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Section 1: 8-K (FORM 8-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):

February 4, 2020

 

WADDELL & REED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   001-13913   51-0261715
(State or Other
Jurisdiction of
Incorporation)
  (Commission
File Number)
  (IRS Employer
Identification No.)

 

 

6300 Lamar Avenue

Overland Park, Kansas 66202

(Address of Principal Executive Offices) (Zip Code)

 

(913) 236-2000

(Registrant’s telephone number, including area code)

 

 

 

(Registrant’s Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨        Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨        Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨        Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨        Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A Common Stock, $.01 par value   WDR   New York Stock Exchange

 

 

 

 

 

ITEM 2.02RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On February 4, 2020, Waddell & Reed Financial, Inc. (the "Company") issued a press release announcing the Company's financial results for the fiscal quarter ended December 31, 2019 (the “Press Release”). A copy of the Press Release is furnished as Exhibit 99.1 and incorporated herein by reference.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

 

(d)       Exhibits.

 

Exhibit No.Description
  
99.1Press Release dated February 4, 2020
  
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

SIGNATURES

 

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

 

 WADDELL & REED FINANCIAL, INC.
  
Date: February 4, 2020By:   /s/ Benjamin R. Clouse
   Senior Vice President and
Chief Financial Officer

 

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

News Release

 

Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

 

Overland Park, KS, February 4, 2020 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter 2019 net income1 of $15.9 million, or $0.23 per diluted share, compared to net income of $33.1 million, or $0.46 per diluted share, during the prior quarter and net income of $46.5 million, or $0.60 per diluted share, during the fourth quarter of 2018. The fourth quarter of 2019 included non-cash asset impairment charges of $12.8 million in connection with certain assets held for sale, including real property related to our corporate headquarters move and the elimination of our internal aviation operations, an $11.2 million non-cash charge related to the annual revaluation of the pension plan liability and $2.3 million in severance expense related to the outsourcing of our transfer agency transactional processing operations. Excluding the non-cash charges and severance expense, adjusted net income2 for the fourth quarter of 2019 was $36.0 million and adjusted net income per diluted share2 was $0.51.

 

Revenues of $270.1 million decreased slightly compared to the prior quarter and decreased $2.2 million compared to the fourth quarter of 2018. Operating expenses as reported of $241.2 million increased $10.6 million compared to the prior quarter and increased $13.4 million compared to the same quarter of 2018. Adjusted operating expenses2 decreased $1.5 million, or less than 1%, compared to the third quarter of 2019 and increased $1.4 million, or less than 1%, compared to fourth quarter of 2018. The reported operating margin was 10.7% and the adjusted operating margin2 was 16.3% during the current quarter, compared to 15.9% during the prior quarter and 17.5% during the fourth quarter of 2018.

 

Assets under management ended the quarter at $70.0 billion, an increase of 2% compared to the prior quarter and an increase of 6% compared to the fourth quarter of 2018. Average assets under management were $69.1 billion during the current quarter, compared to $70.5 billion during the prior quarter and $71.6 billion during the fourth quarter of 2018. Net outflows of $3.4 billion during the current quarter were higher compared to net outflows of $2.7 billion in the third quarter of 2019 and were lower compared to net outflows of $3.8 billion in the fourth quarter of 2018. Sales of $1.5 billion during the current quarter declined 14% and 43% compared to the prior quarter and the fourth quarter of 2018, respectively. Industry-wide flows continued toward fixed income and money market strategies while equity flows remained challenged. Redemptions increased 10% compared to the prior quarter and improved 24% compared to the fourth quarter of 2018.

 

Wealth management assets under administration ended the quarter at $60.1 billion, an increase of 5% compared to the third quarter of 2019, and a 17% increase compared to prior year-end. For both comparative periods, assets under administration increased primarily due to strong market gains and growth in net new advisory assets, partially offset by brokerage redemptions.


Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “While both the quarter and year remained challenging from a flow perspective within our asset management business, we continued to make steady progress in the transformation of our wealth management business.” Mr. Sanders continued, “On balance, the repositioning of our overall business model, combined with operational improvements across the enterprise and our strong balance sheet, has us well positioned to focus on renewed growth opportunities as we look ahead to 2020 and beyond.”

 

 

1 Net income represents net income attributable to Waddell & Reed Financial, Inc.

2 See Non-GAAP Financial Measures section and Reconciliation of GAAP to Non-GAAP Financial Measures table

 

 

  

Revenues Analysis

 

Investment management fees decreased $1.1 million, or 1%, compared to the third quarter of 2019 due to a 2% decrease in average assets under management, partially offset by a higher effective management fee rate. The effective management fee rate was 63.6 basis points and increased compared to the prior quarter’s rate due to higher fund fee waivers in the prior quarter. Compared to the fourth quarter of 2018, investment management fees declined $3.8 million, or 3%, primarily due to lower average assets under management.

 

Underwriting and distribution fees increased slightly compared to the prior quarter and increased $2.5 million, or 2%, compared to the same quarter in 2018. For both comparative periods, the increases were primarily driven by increased fee-based asset allocation product revenues, partially offset by lower commissionable sales and lower service and distribution fees.

 

Shareholder service fees decreased slightly compared to the third quarter of 2019 due to lower average assets. Compared to the fourth quarter of 2018, shareholder service fees declined $0.9 million, or 4%, primarily due to fewer accounts and a decrease in average assets.

 

Operating Expenses Analysis

 

Distribution expenses decreased slightly compared to the prior quarter and increased $5.8 million, or 5% compared to the fourth quarter of 2018 as a result of the increase in underwriting and distribution revenue. Compared to the fourth quarter of 2018, the expense increase is larger than the revenue increase primarily due to an increase in the compensation grid for associated independent financial advisors implemented at the beginning of 2019.

 

Compensation and benefits expense totaled $62.8 million and included $2.3 million of severance expense compared to $3.1 million of severance expense in the prior quarter. In addition to lower severance costs, the decrease of $2.2 million, or 3%, compared to the prior quarter is primarily due to lower headcount and lower share-based compensation due to mark-to-market adjustments of cash-settled restricted stock unit awards. Compared to the fourth quarter of 2018, compensation and benefits expense decreased $1.3 million, or 2%, due to lower incentive compensation costs, lower severance costs and lower headcount. The decreases were partially offset by an increase in share-based compensation costs due to higher forfeitures in the prior year.

 

General and administrative expenses increased $13.4 million compared to the third quarter of 2019, due to a $12.8 million non-cash asset impairment charge and increased project spend during the quarter. Compared to the same quarter in 2018, general and administrative expenses increased $12.7 million due to the non-cash impairment charge.

 

Technology costs increased $0.9 million, or 6% compared to the prior quarter, primarily due to increased technology consulting expense. Compared to the fourth quarter of 2018, technology costs decreased slightly, as lower shareholder servicing expense resulting from fewer accounts was partially offset by increased software costs for new technologies.

 

Occupancy expenses decreased $0.5 million, or 10%, compared to the prior quarter and decreased $1.0 million, or 16%, compared to the fourth quarter of 2018. For both comparative periods, occupancy costs decreased as a result of the planned closure of field offices.

 

Marketing and advertising expenses increased $0.3 million, or 16%, compared to the prior quarter due to the timing of sponsorship fees.  Compared to the fourth quarter of 2018, these expenses declined $0.2 million, or 8%, due to reduced fund-related marketing expenses from prior year fund mergers.

 

Depreciation expense declined $1.1 million, or 22%, compared to the prior quarter and declined $2.6 million, or 41%, compared to the fourth quarter of 2018, primarily due to fully depreciated capitalized development assets.

 

 

 

 

Investment and Other Income

 

Investment and other income declined $10.0 million and $22.2 million compared to the prior quarter and the fourth quarter of 2018, respectively. For both comparative periods, the decline is primarily due to a non-cash charge related to the annual revaluation of the pension plan liability, partially offset by unrealized gains on the seed and corporate investment portfolios.

 

The effective tax rate was 28.3% for the quarter compared to 23.3% in the prior quarter and 23.5% last year. The higher effective rate was due to $1.1 million of discrete items related to an increase in state taxes and stock compensation vestings in the current quarter.

 

 

 

 

Assets Under Management

(in millions)

 

   Three Months Ended                 
   Dec. 31,   Sep. 30,   Dec. 31,   Prior Qtr.   Year-over-Year Qtr. 
   2019   2019   2018   Change   %   Change   % 
Unaffiliated 1                                   
Beginning assets  $25,857   $27,545   $31,172   $(1,688)   (6)%  $(5,315)   (17)%
Sales 2   854    999    1,673    (145)   (15)%   (819)   (49)%
Redemptions   (2,502)   (2,684)   (3,637)   182    7%   1,135    31%
Net exchanges   278    334    (131)   (56)   (17)%   409    312%
Net Flows   (1,370)   (1,351)   (2,095)   (19)   (1)%   725    35%
Market action   1,777    (337)   (4,100)   2,114    627%   5,877    143%
Ending assets  $26,264   $25,857   $24,977   $407    2%  $1,287    5%
Annualized organic growth rate   (21.2)%   (19.6)%   (26.9)%                    
Annualized redemption rate 3   39.3%   40.9%   53.8%                    
Institutional                                   
Beginning assets  $3,677   $3,887   $5,187   $(210)   (5)%  $(1,510)   (29)%
Sales 2   32    49    85    (17)   (35)%   (53)   (62)%
Redemptions   (874)   (230)   (1,316)   (644)   (280)%   442    34%
Net exchanges           511        NM    (511)   100%
Net Flows   (842)   (181)   (720)   (661)   (365)%   (122)   (17)%
Market action   261    (29)   (812)   290    1,000%   1,073    132%
Ending assets  $3,096   $3,677   $3,655   $(581)   (16)%  $(559)   (15)%
Annualized organic growth rate   (91.6)%   (18.6)%   (55.5)%                    
Annualized redemption rate 3   104.1%   23.9%   117.3%                    
Wealth Management                                   
Beginning assets  $39,248   $40,444   $43,183   $(1,196)   (3)%  $(3,935)   (9)%
Sales 2   662    744    958    (82)   (11)%   (296)   (31)%
Redemptions   (1,535)   (1,542)   (1,547)   7    0%   12    1%
Net exchanges   (278)   (334)   (380)   56    17%   102    27%
Net Flows   (1,151)   (1,132)   (969)   (19)   (2)%   (182)   (19)%
Market action   2,501    (64)   (5,037)   2,565    4,008%   7,538    150%
Ending assets  $40,598   $39,248   $37,177   $1,350    3%  $3,421    9%
Annualized organic growth rate   (11.7)%   (11.2)%   (9.0)%                    
Annualized redemption rate 3   13.6%   13.4%   13.1%                    
Consolidated Total                                   
Beginning assets  $68,782   $71,876   $79,542   $(3,094)   (4)%  $(10,760)   (14)%
Sales 2   1,548    1,792    2,716    (244)   (14)%   (1,168)   (43)%
Redemptions   (4,911)   (4,456)   (6,500)   (455)   (10)%   1,589    24%
Net exchanges                            
Net Flows   (3,363)   (2,664)   (3,784)   (699)   (26)%   421    11%
Market action   4,539    (430)   (9,949)   4,969    1,156%   14,488    146%
Ending assets  $69,958   $68,782   $65,809   $1,176    2%  $4,149    6%
Annualized organic growth rate   (19.6)%   (14.8)%   (19.0)%                    
Annualized redemption rate 3   27.7%   24.3%   35.4%                    

 

 

(1)Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only “DCIO”, Registered Investment Advisor “RIA” and Variable Annuity “VA”.
(2)Sales is primarily gross sales (net of sales commissions). This amount also includes net reinvested dividends and capital gains, and investment income.
(3)Excludes Money Market.

 

 

 

  

MorningStar Fund Rankings  1  1 Year   3 Years   5 Years 
Funds ranked in top half   43%   42%   33%
Assets ranked in top half   52%   62%   41%

 

MorningStar Ratings  1  Overall   3 Years   5 Years 
Funds with 4/5 stars   34%   31%   23%
Assets with 4/5 stars   51%   42%   34%

 

 

(1)Based on class I share, which reflects the largest concentration of sales and assets.

  

   Three Months Ended                 
Wealth Management  Dec. 31,   Sep. 30,   Dec. 31,   Prior Qtr.   Year-over-Year Qtr. 
(in millions)   2019    2019    2018    Change    %    Change    % 
Assets under administration (AUA)                                   
Advisory assets  $26,947   $25,107   $21,207   $1,840    7%  $5,740    27%
Non-advisory assets   33,148    32,006    30,059    1,142    4%   3,089    10%
Total assets under administration   60,095    57,113    51,266    2,982    5%   8,829    17%
                                    
Net new advisory assets 1  $261   $236   $(45)  $25    11%  $306    680%
Net new non-advisory assets 1, 2   (859)   (769)   (840)   (90)   (12)%   (19)   (2)%
Total net new AUA 1, 2   (598)   (533)   (885)   (65)   (12)%   287    32%
                                    
Annualized advisory AUA growth 3   4.2%   3.8%   (0.8)%                    
Annualized AUA growth 3   (4.2)%   (3.7)%   (6.1)%                    
                                    
Advisors and advisor associates   1,327    1,344    1,403    (17)   (1)%   (76)   (5)%
Avg. trailing 12-month revenue per advisor 4 (in thousands)  $438   $422   $343   $16    4%  $95    28%

  

 

(1)Net new assets are calculated as total client deposits and net transfers less client withdrawals.
(2)Excludes activity related to products held outside of our wealth management platform.  These assets represent less than 10% of total AUA.
(3)Annualized growth is calculated as annualized quarterly net new assets divided by beginning AUA.
(4)Production per Advisor is calculated as trailing 12- month Total underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of Advisors. “Other” underwriting and distribution fees predominantly includes fees paid by Advisors for programs and services.

 

 

 

  

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

   Three Months Ended                 
   Dec. 31,   Sep. 30,   Dec. 31,   Prior Qtr.   Year-over-Year Qtr. 
   2019   2019   2018   Change   %   Change   % 
Revenues:                                   
Investment management fees  $110,706   $111,806   $114,521   $(1,100)   (1)%  $(3,815)   (3)%
Underwriting and distribution fees   136,309    135,787    133,788    522    0%   2,521    2%
Shareholder service fees   23,056    23,087    23,921    (31)   (0)%   (865)   (4)%
Total   270,071    270,680    272,230    (609)   (0)%   (2,159)   (1)%
Operating expenses:                                   
Distribution1   117,225    117,425    111,456    (200)   (0)%   5,769    5%
Compensation and benefits (including share-based compensation of $11,142, $11,580 and $9,039, respectively)   62,816    64,999    64,155    (2,183)   (3)%   (1,339)   (2)%
General and administrative   30,061    16,680    17,403    13,381    80%   12,658    73%
Technology   15,950    15,019    15,982    931    6%   (32)   (0)%
Occupancy   5,143    5,684    6,116    (541)   (10)%   (973)   (16)%
Marketing and advertising   2,467    2,134    2,685    333    16%   (218)   (8)%
Depreciation   3,767    4,833    6,387    (1,066)   (22)%   (2,620)   (41)%
Subadvisory fees   3,777    3,882    3,647    (105)   (3)%   130    4%
Total   241,206    230,656    227,831    10,550    5%   13,375    6%
Operating income   28,865    40,024    44,399    (11,159)   (28)%   (15,534)   (35)%
Investment and other income   (4,804)   5,212    17,351    (10,016)   (192)%   (22,155)   (128)%
Interest expense   (1,533)   (1,562)   (1,553)   29    2%   20    1%
Income before provision for income taxes   22,528    43,674    60,197    (21,146)   (48)%   (37,669)   (63)%
Provision for income taxes   6,382    10,175    14,125    (3,793)   (37)%   (7,743)   (55)%
Net income   16,146    33,499    46,072    (17,353)   (52)%   (29,926)   (65)%
Net income (loss) attributable to redeemable noncontrolling interests   210    445    (396)   (235)   (53)%   606    153%
Net income attributable to Waddell & Reed Financial, Inc.  $15,936   $33,054   $46,468   $(17,118)   (52)%  $(30,532)   (66)%
Net income per share, basic and diluted:  $0.23   $0.46   $0.60                     
Weighted average shares outstanding - basic and diluted   69,896    72,387    77,786                     
Operating margin   10.7%   14.8%   16.3%                    
                                    
1 Distribution expense                                   
Unaffiliated   23,392    24,068    25,406                     
Wealth Management   93,833    93,357    86,050                     
   $117,225   $117,425   $111,456                     

 

 

 

 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

   Year Ended         
   Dec. 31,   Dec. 31,     
   2019   2018   Change   % 
Revenues:                    
Investment management fees  $445,144   $507,906   $(62,762)   (12)%
Underwriting and distribution fees   531,836    550,010    (18,174)   (3)%
Shareholder service fees   93,335    102,385    (9,050)   (9)%
Total   1,070,315    1,160,301    (89,986)   (8)%
Operating expenses:                    
Distribution1   460,921    456,832    4,089    1%
Compensation and benefits (including share-based compensation of $46,613 and $51,565, respectively)   254,534    263,329    (8,795)   (3)%
General and administrative   77,482    73,643    3,839    5%
Technology   63,719    65,275    (1,556)   (2)%
Occupancy   24,243    27,197    (2,954)   (11)%
Marketing and advertising   8,964    10,323    (1,359)   (13)%
Depreciation   19,829    25,649    (5,820)   (23)%
Subadvisory fees   14,931    14,805    126    1%
Intangible asset impairment       1,200    (1,200)   (100)%
Total   924,623    938,253    (13,630)   (1)%
Operating income   145,692    222,048    (76,356)   (34)%
Investment and other income   18,886    22,705    (3,819)   (17)%
Interest expense   (6,195)   (6,461)   266    4%
Income before provision for income taxes   158,383    238,292    (79,909)   (34)%
Provision for income taxes   41,418    55,480    (14,062)   (25)%
Net income   116,965    182,812    (65,847)   (36)%
Net income (loss) attributable to redeemable noncontrolling interests   1,973    (776)   2,749    354%
Net income attributable to Waddell & Reed Financial, Inc.  $114,992   $183,588   $(68,596)   (37)%
Net income per share, basic and diluted:  $1.57   $2.28           
Weighted average shares outstanding - basic and diluted   73,299    80,468           
Operating margin   13.6%   19.1%          
                     
1 Distribution expense                    
Unaffiliated   96,718    112,562           
Wealth Management   364,203    344,270           
   $460,921   $456,832           

 

 

 

 

Underwriting and distribution fees

(in thousands)

 

   For the three months ended Dec. 31, 2019 
   Unaffiliated   Wealth
Management
   Total 
Fee-based asset allocation product revenues  $   $75,382   $75,382 
Rule 12b-1 service and distribution fees   15,860    15,609    31,469 
Sales commissions on front-end load mutual funds and variable annuity products   431    11,639    12,070 
Sales commissions on other products       8,187    8,187 
Other revenues   48    9,153    9,201 
Total underwriting and distribution fees  $16,339   $119,970   $136,309 

 

   For the three months ended Sep. 30, 2019 
   Unaffiliated   Wealth
Management
   Total 
Fee-based asset allocation product revenues  $   $73,356   $73,356 
Rule 12b-1 service and distribution fees   16,286    16,144    32,430 
Sales commissions on front-end load mutual funds and variable annuity products   364    12,519    12,883 
Sales commissions on other products       8,024    8,024 
Other revenues   67    9,027    9,094 
Total underwriting and distribution fees  $16,717   $119,070   $135,787 

 

   For the three months ended Dec. 31, 2018 
   Unaffiliated   Wealth
Management
   Total 
Fee-based asset allocation product revenues  $   $67,504   $67,504 
Rule 12b-1 service and distribution fees   17,307    16,347    33,654 
Sales commissions on front-end load mutual funds and variable annuity products   468    12,994    13,462 
Sales commissions on other products       9,533    9,533 
Other revenues   109    9,526    9,635 
Total underwriting and distribution fees  $17,884   $115,904   $133,788 

 

   For the year ended Dec. 31, 2019 
   Unaffiliated   Wealth
Management
   Total 
Fee-based asset allocation product revenues  $   $284,188   $284,188 
Rule 12b-1 service and distribution fees   65,227    63,197    128,424 
Sales commissions on front-end load mutual funds and variable annuity products   1,730    48,471    50,201 
Sales commissions on other products       32,314    32,314 
Other revenues   290    36,419    36,709 
Total underwriting and distribution fees  $67,247   $464,589   $531,836 

 

   For the year ended Dec. 31, 2018 
   Unaffiliated   Wealth
Management
   Total 
Fee-based asset allocation product revenues  $   $269,069   $269,069 
Rule 12b-1 service and distribution fees   78,041    70,938    148,979 
Sales commissions on front-end load mutual funds and variable annuity products   1,886    54,895    56,781 
Sales commissions on other products       36,131    36,131 
Other revenues   568    38,482    39,050 
Total underwriting and distribution fees  $80,495   $469,515   $550,010 

 

 

 

 

Unaudited Condensed Balance Sheet

(in thousands)

 

   Dec. 31,
   Dec. 31,
 
   2019   2018 
Assets          
Cash & cash equivalents (unrestricted)  $151,815   $231,997 
Investment securities   688,346    617,135 
Other assets   245,572    285,649 
Property and equipment, net   34,726    63,429 
Goodwill and intangible assets   145,869    145,869 
Total assets  $1,266,328   $1,344,079 
Liabilities, redeemable noncontrolling interests and equity          
Long-term debt   94,926    94,854 
Other liabilities   343,300    354,312 
Redeemable noncontrolling interests   19,205    11,463 
Total stockholders’ equity   808,897    883,450 
Liabilities, redeemable noncontrolling interests and equity  $1,266,328   $1,344,079 
Shares outstanding   68,847    76,790 

 

Unaudited Condensed Cash Flow

(in thousands)

 

   Three Months Ended   Year Ended 
   Dec. 31,   Sep. 30,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2019   2018   2019   2018 
Cash provided by (used in):                         
Operating activities  $89,382   $61,084   $93,278   $165,983   $357,011 
Investing activities   11,309    (14,173)   (32,224)   (6,851)   10,347 
Financing activities   (52,838)   (58,591)   (69,152)   (224,547)   (311,788)
Net change during period  $47,853   $(11,680)  $(8,098)  $(65,415)  $55,570 

 

   Three Months Ended   Year Ended 
   Dec. 31,   Sep. 30,   Dec. 31,   Dec. 31,   Dec. 31, 
(in thousands, except number of shares)  2019   2019   2018   2019   2018 
Shares repurchased                         
Number of shares   2,315,326    2,480,019    2,443,723    9,164,564    6,963,269 
Total cost  $37,542   $40,715   $46,873   $154,219   $135,891 
Dividend paid                         
Rate per share  $0.25   $0.25   $0.25   $1.00   $1.00 
Total paid  $17,731   $18,372   $19,684   $74,291   $81,215 
Capital returned to stockholders  $55,273   $59,087   $66,557   $228,510   $217,106 

 

Non-GAAP Financial Measures

 

“Adjusted net income attributable to Waddell & Reed Financial, Inc.,” “adjusted net income per share, basic and diluted,” “adjusted operating expenses,” and “adjusted operating margin” are non-GAAP financial measures that are not presented in accordance with U.S. generally accepted accounting principles (GAAP). We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding charges and gains that are not indicative of our core operating results, and allow management and investors to better evaluate our performance between periods and compared to other companies in our industry.

 

These non-GAAP financial measures should not be considered a substitute for financial measures presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance.

 

 

 

 

 

A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is included in the table below.

 

Reconciliation of GAAP to non-GAAP Financial Measures

(in thousands)

 

   Three Months Ended   Year Ended 
   Dec. 31,   Sep. 30,   Dec. 31,   Dec. 31,   Dec. 31, 
   2019   2019   2018   2019   2018 
                     
Net income attributable to Waddell & Reed Financial, Inc. (GAAP)  $15,936   $33,054   $46,468   $114,992   $183,588 
Adjustments                         
Severance   2,320    3,081    3,200    5,401    9,066 
Non-cash asset impairments   12,841            12,841     
Intangible impairment                   1,200 
Pension revaluation   11,217        (16,129)   11,217    (16,129)
Tax effect of adjustments   (6,331)   (739)   3,103    (7,070)   1,407 
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP)  $35,983   $35,396   $36,642   $137,381   $179,132 
                          
Weighted average share outstanding-basic and diluted   69,896    72,387    77,786    73,299    80,468 
Adjusted net income per share, basic and diluted (non-GAAP)  $0.51   $0.49   $0.47   $1.87   $2.23 
                          
Operating expenses (GAAP)  $241,206   $230,656   $227,831   $924,623   $938,253 
Adjustments                         
Severance   2,320    3,081    3,200    5,401    9,066 
Non-cash asset impairments   12,841            12,841     
Intangible impairment                   1,200 
Adjusted operating expenses (non-GAAP)  $226,045   $227,575   $224,631   $906,381   $927,987 
                          
Operating income (GAAP)  $28,865   $40,024   $44,399   $145,692   $222,048 
Adjustments                         
Severance   2,320    3,081    3,200    5,401    9,066 
Non-cash asset impairments   12,841            12,841     
Intangible impairment                   1,200 
Adjusted operating income (non-GAAP)  $44,026   $43,105   $47,599   $163,934   $232,314 
                          
Operating revenue  $270,071   $270,680   $272,230   $1,070,315   $1,160,301 
Adjusted operating margin (non-GAAP)   16.3%   15.9%   17.5%   15.3%   20.0%

 

Earnings Conference Call

 

Stockholders, members of the investment community and the general public are invited to listen to a live Web cast of our earnings release conference call today at 10:00 a.m. Eastern. During this call, Philip J. Sanders, CEO, will review our quarterly results. Live access to the teleconference will be available on the “Investor Relations” section of our Web site at ir.waddell.com. A Web cast replay will be made available shortly after the conclusion of the call and accessible for seven days.

 

 

 

 

Web Site Resources

 

We invite you to visit the Investor Relations section of our Web site at ir.waddell.com. Under the “Investor Information” tab you will find a link to presentations as well as to data tables, which include supplemental information schedules.

 

Contacts

 

Investor Contact:

Mike Daley, Vice President, Chief Accounting Officer & Investor Relations, (913) 236-1795, [email protected]

 

Mutual Fund Investor Contact:

Call (888) WADDELL, or visit www.waddell.com or www.ivyinvestments.com.

 

Past performance is no guarantee of future results. Please invest carefully.

 

About the Company

 

Through its subsidiaries, Waddell & Reed Financial, Inc. has provided investment management and wealth management services to clients throughout the United States since 1937. Today, we distribute our investment products through the unaffiliated channel under the IVY INVESTMENTS® brand (encompassing broker/dealer, retirement, and registered investment advisors), our wealth management channel (through independent financial advisors associated with WADDELL & REED, INC.), and our institutional channel (including defined benefit plans, pension plans, endowments and subadvisory relationships).  For more information, visit ir.waddell.com.

 

Forward-Looking Statements

 

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of assets under management and assets under administration, distribution sources, expense levels, redemption rates, stock repurchases and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to those discussed below. If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018, which include, without limitation:

 

·The loss of existing distribution relationships or inability to access new distribution relationships;

 

·A reduction in assets under our management on short notice, through increased redemptions in our distribution channels or our Funds, particularly those Funds with a high concentration of assets, or investors terminating their relationship with us or shifting their funds to other types of accounts with different rate structures;

 

·The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body;

 

·Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of evolving fiduciary standards;

 

 

 

 

·The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes;

 

·A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds;

 

·Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our assets under management or our business environment;

 

·Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies;

 

·Our inability to attract and retain senior executive management and other key personnel to conduct our wealth management and investment management business;

 

·A failure in, or breach of, our operational or security systems or our technology infrastructure, or those of third parties on which we rely; and

 

·Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner.

 

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission, including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10- K for the year ended December 31, 2018 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2019. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

 

 

 

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