Financial Engines Reports First Quarter 2011 Financial Results
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Revenue Increases 33% to $32.3 Million Year Over Year
AUM Increases 37% to $41 Billion Year Over Year
26+ Month Enrollment Rate Reaches 12.2%

PALO ALTO, Calif., May 09, 2011 (BUSINESS WIRE) -- Financial Engines (NASDAQ: FNGN), the largest independent provider of investment management and advice to employees in retirement plans, today reported financial results for its first quarter ended March 31, 2011.

Financial results for the first quarter of 2011 compared to the first quarter of 2010:i

  • Revenue increased 33% to $32.3 million for the first quarter of 2011 from $24.3 million for the first quarter of 2010
  • Professional Management revenue increased 44% to $23.9 million for the first quarter of 2011 from $16.6 million for the first quarter of 2010
  • Net income increased to $2.6 million for the first quarter of 2011 from $1.6 million for the first quarter of 2010
  • Net income attributable to holders of common stock was $2.6 million, or $0.05 per diluted share, for the first quarter of 2011, compared to a net loss attributable to holders of common stock of $3.9 million, or $(0.25) per diluted share, for the first quarter of 2010, which included a one-time, non-cash charge of $5.5 million for a stock dividend
  • Non-GAAP Adjusted EBITDAi increased 42% to $7.6 million for the first quarter of 2011 from $5.3 million for the first quarter of 2010
  • Non-GAAP Adjusted Net Incomei increased 21% to $3.4 million for the first quarter of 2011 from $2.8 million for the first quarter of 2010
  • Non-GAAP Adjusted Earnings Per Sharei increased 17% to $0.07 for the first quarter of 2011 compared to $0.06 for the first quarter of 2010. The first quarter of 2010 had both a significantly lower tax rate and a lower share count.

Key operating metrics as of March 31, 2011:ii

  • Assets under contract ("AUC") were $412 billion
  • Assets under management ("AUM") were $41.0 billion
  • Members in Professional Management were 487,000
  • Asset enrollment rates for companies where services have been available for 26 months or more averaged 12.2%iii

"Fundamental forces of demographics, the increasing importance of 401(k) plans, and the need for advice continue to drive growth in customers, assets and revenue," said Jeff Maggioncalda, president and chief executive officer of Financial Engines. "With improvements in enrollment and the successful launch of Income+, we remain optimistic about the significant market opportunity in front of us."

Review of Financial Results for the First Quarter of 2011

Revenue increased 33% to $32.3 million for the first quarter of 2011 from $24.3 million for the first quarter of 2010. The increase in revenue was driven primarily by the growth in Professional Management revenue, which increased 44% to $23.9 million for the first quarter of 2011 from $16.6 million for the first quarter of 2010.

Costs and expenses increased 26% to $28.5 million for the first quarter of 2011 from $22.6 million for the first quarter of 2010. This increase was due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data, headcount, cash compensation, and costs associated with enrollment campaigns and member materials, offset by a decrease in non-cash stock-based compensation expense. As a percentage of revenue, cost of revenue (exclusive of amortization of internal use software) increased to 36% for the first quarter of 2011 from 35% for the first quarter of 2010. This was due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data, which resulted from an increase in professional management revenue, contractual increases in plan provider fees as a result of achieving AUM milestones, and an increase in subadvisory campaign printed materials costs.

Income from operations was $3.8 million for the first quarter of 2011 compared to $1.8 million for the first quarter of 2010. As a percentage of revenue, income from operations was 12% for the first quarter of 2011 compared to 7% for the first quarter of 2010.

Net income increased to $2.6 million for the first quarter of 2011 from $1.6 million for the first quarter of 2010. Net income attributable to holders of common stock was $2.6 million, or $0.05 per diluted share, for the first quarter of 2011, compared to a net loss attributable to holders of common stock of $3.9 million, or $(0.25) per diluted share, for the first quarter of 2010, which included a one-time, non-cash charge of $5.5 million for a stock dividend related to the Company's initial public offering.

On a non-GAAP basis, Adjusted Net Incomei was $3.4 million and Adjusted Earnings Per Sharei were $0.07 for the first quarter of 2011 compared to Adjusted Net Income of $2.8 million and Adjusted Earnings Per Share of $0.06 for the first quarter of 2010. For the calculation of Adjusted Net Income, an estimated statutory tax rate of 38.2% has been applied to stock-based compensation for all periods presented.

"We are pleased with the growth in revenue, operating margin, AUM and the 26 month enrollment rate," said Ray Sims, chief financial officer of Financial Engines. "We continue to focus on our long-term objectives for financial performance and business growth and are gratified by our progress towards those goals."

Assets Under Contract and Assets Under Management

AUC increased by 43% to $412 billion as of March 31, 2011 from $289 billion as of March 31, 2010.

AUM increased by 37% to $41.0 billion as of March 31, 2011 from $29.9 billion as of March 31, 2010. The increase in AUM was driven by net new enrollment into the Professional Management service as well as by market appreciation and contributions.

In billions Q2'10 Q3'10 Q4'10 Q1'11
AUM, Beginning of Period $ 29.9 $ 29.4 $ 34.0 $ 37.7
AUM from net enrollment(1) 0.6 1.8 1.0 1.1

Other(2)

(1.1 ) 2.8 2.7 2.2
AUM, End of Period $ 29.4 $ 34.0 $ 37.7 $ 41.0
(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 less the aggregate amount of assets, at the time of cancellation, for voluntary cancellations from the Professional Management service within the period, less 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.
(2) Other factors affecting assets under management include employer and employee contributions, market movement, plan administrative fees as well as participant loans and hardship withdrawals. We cannot separately quantify the impact of these factors as the information we receive from the plan providers does not separately identify these transactions or the changes in balances due to market movement.

Aggregate Investment Style Exposure for Portfolios Under Management

As of March 31, 2011, the aggregate investment style exposure of the portfolios we managed was approximately as follows:

Cash 4%
Bonds 23%
Domestic Equity 49%
International Equity 24%
Total 100%

Outlook

Financial Engines' growth strategy includes focusing on increasing penetration within existing Professional Management plan sponsors, enhancing and extending services to individuals entering retirement and expanding the number of plan sponsors.

Based on financial markets remaining at March 31, 2011 levels, the Company estimates that its 2011 revenue will be in the range of $144 million to $149 million and that its 2011 non-GAAP Adjusted EBITDA will be in the range of $42 million to $44 million.

Conference Call

The Company will host a conference call to discuss first quarter 2011 financial results today at 5:00 PM ET. Hosting the call will be Jeff Maggioncalda, president and chief executive officer, and Ray Sims, chief financial officer. The conference call can be accessed live over the phone by dialing (877) 407-9039, or, for international callers, (201) 689-8470. A replay will be available beginning 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 370667. The replay will remain available until Friday, May 13, 2011 and an archived replay will be available at 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 (loss) before stock-based compensation expense, net of tax, the impact of stock dividends issued and certain other items such as the income tax benefit from the release of valuation allowances. 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. For all periods, the dilutive common share equivalents outstanding also include on a non-weighted basis the conversion of all preferred stock to common stock, the shares associated with the stock dividend and the shares sold in the initial public offering. This differs from the weighted average diluted shares outstanding used for purposes of calculating GAAP earnings per share. Non-GAAP Adjusted EBITDA is defined as net income (loss) before net interest (income) expense, income tax expense (benefit), depreciation, amortization of internal use software, amortization of direct response advertising, amortization of deferred commission and 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. To meet the needs of different investors, Financial Engines offers both Online Advice and Professional Management. Professional Management includes Income+, which provides steady monthly payouts from a 401(k) that can last for life. 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, please 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 "will," "expect," "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, demographic and other trends, its market opportunity, its plans to evaluate investing more aggressively in 2011 to take advantage of potential growth prospects, 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 introduce new services and accurately estimate the impact of any future services on our business, 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, 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 May 9, 2011 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 adviser. 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.

______________________________________

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 Please see information regarding enrollment rates and the component AUC in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 10-Q dated May 9, 2011, which is on file with the Securities and Exchange Commission ("SEC") and available on the SEC's website at www.sec.gov.

Financial Tables

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

(In thousands, except share and per share data)

Assets

December 31,

2010

March 31,

2011

Current assets:
Cash and cash equivalents $ 114,937 $ 116,778
Accounts receivable, net 23,942 27,233
Prepaid expenses 2,802 3,111
Deferred tax assets 11,685 11,685
Other current assets 2,189 2,190
Total current assets 155,555 160,997
Property and equipment, net 3,148 3,659
Internal use software, net 11,130 11,361
Long-term deferred tax assets 39,460 38,445
Direct response advertising, net 4,615 4,752
Other assets 3,708 3,841
Total assets $ 217,616 $ 223,055
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,384 $ 11,146
Accrued compensation 15,607 6,476
Deferred revenue 7,457 9,638
Other current liabilities 137 145
Total current liabilities 30,585 27,405
Long-term deferred revenue 1,494 1,451
Other liabilities 317 291
Total liabilities 32,396 29,147
Contingencies
Stockholders' equity:
Preferred stock, $0.0001 par value - 10,000 and 10,000
authorized as of December 31, 2010 and March 31, 2011, respectively -- --
Common stock, $0.0001 par value - 500,000 and 500,000
authorized as of December 31, 2010 and March 31, 2011, respectively;
43,116 and 44,229 shares issued and outstanding
at December 31, 2010 and March 31, 2011, respectively 4 4
Additional paid-in capital 279,038 285,126
Deferred compensation (36 ) -
Accumulated deficit (93,786 ) (91,222 )
Total stockholders' equity 185,220 193,908
Total liabilities and stockholders' equity $ 217,616 $ 223,055

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

March 31,

2010 2011
Revenue:
Professional management $ 16,611 $ 23,893
Platform 7,177 7,738
Other 556 650
Total revenue 24,344 32,281
Costs and expenses:
Cost of revenue (exclusive of amortization of internal use software) 8,470 11,622
Research and development 4,470 5,175
Sales and marketing 6,290 7,076
General and administrative 2,599 3,311
Amortization of internal use software 728 1,287
Total costs and expenses 22,557 28,471
Income from operations 1,787 3,810
Interest expense (73 ) -
Interest and other income, net 1 2

Income before income taxes

1,715 3,812
Income tax expense 123 1,248

Net income

1,592 2,564
Less: Stock dividend 5,480 -

Net income (loss) attributable to holders of common stock

$ (3,888 ) $ 2,564
Net income (loss) per share attributable
to holders of common stock
Basic $ (0.25 ) $ 0.06
Diluted $ (0.25 ) $ 0.05
Shares used to compute net income (loss) per share
attributable to holders of common stock
Basic 15,825 43,568
Diluted 15,825 49,092

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

March 31,

2010 2011
Cash flows from operating activities:
Net income $ 1,592 $ 2,564
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 438 488
Amortization of internal use software 696 1,211
Stock-based compensation 1,937 1,303
Amortization of deferred sales commissions 319 299
Amortization and impairment of direct response advertising 162 496
Provision for doubtful accounts 52 33
Excess tax benefit associated with stock-based compensation (61 ) (233 )
Changes in operating assets and liabilities:
Accounts receivable (1,335 ) (3,324 )
Prepaid expenses (334 ) (309 )
Deferred tax assets - 1,015
Direct response advertising (263 ) (634 )
Other assets (165 ) (433 )
Accounts payable (550 ) 4,120
Accrued compensation (4,115 ) (9,131 )
Deferred revenue 1,766 2,138
Other liabilities (3 ) (17 )
Net cash provided by (used in) operating activities 136 (414 )
Cash flows from investing activities:
Purchase of property and equipment (525 ) (1,124 )
Capitalization of internal use software (1,577 ) (1,434 )
Net cash used in investing activities (2,102 ) (2,558 )
Cash flows from financing activities:
Payments on term loan payable (833 ) -
Payments on capital lease obligations (3 ) -
Net share settlements for stock-based awards minimum tax withholdings (12 ) (1,718 )
Excess tax benefit associated with stock-based compensation 61 233
Proceeds from issuance of common stock, net of offering costs 82,235 6,298
Net cash provided by financing activities 81,448 4,813
Net increase in cash and cash equivalents 79,482 1,841
Cash and cash equivalents, beginning of period 20,713 114,937
Cash and cash equivalents, end of period $ 100,195 $ 116,778
Supplemental cash flows information:
Income taxes paid, net of refunds $ 942 $ 92
Interest paid $ 108 $ -
Non-cash operating, investing and financing activities:
Stock dividend $ 5,480 $ -
Capitalized stock-based compensation for internal use software $ 109 $ 84
Capitalized stock-based compensation for direct response advertising $ 23 $ 5

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Reconciliation of GAAP to Non-GAAP Operating Results

Three Months Ended

March 31,

Non-GAAP Adjusted EBITDA 2010 2011
(In thousands)
Net income $ 1,592 $ 2,564
Interest expense, net 72 (3 )
Income tax expense 123 1,248
Depreciation 438 488
Amortization of internal use software 696 1,211
Amortization and impairment of direct response advertising 162 496
Amortization of deferred sales commissions 319 299
Stock-based compensation 1,937 1,303
Non-GAAP Adjusted EBITDA $ 5,339 $ 7,606
Three Months Ended
March 31,
Non-GAAP Adjusted Net Income 2010 2011
(In thousands, except per share amounts)
Net income $ 1,592 $ 2,564
Stock-based compensation, net of tax (1) 1,197 805
Non-GAAP Adjusted Net Income $ 2,789 $ 3,369
Non-GAAP Adjusted Earnings Per Share $ 0.06 $ 0.07
Shares of common stock outstanding 41,130 43,720
Dilutive restricted stock and stock options 3,680 5,372
Non-GAAP adjusted weighted common shares outstanding 44,810 49,092
(1) For the calculation of Adjusted Net Income, an estimated statutory tax rate of 38.2% has been applied to

stock-based compensation for all periods presented.

SOURCE: Financial Engines

Financial Engines
Asma Emneina, 650-565-7791
asma@financialengines.com
or
Don Duffy, 650-565-7740
ir@financialengines.com