Financial Engines Reports First Quarter 2014 Financial Results
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AUM and AUC Grow 30% Year Over Year

Adjusted EBITDAi Grows 32% Year Over Year

SUNNYVALE, Calif.--(BUSINESS WIRE)--May 6, 2014--

Financial Engines (NASDAQ:FNGN), America’s largest independent investment advisor, today reported financial results for its first quarter ended March 31, 2014.

Financial results for the first quarter of 2014 compared to the first quarter of 2013:i

  • Revenue increased 22% to $65.9 million for the first quarter of 2014 from $53.9 million for the first quarter of 2013.
  • Professional management revenue increased 26% to $57.1 million for the first quarter of 2014 from $45.5 million for the first quarter of 2013.
  • Net income was $7.8 million, or $0.15 per diluted share, for the first quarter of 2014 compared to $6.2 million, or $0.12 per diluted share, for the first quarter of 2013.
  • Non-GAAP Adjusted EBITDAi increased 32% to $22.0 million for the first quarter of 2014 from $16.7 million for the first quarter of 2013.
  • Non-GAAP Adjusted Net Incomei increased 36% to $10.8 million for the first quarter of 2014 from $7.9 million for the first quarter of 2013.
  • Non-GAAP Adjusted Earnings Per Sharei increased 33% to $0.20 for the first quarter of 2014 from $0.15 for the first quarter of 2013.

Key operating metrics as of March 31, 2014:ii

  • Assets under contract (“AUC”) were $824 billion.
  • Assets under management (“AUM”) were $92.0 billion.
  • Members in Professional Management were over 778,000.
  • Asset enrollment rates for companies where services have been available for 26 months or more averaged 13.0%iii.

“Financial Engines is committed to helping millions of participants make the most of all their retirement income sources with Income+ and Social Security guidance,” said Jeff Maggioncalda, chief executive officer of Financial Engines. “We believe we are uniquely positioned to navigate participants through the complexities of retirement income planning and help them realize more household income in retirement.”

Review of Financial Results for the First Quarter of 2014

Revenue increased 22% to $65.9 million for the first quarter of 2014 from $53.9 million for the first quarter of 2013. The increase in revenue was driven primarily by the growth in professional management revenue, which increased 26% to $57.1 million for the first quarter of 2014 from $45.5 million for the first quarter of 2013.

Costs and expenses increased 20% to $53.2 million for the first quarter of 2014 from $44.4 million for the first quarter of 2013. This was due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data, as well as an increase in wages, benefits, and employer payroll taxes due primarily to increased headcount and higher compensation, and an increase in non-cash stock-based compensation.

As a percentage of revenue, cost of revenue (exclusive of amortization of internal use software) was 39% for the first quarter of 2014 compared to 37% for the first quarter of 2013, due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data.

Income from operations was $12.7 million for the first quarter of 2014 compared to $9.5 million for the first quarter of 2013. As a percentage of revenue, income from operations was 19% for the first quarter of 2014 compared to 18% for the first quarter of 2013.

Net income was $7.8 million, or $0.15 per diluted share, for the first quarter of 2014 compared to net income of $6.2 million, or $0.12 per diluted share, for the first quarter of 2013.

On a non-GAAP basis, Adjusted Net Incomei was $10.8 million and Adjusted Earnings Per Sharei were $0.20 for the first quarter of 2014 compared to Adjusted Net Income of $7.9 million and Adjusted Earnings Per Share of $0.15 for the first quarter of 2013.

“The 30% year over year growth in both assets under contract and assets under management demonstrates the strong need and demand for our services,” said Ray Sims, chief financial officer of Financial Engines. “To take advantage of a growing market opportunity, we are focused on making our services available to plan sponsors, extending our offering for near-retirees, and engaging and enrolling new members.”

Assets Under Contract and Assets Under Management

AUC was $824 billion as of March 31, 2014, an increase of 30% from $635 billion as of March 31, 2013, 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 $140 billion as of March 31, 2014, an increase of 233% from $42 billion as of March 31, 2013.

AUM increased by 30% year over year to $92.0 billion as of March 31, 2014, from $70.8 billion as of March 31, 2013. The increase in AUM was driven primarily by market performance, net new enrollment into the Professional Management service, and contributions.

In billions     Q2'13     Q3'13     Q4'13     Q1'14
AUM, Beginning of Period $ 70.8 $ 74.3 $ 82.0 $ 88.2
New Enrollment(1) 4.7 4.8 4.4 3.9
Voluntary Cancellations(2) (1.2 ) (1.5 ) (1.6 ) (1.5 )
Involuntary Cancellations(3) (1.0 ) (1.3 ) (1.8 ) (1.2 )
Contributions(4) 1.3 1.4 1.4 1.5
Market Movement and Other(5) (0.3 ) 4.3   3.8   1.1  
AUM, End of Period $ 74.3   $ 82.0   $ 88.2   $ 92.0  
 
 
(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.
 
(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 previously reported contributions data represented only that 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, 2014.

 

Aggregate Investment Style Exposure for Portfolios Under Management

As of March 31, 2014, the approximate aggregate investment style exposure of the portfolios we managed was as follows:

Cash     3%
Bonds 23%
Domestic Equity 47%
International Equity 27%
Total 100%
 

Quarterly Dividend

On May 1, 2014, Financial Engines’ Board of Directors declared a regular quarterly cash dividend of $0.06 per share of the Company’s common stock. The cash dividend will be paid on July 3, 2014 to stockholders of record as of the close of business on June 13, 2014.

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 1, 2014 levels, the Company estimates that its 2014 revenue will be in the range of $276 million to $281 million, and its 2014 non-GAAP Adjusted EBITDA will be in the range of $94 million to $96 million.

Conference Call

The Company will host a conference call to discuss first quarter 2014 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) 300-8521, or for international callers, (412) 317-6026. 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 10044006. The replay will remain available until Friday, May 9, 2014, 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 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, America's largest independent investment advisoriv, is dedicated to making high-quality retirement help available to everyone — regardless of how much money they have. We’re proudly independent, which means we don’t sell products or earn commissions based on our investment recommendations. The companies that choose to work with us offer our services to their workers as a valuable employee benefit.

Co-founded in 1996 by Nobel Prize-winning economist Bill Sharpe, Financial Engines currently offers personalized advice for saving, investing and living in retirement to millions of workers nationwide. Our strong ties with employers give us a unique opportunity to form direct relationships with their employees.

Some people love the challenge of investing. Others prefer to focus their time elsewhere, but everyone needs to plan for retirement. Whatever their interest level in investing, Financial Engines combines cutting-edge technology and a personal, human touch to help all types of investors reach their retirement goals. For more information, visit www.financialengines.com. All advisory services provided by Financial Engines Advisors, L.L.C., a federally registered investment advisor and wholly-owned subsidiary of Financial Engines, Inc. Financial Engines does not guarantee future results.

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, benefits of our services, objectives and growth strategy, our belief that we are uniquely positioned to help participants through the complexities of retirement income planning decisions, our focus on taking advantage of our 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, 2013, 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 6, 2014 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.

___________________________________

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, 2013.

       

Financial Tables

 

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Balance Sheets

 
December 31, March 31,
  2013     2014  
Assets (In thousands, except per share data)
Current assets:
Cash and cash equivalents $ 126,003 $ 128,696
Short-term investments 120,027 129,979
Accounts receivable, net 63,805 64,293
Prepaid expenses 3,271 3,460
Deferred tax assets 17,363 16,231
Other current assets   3,326     2,722  
Total current assets 333,795 345,381
 
Property and equipment, net 15,273 14,989
Internal use software, net 8,530 8,023
Long-term deferred tax assets 4,989 4,989
Direct response advertising, net 9,717 8,569
Other assets   3,377     3,151  
Total assets $ 375,681   $ 385,102  
 
Liabilities and Stockholders’ Equity
 
Current liabilities:
Accounts payable $ 20,801 $ 21,207
Accrued compensation 14,138 6,387
Deferred revenue 7,868 6,724
Dividend payable 2,540 3,076
Other current liabilities   959     990  
Total current liabilities 46,306 38,384
 
Long-term deferred revenue 714 567
Long-term deferred rent 6,644 6,492
Other liabilities   131     701  
Total liabilities   53,795     46,144  
 
Contingencies
 
Stockholders’ equity:
Preferred stock, $0.0001 par value - 10,000

authorized as of December 31, 2013 and March 31, 2014;

None issued or outstanding as of December 31, 2013 and March 31, 2014;

- -
Common stock, $0.0001 par value - 500,000
authorized as of December 31, 2013 and March 31, 2014;

50,890 and 51,359 shares issued and outstanding

at December 31, 2013 and March 31, 2014, respectively 5 5
Additional paid-in capital 361,955 374,286
Accumulated deficit   (40,074 )   (35,333 )
Total stockholders’ equity   321,886     338,958  
Total liabilities and stockholders’ equity $ 375,681   $ 385,102  
 
     

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income

 
Three Months Ended
March 31,
2013     2014
(In thousands, except per share data)
Revenue:
Professional management $ 45,454 $ 57,069
Platform 8,049 8,290
Other   362   518
Total revenue   53,865   65,877
 
Costs and expenses:
Cost of revenue (exclusive of amortization of internal use software) 19,928 25,978
Research and development 7,624 7,921
Sales and marketing 10,353 11,877
General and administrative 4,818 5,870
Amortization of internal use software   1,637   1,512
Total costs and expenses   44,360   53,158
Income from operations 9,505 12,719
Interest income, net 3 36
Other income, net   -   3
Income before income taxes 9,508 12,758
Income tax expense   3,316   4,941
Net and comprehensive income $ 6,192 $ 7,817
 
Dividends declared per share of common stock $ 0.05 $ 0.06
Net income per share attributable
to holders of common stock
Basic $ 0.13 $ 0.15
Diluted $ 0.12 $ 0.15
 
Shares used to compute net income per share
attributable to holders of common stock
Basic 48,282 51,100
Diluted 51,440 53,262
 
         

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Cash Flows

 

Three Months Ended

March 31,
  2013     2014  
(In thousands)
Cash flows from operating activities:
Net income $ 6,192 $ 7,817
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 949 1,116
Amortization of internal use software 1,533 1,425
Stock-based compensation 2,792 4,780
Amortization of deferred sales commissions 472 423
Amortization and impairment of direct response advertising 1,479 1,542
Amortization of discount on short-term investments - 13
Provision for doubtful accounts 116 175
Gain on fixed asset disposal - (8 )
Excess tax benefit associated with stock-based compensation (1,028 ) (3,289 )
Changes in operating assets and liabilities:
Accounts receivable (4,681 ) (663 )
Prepaid expenses (222 ) (189 )
Deferred tax assets 2,220 1,629
Direct response advertising (464 ) (400 )
Other assets (1,415 ) 406
Accounts payable 3,185 4,676
Accrued compensation (5,161 ) (7,751 )
Deferred revenue (210 ) (1,291 )
Deferred rent 463 (152 )
Other liabilities   1     -  
Net cash provided by operating activities   6,221     10,259  
 
Cash flows from investing activities:
Purchase of property and equipment (1,292 ) (1,687 )
Sale of property and equipment - 8
Capitalization of internal use software (1,160 ) (938 )
Purchases of short-term investments - (29,965 )
Maturities of short-term investments   -     20,000  
Net cash used in investing activities   (2,452 )   (12,582 )
 
Cash flows from financing activities:
Payments on capital lease obligations (15 ) (21 )
Excess tax benefit associated with stock-based compensation 1,028 3,289
Cash dividend payments - (2,540 )
Proceeds from issuance of common stock   6,454     4,288  
Net cash provided by financing activities   7,467     5,016  
Net increase in cash and cash equivalents 11,236 2,693
Cash and cash equivalents, beginning of period   181,231     126,003  
Cash and cash equivalents, end of period $ 192,467   $ 128,696  
 
Supplemental cash flows information:
Income taxes paid, net of refunds $ 334 $ 188
Interest paid $ 3 $ 3
Non-cash operating, investing and financing activities:
Purchase of property and equipment under capital lease $ - $ 125
Unpaid purchases of property and equipment $ 187 $ 83
Capitalized stock-based compensation for internal use software $ 65 $ 67
Capitalized stock-based compensation for direct response advertising $ 6 $ 9
Dividends declared but not yet paid $ 2,436 $ 3,076
 
 

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   2013         2014  
(In thousands, unaudited)
 
Net income $ 6,192 $ 7,817
Interest income, net (3 ) (36 )
Income tax expense 3,316 4,941
Depreciation 949 1,116
Amortization of internal use software 1,533 1,425
Amortization and impairment of direct response advertising 1,479 1,542
Amortization of deferred sales commissions 472 423
Stock-based compensation   2,792     4,780  
Non-GAAP Adjusted EBITDA $ 16,730   $ 22,008  
 

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 2013     2014
(In thousands, except per share data, unaudited)
 
Net income $ 6,192 $ 7,817
Stock-based compensation, net of tax (1)   1,725   2,954
Non-GAAP Adjusted Net Income $ 7,917 $ 10,771
 
 
Non-GAAP Adjusted Earnings Per Share $ 0.15 $ 0.20
 
 
Shares of common stock outstanding 48,282 51,100
Dilutive stock options, RSUs and PSUs   3,158   2,162
Non-GAAP adjusted common shares outstanding   51,440   53,262
 
     
(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.

Source: Financial Engines

Financial Engines
Amy Conley, 617-556-2305
aconley@financialengines.com
or
Don Duffy, 408-498-6040
ir@financialengines.com