SecProbe.io

CORRESP
1
filename1.htm

August
31, 2023

U.S
Securities and Exchange Commission

Division
of Corporation Finance

Office
of Trade & Services

100
F Street, N.E.

Washington,
DC 20549

 Attn: Abe
Friedman

Doug Jones

 Re: Envestnet,
Inc.

Form 10-K for Fiscal Year Ended December 31, 2022 Filed February 28, 2023

Form 10-Q for the Fiscal Quarter Ended March 31, 2023
filed May 5, 2023

File No. 001-34835

Dear
Staff:

Thank
you for your letter dated August 1, 2023 setting forth comments of the Staff of the Division of Corporation Finance (the “Staff”)
on the Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2022, filed by Envestnet, Inc. (the “Company”)
on February 28, 2023 and Form 10-Q for the fiscal quarter ended March 31, 2023 filed May 5, 2023.

We
appreciate the effort that went into the Staff’s comments. We have reproduced each of the Staff’s comments below and have
provided our responses following each comment.

Form
10-K for Fiscal Year Ended December 31, 2022

Management’s
Discussion and Analysis of Financial Condition and Results of Operations Non-GAAP Financial Measures, page 54

 1. You
                                            make the following adjustments in computing each of your non-GAAP measures “adjusted
                                            EBITDA” and “adjusted net income” – (i) restructuring charges and
                                            transaction costs, (ii) severance, (iii) litigation and regulatory related expenses, (iv)
                                            loss allocations from equity method investments, and (v) income/loss attributable to non-controlling
                                            interest, and additionally cash interest – convertible notes for adjusted net income.
                                            Each adjustment is made for each year of the three years presented, except for cash interest
                                            – convertible notes which appears to have been incurred only in the two most recent
                                            periods. All of these adjustments continue to be made for these non-GAAP measures in the
                                            interim period ended March 31, 2023. Please explain to us how these adjustments comply with
                                            Question 100.01 of our Compliance and Disclosure Interpretations “Non-GAAP Financial
                                            Measures,” as these appear to be normal, recurring items, many of which appear to have
                                            involved or will involve cash. In particular, (a) explain why it is appropriate to adjust
                                            net income for cash interest associated with convertible notes, (b) describe and quantify
                                            the items included in restructuring and transaction costs, (c) quantify each of litigation
                                            and regulatory related expenses, and explain why regulatory expenses are excluded when it
                                            appears these are necessary given the nature of your business, (d) explain your rational
                                            for excluding from net income amounts associated with equity method investments, and (e)
                                            explain the relevance to net income of excluding results attributable to non-controlling
                                            interest.

Response: The
Company acknowledges the Staff’s comment and respectfully advises that it has considered the guidance set forth in Question 100.01
of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. We have explained below the rationale for
each of the adjustments and why such adjustments are not misleading and are not normal, recurring, cash operating expenses necessary
for the Company to operate its business on an ongoing basis. The Company further believes fully disclosing, explaining and reconciling
these items as part of its presentation of Adjusted EBITDA and Adjusted Net Income provides a more complete understanding of ongoing
operations, enhances comparability of current results to prior periods, is useful for investors to analyze the Company’s financial
performance and eliminates the impact of certain items that may obscure trends in the underlying performance of the Company’s business.

As
requested by the Staff, below is a description and quantification of items included in restructuring and transaction costs (in thousands):

    2020
    2021
    2022

    Restructuring related costs
    $ 7,336
    $ 2,535
    $ 25,939

    Transaction, acquisition and integration related costs
      10,410
      14,359
      5,143

    System integration costs
      1,637
      1,596
      4,059

    Total restructuring charges and transaction costs
    $ 19,383
    $ 18,490
    $ 35,141

Restructuring
related costs: The Company’s restructuring costs are related to significant, distinct enterprise-wide strategic initiatives
and can vary significantly from year to year depending upon the specifics of each initiative. In 2020, as a result of the impact to our
operations from the COVID-19 pandemic, the Company closed several offices in the United States (Page 37 in Form 10-K for Fiscal Year
December 31, 2020). As a result of a change in leadership due to the unexpected passing of our Chief Executive Officer, in 2021 we announced
that we would be accelerating our investment in our ecosystem, to fulfill our strategy of 1) capturing more of the addressable market;
2) modernizing the digital engagement marketplace; and 3) opening up our technology platform. As a result of these investments, we incurred
certain non-recurring third-party costs primarily the restructuring of our Data & Analytics operations as well as closure of certain
offices in India and the United States. Specifically, in 2022 we entered into an outsourcing arrangement with Tata Consulting Services
(“TCS”) whereby the Company outsourced certain administrative and operational services of the Envestnet Data & Analytics
business located in Bangalore, India (Page 41 in Form 10-K for Fiscal Year December 31, 2022) and as a result, we incurred certain one-time
costs related to this outsourced arrangement, including the closure of its office in Bangalore, India (Page 40 in Form 10-K for Fiscal
Year December 31, 2022). In addition, we also closed three additional offices in the United States. These costs are outside of the business’s
normal operations and including these costs would create a lack of comparability between periods. Accordingly, we believe that excluding
the foregoing expenses from the applicable non-GAAP financial measures is appropriate and does not result in measures that are misleading.

Transaction,
acquisition and integration related costs: The Company has excluded certain third-party acquisition costs (including legal,
accounting and due diligence costs) and integration related costs to allow more comparable comparisons of our financial results to our
historical operations. Such transaction, acquisition and integration costs vary in amount due to factors specific to each transaction
and acquisition. As a result, these costs lack predictability as to amount, occurrence and/or timing and create a lack of comparability
between periods. Accordingly, we believe that excluding the foregoing expenses from the applicable non-GAAP financial measures is appropriate
and does not result in measures that are misleading.

System
integration costs: The Company has excluded certain non-recurring third-party consulting expenses related to the implementation
of a new Enterprise Resource Planning System, specifically our accounting system which began in 2020. From the founding of the Company
in 1999 through the middle of 2023, the Company used the same accounting system which was no longer supported by the vendor and required
replacement. These third-party costs are infrequent and outside the ordinary course of our continuing operations. We exclude these costs
to facilitate a more meaningful evaluation of our current operating performance and comparisons to our past operating performance.

    2

Severance
Expenses: The Company excluded severance expenses from Adjusted EBITDA as it has initiated certain strategic initiatives
that have reshaped its workforce. Prior to the unexpected passing of our CEO in 2019 (Page 41 in Form 10-K for Fiscal Year December 31,
2019), executive leadership changes had been infrequent due to the long tenure of our executive management team. Additionally, the outbreak
of COVID-19, as well as geopolitical uncertainty and rising inflation that have contributed to significant volatility and the decline
in global financial markets during 2022 were contributing factors to these decisions. These strategic initiatives include an early retirement
program (Page 37 in Form 10-K for Fiscal Year December 31, 2020), an organizational realignment in 2020 (Page 37 in Form 10-K for Fiscal
Year December 31, 2020), an organization realignment in 2022 (Page 41 in Form 10-K for Fiscal Year December 31, 2022) and an outsourcing
arrangement with TCS tied to the accelerated investment plan as described above. The Company has also excluded severance costs related
to post acquisition integration activity, including the elimination of redundant positions and/or restructuring of the acquired business
operations. We believe these costs are not reflective of future ongoing operations and affect the comparability of the Company’s
operational results across reporting periods.

Litigation
and Regulatory Related Expenses: As requested by the Staff, below is a description of items included in litigation and regulatory
related expenses. Quantification of such expenses will be provided supplementally and confidentially via letter dated the date
hereof.

The
Company excluded certain third-party, non-recurring litigation fees, net of insurance related reimbursements, related to the matters
as described in Footnote 21 Commitments and Contingencies, Legal Proceedings (Pages 117 – 118 in the Notes to Consolidated Financial
Statements in the Form 10-K for Fiscal Year Ended December 31, 2022). Historically, litigation has been infrequent and outside the ordinary
course of our operations. These costs relate to two incidents over a three-year period, and thus indicative that litigation is not a
reoccurring expenditure.

As
described in Risk Factors (Page 27 in Form 10-K for Fiscal Year December 31, 2022), in January 2020, three members of Congress wrote
to the Federal Trade Commission (the “FTC”) to request a review of the business practices of the Company’s Data &
Analytics segment. In February 2020, we received a civil investigative demand from the FTC for documents and information related to our
data collection, assembly, evaluation, sharing, correction and deletion practices. As a result of this matter, the Company excluded certain
third-party non-recurring legal and lobbying expenses as these third-party costs are unique, infrequent and outside of the ordinary course
of our continuing operations. Normal recurring internal and external legal and regulatory expenses are not included as an adjustment
to adjusted EBITDA or adjusted net income.

The
Company excluded the above litigation, regulatory and governance related third-party expenses to facilitate a more meaningful evaluation
of our current operating performance and comparisons to our past operating performance.

Loss
allocations from equity method investments: The Company has excluded both gains and losses from our various equity method
investments as those investments are not part of our core business and the ventures associated with those investments generally are start-up
or early-stage businesses where we have limited influence over their operational and financial policies. In addition, the results of
operations for each of these investments can vary significantly from quarter-to-quarter, are non-cash, do not represent the Company’s
ongoing operating performance and creates a lack of comparability between reporting periods. Accordingly, we believe that excluding these
non-cash gains and losses from these investments from the applicable non-GAAP financial measures is appropriate and does not result in
measures that are misleading.

    3

Income/loss
attributable to non-controlling interest: Although the Company consolidates its minority interest in a private company as
a result of its ability to control this private company interest through majority representation on the board, the Company has excluded
income/loss attributable to non-controlling interest as it owns a minority economic interest in the private company and this private
company is a start-up business, and the results of its operations vary significantly from quarter-to-quarter and are not representative
of the Company’s financial performance. Further the operations of the private company are not consolidated into the Company’s
operations and its cash and other assets are not operationally accessible. Accordingly, the Company does not believe such adjustment
is misleading, and the Company believes such adjustment enhances comparability of the Company’s current results of operations to
its results from prior periods.

Cash
interest – convertible notes for adjusted net income: Prior to January 1, 2021, the Company accounted for the effect
of its convertible notes on diluted earnings per share using the treasury stock method, since they may be settled in cash, shares or
a combination thereof at the Company’s option. As a result of the adoption of ASU 2020-06 “Debt – Debt with Conversion
and Other Options (Subtopic 470-02) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40: Accounting
for Convertible Instruments and Contracts in the Entity’s Own Equity”, use of the Treasury Stock Method was no longer allowed
and pursuant to the adoption of ASU 2020-06 on January 1st 2021, the Company now accounts for the effect of its convertible
notes on diluted earnings per share using the if-converted method.

Subsequent
to the adoption of ASU 2020-06, in order to reflect a consistent application and a more accurate comparison across reporting periods,
for purposes of computing adjusted net income and adjusted net income per share, the Company always assumes the convertible notes to
be fully converted for all periods presented. Therefore, cash interest for convertible notes is added to adjusted net income in accordance
with the if-converted method.

Liquidity
and Capital Resources

Cash
Flows

Operating
Activities, page 61

 2. Your
                                            analysis appears to rely on results of operations and non-cash items to explain the decrease
                                            of $133.6 million from fiscal year 2021 to fiscal year 2022. Please note that references
                                            to these items, especially noncash items, may not provide a sufficient basis to understand
                                            how operating cash actually was affected between periods. After referring to the guidance
                                            in Item 303(b) of Regulation S-K, the introductory paragraph of section IV.B and B.1 of Release
                                            No. 33-8350, please explain to us and disclose as appropriate the underlying factors for
                                            the decrease. In connection with this, we note the change between periods in “Accrued
                                            expenses and other liabilities” reported in the statement of cash flows of approximately
                                            $(78) million. Please explain to us and disclose as appropri