Prospectus Summary
PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless otherwise indicated, the terms “Envestnet,” the “company,” “we,” “us” and “our” refer to Envestnet, Inc. and its subsidiaries.Our Company
We are a leading independent provider of technology-enabled, Web-based investment solutions and services to financial advisors. Our integrated technology platform allows financial advisors to provide their clients with highly flexible investment solutions and services. We work with financial advisors who are independent, as well as those who are associated with small or mid-sized financial advisory firms and larger financial institutions, which we refer to as enterprise clients. We focus our technology development efforts and our sales and marketing approach on addressing financial advisors’ front-, middle- and back-office needs. Our investment solutions and services allow financial advisors to be more efficient and effective in the activities critical to their businesses by facilitating client interactions, supporting and enhancing portfolio management and analysis, and enabling reliable account support and administration. In addition, we are not controlled by a financial institution, broker-dealer or other entity operating in the securities or wealth management industry, which we believe affords us a greater level of independence and impartiality.
Our centrally hosted, “open architecture” technology platform provides financial advisors with the flexibility to choose freely among a wide range of investment solutions, services, investment managers and custodians to identify those that are most appropriate for their clients. In addition, our technology platform allows us to add new or upgrade existing features and functionality as the industry and financial advisors’ needs evolve. Our technology platform provides financial advisors with the following:
PMC primarily engages in consulting services aimed at providing financial advisors with additional support in addressing their clients’ needs, as well as the creation of proprietary investment solutions and products. PMC’s investment solutions and products include managed account and multi-manager portfolios, mutual fund portfolios and ETF portfolios.
A majority of our revenues are derived from fees charged as a percentage of the assets that are managed or administered on our technology platform by financial advisors. Our asset-based fees vary based on the types of investment solutions and services that financial advisors utilize. Asset-based fees accounted for approximately 88%, 78% and 73% of our total revenues for the years ended December 31, 2007, 2008 and 2009, respectively. The percentage of our total revenues represented by asset-based fees declined in these periods principally due to the significant decline in the market value of the assets on our technology platform resulting from fluctuations in the securities markets, particularly from September 2007 to March 2009, and also due to our entering into a significant license agreement in 2008. As of December 31, 2009, approximately $38 billion of investment assets for which we receive asset-based fees were managed or administered utilizing our technology platform by approximately 8,400 financial advisors in approximately 175,000 investor accounts.
We also generate revenues from recurring, contractual licensing fees for providing access to our technology platform, generally from a small number of enterprise clients. Licensing fees are generally fixed for a specified contract term and are based on the level and types of investment solutions and services provided, rather than on the amount of client assets on our technology platform. Licensing fees accounted for 9%, 19% and 24% of our total revenues for the years ended December 31, 2007, 2008 and 2009, respectively. Fees received in connection with professional services accounted for the remainder of our total revenues. As of December 31, 2009, approximately $51 billion of investment assets for which we receive licensing fees for utilizing our technology platform were serviced by approximately 5,500 financial advisors through approximately 511,000 investor accounts.
For over 90% of our asset-based fee arrangements, we bill customers at the beginning of each quarter based on the market value of customer assets on our technology platform as of the end of the prior quarter, providing for a high-degree of visibility for the current quarter. Furthermore, our licensing fees are highly predictable because they are generally set in multi-year contracts, providing longer term visibility regarding a portion of our total revenues.
In the year ended December 31, 2009, we had total revenues of $77.9 million, income from operations of $4.3 million, net loss of $0.9 million, adjusted EBITDA of $10.6 million, adjusted operating income of $6.1 million and adjusted net income of $2.4 million.
The following table sets forth for the quarters indicated the assets that were managed or administered on our technology platform by financial advisors:
The following table sets forth for the quarters indicated the number of accounts financial advisors serviced through our technology platform:
The following table sets forth as of December 31 of the year indicated the number of financial advisors that had client accounts on our technology platform:
We were founded in 1999 and through organic growth and strategic transactions we have grown to become a leading independent provider of technology-enabled, Web-based investment solutions and services to financial advisors. Our headquarters are located in Chicago and we have offices in New York, Denver, Sunnyvale and Trivandrum, India.
Recent Developments
In February 2010, we signed a seven-year platform services agreement with FundQuest Incorporated, or FundQuest, a global investment and managed account services company and subsidiary of BNP Paribas Investment Partners. Pursuant to this agreement, FundQuest will continue to provide investment products to its clients, but our technology platform will replace FundQuest’s technology platform. Upon completion of the conversion of FundQuest’s clients to our technology platform, which we expect to occur in 2010, the assets on our technology platform are expected to increase by approximately $13 billion, and the number of financial advisors that have access to our technology platform and the accounts they service are expected to increase by approximately 6,200 and 90,000, respectively.
Our Market Opportunity
The wealth management industry has experienced significant growth in terms of assets invested by retail investors in the past several years. According to the Federal Reserve, U.S. household and non-profit organization financial assets totaled $45.1 trillion as of December 31, 2009, up from $41.7 trillion in 2008 and $35.3 trillion in 2003. According to Cerulli Associates, an industry consulting firm, as of December 31, 2008, $8.5 trillion of assets were professionally managed compared to $6.8 trillion as of December 31, 2003. In addition, according to Cerulli Associates, in 2009, there were approximately 312,000 financial advisors registered with the Financial Industry Regulatory Authority, or FINRA, or the Securities and Exchange Commission, or SEC, that were focused on retail investors.
In addition to experiencing significant growth in financial assets, the wealth management industry is characterized by a number of important trends, including those described below, which we believe create a significant market opportunity for technology-enabled investment solutions and services like ours.
Our Competitive Strengths
We believe we benefit from the following competitive strengths:
research group, PMC, and access to a full range of investment programs with the flexibility to add specific investment managers or investment solutions not currently available on our technology platform upon request.
Our Growth Strategy
We intend to increase our revenue and profitability by continuing to pursue the following strategies:
Our Business Model
We believe that a number of attractive characteristics significantly contribute to the success of our business model, including:
Risks
This offering involves a high degree of risk. You should carefully consider the risks described in “Risk Factors” before purchasing our common stock. Our results of operations, financial condition or business could be materially adversely affected by any of those risks. The principal risks we face, include, but are not limited to the following:
The Offering and Related Transactions
In connection with this offering, our 41% shareholder, The EnvestNet Group, Inc., or the Envestnet Shareholder, will merge with and into our company, with our company being the surviving entity. Pursuant to the merger, all of the Envestnet Shareholder’s outstanding preferred shares will convert into Envestnet Shareholder common shares and the Envestnet Shareholder will liquidate and distribute all of the shares of our common stock then held by the Envestnet Shareholder pro rata to the holders of its common shares. In addition, pursuant to their terms, each series of our outstanding preferred stock outstanding immediately prior to this offering will convert into shares of our common stock, effective upon the closing of this offering. See “Certain Relationships and Related Party Transactions”.
Additional Information
We were incorporated in the State of Delaware in 2004. Our principal executive offices are located at 35 East Wacker Drive, Suite 2400, Chicago, Illinois 60601, and our telephone number is (312) 827-2800. Our website address is www.envestnet.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website as part of this prospectus.
The Offering
Except as otherwise noted, all information in this prospectus:
The number of shares of our common stock to be outstanding immediately after this offering is based on 131,134,553 shares outstanding as of December 31, 2009, and excludes:
Summary Consolidated Financial Information and Other Data
The summary consolidated statements of operations data presented for each of the years ended December 31, 2007, 2008 and 2009 and the summary consolidated balance sheet data as of December 31, 2008 and 2009 were derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for each of the years ended December 31, 2005 and 2006 and the selected consolidated balance sheet data as of December 31, 2005, 2006 and 2007 have been derived from our unaudited consolidated financial statements that are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.
The information set forth below should be read together with “Capitalization,” “Selected Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related footnotes included elsewhere in this prospectus.
Consolidated Statements of Operations Data
Notes to the Consolidated Statements of Income
Consolidated Balance Sheet Data
Notes to the Consolidated Balance Sheet Data
Upon completion of the offering, each share of our series A convertible preferred stock, series B convertible preferred stock and series C preferred stock will be automatically converted into shares of common stock at the then effective conversion price. The conversion price per share of the series A preferred stock is $1.25 (equates to 800 shares of common stock for each preferred share). The conversion price per share of the series B preferred stock is $1.00 (equates to 1,000 shares of common stock for each preferred share). The conversion price per share of the series C preferred stock is $2.33 (equates to 1,000 shares of common stock for each preferred share).
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease), on a pro forma basis, each of cash and cash equivalents, total assets and total stockholder’s equity by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
Other Financial and Operating Data
Notes to Other Financial and Operating Data
“Adjusted EBITDA” represents net income (loss) before interest income, interest expense, net income tax expense (benefit), depreciation and amortization, non-cash stock-based compensation expense, unrealized gain (loss) on investments, impairment of investments, impairment of goodwill, litigation-related expense, bad debt expense and severance.
“Adjusted operating income (loss)” represents income (loss) from operations before non-cash stock-based compensation expense, impairment of goodwill, litigation-related expense, bad debt expense and severance.
“Adjusted net income (loss)” represents net income (loss) before impairment of goodwill, reversal of valuation allowance, non-cash stock-based compensation expense, impairment of investments, litigation-related expense, bad debt expense and severance. Reconciling items are tax effected using the income tax rates in effect on the applicable date.
Our Compensation Committee and our management uses adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss):
Our Compensation Committee of the Board of Directors and our management may also consider adjusted EBITDA, among other factors, when determining management’s incentive compensation beginning in 2010.
We also present adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss) as supplemental performance measures because we believe that they provide our Board of Directors, management and investors with additional information to assess our performance. 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 customer inducement costs, impairment of investments, impairment of goodwill, litigation-related expense, bad debt expense, severance, unrealized income (loss) on investments, 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, adjusted operating income (loss) and adjusted net income (loss) 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 EBITDA, adjusted operating income (loss) and adjusted net income (loss) are useful to investors in evaluating our operating performance because securities analysts use adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss) as supplemental measures to evaluate the overall performance of companies, and we anticipate that our investor and analyst presentations after we are public will include adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss).
Adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss) are not measurements of our financial performance under U.S. GAAP and should not be considered as an alternative to net income (loss), operating income (loss) or any other performance measures derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities as a measure of our profitability or liquidity.
We understand that, although adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss) are frequently used by securities analysts and others in their evaluation of companies, these measures have 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 U.S. GAAP. In particular you should consider:
Management compensates for the inherent limitations associated with using adjusted EBITDA, adjusted operating income (loss) and adjusted net income (loss) measures through disclosure of such limitations, presentation of our financial statements in accordance with U.S. GAAP and reconciliation of adjusted EBITDA to net income (loss), adjusted net income (loss) to the most directly comparable U.S. GAAP measure, net income (loss) and adjusted operating income (loss) to the most directly comparable U.S. GAAP measure, income (loss) from operations. Further, our management also reviews GAAP measures and evaluates individual measures that are not included in adjusted EBITDA, such as our level of capital expenditures and interest income, among other measures.
The following table sets forth a reconciliation of net income (loss) to adjusted EBITDA based on our historical results:
The following table sets forth the reconciliation of income (loss) from operations to adjusted operating income (loss) based on our historical results:
The following table sets forth the reconciliation of net income (loss) to adjusted net income (loss) based on our historical results: