109,368)
Net cash used in financing activities (43,741)
(24,308)
Effect of exchange rate on changes on cash (2,057)
(524)
Net decrease in cash, cash equivalents and restricted cash (91,164)
(15,041)
Cash, cash equivalents and restricted cash, end of period 338,264
369,673
Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2022
was $52.6 million compared to net cash provided by operating activities of
$119.2 million for the same period in 2021. The decrease was primarily due to a
decrease in pre-tax income period over period of $59.3 million and timing of
payments within working capital items.
Investing Activities
Net cash used in investing activities for the six months endedJune 30, 2022 was$98.0 million compared to net cash used in investing activities of$109.4 million for the same period in 2021. The decrease was primarily due to a decrease in cash disbursements for various acquisitions and investments in privately held companies of$15.2 million and a decrease in cash disbursements for proprietary technology assets of$10.5 million , partially offset by an additional$11.2 million of internally developed software costs capitalized in 2022 as compared to the same period in 2021 and$4.4 million related to the issuance of notes receivable to equity method investees in 2022.
Financing Activities
Net cash used in financing activities for the six months endedJune 30, 2022 was$43.7 million compared to net cash used in financing activities of$24.3 million for the same period in 2021, primarily due to finance lease payments of$14.5 million in 2022, increased share repurchases of$7.1 million in the current year period and an additional$5.1 million of taxes paid on the vesting of restricted shares in 2022 as compared to the same period in 2021. These increases were partially offset by decreased contingent consideration payments of$8.5 million .
Commitments and Off-Balance Sheet Arrangements
Purchase Obligations and Indemnifications
See "Part I, Item 1, Note 17-Commitments, Purchase Obligations and Indemnifications" for purchase obligations and indemnifications details.
55
--------------------------------------------------------------------------------Procurement of Technology Solutions
See "Part I, Item 1, Note 7-
Investment in
See "Part I, Item 1, Note 3- Acquisitions and Other Investments" for details related to this transaction.
Legal Proceedings
See "Part I, Item 1, Note 17-Commitments, Legal Proceedings" for legal proceedings details.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. "Note 2-Summary of Significant Accounting Policies" to the consolidated financial statements in our 2021 Form 10-K describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Our critical accounting estimates, identified in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2021 Form 10-K include, but are not limited to, the discussion of estimates used for recognition of revenues, the determination of the period of benefit for deferred sales incentive commissions, impairment of goodwill and acquired intangible assets and income taxes. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the condensed consolidated financial statements, and actual results could differ materially from the amounts reported.
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