Financial Engines (NASDAQ: FNGN), America’s largest independent
registered investment advisor, today reported financial results for its
first quarter ended March 31, 2013.
Financial results for the first quarter of 2013 compared to the first
quarter of 2012:i
-
Revenue increased 29% to $53.9 million for the first quarter of 2013
from $41.7 million for the first quarter of 2012.
-
Professional management revenue increased 38% to $45.5 million for the
first quarter of 2013 from $32.9 million for the first quarter of 2012.
-
Net income was $6.2 million, or $0.12 per diluted share, for the first
quarter of 2013 compared to $3.5 million, or $0.07 per diluted share,
for the first quarter of 2012.
-
Non-GAAP Adjusted EBITDAi increased 43% to $16.7 million
for the first quarter of 2013 from $11.7 million for the first quarter
of 2012.
-
Non-GAAP Adjusted Net Incomei increased 57% to $7.9 million
for the first quarter of 2013 from $5.0 million for the first quarter
of 2012.
-
Non-GAAP Adjusted Earnings Per Sharei increased 50% to
$0.15 for the first quarter of 2013 from $0.10 for the first quarter
of 2012.
Key operating metrics as of March 31, 2013:ii
-
Assets under contract (“AUC”) were $635 billion.
-
Assets under management (“AUM”) were $70.8 billion.
-
Members in Professional Management were over 681,000.
-
Asset enrollment rates for companies where services have been
available for 26 months or more averaged 12.8%iii.
“Sponsor and participant response to broader advisory capabilities
continues to be positive and reinforces our unique ability to provide
holistic advice that is independent and free from product conflicts,”
said Jeff Maggioncalda, chief executive officer of Financial Engines.
“Beyond the workplace, Financial Engines can now provide IRA management
with Income+ capability for members, and can help individuals with more
pieces of their retirement puzzle.”
Review of Financial Results for the First Quarter of 2013
Revenue increased 29% to $53.9 million for the first quarter of 2013
from $41.7 million for the first quarter of 2012. The increase in
revenue was driven primarily by the growth in professional management
revenue, which increased 38% to $45.5 million for the first quarter of
2013 from $32.9 million for the first quarter of 2012.
Costs and expenses increased 23% to $44.4 million for the first quarter
of 2013 from $36.0 million for the first quarter of 2012. This was due
primarily to an increase in fees paid to plan providers for connectivity
to plan and plan participant data, as well as wages, benefits, and
employer payroll taxes due to increased headcount and higher
compensation.
As a percentage of revenue, cost of revenue (exclusive of amortization
of internal use software) remained constant at 37% for both the first
quarters of 2013 and 2012.
Income from operations was $9.5 million for the first quarter of 2013
compared to $5.7 million for the first quarter of 2012. As a percentage
of revenue, income from operations was 18% for the first quarter of 2013
compared to 14% for the first quarter of 2012.
Net income was $6.2 million, or $0.12 per diluted share, for the first
quarter of 2013 compared to net income of $3.5 million, or $0.07 per
diluted share, for the first quarter of 2012.
On a non-GAAP basis, Adjusted Net Incomei was $7.9 million
and Adjusted Earnings Per Sharei were $0.15 for the first
quarter of 2013 compared to Adjusted Net Income of $5.0 million and
Adjusted Earnings Per Share of $0.10 for the first quarter of 2012.
“Financial Engines continues to post strong financial results while
focusing on our long-term objectives along the dimensions of business
growth, profitability, and cash flow,” said Ray Sims, chief financial
officer of Financial Engines.
Assets Under Contract and Assets Under Management
AUC was $635 billion as of March 31, 2013, an increase of 23% from $517
billion as of March 31, 2012, due primarily to new employers making our
services available, market performance, and contributions. AUC for plans
in which the Income+ service has been made available was $42 billion as
of March 31, 2013, an increase of 121% from $19 billion as of March 31,
2012.
AUM increased by 32% year over year to $70.8 billion as of March 31,
2013, from $53.7 billion as of March 31, 2012. The increase in AUM was
driven primarily by net new enrollment into the Professional Management
service, contributions, and market performance.
|
In billions
|
|
Q2'12
|
|
Q3'12
|
|
Q4'12
|
|
Q1'13
|
|
AUM, Beginning of Period
|
|
$53.7
|
|
$54.2
|
|
$61.5
|
|
$63.9
|
|
New Enrollment(1) |
|
3.7
|
|
4.9
|
|
3.8
|
|
3.1
|
|
Voluntary Cancellations(2)
|
|
(1.0)
|
|
(1.2)
|
|
(1.4)
|
|
(1.2)
|
|
Involuntary Cancellations(3) |
|
(1.0)
|
|
(0.9)
|
|
(1.3)
|
|
(0.8)
|
|
Contributions(4) |
|
1.0
|
|
1.1
|
|
1.2
|
|
1.3
|
|
Market Movement and Other(5) |
|
(2.2)
|
|
3.4
|
|
0.1
|
|
4.5
|
|
AUM, End of Period
|
|
$54.2
|
|
$61.5
|
|
$63.9
|
|
$70.8
|
|
(1)
|
|
The aggregate amount of assets under management, at the time of
enrollment, of new members who enrolled in our Professional
Management service within the period.
|
|
(2)
|
|
The aggregate amount of assets, at the time of cancellation, for
voluntary cancellations from the Professional Management service
within the period.
|
|
(3)
|
|
The aggregate amount of assets, as of the last available positive
account balance, for involuntary cancellations occurring when the
member’s 401(k) plan account balance has been reduced to zero or
when the cancellation of a plan sponsor contract for the
Professional Management service has become effective within the
period.
|
|
(4)
|
|
Employer and employee contributions are estimated each quarter from
annual contribution rates based on data received from plan providers
or plan sponsors. The data presented in the table above differs from
data provided in filings prior to September 30, 2012, as the data
above represents an estimate of the contributions for the entire AUM
base, and the prior contributions data reported represented only a
subset of members for whom we received salary data.
|
|
(5)
|
|
Other factors affecting assets under management include estimated
market movement, plan administrative fees, participant loans and
hardship withdrawals, and timing differences.
|
For further information on the AUM data above, please refer to our Form
10-Q to be filed for the period ended March 31, 2013.
Aggregate Investment Style Exposure for Portfolios Under Management
As
of March 31, 2013, the approximate aggregate investment style exposure
of the portfolios we managed was as follows:
|
Cash
|
|
3%
|
|
Bonds
|
|
26%
|
|
Domestic Equity
|
|
46%
|
|
International Equity
|
|
25%
|
|
Total
|
|
100%
|
Quarterly Dividend
On May 2, 2013, Financial Engines’ Board of Directors declared a regular
quarterly cash dividend of $0.05 per share of the Company’s common
stock. The cash dividend will be paid on July 5, 2013 to stockholders of
record as of the close of business on June 14, 2013.
Outlook
Financial Engines’ growth strategy includes focusing on increasing
penetration within existing Professional Management plan sponsors,
enhancing and extending services to individuals entering and in
retirement, and expanding the number of plan sponsors.
Based on financial markets remaining at May 2, 2013 levels, the Company
estimates that its 2013 revenue will be in the range of $230 million to
$235 million, and its 2013 non-GAAP Adjusted EBITDAi will be
in the range of $73 million to $75 million.
Conference Call
The Company will host a conference call to discuss first quarter 2013
financial results today at 5:00 PM ET. Hosting the call will be Jeff
Maggioncalda, chief executive officer, and Ray Sims, chief financial
officer. The conference call can be accessed live over the phone by
dialing (877) 317-6789, or for international callers, (412) 317-6789. A
replay will be available beginning approximately one hour after the call
and can be accessed by dialing (877) 870-5176 or (858) 384-5517 for
international callers. The conference ID is 10027267. The replay will
remain available until Friday, May 10, 2013, and an archived replay will
be available at http://ir.financialengines.com/
for 30 calendar days after the call.
About Non-GAAP Financial Measures
This press release and its attachments include certain non-GAAP
financial measures. The presentation of this financial information is
not intended to be considered in isolation or as a substitute for the
financial information prepared and presented in accordance with U.S.
generally accepted accounting principles (GAAP). These non-GAAP measures
include non-GAAP Adjusted Net Income, non-GAAP Adjusted Earnings Per
Share and non-GAAP Adjusted EBITDA. Non-GAAP Adjusted Net Income is
defined as net income before non-cash stock-based compensation expense,
net of tax, and certain other items such as the income tax benefit from
the release of valuation allowances, if applicable for the period.
Non-GAAP Adjusted Earnings Per Share is defined as non-GAAP Adjusted Net
Income divided by the weighted-average of dilutive common share
equivalents outstanding. Non-GAAP Adjusted EBITDA is defined as net
income before net interest expense (income), income tax expense
(benefit), depreciation, amortization of internal use software,
amortization of direct response advertising, amortization of deferred
commissions, and non-cash stock-based compensation. Further information
regarding the non-GAAP financial measures included in this press release
is contained in the attachments.
To supplement the Company’s consolidated financial statements presented
on a GAAP basis, management believes that these non-GAAP measures
provide useful information about the Company’s core operating results
and thus are appropriate to enhance the overall understanding of the
Company’s past financial performance and its prospects for the future.
These adjustments to the Company’s GAAP results are made with the intent
of providing both management and investors a more complete understanding
of the Company’s underlying operational results, trends and performance.
About Financial Engines
Financial Engines is the nation’s largest independent investment advisor
and is committed to providing everyone the trusted retirement help they
deserve. The company helps investors with their total retirement picture
by offering personalized retirement plans for saving, investment, and
retirement income. Co-founded in 1996 by Nobel Prize-winning economist
Bill Sharpe, Financial Engines works with America's leading employers
and retirement plan providers to make retirement help available to
millions of American workers. For more information, visit www.financialengines.com.
Forward-Looking Statements
This press release and its attachments contain forward-looking
statements that involve risks and uncertainties. These forward-looking
statements may be identified by terms such as “plan to,” “designed to,”
“will,” “can,” “expect,” “estimates,” “believes,” “intends,” “may,”
“continues,” “to be” or the negative of these terms, and similar
expressions intended to identify forward-looking statements. These
forward-looking statements include, but are not limited to, statements
regarding Financial Engines’ expected financial performance and outlook,
its strategic operational plans, objectives and growth strategy, its
market opportunity, and the benefits of our non-GAAP financial measures.
These statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or
achievements to differ materially from those expressed or implied by
such forward-looking statements, and reported results should not be
considered as an indication of future performance. These risks and
uncertainties include, but are not limited to, our reliance on fees
earned on the value of assets we manage for a substantial portion of our
revenue, the impact of the financial markets on our revenue and
earnings, unanticipated delays in rollouts of our services, our ability
to increase enrollment, our ability to correctly identify and invest
appropriately in growth opportunities, our ability to introduce new
services and accurately estimate the impact of any future services on
our business, the risk that the anticipated benefits of our investments
in these services or in growth opportunities may not outweigh the
resources and costs associated with these investments or the liabilities
associated with the operation of these services, our relationships with
plan providers and plan sponsors, the fees we can charge for our
Professional Management service, our reliance on accurate and timely
data from plan providers and plan sponsors, system failures, errors or
unsatisfactory performance of our services, our reputation, our ability
to protect the confidentiality of plan provider, plan sponsor and plan
participant data and other privacy concerns, acquisition activity
involving plan providers or plan sponsors, our ability to compete, our
regulatory environment and risks associated with our fiduciary
obligations. More information regarding these and other risks,
uncertainties and factors is contained in the Company’s Form 10-K for
the year ended December 31, 2012, as filed with the SEC, and in other
reports filed by the Company with the SEC from time to time. You are
cautioned not to unduly rely on these forward-looking statements, which
speak only as of the date of this press release. All information in this
press release and its attachments is as of the date stated or May 7,
2013 and unless required by law, Financial Engines undertakes no
obligation to publicly revise any forward-looking statement to reflect
circumstances or events after the date of this press release or to
report the occurrence of unanticipated events.
Our investment advisory and management services are provided through our
subsidiary, Financial Engines Advisors L.L.C., a federally registered
investment advisor. References in this press release to “Financial
Engines,” “our company,” “the Company,” “we,” “us” and “our” refer to
Financial Engines, Inc. and its consolidated subsidiaries during the
periods presented unless the context requires otherwise.
|
Financial Tables
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Consolidated Balance Sheets
|
|
|
|
Assets
|
|
December 31, 2012
|
March 31, 2013
|
|
|
|
(In thousands, except per share data)
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ 181,231
|
|
$ 192,467
|
|
Accounts receivable, net
|
|
44,627
|
|
49,193
|
|
Prepaid expenses
|
|
3,093
|
|
3,316
|
|
Deferred tax assets
|
|
15,293
|
|
21,552
|
|
Other current assets
|
|
3,647
|
|
4,454
|
|
Total current assets
|
|
247,891
|
|
270,982
|
|
Property and equipment, net
|
|
13,366
|
|
13,259
|
|
Internal use software, net
|
|
10,339
|
|
9,927
|
|
Long-term deferred tax assets
|
|
20,639
|
|
12,159
|
|
Direct response advertising, net
|
|
10,236
|
|
9,215
|
|
Other assets
|
|
4,362
|
|
4,498
|
|
Total assets
|
|
$ 306,833
|
|
$ 320,040
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$ 15,008
|
|
$ 16,716
|
|
Accrued compensation
|
|
12,279
|
|
7,118
|
|
Deferred revenue
|
|
7,831
|
|
7,742
|
|
Dividend payable
|
|
-
|
|
2,435
|
|
Other current liabilities
|
|
260
|
|
951
|
|
Total current liabilities
|
|
35,378
|
|
34,962
|
|
Long-term deferred revenue
|
|
1,166
|
|
1,046
|
|
Long-term deferred rent
|
|
6,653
|
|
6,426
|
|
Other liabilities
|
|
250
|
|
235
|
|
Total liabilities
|
|
43,447
|
|
42,669
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
Preferred stock, $0.0001 par value - 10,000
|
|
|
|
|
|
authorized as of December 31, 2012 and March 31, 2013;
|
|
|
|
|
|
None issued and outstanding as of December 31, 2012
|
|
|
|
|
|
and March 31, 2013
|
|
-
|
|
-
|
|
Common stock, $0.0001 par value - 500,000
|
|
|
|
|
|
authorized as of December 31, 2012 and March 31, 2013;
|
|
|
|
|
|
47,915 and 48,789 shares issued and outstanding
|
|
|
|
|
|
at December 31, 2012 and March 31, 2013, respectively
|
|
5
|
|
5
|
|
Additional paid-in capital
|
|
323,448
|
|
333,677
|
|
Accumulated deficit
|
|
(60,067)
|
|
(56,311)
|
|
Total stockholders’ equity
|
|
263,386
|
|
277,371
|
|
Total liabilities and stockholders’ equity
|
|
$ 306,833
|
|
$ 320,040
|
|
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
2013
|
|
|
|
(In thousands, except per share data)
|
|
Revenue:
|
|
|
|
|
|
Professional management
|
|
$ 32,869
|
|
$ 45,454
|
|
Platform
|
|
8,262
|
|
8,049
|
|
Other
|
|
580
|
|
362
|
|
Total revenue
|
|
41,711
|
|
53,865
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
Cost of revenue (exclusive of amortization of internal use software)
|
|
15,316
|
|
19,928
|
|
Research and development
|
|
6,139
|
|
7,624
|
|
Sales and marketing
|
|
9,259
|
|
10,353
|
|
General and administrative
|
|
3,811
|
|
4,818
|
|
Amortization of internal use software
|
|
1,472
|
|
1,637
|
|
Total costs and expenses
|
|
35,997
|
|
44,360
|
|
Income from operations
|
|
5,714
|
|
9,505
|
|
Interest income (expense)
|
|
-
|
|
3
|
|
Income before income taxes
|
|
5,714
|
|
9,508
|
|
Income tax expense
|
|
2,202
|
|
3,316
|
|
Net and comprehensive income
|
|
$ 3,512
|
|
$ 6,192
|
|
|
|
|
|
|
|
Dividends declared per share of common stock
|
|
$ -
|
|
$ 0.05
|
|
Net income per share attributable
|
|
|
|
|
|
to holders of common stock
|
|
|
|
|
|
Basic
|
|
$ 0.08
|
|
$ 0.13
|
|
Diluted
|
|
$ 0.07
|
|
$ 0.12
|
|
Shares used to compute net income per share
|
|
|
|
|
|
attributable to holders of common stock
|
|
|
|
|
|
Basic
|
|
46,074
|
|
48,282
|
|
Diluted
|
|
49,918
|
|
51,440
|
|
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2012
|
|
2013
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$ 3,512
|
|
$ 6,192
|
|
Adjustments to reconcile net income to net cash provided by
|
|
|
|
|
|
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
588
|
|
949
|
|
Amortization of internal use software
|
|
1,378
|
|
1,533
|
|
Stock-based compensation
|
|
2,468
|
|
2,792
|
|
Amortization of deferred sales commissions
|
|
463
|
|
472
|
|
Amortization and impairment of direct response advertising
|
|
1,080
|
|
1,479
|
|
Provision for doubtful accounts
|
|
80
|
|
116
|
|
Excess tax benefit associated with stock-based compensation
|
|
(452)
|
|
(1,028)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(5,397)
|
|
(4,681)
|
|
Prepaid expenses
|
|
63
|
|
(222)
|
|
Deferred tax assets
|
|
1,671
|
|
2,220
|
|
Direct response advertising
|
|
(902)
|
|
(464)
|
|
Other assets
|
|
(794)
|
|
(1,415)
|
|
Accounts payable
|
|
2,510
|
|
3,185
|
|
Accrued compensation
|
|
(6,614)
|
|
(5,161)
|
|
Deferred revenue
|
|
(818)
|
|
(210)
|
|
Deferred rent
|
|
596
|
|
463
|
|
Other liabilities
|
|
1
|
|
1
|
|
Net cash (used in) provided by operating activities
|
|
(567)
|
|
6,221
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Purchase of property and equipment
|
|
(575)
|
|
(1,292)
|
|
Capitalization of internal use software
|
|
(1,412)
|
|
(1,160)
|
|
Net cash used in investing activities
|
|
(1,987)
|
|
(2,452)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Payments on capital lease obligations
|
|
-
|
|
(15)
|
|
Excess tax benefit associated with stock-based compensation
|
|
452
|
|
1,028
|
|
Proceeds from issuance of common stock, net of offering costs
|
|
3,345
|
|
6,454
|
|
Net cash provided by financing activities
|
|
3,797
|
|
7,467
|
|
Net increase in cash and cash equivalents
|
|
1,243
|
|
11,236
|
|
Cash and cash equivalents, beginning of period
|
|
145,002
|
|
181,231
|
|
Cash and cash equivalents, end of period
|
|
$ 146,245
|
|
$ 192,467
|
|
Supplemental cash flows information:
|
|
|
|
|
|
Income taxes paid, net of refunds
|
|
$ 181
|
|
$ 334
|
|
Interest paid
|
|
$ 1
|
|
$ 3
|
|
Non-cash operating, investing and financing activities:
|
|
|
|
|
|
Capitalized stock-based compensation for internal use software
|
|
$ 87
|
|
$ 65
|
|
Capitalized stock-based compensation for direct response advertising
|
$ 14
|
|
$ 6
|
|
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results
|
|
|
|
The table below sets forth a reconciliation of net income to
non-GAAP Adjusted EBITDA based on our historical results:
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Non-GAAP Adjusted EBITDA
|
2012
|
|
2013
|
|
|
(In thousands)
|
|
|
|
|
|
|
Net income
|
$ 3,512
|
|
$ 6,192
|
|
Interest expense (income)
|
-
|
|
(3)
|
|
Income tax expense
|
2,202
|
|
3,316
|
|
Depreciation
|
588
|
|
949
|
|
Amortization of internal use software
|
1,378
|
|
1,533
|
|
Amortization and impairment of direct response advertising
|
1,080
|
|
1,479
|
|
Amortization of deferred sales commissions
|
463
|
|
472
|
|
Non-cash stock-based compensation
|
2,468
|
|
2,792
|
|
Non-GAAP Adjusted EBITDA
|
$ 11,691
|
|
$ 16,730
|
The table below sets forth a reconciliation of net income to non-GAAP
Adjusted Net Income and non-GAAP Adjusted Earnings Per Share based on
our historical results:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP Adjusted Net Income and Adjusted EPS
|
|
2012
|
|
2013
|
|
|
|
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
Net income
|
|
$ 3,512
|
|
$ 6,192
|
|
Non-cash stock-based compensation, net of tax (1) |
|
1,525
|
|
1,725
|
|
Non-GAAP Adjusted Net Income
|
|
$ 5,037
|
|
$ 7,917
|
|
|
|
|
|
|
|
Non-GAAP Adjusted Earnings Per Share
|
|
$ 0.10
|
|
$ 0.15
|
|
|
|
|
|
|
|
Shares of common stock outstanding
|
|
46,074
|
|
48,282
|
|
Dilutive restricted stock and stock options
|
|
3,844
|
|
3,158
|
|
Non-GAAP adjusted weighted common shares outstanding
|
|
49,918
|
|
51,440
|
|
(1)
|
|
For the calculation of non-GAAP Adjusted Net Income, an estimated
statutory tax rate of 38.2% has been applied to non-cash stock-based
compensation for all periods presented.
|
i Please see “About Non-GAAP Financial Measures” for
definitions of the terms Adjusted Net Income, Adjusted Earnings Per
Share, and Adjusted EBITDA.
ii Operating metrics include
both advised and subadvised relationships.
iii
Information regarding enrollment rates and the component AUC can be
found in the section entitled “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in the Company’s
Securities and Exchange Commission (“SEC”) filings, including the Form
10-K for the year ended December 31, 2012 and the Form 10-Q to be filed
for the period ended March 31, 2013.
