BERWYN, PA — Envestnet (NYSE: ENV) has released its financial results for the second quarter ending June 30, 2024. The company reported an 11% increase in total revenue, reaching $348.3 million, up from $312.4 million in the same quarter last year. This growth was driven by an 18% rise in asset-based recurring revenue, which now represents 63% of total revenue, compared to 59% in the same period last year. Subscription-based recurring revenue saw a modest 3% increase, accounting for 34% of total revenue, down from 37% last year. However, professional services and other non-recurring revenue dropped by 8%.
Despite the revenue growth, Envestnet faced a significant increase in operating expenses, which rose 29% to $423.8 million, up from $327.7 million in the second quarter of 2023. Direct expenses increased by 16% to $144.4 million. Employee compensation saw an 11% decrease to $104.1 million, making up 30% of total revenue, compared to 37% last year. General and administrative expenses also saw a slight decrease of 3%, totaling $52.9 million.
The company recorded a non-cash goodwill impairment charge of $96.3 million and a non-cash gain on deconsolidation of non-controlling interest of $19.5 million during this period. As a result, Envestnet reported a loss from operations amounting to $75.5 million, compared to a loss of $15.3 million in the second quarter of 2023. Net loss attributable to Envestnet, Inc. was $79.2 million, or $1.44 per diluted share, compared to a net loss of $21.4 million, or $0.39 per diluted share, in the same quarter last year.
Despite the operational losses, Envestnet showed improvements in its adjusted metrics. Adjusted EBITDA increased by 39% to $77.8 million, up from $56.0 million last year. Adjusted net income also rose by 20% to $36.4 million, or $0.55 per diluted share. Free cash flow saw a substantial increase of 83%, reaching $67.0 million, up from $36.7 million in the previous year.
Jim Fox, Envestnet’s Board Chair and Interim CEO, stated, “We look forward to the successful completion of our pending transaction with Bain Capital and the value it will deliver to our shareholders. We remain committed to maintaining our leading position, which is based on executing on what our clients need and deepening our relationships with them.”
Financial Position and Liquidity
As of June 30, 2024, Envestnet had $122.0 million in cash and cash equivalents and $892.5 million in outstanding debt. This debt includes $317.5 million in convertible notes maturing in 2025 and $575.0 million maturing in 2027. The company’s $500.0 million revolving credit facility remained undrawn.
Segment Reporting and Error Corrections
Envestnet adjusted its segment reporting structure to better align with its current organizational setup. The company also corrected immaterial errors identified in previous periods. These corrections included reclassifying a clerical error related to convertible notes and reclassifying an arrangement with a third party for cloud-hosted virtual servers.
Balancing Growth and Challenges
Envestnet’s second-quarter results reflect a complex financial landscape. While revenue growth and improved adjusted metrics indicate positive business momentum, the substantial operational losses and increased expenses present challenges. The pending transaction with Bain Capital and strategic adjustments aim to stabilize and enhance the company’s financial health moving forward.
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