Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2015

OR

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 001-34636

 

 

FINANCIAL ENGINES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   94-3250323

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1050 Enterprise Way, 3rd Floor

Sunnyvale, CA 94089

(Address of principal executive offices, Zip Code)

(408) 498-6000

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of April 29, 2015, 51,850,824 shares of Common Stock, par value $0.0001, were outstanding.

 

 

 


Table of Contents

FINANCIAL ENGINES, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

 

         Page  

PART I — FINANCIAL INFORMATION

  
Item 1.  

Condensed Consolidated Financial Statements (Unaudited)

     1   
 

Condensed Consolidated Balance Sheets as of December 31, 2014 and March 31, 2015

     1   
 

Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2015

     2   
 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2015

     3   
 

Notes to Condensed Consolidated Financial Statements

     4   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     10   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     23   
Item 4.  

Controls and Procedures

     23   

PART II — OTHER INFORMATION

  
Item 1A.  

Risk Factors

     24   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     24   
Item 6.  

Exhibits

     25   
Signatures      26   


Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

     December 31,
2014
    March 31,
2015
 
     (In thousands, except per share data)  
Assets   

Current assets:

    

Cash and cash equivalents

   $ 126,564      $ 116,180   

Short-term investments

     179,885        194,837   

Accounts receivable, net

     66,001        69,328   

Prepaid expenses

     3,763        3,489   

Deferred tax assets

     7,932        8,430   

Other current assets

     5,445        5,143   
  

 

 

   

 

 

 

Total current assets

  389,590      397,407   

Property and equipment, net

  20,723      19,576   

Internal use software, net

  6,421      6,469   

Long-term deferred tax assets

  6,844      6,843   

Direct response advertising, net

  8,202      7,473   

Other assets

  3,265      3,002   
  

 

 

   

 

 

 

Total assets

$ 435,045    $ 440,770   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$ 21,678    $ 23,555   

Accrued compensation

  10,103      7,429   

Deferred revenue

  5,840      6,329   

Dividend payable

  3,113      3,627   

Other current liabilities

  1,161      1,177   
  

 

 

   

 

 

 

Total current liabilities

  41,895      42,117   

Long-term deferred revenue

  427      356   

Long-term deferred rent

  8,689      8,743   

Non-current tax liabilities

  3,672      3,847   

Other liabilities

  151      121   
  

 

 

   

 

 

 

Total liabilities

  54,834      55,184   
  

 

 

   

 

 

 

Contingencies (see note 9)

Stockholders’ equity:

Preferred stock, $0.0001 par value - 10,000
authorized as of December 31, 2014 and March 31, 2015;
None issued or outstanding as of December 31, 2014 and March 31, 2015

  —        —     

Common stock, $0.0001 par value - 500,000
authorized as of December 31, 2014 and March 31, 2015;
52,224 and 52,394 shares issued and
51,944 and 51,839 shares outstanding
as of December 31, 2014 and March 31, 2015, respectively

  5      5   

Additional paid-in capital

  404,908      417,324   

Treasury stock, at cost 280 shares and 555 shares as of December 31, 2014 and March 31, 2015, respectively

  (9,182   (20,498

Accumulated deficit

  (15,520   (11,245
  

 

 

   

 

 

 

Total stockholders’ equity

  380,211      385,586   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$ 435,045    $ 440,770   
  

 

 

   

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

 

     Three Months Ended
March 31,
 
     2014      2015  
     (In thousands, except per share data)  

Revenue:

     

Professional management

   $ 57,069       $ 66,583   

Platform

     8,290         7,890   

Other

     518         473   
  

 

 

    

 

 

 

Total revenue

  65,877      74,946   
  

 

 

    

 

 

 

Costs and expenses:

Cost of revenue (exclusive of amortization of internal use software)

  25,978      30,891   

Research and development

  7,921      8,945   

Sales and marketing

  11,877      14,615   

General and administrative

  5,870      7,158   

Amortization of internal use software

  1,512      1,176   
  

 

 

    

 

 

 

Total costs and expenses

  53,158      62,785   
  

 

 

    

 

 

 

Income from operations

  12,719      12,161   

Interest income, net

  36      62   

Other income, net

  3      —     
  

 

 

    

 

 

 

Income before income taxes

  12,758      12,223   

Income tax expense

  4,941      4,322   
  

 

 

    

 

 

 

Net and comprehensive income

$ 7,817    $ 7,901   
  

 

 

    

 

 

 

Dividends declared per share of common stock

$ 0.06    $ 0.07   

Net income per share attributable to holders of common stock

Basic

$ 0.15    $ 0.15   

Diluted

$ 0.15    $ 0.15   

Shares used to compute net income per share attributable to holders of common stock

Basic

  51,100      51,923   

Diluted

  53,262      53,288   

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

     Three Months Ended
March 31,
 
     2014     2015  
     (In thousands)  

Cash flows from operating activities:

    

Net income

   $ 7,817      $ 7,901   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     1,116        1,457   

Amortization of internal use software

     1,425        1,099   

Stock-based compensation

     4,780        6,524   

Amortization of deferred sales commissions

     423        368   

Amortization and impairment of direct response advertising

     1,542        1,360   

Amortization of premium (discount) on short-term investments

     13        (64

Provision for doubtful accounts

     175        235   

Deferred tax assets

     1,629        (323

Loss (gain) on fixed asset disposal

     (8     —     

Excess tax benefit associated with stock-based compensation

     (3,289     (4,214

Changes in operating assets and liabilities:

    

Accounts receivable

     (663     (3,563

Prepaid expenses

     (189     274   

Direct response advertising

     (400     (644

Other assets

     406        197   

Accounts payable

     4,676        6,412   

Accrued compensation

     (7,751     (2,674

Deferred revenue

     (1,291     417   

Deferred rent

     (152     68   
  

 

 

   

 

 

 

Net cash provided by operating activities

  10,259      14,830   
  

 

 

   

 

 

 

Cash flows from investing activities:

Purchase of property and equipment

  (1,687   (630

Sale of property and equipment

  8      —     

Capitalization of internal use software

  (938   (1,132

Purchases of short-term investments

  (29,965   (44,889

Maturities of short-term investments

  20,000      30,000   
  

 

 

   

 

 

 

Net cash used in investing activities

  (12,582   (16,651
  

 

 

   

 

 

 

Cash flows from financing activities:

Payments on capital lease obligations

  (21   (29

Net share settlements for stock-based awards minimum tax withholdings

  —        (282

Excess tax benefit associated with stock-based compensation

  3,289      4,214   

Cash dividend payments

  (2,540   (3,113

Repurchase of common stock

  —        (11,316

Proceeds from issuance of common stock

  4,288      1,963   
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

  5,016      (8,563
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

  2,693      (10,384

Cash and cash equivalents, beginning of period

  126,003      126,564   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

$ 128,696    $ 116,180   
  

 

 

   

 

 

 

Supplemental cash flows information:

Income taxes paid, net of refunds

$ 188    $ 206   

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

$ 83    $ 797   

Capitalized stock-based compensation for internal use software

$ 67    $ 90   

Capitalized stock-based compensation for direct response advertising

$ 9    $ 7   

Dividends declared but not yet paid

$ 3,076    $ 3,627   

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — Organization and Description of the Business

The Company

Financial Engines, Inc. (the Company) was incorporated on May 13, 1996 under the laws of the State of California and is headquartered in Sunnyvale, California. In February 2010, the Company was reincorporated under the laws of the State of Delaware.

Financial Engines is a provider of independent, technology-enabled portfolio management services, investment advice and retirement income services primarily to participants in employer-sponsored defined contribution plans, such as 401(k) plans. The Company helps investors plan for retirement by offering personalized plans for saving and investing, as well as by providing assessments of retirement income needs and readiness, regardless of personal wealth or investment account size. The Company uses its proprietary advice technology platform to provide independent, personalized portfolio management, investment advice and retirement income services to millions of retirement plan participants on a cost-efficient basis.

NOTE 2 — Basis of Presentation

Interim Financial Statements

The accompanying condensed consolidated financial statements and notes thereto are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed on February 20, 2015 with the SEC (the 2014 Annual Report). The Condensed Consolidated Balance Sheet as of December 31, 2014, included herein, was derived from the audited financial statements as of that date but does not include all disclosures including notes required by GAAP.

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair presentation of the Company’s Balance Sheets as of December 31, 2014 and March 31, 2015, the Company’s Statements of Income for the three months ended March 31, 2014 and 2015 and the Company’s Statements of Cash Flows for the three months ended March 31, 2014 and 2015. The results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income is the same as net income for all periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Significant items subject to such estimates and assumptions include income taxes, stock-based compensation, direct response advertising, revenue recognition, and the useful lives of property, equipment and internal use software cost. Actual results could differ from those estimates under different assumptions or conditions.

Short-term Investments

Short-term investments consist of U.S. Treasury securities. The Company classifies its short-term investments as held-to maturity as the Company has the positive intent and ability to hold to maturity and they are carried at amortized cost. The Company evaluates the investments periodically for possible other-than-temporary impairment. In order to determine whether a decline in value is other-than-temporary, the Company evaluates, among other factors: the duration and extent to which the fair value has been less than the carrying value, and its intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Recent Accounting Pronouncements

On May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This new standard may also impact how the Company accounts for certain direct costs associated with its revenues. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Unless amended or delayed by the FASB, the new standard would become effective for the Company on January 1, 2017 and early adoption would not be permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

NOTE 3 — Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less from date of purchase to be cash equivalents. Cash equivalents are comprised of cash held primarily in money market accounts. Cash and cash equivalents consist of the following:

 

     December 31,
2014
     March 31,
2015
 
     (In thousands)  

Cash

   $ 35,636       $ 30,162   

Money market fund

     90,928         86,018   
  

 

 

    

 

 

 

Total cash and cash equivalents

$ 126,564    $ 116,180   
  

 

 

    

 

 

 

NOTE 4 — Short-Term Investments

The Company considers all investments purchased with an original remaining maturity of between three and twelve months at the date of purchase to be short-term investments. U.S. Treasury securities are classified as short-term investments and held-to-maturity. A reconciliation of amortized cost and fair value of short-term investments is as follows:

 

     December 31,
2014
     March 31,
2015
 
     (In thousands)  

U.S. Treasury Securities:

     

Amortized cost

   $ 179,885       $ 194,837   

Gross unrecognized gains

     12         33   

Gross unrecognized losses

     (28      (4
  

 

 

    

 

 

 

Fair value

$ 179,869    $ 194,866   
  

 

 

    

 

 

 

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 5 — Concentration of Credit Risk and Fair Value of Financial Instruments

The Company measures and reports its investments in money market funds at fair value on a recurring basis, which approximates their carrying value due to the short period of time to maturity, and reports its short-term investments in U.S. Treasury securities at amortized cost at each reporting period. There have been no changes in the Company’s valuation techniques during the three months ended March 31, 2015. The Company began purchasing U.S. Treasury securities in May 2013. The U.S. Treasury securities have maturity dates through March 2016. Both the money market funds and U.S. Treasury securities are classified as Level 1.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis:

 

    As of December 31, 2014     As of March 31, 2015  
    Total Fair
Value
    Quoted Prices in
Active Markets
for Identical
Assets

(Level 1) (1)
    Significant
Other
Observable
Inputs

(Level 2) (2)
    Significant
Other
Unobservable
Inputs

(Level 3) (3)
    Total Fair
Value
    Quoted Prices in
Active Markets
for Identical
Assets

(Level 1) (1)
    Significant
Other
Observable
Inputs

(Level 2) (2)
    Significant
Other
Unobservable
Inputs

(Level 3) (3)
 
    (In thousands)  

Assets:

               

Money Market Funds

  $ 90,928      $ 90,928      $ —        $ —        $ 86,018      $ 86,018      $ —        $ —     

U.S. Treasury Securities

  $ 179,869      $ 179,869      $ —        $ —        $ 194,866      $ 194,866      $ —        $ —     

 

(1) Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
(2) Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
(3) Level 3: Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and accounts receivable. The Company maintains its cash and cash equivalents primarily in highly-rated taxable money market funds located in the United States, in which deposits may exceed federal deposit insurance limits. The fair value of the Company’s accounts receivable and accounts payable approximates the carrying amount due to their short duration.

The Company’s customers are concentrated in the United States. The Company performs ongoing credit evaluations of its customers and does not require collateral. The Company reviews the need for allowances for potential credit losses and such losses have been insignificant to date.

Significant customer information is as follows:

 

Percentage of accounts receivable:    December 31,
2014
    March 31,
2015
 

Empower RetirementTM(1)

     13     14

Aon Hewitt Financial Advisors, LLC

     10     9
     Three Months Ended
March 31,
 
Percentage of revenue:    2014     2015  

Empower RetirementTM(1)

     11     10

 

(1) Empower RetirementTM refers to Advised Assets Group, LLC, operating under the brand identity Empower RetirementTM, which purchased J.P. Morgan Retirement Plan Services LLC under agreement dated April 2, 2014.

 

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Table of Contents

FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 6 — Stockholders’ Equity

Stock-based Compensation

The following table summarizes the stock-based compensation, as included in the Condensed Consolidated Statements of Income, by functional area:

 

     Three Months Ended
March 31,
 
     2014      2015  
     (In thousands)  

Stock-based compensation:

     

Cost of revenue

   $ 584       $ 1,056   

Research and development

     1,120         1,415   

Sales and marketing

     1,414         1,950   

General and administrative

     1,575         2,026   

Amortization of internal use software

     87         77   
  

 

 

    

 

 

 

Total stock-based compensation

$ 4,780    $ 6,524   
  

 

 

    

 

 

 

On a quarterly basis, the Company updates its Black-Scholes option pricing model to reflect the anticipated dividends to be paid over the expected term of the awards. For the three months ended March 31, 2015, the Company included a dividend yield of 0.7%.

Cash Dividends

On May 1 2015, the Board of Directors declared a quarterly dividend of $0.07 per share to be paid on July 3, 2015 to record-holders as of June 15, 2015. While the Company currently expects to pay comparable cash dividends on a quarterly basis in the future, any future determination with respect to the declaration and payment of dividends will be at the discretion of the Board of Directors. As of March 31, 2015, the Company had a dividend payable balance of $3.6 million, which was paid to stockholders in April 2015.

Stock Repurchase Program

On November 5, 2014, the Board of Directors approved a stock repurchase program of up to $50.0 million of the Company’s common stock over a twelve-month period of which $20.5 million has been utilized as of March 31, 2015. Any share repurchases may be made through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate, and may or may not be made pursuant to one or more Rule 10b5-1 trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The timing and amount of any shares repurchased will depend on a variety of factors, including stock price, market conditions, corporate and regulatory requirements (including applicable securities laws and regulations and the rules of The NASDAQ Stock Market), any additional constraints related to material inside information the Company may possess, and capital availability. The Company has no commitment to make any repurchases. The stock repurchase program may be modified, extended or terminated by the Board of Directors at any time and there is no guarantee as to the exact number of shares, if any, that will be repurchased under the program. The stock repurchase program is expected to be funded by available working capital.

The repurchases were recorded as treasury stock and resulted in a reduction of stockholders’ equity. The Company repurchased shares of its common stock in the open market during the periods presented as follows:

 

     Number of
Shares
     Average
Repurchase
Price Per
Share
     Amount  
                   (In thousands)  

2015:

        

First quarter

     275,000       $ 41.15       $ 11,316   

2014:

        

Fourth quarter

     280,000       $ 32.79       $ 9,182   
  

 

 

       

 

 

 
  555,000    $ 20,498   
  

 

 

       

 

 

 

 

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FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 7 — Net Income Per Common Share

Basic net income per common share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period less the weighted average number of common shares repurchased by the Company during the period. Diluted net income per common share is computed by giving effect to all dilutive potential common shares, including options, RSUs, and PSUs. Repurchased shares are held as treasury stock and outstanding shares used to calculate earnings per share have been reduced by the weighted number of repurchased shares.

The following table sets forth the computation of basic and diluted net income per share:

 

     Three Months Ended
March 31,
 
     2014      2015  
     (In thousands, except per share data)  

Numerator (basic and diluted):

     

Net income

   $ 7,817       $ 7,901   
  

 

 

    

 

 

 

Denominator (basic):

Weighted average common shares outstanding

  51,100      51,923   
  

 

 

    

 

 

 

Denominator (diluted):

Weighted average common shares outstanding

  51,100      51,923   

Dilutive stock options and awards outstanding

  1,874      1,005   

Dilutive unvested restricted stock units

  258      331   

Dilutive unvested performance stock units

  30      29   
  

 

 

    

 

 

 

Net weighted average common shares outstanding

  53,262      53,288   
  

 

 

    

 

 

 

Net income per share attributable to holders of common stock:

Basic

$ 0.15    $ 0.15   

Diluted

$ 0.15    $ 0.15   

Diluted net income per share does not include the effect of the following anti-dilutive common equivalent shares:

 

     Three Months Ended
March 31,
 
     2014      2015  
     (In thousands)  

Stock options outstanding

     311         2,075   

 

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FINANCIAL ENGINES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 8 — Income Taxes

The Company recorded an income tax provision of $4.9 million and $4.3 million for the three months ended March 31, 2014 and 2015, respectively. The Company’s effective tax rate was 39% and 35% for the three months ended March 31, 2014 and 2015, respectively. The decrease in the Company’s effective tax rate was due primarily to changes in state income taxes.

As of December 31, 2014, the Company continues to believe that sufficient positive evidence exists from historical operations and future projections to conclude that it is more likely than not to fully realize its federal deferred tax assets and to partially realize its State of California deferred tax assets in future periods. The Company continuously evaluates additional facts representing positive and negative evidence in the determination of the realizability of the deferred tax assets. The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. All tax years since inception are open due to loss carryforwards and may be subject to examination in one or more jurisdictions.

At December 31, 2014, the Company had net operating loss carryforwards for federal purposes of approximately $162.6 million that expire at varying dates through 2034. As of December 31, 2014, the Company had gross unrecognized tax benefits for income taxes associated with uncertain tax positions of $8.3 million. The balance of the gross unrecognized tax benefits is not expected to materially change in the next twelve months.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. During the three months ended March 31, 2014 and 2015, the accrued interest and penalties were immaterial.

NOTE 9 — Commitments and Contingencies

Commitments

In March 2014, the Company entered into a non-cancelable operating lease for a new Boston, MA facility which included a tenant improvement allowance of approximately $2.4 million, and as of March 31, 2015, there was a receivable balance associated with this allowance of $2.2 million.

Contingencies

The Company includes service level commitments to its customers warranting certain levels of reliability and performance. The maximum total commitments under these obligations would not have a material effect on the Company’s operating results.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Report contains forward-looking statements that involve risks and uncertainties In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “goal,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “designed to,” “estimate,” “predict,” “potential,” “plan,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements include, but are not limited to, statements about anticipated trends and challenges in our business and the markets in which we operate; the capabilities, benefits and effectiveness of our services; our plans for future services, enhancements of existing services and our growth; our research program; our expectations regarding our costs, expenses and revenue; our effective tax rate, our deferred tax assets, our anticipated cash needs and our estimates regarding our capital requirements and our needs for additional financing; our ability to retain and attract customers; our regulatory environment; our ability to recruit and retain professionals; volatility of our stock price; our expectations regarding the amounts, timing and frequency of any payment of dividends; our expectations regarding our share repurchase program; our expectations regarding headcount and for granting equity awards, including the amount and timing thereof; impact of our accounting policies; benefit of non-GAAP financial measures; our disclosure controls and procedures; our legal proceedings; intellectual property; our expectations regarding competition; and sources of revenue. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risks set forth throughout this Report, including under Item 1A, “Risk Factors.” These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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 Report to “Financial Engines,” “our company,” “we,” “us” and “our” refer to Financial Engines, Inc. and its consolidated subsidiaries during the periods presented unless the context requires otherwise.

Overview

We are a leading provider of independent, technology-enabled portfolio management, investment advice and retirement income services primarily to participants in employer-sponsored defined contribution retirement plans, such as 401(k) plans. We use our proprietary advice technology platform to provide our services to millions of investors on a cost-efficient basis. Our business model is based primarily on workplace delivery of our services, where we target three key constituencies in the retirement plan market: plan participants, plan sponsors and plan providers. We help investors plan for retirement by offering personalized plans for saving and investing, as well as providing assessments of retirement income needs and readiness, regardless of personal wealth or investment account size.

Revenue

We generate revenue primarily from management fees on Assets Under Management (AUM), as well as from platform fees, by providing portfolio management services, investment advice and retirement income services primarily to plan participants of employer-sponsored retirement plans. We maintain two types of relationships with retirement plan providers. In direct advisory relationships, we are the primary advisor and a plan fiduciary. In subadvisory relationships, the plan provider (or its affiliate) is the primary advisor and plan fiduciary, and we act in a subadvisory capacity.

Professional Management

We derive professional management revenue from member fees paid by or on behalf of plan participants who are enrolled in our Professional Management service for the management of their account assets. Our Professional Management service is a discretionary investment management service that includes retirement income services, a Retirement Plan analyzing investments, contribution rate and projected retirement income, a Retirement Checkup designed to help plan participants develop a strategy for closing the gap, if any, between the participant’s retirement goal and current retirement income forecast and retirement income services. Income+ is a feature of our Professional Management service that provides retirement income for 401(k) participants by providing discretionary portfolio management with an income objective and steady monthly payments from their 401(k) accounts during retirement. For plans where Income+ is available, we also provide Social Security claiming guidance and retirement income planning. The services are generally made available to plan participants in a 401(k) plan by written agreements with the plan provider, plan sponsor and the plan participant.

 

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Our arrangements with customers generally provide for member fees based on the value of assets we manage for plan participants and are generally payable quarterly in arrears. The majority of our member fees across both advisory and subadvisory relationships are calculated on a monthly basis, as the product of member fee rates and the value of AUM at or near the end of each month for members. In general, we expect this methodology to reduce the impact of financial market volatility on our professional management revenue, although this methodology may result in lower member fees if the financial markets are down when member fees are calculated, even if the market had performed well earlier in the month or the quarter.

Pursuant to the contracts with our members, we calculate our member fees based on the asset amounts in data files as received directly from the plan providers, with no judgments or estimates on our part. None of our member fees are based on investment performance or other incentive arrangements. Our fees generally are based on AUM, which is influenced by market performance. Our fees are not based on a share of the capital gains or appreciation in a member’s account. In some cases, our member fees or the applicable fee schedule may adjust downward based on overall participant or AUM enrollment performance milestones over time. Our member fees are determined by the value of the assets in the member’s account at the specified dates and are recognized as the services are performed.

In order to encourage enrollment into our Professional Management service, we use a variety of promotional and communication campaign techniques, some of which can potentially impact the amount of revenue recognized, the timing of revenue recognition or both. Historically, we have seen a general preference from plan sponsors to commence campaigns in the second and third quarters of the year and we expect this trend to continue. We would generally expect our professional management revenue to continue to increase as a percentage of overall revenue, which will cause our revenue to become increasingly more sensitive to market performance.

Enrollment Metrics

We measure enrollment in our Professional Management service by members as a percentage of eligible plan participants and by AUM as a percentage of Assets Under Contract (AUC), in each case across all plans where the Professional Management service is available for enrollment, including plans where enrollment campaigns are not yet concluded or have not commenced.

AUM is defined as the amount of retirement plan assets that we manage as part of our Professional Management service. Our AUM is the value of assets under management as reported by plan providers at or near the end of each month or quarter. Our members are the plan participants who are enrolled in our Professional Management service as reported by plan providers at or near the end of each month or quarter.

AUC is defined as the amount of assets in retirement plans under contract for which the Professional Management service has been made available to eligible participants. Our AUC and eligible participants do not include assets or participants in plans where we have signed contracts but for which we have not yet made the Professional Management service available. Eligible participants and AUC are reported by plan providers with varying frequency and at different points in time, and are not always updated or marked to market. If markets have declined, or if assets have left the plan, since the reporting date, our AUC may be overstated. If markets have risen, or if assets have been added to the plan, since the reporting date, our AUC may be understated. Some plan participants may not be eligible for our services due to plan sponsor limitations on employees treated as insiders for purposes of securities laws or other characteristics of the plan participant. Certain securities within a plan participant’s account may be ineligible for management by us, such as employer stock subject to trading restrictions, and we do not manage or charge a fee for that portion of the account. In both of these circumstances, assets of the relevant participants may be included in AUC but cannot be converted to AUM. We believe that AUC can be a useful indicator of the additional plan assets available for enrollment efforts that, if successful, would result in these assets becoming AUM. We believe that total eligible participants provides a useful approximation of the number of participants available for enrollment into the Professional Management service.

As of March 31, 2015, we had approximately $1.003 trillion of AUC and 9.0 million plan participants in plans for which the Professional Management service is available, which includes approximately $254 billion of AUC and 2.6 million plan participants in plans at 113 plan sponsors for which Income+ has been made available to participants.

As of March 31, 2015, we had 223 Income+ plan sponsor contracts, including the aforementioned 113 plan sponsors where Income+ has been made available to participants and 110 plan sponsors for which the service has not yet been made available, representing a total of approximately $396 billion of retirement assets and 4.0 million participants.

 

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In addition to measuring enrollment in all plans where the Professional Management service is available, we measure enrollment in plans where the Professional Management service has been available for at least 14 months and in plans where it has been available for at least 26 months.

 

     Members as a
Percentage of
Eligible
Participants
    AUM as a
Percentage of
AUC(1)
 

All plans as of March 31, 2015

    

Professional Management available

     9.7     10.9

Professional Management available 14 months or more

     10.6     12.1

Professional Management available 26 months or more

     11.3     13.0

 

(1) We receive AUM data from plan providers at or near the end of each quarter and AUC data from plan providers at various points in time, neither of which is marked to market as of quarter end. In quarters with significant volatility, especially near the end of the quarter, the AUC data we receive from plan providers can be significantly different than market values as of quarter end. As of March 31, 2015, we performed a calculation to estimate the marked-to-market asset enrollment rate as of March 31, 2015, which we believe was approximately 10.9% where Professional Management is available, approximately 12.1% where Professional Management has been available for 14 months or more and approximately 13.1% where Professional Management has been available for 26 months or more.

As of March 31, 2015, the approximate aggregate style exposure of the portfolios we managed was as follows:

 

Cash

     2

Bonds

     27

Domestic Equity

     44

International Equity

     27
  

 

 

 

Total

  100
  

 

 

 

We estimate the aggregate percentage of equity exposures have ranged from a low of approximately 56% to a high of approximately 78% since we began managing assets on a discretionary basis in September 2004. These percentages can be affected by the asset exposures of the overall market portfolio, the demographics of our member population including the adoption of Income+, the number of members who have told us that they want to assume greater or lesser investment risk, and, to a lesser extent given the amount of assets we have under management, the proportion of our members for whom we have completed the transition from their initial portfolio.

 

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Changes in AUM

The following table illustrates estimated changes in our AUM over the last four quarters:

 

     Q2’14      Q3’14      Q4’14      Q1’15  
     (In billions)  

AUM, beginning of period

   $ 92.0       $ 98.4       $ 101.9       $ 104.4   

New Enrollment(1)

     4.0         6.5         3.9         4.6   

Voluntary Cancellations(2)

     (1.2      (1.5      (2.6      (1.9

Involuntary Cancellations(3)

     (1.4      (1.2      (1.9      (1.6

Contributions(4)

     1.6         1.6         1.7         1.7   

Market Movement and Other(5)

     3.4         (1.9      1.4         2.0   
  

 

 

    

 

 

    

 

 

    

 

 

 

AUM, end of period

$ 98.4    $ 101.9    $ 104.4    $ 109.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) The aggregate amount of AUM, at the time of enrollment, of new members who enrolled in our Professional Management service within the period. We receive 401(k) account balances for each member at least weekly, including 401(k) account balances for new members. Accordingly, we are able to capture the 401(k) account balances within a week of enrollment for any given new member.
(2) The aggregate amount of assets, at the time of cancellation, for voluntary cancellations from the Professional Management service within the period. Members may cancel at any time without any requirement to provide advance notice. Our quarter-end AUM excludes the assets of any account cancelled by a member prior to the end of the last day of the quarter. We can quantify this amount for any period by retrieving the account value from the last file received during the week prior to cancellation.
(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. Plan sponsors may cancel their contract for the provision of Professional Management services to the plan participants upon specified notice or without notice for fiduciary reasons or breach of contract. If a plan sponsor has provided advance notice of cancellation of the plan sponsor contract, however, the AUM for members of that plan sponsor is included in our AUM until the effective date of the cancellation, after which it is no longer part of our AUM. If a member’s account value falls to zero, either upon the effective date of a sponsor cancellation or the member transferring the entire account balance, we treat the account as an involuntary cancellation and quantify the amount for any period by retrieving the account value from the last file received with a positive balance. Involuntary member cancellations due to the effective date of a plan sponsor cancellation occurring between April 1, 2015 and April 30, 2015 would cause the AUM that was reported as of March 31, 2015 to be reduced by 0.01%.
(4) Employer and employee contributions are estimated each quarter from annual contribution rates based on data received from plan providers or plan sponsors. Typically, we receive data from plan providers or plan sponsors via weekly member files, allowing us to estimate contributions for those members for whom we have received this data. For the last four quarters, the weekly member files contained annual contribution rates, employer matching and salary levels for a subset of our total members, representing approximately 86-89% of our overall AUM. The average contribution rate is calculated using this data and extrapolated to approximate 100% of employee and employer contributions for our overall AUM.
(5) Other factors affecting AUM include estimated market movement, plan administrative fees, participant loans and hardship withdrawals, and timing differences. We cannot separately quantify the impact of the other factors contained in this line item as the information we receive from the plan providers does not separately identify these transactions or the changes in balances due to market movement. We would expect that market movement would typically represent the most substantial portion of this line item in a given quarter.

 

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Our AUM increases or decreases based on several factors. AUM can increase due to market performance, by the addition of new assets as participants enroll into our Professional Management service, both at existing sponsors as well as at new sponsors where the services have been made available, and by the addition of new assets from employee and employer contributions into their 401(k) accounts. AUM can decrease due to market performance and by the reduction of assets as a result of members terminating their membership, members rolling their assets out of the retirement plan, and sponsors canceling the Professional Management service. Historically, member cancellation rates have typically increased during periods where there has been a significant decline in stock market performance. In addition, member cancellation rates are typically the highest in the six months immediately following the completion of a given promotional campaign, and certain types of promotional techniques may result in higher than average cancellation rates at the end of the promotional period.

A substantial portion of the assets we manage is invested in equity securities, the market prices of which can vary substantially based on changes in economic conditions. An additional portion is invested in fixed income securities, which will generally have lower volatility than the equity market. Therefore, while any changes in equity market performance would significantly affect the value of our AUM, particularly for the AUM invested in equity securities, such changes would typically result in lower volatility for our AUM than the volatility of the equity market as a whole. Because a substantial portion of our revenue is derived from the value of our AUM, changes in fixed income or equity market performance could significantly affect the amount of revenue in a given period. If any of these factors reduces our AUM, the amount of member fees we would earn for managing those assets would decline, which in turn could negatively impact our revenue.

The trends associated with our professional management revenue are driven primarily by trends related to our AUM, as well as the trends related to member fees. The factors primarily affecting our AUM include: our ability to retain existing sponsors and providers and to sign new contracts with sponsors and providers, our ability to enroll and retain members in our Professional Management services, the level of employee and employer contributions, and market performance. The factors primarily affecting our member fees include the value of services provided and related industry pricing trends, as well as the contractually negotiated fee rates we receive for our subadvisory services and fee changes as a result of achieving certain sponsor-based enrollment milestones.

Platform

We derive platform revenue from recurring, subscription-based fees for access to either our full suite of services, including Professional Management, Online Advice service, and Retirement Evaluation, or to our legacy Online Advice service only, and to a lesser extent, from setup fees. Online Advice is a nondiscretionary Internet-based investment advisory service, which includes features such as: recommendations among the investment alternatives available in the employer sponsored retirement plan; a summary of the current value of the plan account; a forecast of how much the plan account investments might be worth at retirement; whether a change is recommended to the contribution rate, risk and diversification and/or unrestricted employer stock holdings; and a projection of how much the participant may spend at retirement. Plan participants may use the service as frequently as they choose to monitor progress toward their financial goals, receive forecasts and investment recommendations and access educational content at our website. The arrangements generally provide for our fees to be paid by the plan sponsor, plan provider or the retirement plan itself, depending on the plan structure. Platform revenue is generally paid annually or quarterly in advance and recognized ratably over the term of the subscription period beginning after the completion of customer setup and data connectivity. Setup fees are recognized ratably over seven years.

Other Revenue

Other revenue includes reimbursement for a portion of marketing and member materials from certain subadvisory relationships and reimbursement for providing personal statements to participants from a limited number of plan sponsors. Costs associated with these reimbursed printed fulfillment materials are expensed to cost of revenue as incurred.

 

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Costs and Expenses

Employee compensation and related expenses represent our largest expense and include wages expense, cash incentive compensation expense, benefits expenses, employer payroll tax expense and non-cash stock-based compensation expense. Our cash incentive compensation plan is based, in part, on achieving pre-determined annual corporate financial objectives and may result in an increased current period expense while the anticipated revenue benefits associated with the achievement of such corporate financial objectives may be realized in future periods. We allocate compensation and other related expenses including non-cash stock-based compensation to our cost of revenue, research and development, sales and marketing, general and administrative as well as amortization of internal use software expense categories. We expect our headcount to increase over time, and to be a primary area of growth in our costs and expenses. We anticipate granting equity awards to board members and certain of our employees each year that may result in significant non-cash stock-based compensation expense. The largest grant events typically occur in the first and fourth quarters, although significant awards may also be granted at other times. We anticipate providing annual compensation increases to certain of our employees each year, typically in the second quarter, that may result in an increase primarily to wages and cash incentive compensation expenses.

Other costs and expenses include the costs of fees paid to plan providers related to the exchange of plan and plan participant data as well as implementing our transaction instructions for member accounts, printed marketing and member materials and postage, consulting and professional service expenses, facilities expenses, and amortization and depreciation for hardware and software purchases and support.

The following summarizes our cost of revenue and certain significant operating expenses:

Cost of Revenue. Cost of revenue includes fees paid to plan providers for connectivity to plan and plan participant data, printed materials fulfillment costs for certain subadvisory relationships for which a portion are reimbursed, printed member materials, and employee-related costs for technical operations, advisor call center and customer support, operations, implementations and portfolio management. Costs in this area are related primarily to payments to third parties, employee compensation and related expenses, and purchased materials. Costs for connectivity to plan and plan participant data are expected to increase proportionally with our professional management revenue. The expenses included in cost of revenue are shared across the different revenue categories, and we are not able to meaningfully allocate such costs between separate categories of revenue. Consequently, all costs and expenses applicable to our revenue are included in the category cost of revenue in our Consolidated Statements of Income. Amortization of internal use software, a portion of which relates to our cost of revenue, is not included in cost of revenue but is reflected as a separate line item in our Consolidated Statements of Income.

Research and Development. Research and development expense includes costs associated with defining and specifying new features and ongoing enhancement to our Advice Engines and other aspects of our service offerings, financial research, quality assurance, related administration and other costs that do not qualify for capitalization. Costs in this area are related primarily to employee compensation for our engineering, product development and investment research personnel and associated expenses and, to a lesser extent, external consulting expenses, which relate primarily to support and maintenance of our existing services.

Sales and Marketing. Sales and marketing expense includes costs associated with customer experience, provider and sponsor relationship management, provider and sponsor marketing, direct sales, product marketing, corporate communications, public relations, analytics, creative services and printing of, and postage for, marketing materials for direct advisory relationships, including amortization of direct response advertising. Costs in this area are related primarily to employee compensation for sales and marketing personnel and related expenses, and also include commissions, printed materials and general marketing programs.

General and Administrative. General and administrative expense includes costs for finance, accounting, legal, compliance, risk management and administration. Costs in this area include employee compensation and related expenses and fees for consulting and professional services. We have incurred and we expect that we will continue to incur expenses as a result of being a public company for, among other things, SEC reporting and compliance, including compliance with the Sarbanes-Oxley Act of 2002, director compensation, insurance, and other similar expenses.

Amortization of Internal Use Software. Amortization of internal use software expense includes engineering costs associated with (1) enhancing our advisory service platform and (2) developing internal systems for tracking member data, including AUM, member cancellations and other related member and customer experience statistics. Associated direct development costs are capitalized and amortized using the straight-line method over the estimated lives, typically two to three years, of the underlying technology. Costs in this area include employee compensation and related expenses, and fees for external consulting services.

 

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Critical Accounting Estimates

There have been no changes in the matters for which we make critical accounting estimates in the preparation of our condensed consolidated financial statements during the three months ended March 31, 2015, as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2014 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Results of Operations

The following tables set forth our results of operations. The period to period comparison of financial results is not necessarily indicative of future results.

Comparison of Three Months Ended March 31, 2014 and 2015

 

    Three Months Ended March 31,     Three Months Ended
March 31,
     Increase
(Decrease)
 
    2014     2015     2014      2015      Amount     %  
    (As a percentage of revenue)     (In thousands, except percentages)  

Revenue:

             

Professional management

    87     89   $ 57,069       $ 66,583       $ 9,514        17

Platform

    12        10        8,290         7,890         (400     (5 )

Other

    1        1        518         473         (45     (9 )
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total revenue

  100      100      65,877      74,946      9,069      14  

Costs and expenses:

Cost of revenue (exclusive of amortization of internal use software)

  39      41      25,978      30,891      4,913      19  

Research and development

  12      12      7,921      8,945      1,024      13  

Sales and marketing

  18      19      11,877      14,615      2,738      23  

General and administrative

  9      10      5,870      7,158      1,288      22  

Amortization of internal use software

  3      2      1,512      1,176      (336   (22 )
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total costs and expenses

  81      84      53,158      62,785      9,627      18  
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Income from operations

  19      16      12,719      12,161      (558   (4 )

Interest income, net

  —        —        36      62      26      72  

Other income, net

  —        —        3      —        (3   (100 )
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Income before income tax expense

  19      16      12,758      12,223      (535   (4 )

Income tax expense

  7      5      4,941      4,322      (619   (13 )
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Net income

  12   11 $ 7,817    $ 7,901    $ 84      1
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Revenue

Total revenue increased $9.1 million, or 14%, from $65.9 million for the three months ended March 31, 2014 to $74.9 million for the three months ended March 31, 2015. This increase was due primarily to growth in professional management revenue of $9.5 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, offset by a decrease of $0.4 million in platform revenue. Professional management revenue and platform revenue comprised 89% and 10%, respectively, of total revenue for the three months ended March 31, 2015.

Professional Management Revenue

Professional management revenue increased $9.5 million, or 17%, from $57.1 million for the three months ended March 31, 2014 to $66.6 million for the three months ended March 31, 2015. This increase was due primarily to an increase in the average AUM used to calculate fees from approximately $89.8 billion for the three months ended March 31, 2014 to approximately $107.2 billion for the three months ended March 31, 2015. This increase in average AUM was driven primarily by contributions, increased net enrollment resulting from marketing campaigns and other ongoing member acquisitions, and market performance.

 

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Platform Revenue

Platform revenue decreased $0.4 million, or 5%, from $8.3 million for the three months ended March 31, 2014 to $7.9 million for the three months ended March 31, 2015. This decrease was due primarily to a reduction in the amount of platform revenue we receive as a result of a small number of sponsors converting to a subadvisory plan provider, as well as platform fee reductions as a result of sponsors adding new asset-based professional management services. These decreases were partially offset by an increase in platform fees due to service availability at new sponsors.

Costs and Expense

Costs and expenses increased $9.6 million, or 18%, from $53.2 million for the three months ended March 31, 2014 to $62.8 million for the three months ended March 31, 2015. This increase was due to a $4.9 million increase in cost of revenue, exclusive of amortization of internal use software, a $1.0 million increase in research and development expense, a $2.7 million increase in sales and marketing expense, a $1.3 million increase in general and administrative expense and a $0.3 million decrease in amortization of internal use software for the three months ended March 31, 2015 compared to the three months ended March 31, 2014.

Across all functional areas, cash incentive compensation expense increased for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, as a result of anticipating higher cash incentive plan percentage achievement for the year ended December 31, 2015 compared to the year ended December 31, 2014, as well as headcount growth. Across all functional areas, non-cash stock-based compensation expense increased due primarily to equity awards granted within the last year. Our equity awards generally vest over four years under the graded-vesting attribution method, resulting in greater amounts of compensation expense recognized in earlier periods of the awards with declining amounts recognized in later periods.

Cost of Revenue

Cost of revenue, exclusive of amortization of internal use software, increased $4.9 million, or 19%, from $26.0 million for the three months ended March 31, 2014 to $30.9 million for the three months ended March 31, 2015. There was a $2.7 million increase in fees paid to plan providers for connectivity to plan and plan participant data for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, due primarily to an increase in professional management revenue. There was also an increase of $1.0 million in wages, benefits, employer payroll tax and allocated human resources expenses due primarily to headcount growth and annual compensation increases, as well as an increase in non-cash stock-based compensation expense of $0.5 million and an increase in cash incentive compensation of $0.3 million. Facilities–related overhead expenses, including rent and depreciation, also increased by $0.4 million as headcount increased between the comparable periods. In addition, other equipment related expenses increased $0.2 million and consulting expenses increased $0.1 million. These increases were partially offset by a decrease in the quantity of subadvisory participant marketing materials and printed member materials of $0.3 million. As a percentage of revenue, cost of revenue increased from 39% for the three months ended March 31, 2014 to 41% for the three months ended March 31, 2015. The increase as a percentage of revenue was due primarily to wages, benefits, employer payroll tax and allocated human resources expenses, stock-based compensation expenses and data connectivity fees increasing at a faster rate than revenue. We expect our cost of revenue as a percent of revenue, exclusive of amortization of internal use software, to remain in the range of 40% to 42% throughout the year ended December 31, 2015.

Research and Development

Research and development expense increased $1.0 million, or 13%, from $7.9 million for the three months ended March 31, 2014 to $8.9 million for the three months ended March 31, 2015. There was a $0.3 million increase in cash incentive compensation and a $0.3 million increase in non-cash stock-based compensation expense for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. In addition, consulting expenses increased $0.2 million and facilities–related overhead expenses, including rent and depreciation, increased by $0.1 million. There was also a $0.1 million increase in wages, benefits, employer payroll tax and allocated human resources expenses, due primarily to annual compensation increases, as well as an increase in headcount and an increase in other expenses of $0.2 million. These increases were offset by a $0.2 million increase in the amount of internal use software capitalized due primarily to more developer hours dedicated to internal use software projects. As a percentage of revenue, research and development expense remained constant at 12% for the three months ended March 31, 2014 and 2015.

 

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Sales and Marketing

Sales and marketing expense increased $2.7 million, or 23%, from $11.9 million for the three months ended March 31, 2014 to $14.6 million for the three months ended March 31, 2015. There was a $1.1 million increase in wages, benefits, employer payroll tax and allocated human resources expenses due primarily to headcount growth and annual compensation increases, as well as a $0.6 million increase in non-cash stock-based compensation expense and a $0.3 million increase in cash incentive compensation expense for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. In addition, there was a $0.3 million increase in facilities-related overhead expenses, including rent and depreciation. There was also a $0.2 million increase in consulting expense, a $0.1 million increase in general marketing programs and a $0.1 million increase in other expenses. As a percentage of revenue, sales and marketing expense increased from 18% for the three months ended March 31, 2014 to 19% for the three months ended March 31, 2015. The increase as a percentage of revenue was due primarily to wages, benefits, employer payroll tax and allocated human resources expenses and stock-based compensation expenses increasing at a faster rate than revenue.

In early 2015, we modified certain of our marketing campaigns, such that these campaigns do not qualify for capitalization per the accounting definition of direct response advertising and therefore are expensed as incurred, which we expect to result in an increase in advertising expense for the year ended December 31, 2015.

General and Administrative

General and administrative expense increased $1.3 million, or 22%, from $5.9 million for the three months ended March 31, 2014 to $7.2 million for the three months ended March 31, 2015. There was a $0.7 million increase in professional services expense for the three months ended March 31, 2015 compared to the three months ended March 31, 2014, due primarily to an increase in fees and expenses related to a variety of legal matters. There was also an increase in non-cash stock-based compensation expense of $0.5 million and $0.1 million increase in other expenses. As a percentage of revenue, general and administrative expense increased from 9% for the three months ended March 31, 2014 to 10% for the three months ended March 31, 2015. The increase as a percentage of revenue was due primarily to professional services expenses increasing at a faster rate than revenue.

Amortization of Internal Use Software

Amortization of internal use software decreased $0.3 million, or 22%, from $1.5 million for the three months ended March 31, 2014 to $1.2 million for the three months ended March 31, 2015, as there were more developer hours dedicated to updating and maintaining existing core services in recent periods, which are not capitalized as internal use software.

Income Taxes

Income tax expense decreased from $4.9 million for the three months ended March 31, 2014 to $4.3 million for the three months ended March 31, 2015. Our effective tax rate was 39% for the three months ended March 31, 2014 compared to 35% for the three months ended March 31, 2015 and decreased due primarily to changes in state income taxes. We would expect to see an effective tax rate of approximately 40%, excluding the effect of research and development credits, any changes in valuation allowances, and discrete items such as disqualifying stock dispositions in future periods.

As of March 31, 2015, we continue to believe that sufficient positive evidence exists from historical operations and future projections to conclude that we are more likely than not to fully realize our federal deferred tax assets and our State of California deferred tax assets in future periods. We continuously evaluate additional facts representing positive and negative evidence in the determination of the realizability of the deferred tax assets.

 

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Non-GAAP Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share

Adjusted EBITDA represents 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 sales commissions and amortization of non-cash stock-based compensation expense. Adjusted Net Income represents 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. Adjusted Earnings Per Share is defined as Adjusted Net Income divided by the weighted average of dilutive common share equivalents outstanding.

Our management uses Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share as measures of operating performance, for planning purposes (including the preparation of annual budgets), to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies and in communications with our Board of Directors concerning our financial performance. Adjusted EBITDA, among other factors, was used for the year ended December 31, 2014 and will be used for the year ended December 31, 2015 when determining cash incentive compensation for employees, including management.

We also present Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share as supplemental performance measures because we believe that these measures provide our Board of Directors, management and investors with additional information to measure our performance. Adjusted EBITDA provides comparisons from period to period by excluding potential differences caused by variations in income taxes, the age and book depreciation of fixed assets (affecting relative depreciation expense) and amortization of internal use software, direct response advertising and commissions, and changes in interest expense and interest income that are influenced by capital structure decisions and capital market conditions. Management also believes it is useful to exclude non-cash stock-based compensation expense from Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share because non-cash equity awards made at a certain price and point in time, as well as certain other items such as the income tax benefit from the release of valuation allowances, do not necessarily reflect how our business is performing at any particular time.

Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income, operating income, earnings per share or any other performance measures derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our profitability or liquidity.

We understand that, although Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share are frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share have limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as reported under GAAP. In particular you should consider:

 

    Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

 

    Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share do not reflect changes in, or cash requirements for, our working capital needs;

 

    Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share do not reflect the non-cash component of employee compensation;

 

    Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized generally will have to be replaced in the future by payment of cash, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and

 

    Other companies in our industry may calculate Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share differently than we do, limiting their usefulness as a comparative measure.

Given the limitations associated with using Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share, these financial measures should be considered in conjunction with our financial statements presented in accordance with GAAP and the reconciliation of Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share to the most directly comparable GAAP measure, net income. Further, management also reviews GAAP measures and evaluates individual measures that are not included in Adjusted EBITDA, such as our level of capital expenditures, equity issuance and interest expense, among other measures.

 

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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    2014      2015  
     (In thousands, unaudited)  

Net income

   $ 7,817       $ 7,901   

Interest income, net

     (36      (62

Income tax expense

     4,941         4,322   

Depreciation and amortization

     1,116         1,457   

Amortization of internal use software

     1,425         1,099   

Amortization and impairment of direct response advertising

     1,542         1,360   

Amortization of deferred sales commissions

     423         368   

Stock-based compensation

     4,780         6,524   
  

 

 

    

 

 

 

Non-GAAP Adjusted EBITDA

$ 22,008    $ 22,969   
  

 

 

    

 

 

 

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    2014      2015  
     (In thousands, except per share
data, unaudited)
 

Net income

   $ 7,817       $ 7,901   

Stock-based compensation, net of tax (1)

     2,954         4,032   
  

 

 

    

 

 

 

Non-GAAP Adjusted Net Income

$ 10,771    $ 11,933   
  

 

 

    

 

 

 

Non-GAAP Adjusted Earnings Per Share

$ 0.20    $ 0.22   

Shares of common stock outstanding

  51,100      51,923   

Dilutive stock options, RSUs and PSUs

  2,162      1,365   
  

 

 

    

 

 

 

Non-GAAP adjusted common shares outstanding

  53,262      53,288   
  

 

 

    

 

 

 

 

(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.

For the non-GAAP metrics above, the variances in the comparable periods are consistent with the GAAP variances discussed in the Comparisons of Three Months Ended March 31, 2014 and 2015 as presented above in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

 

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Liquidity and Capital Resources

Sources of Liquidity

Over the next twelve months, and in the longer term, we expect that our cash and liquidity needs will be met by existing resources, consisting of cash, cash equivalents and short-term investments and cash generated from ongoing operations.

Historically, our operations have been financed through the sale of equity securities, including net cash proceeds in connection with our initial public offering of common stock completed on March 16, 2010 of approximately $79.0 million, after deducting underwriting discounts and offering costs, and more recently from cash flows from operations. As of March 31, 2015, we had total cash, cash equivalents and short term investments of $311.0 million, compared to $306.4 million as of December 31, 2014.

Consolidated Cash Flow Data

 

    

Three Months Ended

March 31,

 
     2014      2015  
     (In thousands)  

Net cash provided by operating activities

   $ 10,259       $ 14,830   

Net cash used in investing activities

     (12,582      (16,651

Net cash provided by (used in) financing activities

     5,016         (8,563
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

$ 2,693    $ (10,384

Cash and cash equivalents, end of period

$ 128,696    $ 116,180   

Operating Activities

Operating activities for the three months ended March 31, 2015 resulted in cash provided of $14.8 million, as net income of $7.9 million and adjustments for non-cash expenses of $6.4 million, primarily related to amortization of non-cash stock-based compensation, depreciation, amortization and impairment of direct response advertising, amortization of internal use software, as well as the excess tax benefit associated with stock-based compensation. In addition, there was an increase in cash related to changes in operating assets and liabilities of $0.5 million. The increase in cash related to operating assets and liabilities was due primarily to an increase in accounts payable due primarily to an increase in excess tax benefits associated with stock-based compensation, partially offset by an increase in accounts receivable as revenue increased and a decrease in accrued compensation as a result of the 2014 cash incentive program payments.

Operating activities for the three months ended March 31, 2014 resulted in cash provided of $10.3 million, as net income of $7.8 million and adjustments for non-cash expenses of $7.8 million, primarily related to amortization of non-cash stock-based compensation, deferred tax assets, amortization and impairment of direct response advertising, and amortization of internal use software, as well as the excess tax benefit associated with stock-based compensation, offset by a decrease in cash related to changes in operating assets and liabilities of $5.4 million. The decrease in cash related to operating assets and liabilities was due primarily to a decrease in accrued compensation related to 2013 cash incentive program payments and a decrease in deferred revenue, offset by an increase in accounts payable.

Investing Activities

Net cash used in investing activities was $16.7 million for the three months ended March 31, 2015 compared to $12.6 million for the three months ended March 31, 2014. For the three months ended March 31, 2015, cash used for the purchase of short-term investments was $44.9 million, offset by maturities of $30.0 million. The purchase of property and equipment decreased $1.1 million, as we spent $0.6 million related to capital expenditures during the three months ended March 31, 2015 compared to $1.7 million for the three months ended March 31, 2014 due primarily to capital equipment and leasehold improvements associated with the build-out of our Phoenix, AZ facility during the three months ended March 31, 2014. For the three months ended March 31, 2015, the amount of internal use software costs we capitalized increased to $1.1 million compared to 0.9 million for the three months ended March 31, 2014.

 

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Financing Activities

Net cash used in financing activities was $8.6 million for the three months ended March 31, 2015 compared to net cash provided by financing activities of $5.0 million for the three months ended March 31, 2014. For the three months ended March 31, 2015, we used $11.3 million for the repurchase of our common stock. For the three months ended March 31, 2015, we received $2.0 million of proceeds from the issuance of common stock due to the exercise of stock options compared to $4.3 million during the three months ended March 31, 2014. Excess tax benefit associated with stock-based compensation increased to $4.2 million for the three months ended March 31, 2015 compared to $3.3 million for the three months ended March 31, 2014 due to an increase in the amount of stock-based compensation offsetting cash income taxes.

On November 5, 2014, our Board of Directors approved a stock repurchase program of up to $50.0 million of our common stock over the subsequent twelve months. We have used $20.5 million of cash to repurchase our common stock to date and have $29.5 million remaining available for repurchase under the existing repurchase authorization limit. The stock repurchase program may be modified, extended or terminated by our Board at any time and there is no guarantee as to the exact number of shares, if any, that will be repurchased under the program. The stock repurchase program is expected to be funded by available working capital.

For the three months ended March 31, 2015, we incurred cash dividend payments totaling $3.1 million, and incurred a subsequent payment of $3.6 million in April 2015 relating to dividends payable as of March 31, 2015 Based on the shares outstanding as of March 31, 2015 of 51,838,651 and assuming a $0.07 per share quarterly dividend for 2015, we would estimate dividend payments to total approximately $10.9 million for the period April 1, 2015 through December 31, 2015. Any future determination with respect to the declaration and payment of dividends will be at the discretion of our Board of Directors. For the three months ended March 31, 2014, we incurred cash dividend payments totaling $2.5 million.

We expect to incur cash payments in an amount necessary to satisfy the minimum tax withholding obligations for restricted stock units previously granted to employees that vest in November 2014, which will be determined based on the fair value of our common stock and applicable tax rates on the vesting date. Based on the fair value of our common stock as of March 31, 2015 of $41.83 and assuming a 40% tax rate, the estimated minimum tax withholding obligations would be approximately $4.2 million for the remainder of 2015. We anticipate these cash payments to occur throughout each year with the largest portion typically occurring in November and with the payment amounts determined by the number of shares released, the fair value of our common stock and applicable tax rates at that point in time.

Off-Balance Sheet Arrangements

As of March 31, 2015, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues, or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

Our exposure to market risk is directly related to our role as an investment manager for investor accounts for which we provide portfolio management services. For the three months ended March 31, 2015, 89% of our revenue was derived from fees based on the market value of AUM compared to 87% for the year ended December 31, 2014. In general, we expect the percentage of revenue that is derived from fees based on the market value of AUM to increase over time.

A substantial portion of the assets we manage is invested in equity securities, the market prices of which can vary substantially based on changes in economic conditions. An additional portion is invested in fixed income securities, which will generally have lower volatility than the equity market. Therefore, while any changes in equity market performance would significantly affect the value of our AUM, particularly for the AUM invested in equity securities, such changes would typically result in lower volatility for our AUM than the volatility of the equity market as a whole. Because a substantial portion of our revenue is derived from the value of our AUM, any changes in fixed income or equity market performance would significantly affect the amount of revenue in a given period. If any of these factors reduces our AUM, the amount of member fees we would earn for managing those assets would decline, which in turn could negatively impact our revenue.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (or the Exchange Act)) as of the end of the period covered by this report. Based on their evaluation, our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer) have concluded that our disclosure controls and procedures as of the end of the period covered by this report were designed and were functioning effectively at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II — OTHER INFORMATION

Item 1A. Risk Factors

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Part I—Item 1A (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. There have been no material changes from the risk factors disclosed in our 2014 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

For the three months ended March 31, 2015, we issued 102,961 shares of unregistered common stock for an aggregate purchase price of $0.6 million upon the exercise of previously granted options which was paid in cash. These transactions were effected under Rule 701 of the Securities Act of 1933, applicable to our 1998 Stock Option Plan. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. There were no underwriters employed in connection with these transactions.

Purchases of Equity Securities by the Issuer

On November 5, 2014, our Board of Directors approved a stock repurchase program of up to $50.0 million of our common stock in open market purchases or negotiated transactions over the subsequent twelve month period. The stock repurchase program may be modified, extended or terminated by the Board of Directors at any time and there is no guarantee as to the exact number of shares, if any, that will be repurchased under the program.

 

     Total Number
of Shares
Purchased
     Average
Repurchase Price
Per Share
     Total Number of
Shares
Purchased as
Part of  a
Publicly
Announced
Repurchase
Program
     Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the
Repurchase
Program
 
                          (In thousands)  

Period:

           

January 1, 2015 - January 31, 2015

     —         $ —           —         $ —     

February 1, 2015 - February 28, 2015

     100,000       $ 41.04         100,000       $ 36,714   

March 1, 2015 - March 31, 2015

     175,000       $ 41.21         175,000       $ 29,502   
  

 

 

    

 

 

    

 

 

    

Total

  275,000    $ 41.15      275,000   
  

 

 

    

 

 

    

 

 

    

 

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Item 6. Exhibits

 

Exhibit

Number

 

Description

    3.(i)   Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference).
    3.(ii)
  Bylaws of the Registrant (filed as Exhibit 3.(ii)2 to the Registrant’s Registration Statement on Form S-1, file no. 333-163581, and incorporated herein by reference).
    4.1   Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, file no. 333-163581, and incorporated herein by reference).
  31.1   Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  31.2   Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  32.1(1)   Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  32.2(1)   Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document

 

(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 (the Securities Act) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 6, 2015

 

FINANCIAL ENGINES, INC.

/s/ Lawrence M. Raffone

Lawrence M. Raffone
President and Chief Executive Officer
(Duly authorized officer and principal executive officer)

/s/ Raymond J. Sims

Raymond J. Sims
Executive Vice President, Chief Financial Officer and Chief Risk Officer
(Duly authorized officer and principal financial officer)

/s/ Jeffrey C. Grace

Jeffrey C. Grace
VP, Controller and Principal Accounting Officer
(Duly authorized officer and principal accounting officer)

 

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Exhibit Index

 

Exhibit

Number

 

Description

    3.(i)   Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, and incorporated herein by reference).
    3.(ii)   Bylaws of the Registrant (filed as Exhibit 3.(ii)2 to the Registrant’s Registration Statement on Form S-1, file no. 333-163581, and incorporated herein by reference).
    4.1   Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, file no. 333-163581, and incorporated herein by reference).
  31.1   Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  31.2   Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  32.1(1)   Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
  32.2(1)   Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.DEF   XBRL Definition Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document

 

(1) The material contained in Exhibit 32.1 and Exhibit 32.2 is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 (the Securities Act) or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing, except to the extent that the registrant specifically incorporates it by reference.

 

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