Analysts cut their short-term earnings and revenue estimates for Envestnet after the company’s CEO, Jud Bergman, warned the firm’s revenue will be hurt as it looks to find a new solution and provider for credit decisioning analytics following the filing of a $100 million lawsuit against it by its former vendor, FinancialApps.
D.A. Davidson senior research analyst Peter Heckmann, for instance, lowered his 2019 and 2020 revenue forecasts for Envestnet 3%-4%, while dropping his 2019 adjusted EBITDA forecast for the company 1% to $193 million and his 2020 adjusted EBITDA forecast 6% to $233 million, he said Monday in a research note. He also dropped his 2019 adjusted earnings per share (EPS) forecast by 3 cents to $2.10 and 2020 adjusted EPS 12 cents to $2.54.
William Blair analyst Chris Shutler similarly lowered his 2019 adjusted EPS estimate for Envestnet by 4 cents to $2.11 and lowered his 2020 estimate 11 cents to $2.55.
Law firm Kasowitz Benson Torres LLP filed the lawsuit on behalf of FinancialApps on July 26 in U.S. District Court for the District of Delaware, accusing Envestnet and subsidiary Yodlee of committing an “egregious multi-year scheme” designed to “steal FinApps’ valuable proprietary information and trade secrets, in order to unlawfully develop software products that compete with FinApps.” The alleged scheme caused FinApps to sustain “substantial monetary damages, in an amount to be determined at trial, but no less than $100 million,” according to the suit.
In response, Bergman told analysts on his company’s second-quarter earnings call Aug. 7: “We believe the vendor’s allegations are false and without merit, and we will respond appropriately and defend ourselves vigorously.”
But he disclosed that Envestnet’s Data & Analytics business “experienced shortcomings in the technology provided by” that vendor, who “we relied on to deliver certain credit decisioning analytics to our banking customers.” The vendor, which he didn’t mention by name on the call, “suspended service, causing a disruption that affected several clients and prospects,” he said.
Envestnet continued to “see credit decisioning analytics as a big opportunity,” he said, but warned: “Our revenue will be negatively impacted at least through the remainder of this year, as we work to develop a new solution with a new provider.”
During the Q&A with analysts, he said he was “highly confident that eventually we will find a new solution with a new provider that enables us to address this market opportunity; whether that’s months or quarters, I can’t say right now, but my expectation is that it’s closer to months.”