Financial Engines (NASDAQ: FNGN), America’s largest independent registered investment advisor, today reported financial results for its fourth quarter and full year ended December 31, 2012. Financial results for the fourth quarter of 2012 compared to the fourth quarter of 2011: i
- Revenue increased 26% to $51.4 million for the fourth quarter of 2012 from $40.9 million for the fourth quarter of 2011.
- Professional management revenue increased 37% to $43.2 million for the fourth quarter of 2012 from $31.5 million for the fourth quarter of 2011.
- Net income was $6.5 million, or $0.13 per diluted share, for the fourth quarter of 2012 compared to $5.8 million, or $0.12 per diluted share, for the fourth quarter of 2011.
- Non-GAAP Adjusted EBITDAi increased 25% to $17.5 million for the fourth quarter of 2012 from $14.0 million for the fourth quarter of 2011.
- Non-GAAP Adjusted Net Incomei increased 21% to $8.2 million for the fourth quarter of 2012 from $6.8 million for the fourth quarter of 2011.
- Non-GAAP Adjusted Earnings Per Sharei increased 14% to $0.16 for the fourth quarter of 2012 from $0.14 for the fourth quarter of 2011.
- Revenue increased 29% to $185.8 million in 2012 from $144.1 million in 2011.
- Professional management revenue increased 39% to $150.9 million in 2012 from $108.2 million in 2011.
- Net income was $18.6 million, or $0.37 per diluted share, in 2012 compared to $15.1 million, or $0.31 per diluted share, in 2011.
- Non-GAAP Adjusted EBITDAi increased 37% to $55.8 million in 2012 from $40.8 million in 2011.
- Non-GAAP Adjusted Net Incomei increased 34% to $25.0 million in 2012 from $18.6 million in 2011.
- Non-GAAP Adjusted Earnings Per Sharei increased 32% to $0.50 in 2012 from $0.38 in 2011.
- Assets under contract (“AUC”) were $575 billion.
- Assets under management (“AUM”) were $63.9 billion.
- Members in Professional Management were over 660,000.
- Asset enrollment rates for companies where services have been available for 26 months or more averaged 12.7%iii.
Review of Financial Results for the Fourth Quarter of 2012Revenue increased 26% to $51.4 million for the fourth quarter of 2012 from $40.9 million for the fourth quarter of 2011. The increase in revenue was driven primarily by the growth in professional management revenue, which increased 37% to $43.2 million for the fourth quarter of 2012 from $31.5 million for the fourth quarter of 2011. Costs and expenses increased 28% to $41.2 million for the fourth quarter of 2012 from $32.2 million for the fourth quarter of 2011. This was due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data, printed material costs associated with enrollment campaigns and member materials, wages due to increased headcount and higher compensation, and 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 fourth quarter of 2012 from 32% for the fourth quarter of 2011, due primarily to an increase in fees paid to plan providers for connectivity to plan and plan participant data resulting from the achievement of certain contractual AUM-based milestones in 2012 and, to a lesser extent, due to an increase in print costs as a result of a revised agreement with one of our subadvisory plan providers. Income from operations was $10.1 million for the fourth quarter of 2012 compared to $8.7 million for the fourth quarter of 2011. As a percentage of revenue, income from operations was 20% for the fourth quarter of 2012 compared to 21% for the fourth quarter of 2011. Net income was $6.5 million, or $0.13 per diluted share, for the fourth quarter of 2012 compared to net income of $5.8 million, or $0.12 per diluted share, for the fourth quarter of 2011.
On a non-GAAP basis, Adjusted Net Income i was $8.2 million and Adjusted Earnings Per Share i were $0.16 for the fourth quarter of 2012 compared to Adjusted Net Income of $6.8 million and Adjusted Earnings Per Share of $0.14 for the fourth quarter of 2011.Assets Under Contract and Assets Under Management AUC was $575 billion as of December 31, 2012, an increase of 23% from $467 billion as of December 31, 2011, 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 $33 billion as of December 31, 2012. AUM increased by 35% year over year to $63.9 billion as of December 31, 2012, from $47.5 billion as of December 31, 2011. The increase in AUM was driven primarily by net new enrollment into the Professional Management service, contributions, and market performance.
|AUM, Beginning of Period||$||47.5||$||53.7||$||54.2||$||61.5|
|Market Movement and Other(5)||4.2||(2.2||)||3.4||0.1|
|AUM, End of Period||$||53.7||$||54.2||$||61.5||$||63.9|
|(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-K to be filed for the period ended December 31, 2012.|
“We have initiated a quarterly cash dividend because we believe we can continue to profitably grow the business while generating cash,” said Ray Sims, chief financial officer of Financial Engines. “The dividend reflects our commitment to deliver value to our shareholders.”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 February 14, 2013 levels, the Company estimates that its 2013 revenue will be in the range of $224 million to $229 million, and its 2013 non-GAAP Adjusted EBITDA i will be in the range of $69 million to $71 million. Conference Call The Company will host a conference call to discuss fourth quarter 2012 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 10023474. The replay will remain available until Friday, February 22, 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, 2011, as filed with the SEC, and in other reports filed by the Company with the SEC from time to time, including the Form 10-K to be filed for the year ended December 31, 2012. 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 February 19, 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 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.
|FINANCIAL ENGINES, INC. AND SUBSIDIARIES Unaudited Consolidated Balance Sheets|
|Assets||(In thousands, except per share data)|
|Cash and cash equivalents||$||145,002||$||181,231|
|Accounts receivable, net of allowances of $67 in 2011 and $102 in 2012||30,495||44,627|
|Deferred tax assets||13,155||15,293|
|Other current assets||3,498||3,647|
|Total current assets||195,158||247,891|
|Property and equipment, net||3,926||13,366|
|Internal use software, net||10,723||10,339|
|Long-term deferred tax assets||31,424||20,639|
|Direct response advertising, net||8,851||10,236|
|Liabilities and Stockholders’ Equity|
|Other current liabilities||124||260|
|Total current liabilities||32,817||35,378|
|Long-term deferred revenue||1,533||1,166|
|Long-term deferred rent||459||6,653|
|Preferred stock, $0.0001 par value - 10,000|
|authorized as of December 31, 2011 and 2012;|
|None issued or outstanding as of December 31, 2011 and 2012||-||-|
|Common stock, $0.0001 par value - 500,000|
|authorized as of December 31, 2011 and 2012;|
|45,784 and 47,915 shares issued and outstanding|
|at December 31, 2011 and 2012, respectively||5||5|
|Additional paid-in capital||298,196||323,448|
|Total stockholders’ equity||219,560||263,386|
|Total liabilities and stockholders’ equity||$||254,443||$||306,833|
|FINANCIAL ENGINES, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Income|
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|(In thousands, except per share data)|
|Costs and expenses:|
|Cost of revenue (exclusive of amortization of internal use software)||12,906||18,602||49,717||70,025|
|Research and development||5,538||6,767||21,182||25,483|
|Sales and marketing||8,398||10,046||30,710||39,206|
|General and administrative||3,663||4,266||13,518||15,537|
|Amortization of internal use software||1,647||1,565||5,923||6,125|
|Total costs and expenses||32,152||41,246||121,050||156,376|
|Income from operations||8,722||10,133||23,035||29,446|
|Income before income taxes||8,730||10,237||23,045||29,549|
|Income tax expense||2,958||3,776||7,900||10,975|
|Net and comprehensive income||5,772||6,461||15,145||18,574|
|Net income per share attributable|
|to holders of common stock|
|Shares used to compute net income per share|
|attributable to holders of common stock|
|FINANCIAL ENGINES, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows|
|Cash flows from operating activities:|
|Adjustments to reconcile net income to net cash provided by|
|Depreciation and amortization||1,816||2,191||3,084|
|Amortization of internal use software||3,703||5,577||5,726|
|Amortization of deferred sales commissions||1,155||1,423||1,932|
|Amortization and impairment of direct response advertising||1,185||2,734||5,149|
|Provision for doubtful accounts||191||152||311|
|Loss on fixed asset disposal||7||-||20|
|Excess tax benefit associated with stock-based compensation||(456||)||(1,023||)||(1,962||)|
|Changes in operating assets and liabilities:|
|Deferred tax assets||(51,144||)||6,566||8,648|
|Direct response advertising||(4,330||)||(6,953||)||(6,515||)|
|Net cash provided by operating activities||21,580||25,163||38,086|
|Cash flows from investing activities:|
|Purchase of property and equipment||(2,361||)||(2,922||)||(11,903||)|
|Capitalization of internal use software||(5,860||)||(5,224||)||(5,389||)|
|Net cash used in investing activities||(9,171||)||(8,506||)||(16,742||)|
|Cash flows from financing activities:|
|Payments on term loan payable||(8,056||)||-||-|
|Payments on capital lease obligations||(2||)||-||(22||)|
|Net share settlements for stock-based awards minimum tax withholdings||(921||)||(1,718||)||(699||)|
|Excess tax benefit associated with stock-based compensation||456||1,023||1,962|
|Proceeds from issuance of common stock, net of offering costs||90,338||14,103||13,644|
|Net cash provided by financing activities||81,815||13,408||14,885|
|Net increase in cash and cash equivalents||94,224||30,065||36,229|
|Cash and cash equivalents, beginning of year||20,713||114,937||145,002|
|Cash and cash equivalents, end of year||$||114,937||$||145,002||$||181,231|
|Supplemental cash flows information:|
|Income taxes paid, net of refunds||$||1,154||$||(194||)||$||194|
|Non-cash operating, investing and financing activities:|
|Purchase of property and equipment under capital lease||$||-||$||-||$||255|
|Capitalized stock-based compensation for internal use software||$||439||$||293||$||353|
|Capitalized stock-based compensation for direct response advertising||$||60||$||44||$||64|
|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 December 31,||Year Ended December 31,|
|Non-GAAP Adjusted EBITDA||2011||2012||2011||2012|
|(In thousands, unaudited)|
|Interest expense (income)||(8||)||(4||)||(10||)||(3||)|
|Income tax expense||2,958||3,776||7,900||10,975|
|Amortization of internal use software||1,550||1,463||5,577||5,726|
|Amortization and impairment of direct response advertising||865||1,454||2,734||5,149|
|Amortization of deferred sales commissions||417||468||1,423||1,932|
|Non-GAAP Adjusted EBITDA||$||14,038||$||17,499||$||40,783||$||55,809|
|Three Months Ended December 31,||Year Ended December 31,|
|Non-GAAP Adjusted Net Income||2011||2012||2011||2012|
|(In thousands, except per share data, unaudited)|
|Stock-based compensation, net of tax (1)||1,175||1,775||3,598||6,410|
|Income tax benefit from release of valuation allowance||(160||)||-||(160||)||-|
|Non-GAAP Adjusted Net Income||$||6,787||$||8,236||$||18,583||$||24,984|
|Non-GAAP Adjusted Earnings Per Share||$||0.14||$||0.16||$||0.38||$||0.50|
|Shares of common stock outstanding||45,596||47,552||44,820||46,741|
|Dilutive restricted stock and stock options||3,954||3,209||4,587||3,470|
|Non-GAAP adjusted common shares outstanding||49,550||50,761||49,407||50,211|
|(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, 2011 and the Form 10-K to be filed for the year ended December 31, 201|