Financial Engines Reports Second Quarter 2011 Financial Results
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Revenue Increases 38% to $35.3 Million Year Over Year
AUM Increases 49% to $43.8 Billion Year Over Year

PALO ALTO, Calif., Aug 02, 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 second quarter ended June 30, 2011.

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

  • Revenue increased 38% to $35.3 million for the second quarter of 2011 from $25.6 million for the second quarter of 2010
  • Professional management revenue increased 49% to $26.5 million for the second quarter of 2011 from $17.8 million for the second quarter of 2010
  • Net income was $3.5 million, or $0.07 per diluted share, for the second quarter of 2011 compared to net income of $1.3 million, or $0.03 per diluted share, for the second quarter of 2010
  • Non-GAAP Adjusted EBITDAi increased 80% to $9.4 million for the second quarter of 2011 from $5.2 million for the second quarter of 2010
  • Non-GAAP Adjusted Net Incomei increased 70% to $4.2 million for the second quarter of 2011 from $2.5 million for the second quarter of 2010
  • Non-GAAP Adjusted Earnings Per Sharei increased 80% to $0.09 for the second quarter of 2011 compared to $0.05 for the second quarter of 2010

Key operating metrics as of June 30, 2011:ii

  • Assets under contract ("AUC") were $431 billion
  • Assets under management ("AUM") were $43.8 billion
  • Members in Professional Management were 518,000
  • Asset enrollment rates for companies where services have been available for 26 months or more averaged 12.4%iii

"We continue to see strong growth and are encouraged by customer reaction to Income+," said Jeff Maggioncalda, president and chief executive officer of Financial Engines. "We are enthusiastic about the long-term growth opportunities created by Income+, and we plan to invest more aggressively to take advantage of these opportunities."

Review of financial results for the second quarter of 2011

Revenue increased 38% to $35.3 million for the second quarter of 2011 from $25.6 million for the second quarter of 2010. The increase in revenue was driven primarily by the growth in professional management revenue, which increased 49% to $26.5 million for the second quarter of 2011 from $17.8 million for the second quarter of 2010.

Costs and expenses increased 25% to $30.1 million for the second quarter of 2011 from $24.1 million for the second 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 growth, 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 35% for the second quarter of 2011 from 34% for the second 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 and contractual increases in plan provider fees as a result of achieving AUM milestones, as well as an increase in subadvisory campaign printed materials costs.

Income from operations was $5.2 million for the second quarter of 2011 compared to $1.4 million for the second quarter of 2010. As a percentage of revenue, income from operations was 15% for the second quarter of 2011 compared to 6% for the second quarter of 2010.

Net income was $3.5 million, or $0.07 per diluted share, for the second quarter of 2011 compared to $1.3 million, or $0.03 per diluted share, for the second quarter of 2010.

On a non-GAAP basis, Adjusted Net Incomei was $4.2 million and Adjusted Earnings Per Sharei were $0.09 for the second quarter of 2011 compared to Adjusted Net Income of $2.5 million and Adjusted Earnings Per Share of $0.05 for the second quarter of 2010.

"Financial Engines' full suite of services is now available to more than 5 million retirement plan participants, and more than five hundred thousand of them are members in our Professional Management program," said Ray Sims, chief financial officer of Financial Engines. "We are pleased with the continued growth of the company and our ability to reach and help more participants."

Assets Under Contract and Assets Under Management

AUC increased by 44% to $431 billion as of June 30, 2011 from $300 billion as of June 30, 2010.

AUM increased by 49% to $43.8 billion as of June 30, 2011 from $29.4 billion as of June 30, 2010. The increase in AUM was driven primarily by net enrollment into the Professional Management service, market appreciation and contributions.

In billions Q3'10 Q4'10 Q1'11 Q2'11
AUM, Beginning of Period $ 29.4 $ 34.0 $ 37.7 $ 41.0
AUM from net enrollment(1) 1.8 1.0 1.1 2.5
Other(2)(3) 2.8 2.7 2.2 0.3
AUM, End of Period $ 34.0 $ 37.7 $ 41.0 $ 43.8
(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 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.
(3) Contributions are estimated each quarter from annual contribution rates based on data received from plan providers. Contributions are estimated to have been approximately $0.6 billion in Q3'10, $0.6 billion in Q4'10, $0.6 billion in Q1'11, and $0.7 billion in Q2'11. These amounts are included in the Other line item in the above table.

Aggregate Investment Style Exposure for Portfolios Under Management

As of June 30, 2011, the aggregate investment style exposure of the portfolios we managed was approximately as follows:

Cash 4%
Bonds 24%
Domestic Equity 48%
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 June 30, 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 $40 million to $42 million.

This outlook reflects plans to spend up to an additional $2 million in the second half of 2011 to accelerate the development of Income+ capabilities and more rapidly increase enrollment. The Company also plans to bring on a new leader of Marketing to help drive long-term growth beyond the workplace.

Conference Call

The Company will host a conference call to discuss second 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) 317-6789, or for international callers (412) 317-6789. A replay will be available 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, August 5, 2011, 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 (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 "plan to", "will," "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, demographic and other trends, its market opportunity, its plans to invest more aggressively to take advantage of potential growth opportunities, its plans to bring on a new leader of marketing, 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, 2010 and the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2011, 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 August 2, 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 EBITDA and Adjusted Earnings Per Share.

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 for the quarter ended March 31, 2011 filed May 9, 2011 with the Securities and Exchange Commission ("SEC") and available on the SEC's website at www.sec.gov.

FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets

(In thousands, except per share data)

December 31, June 30,
Assets 2010 2011
Current assets:
Cash and cash equivalents $ 114,937 $ 125,078
Accounts receivable, net 23,942 29,501
Prepaid expenses 2,802 3,244
Deferred tax assets 11,685 14,185
Other current assets 2,189 2,316
Total current assets 155,555 174,324
Property and equipment, net 3,148 4,103
Internal use software, net 11,130 11,318
Long-term deferred tax assets 39,460 34,472
Direct response advertising, net 4,615 5,984
Other assets 3,708 3,639
Total assets $ 217,616 $ 233,840
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,384 $ 8,701
Accrued compensation 15,607 8,709
Deferred revenue 7,457 11,418
Other current liabilities 137 153
Total current liabilities 30,585 28,981
Long-term deferred revenue 1,494 1,507
Other liabilities 317 274
Total liabilities 32,396 30,762
Stockholders' equity:
Preferred stock, $0.0001 par value - 10,000
authorized as of December 31, 2010 and June 30, 2011;
None issued or outstanding as of December 31, 2010
and June 30, 2011

-

-

Common stock, $0.0001 par value - 500,000
authorized as of December 31, 2010 and June 30, 2011;

43,116 and 45,050 shares issued and outstanding

at December 31, 2010 and June 30, 2011, respectively 4 5
Additional paid-in capital 279,038 290,840
Deferred compensation (36 ) -
Accumulated deficit (93,786 ) (87,767 )
Total stockholders' equity 185,220 203,078
Total liabilities and stockholders' equity $ 217,616 $ 233,840
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2010 2011 2010 2011
Revenue:
Professional management $ 17,842 $ 26,508 $ 34,454 $ 50,401
Platform 7,186 8,021 14,362 15,759
Other 544 743 1,100 1,393
Total revenue 25,572 35,272 49,916 67,553
Costs and expenses:
Cost of revenue (exclusive of amortization of internal use software) 8,728 12,265 17,198 23,887
Research and development 4,990 5,371 9,460 10,546
Sales and marketing 6,582 7,800 12,872 14,876
General and administrative 2,850 3,140 5,449 6,451
Amortization of internal use software 992 1,481 1,721 2,768
Total costs and expenses 24,142 30,057 46,700 58,528
Income from operations 1,430 5,215 3,216 9,025
Interest expense (49 ) (2 ) (121 ) (2 )
Interest and other income, net 6 3 6 5
Income before income taxes 1,387 5,216 3,101 9,028
Income tax expense 105 1,761 227 3,009
Net income 1,282 3,455 2,874 6,019
Less: Stock dividend - - 5,480 -
Net income (loss) attributable to holders of common stock $ 1,282 $ 3,455 $ (2,606 ) $ 6,019
Net income (loss) per share attributable
to holders of common stock
Basic $ 0.03 $ 0.08 $ (0.09 ) $ 0.14
Diluted $ 0.03 $ 0.07 $ (0.09 ) $ 0.12
Shares used to compute net income (loss) per share
attributable to holders of common stock
Basic 41,001 44,700 28,206 44,138
Diluted 46,736 49,539 28,206 49,319
FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30,
2010 2011
Cash flows from operating activities:
Net income $ 2,874 $ 6,019
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 869 1,037
Amortization of internal use software 1,636 2,608
Stock-based compensation 3,885 2,567
Amortization of deferred sales commissions 579 639
Amortization and impairment of direct response advertising 390 1,148
Provision for doubtful accounts 72 80
Loss on fixed asset disposal 8 -
Excess tax benefit associated with stock-based compensation (77 ) (476 )
Changes in operating assets and liabilities:
Accounts receivable (2,411 ) (5,639 )
Prepaid expenses (376 ) (442 )
Deferred tax assets - 2,488
Direct response advertising (1,414 ) (2,516 )
Other assets (269 ) (665 )
Accounts payable (57 ) 1,895
Accrued compensation (1,378 ) (6,898 )
Deferred revenue 3,443 3,975
Other liabilities (1 ) (27 )
Net cash provided by operating activities 7,773 5,793
Cash flows from investing activities:
Purchase of property and equipment (1,390 ) (2,095 )
Capitalization of internal use software (2,817 ) (2,802 )
Restricted cash - (32 )
Net cash used in investing activities (4,207 ) (4,929 )
Cash flows from financing activities:
Payments on term loan payable (8,056 ) -
Payments on capital lease obligations (3 ) -
Net share settlements for stock-based awards minimum tax withholdings (176 ) (1,718 )
Excess tax benefit associated with stock-based compensation 77 476
Proceeds from issuance of common stock, net of offering costs 80,859 10,519
Net cash provided by financing activities 72,701 9,277
Net increase in cash and cash equivalents 76,267 10,141
Cash and cash equivalents, beginning of period 20,713 114,937
Cash and cash equivalents, end of period $ 96,980 $ 125,078
Supplemental cash flows information:
Income taxes paid, net of refunds $ 1,113 $ 172
Interest paid $ 184 $ -
Non-cash operating, investing and financing activities:
Stock dividend $ 5,480 $ -
Capitalized stock-based compensation for internal use software $ 204 $ 155
Capitalized stock-based compensation for direct response advertising $ 32 $ 13

FINANCIAL ENGINES, INC. AND SUBSIDIARIES
Reconciliation of GAAP to Non-GAAP Operating Results

Three Months Ended Six Months Ended
June 30, June 30,
Non-GAAP Adjusted EBITDA 2010 2011 2010 2011
(In thousands)
Net income $ 1,282 $ 3,455 $ 2,874 $ 6,019
Interest expense, net 43 (1 ) 115 (4 )
Income tax expense 105 1,761 227 3,009
Depreciation 431 550 869 1,038
Amortization of internal use software 940 1,397 1,636 2,608
Amortization and impairment of direct response advertising 228 652 390 1,148
Amortization of deferred sales commissions 260 340 579 639
Stock-based compensation 1,948 1,264 3,885 2,567
Non-GAAP Adjusted EBITDA $ 5,237 $ 9,418 $ 10,575 $ 17,024
Three Months Ended Six Months Ended
June 30, June 30,
Non-GAAP Adjusted Net Income & Adjusted EPS 2010 2011 2010 2011
(In thousands, except per share amounts)
Net income $ 1,282 $ 3,455 $ 2,874 $ 6,019
Stock-based compensation, net of tax (1) 1,204 781 2,401 1,586
Non-GAAP Adjusted Net Income $ 2,486 $ 4,236 $ 5,275 $ 7,605
Non-GAAP Adjusted Earnings Per Share $ 0.05 $ 0.09 $ 0.12 $ 0.15
Shares of common stock outstanding 41,326 44,700 41,228 44,213
Dilutive restricted stock and stock options 5,410 4,839 4,545 5,106
Non-GAAP adjusted weighted common shares outstanding 46,736 49,539 45,773 49,319
(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