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Section 1: 8-K (8-K)

 

 

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):

July 31, 2018

 

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):

 

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

 

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

 

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

 

o    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  o

 

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. o

 

 

 



 

ITEM 2.02           RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On July 31, 2018, Waddell & Reed Financial, Inc. (the “Company”) issued a press release announcing the Company’s financial results for the fiscal quarter ended June 30, 2018 (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

 

 

 

99.1

 

Press Release dated July 31, 2018

 

2



 

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: July 31, 2018

By:

/s/ Benjamin R. Clouse

 

 

Senior Vice President and

 

 

Chief Financial Officer

 

3


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Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

 

News Release

 

Waddell & Reed Financial, Inc. Reports Second Quarter Results

 

Overland Park, KS, July 31, 2018 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2018 net income(1) of $44.5 million, or $0.55 per diluted share, compared to net income of $46.3 million, or $0.56 per diluted share, during the prior quarter and net income of $24.1 million, or $0.29 per diluted share, during the second quarter of 2017.

 

Revenues of $295.3 million during the quarter declined 1% sequentially and increased 3% compared to the second quarter of 2017.  Operating expenses of $237.1 million during the quarter remained largely unchanged compared to the prior quarter and increased less than 1% compared to the same quarter in 2017.  The operating margin was 19.7% during the current quarter, compared to 20.1% and 17.8% during the first quarter of 2018 and the second quarter of 2017, respectively.

 

Assets under management ended the quarter at $78.7 billion, declining 2% compared to the prior quarter and 2% compared to the second quarter of 2017.  Sales of $2.9 billion during the current quarter declined 23% compared to the first quarter of 2018 and were 11% lower than the second quarter of 2017.  Net outflows were $3.1 billion during the current quarter, compared to net outflows of $1.5 billion during the prior quarter and $2.5 billion during the second quarter of 2017, with the current quarter redemption increase driven primarily by the Institutional channel.  A sequential improvement in market return helped offset some of the outflows during the current quarter.

 

Broker-dealer assets under administration ended the quarter at $57.1 billion, increasing 1% compared to the first quarter of 2018 and 6% compared to the second quarter of 2017.  Average productivity per advisor, as measured by average trailing twelve-month revenue per advisor, was $314 thousand for the twelve-month period ended June 30, 2018; improving 10% compared to the twelve-month period ended March 31, 2018.  Average productivity per advisor continues to rise as we focus our programs and support on high-performing financial advisors.

 

“We continue to be focused on managing our product line to ensure its competitiveness.  Strengthening our investment performance and dynamically managing our products and their distribution are key steps in our progress,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. “We believe in the value we provide as active managers, and our recent results have borne that out, with performance improvement across a majority of our key strategies.”

 

Revenues Analysis

 

Investment management fee revenues decreased $3.3 million, or 2%, sequentially, or slightly less than the decrease in average assets under management due to an additional day in the current quarter.  Compared to the second quarter of 2017, fees declined less than 1%.  During the current quarter, the effective management fee rate was 65.4 basis points, compared to 65.8 basis points during the first quarter of 2018 and 65.1 basis points during the second quarter of 2017.  Average assets under management were $80.0 billion during the current quarter, compared to $82.4 billion during the prior quarter and $80.6 billion during the second quarter of 2017.

 

Underwriting and distribution fees decreased $0.2 million, or less than 1%, sequentially.  A decrease in distribution fees due to lower assets in unaffiliated distribution was partially offset by higher asset-based advisory fee revenues in the broker-dealer.  Compared to the second quarter of 2017, fees increased $9.1 million, or 7% due to higher asset-based advisory fees in the broker-dealer and new revenues from independent financial advisors for services, which were partially offset by lower distribution fees.

 


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

 



 

Operating Expenses Analysis

 

Distribution expenses decreased $0.2 million, or less than 1% sequentially, in correlation with the decrease in underwriting and distribution revenues.  Compared to the second quarter of 2017, distribution expenses increased $5.3 million, or 5% due to higher commissions paid to independent financial advisors under the new commission structure that became effective on January 1, 2018 and higher commissions on our asset-based advisory products due to advisory asset growth.  The increase was partly offset by lower commissions paid to third-party distributors.

 

Compensation and benefits expenses declined $3.0 million, or 4% sequentially, due to lower payroll taxes, savings plan costs and equity compensation, which were partially offset by severance costs of $4.4 million during the current quarter.  Compared to the second quarter of 2017, expenses rose $0.5 million, or less than 1%, as severance costs and the annual merit increase were partly offset by lower pension costs due to the prior year plan freeze.

 

General and administrative expenses declined $0.4 million, or 2%, sequentially due to lower usage of consultants following the completion of various projects and lower fund waiver costs.  Compared to the second quarter of 2017, expenses declined $4.1 million, or 18%, due to a combination of lower usage of consultants during the current quarter, primarily for Project E, the Department of Labor fiduciary rule, and to fund merger costs in 2017.

 

Technology expenses increased $0.6 million, or 4%, sequentially due to a combination of higher data service costs and consulting costs.  Compared to the second quarter of 2017, expenses declined $0.5 million, or 3% due to lower software licensing costs.

 

The current quarter includes an intangible impairment charge of $1.2 million related to a terminated subadvisory agreement.

 

Income Taxes

 

During the second quarter, we resolved and closed an outstanding state tax liability resulting in a benefit of $6.4 million, which was largely offset by the tax shortfall on restricted stock vesting.

 



 

Assets Under Management

(in millions)

 

 

 

Three Months Ended

 

 

 

Jun. 30,

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

 

 

2017

 

2018

 

Unaffiliated (1)

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

30,182

 

$

30,307

 

$

31,062

 

$

31,133

 

$

31,055

 

Sales (2)

 

2,080

 

1,790

 

1,577

 

2,245

 

1,779

 

Redemptions

 

(2,886

)

(2,486

)

(2,912

)

(2,692

)

(2,646

)

Net exchanges

 

235

 

213

 

316

 

247

 

284

 

Net Flows

 

(571

)

(483

)

(1,019

)

(200

)

(583

)

Market action

 

696

 

1,238

 

1,090

 

122

 

310

 

Ending assets

 

$

30,307

 

$

31,062

 

$

31,133

 

$

31,055

 

$

30,782

 

Annualized organic growth rate

 

(7.6

)%

(6.4

)%

(13.1

)%

(2.6

)%

(7.5

)%

Annualized redemption rate (3)

 

39.2

%

33.0

%

37.9

%

35.8

%

34.9

%

Institutional

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

7,792

 

$

7,036

 

$

6,365

 

$

6,289

 

$

6,449

 

Sales (2)

 

78

 

68

 

66

 

552

 

153

 

Redemptions

 

(1,057

)

(1,139

)

(521

)

(604

)

(1,652

)

Net exchanges

 

6

 

 

 

 

 

Net Flows

 

(973

)

(1,071

)

(455

)

(52

)

(1,499

)

Market action

 

217

 

400

 

379

 

212

 

300

 

Ending assets

 

$

7,036

 

$

6,365

 

$

6,289

 

$

6,449

 

$

5,250

 

Annualized organic growth rate

 

(49.9

)%

(60.9

)%

(28.6

)%

(3.3

)%

(93.0

)%

Annualized redemption rate (3)

 

58.7

%

67.3

%

32.2

%

37.8

%

115.4

%

Broker-Dealer

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

43,110

 

$

43,084

 

$

43,472

 

$

43,660

 

$

42,707

 

Sales (2)

 

1,142

 

1,024

 

1,077

 

1,001

 

1,002

 

Redemptions

 

(1,812

)

(2,049

)

(2,026

)

(1,958

)

(1,770

)

Net exchanges

 

(241

)

(213

)

(316

)

(247

)

(284

)

Net Flows

 

(911

)

(1,238

)

(1,265

)

(1,204

)

(1,052

)

Market action

 

885

 

1,626

 

1,453

 

251

 

964

 

Ending assets

 

$

43,084

 

$

43,472

 

$

43,660

 

$

42,707

 

$

42,619

 

Annualized organic growth rate

 

(8.5

)%

(11.5

)%

(11.6

)%

(11.0

)%

(9.9

)%

Annualized redemption rate (3)

 

14.7

%

16.4

%

16.1

%

15.1

%

14.4

%

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

81,084

 

$

80,427

 

$

80,899

 

$

81,082

 

$

80,211

 

Sales (2)

 

3,300

 

2,882

 

2,720

 

3,798

 

2,934

 

Redemptions

 

(5,755

)

(5,674

)

(5,459

)

(5,254

)

(6,068

)

Net exchanges

 

 

 

 

 

 

Net Flows

 

(2,455

)

(2,792

)

(2,739

)

(1,456

)

(3,134

)

Market action

 

1,798

 

3,264

 

2,922

 

585

 

1,574

 

Ending assets

 

$

80,427

 

$

80,899

 

$

81,082

 

$

80,211

 

$

78,651

 

Annualized organic growth rate

 

(12.1

)%

(13.9

)%

(13.5

)%

(7.2

)%

(15.6

)%

Annualized redemption rate (3)

 

27.9

%

27.1

%

25.7

%

24.8

%

29.8

%

 


(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 & capital gains and investment income.

(3)         Excluding Money Market.

 



 

Fund Rankings

 

1 Year

 

3 Years

 

5 Years

 

Lipper

 

 

 

 

 

 

 

Funds ranked in top half

 

55

%

36

%

51

%

Assets ranked in top half

 

50

%

47

%

60

%

MorningStar

 

 

 

 

 

 

 

Funds ranked in top half

 

48

%

35

%

49

%

Assets ranked in top half

 

47

%

36

%

58

%

 

MorningStar Ratings

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

38

%

19

%

29

%

Assets with 4/5 stars

 

52

%

25

%

47

%

 

Based on class I share, which reflects sales and asset concentrations.

 

 

 

Three Months Ended

 

Broker-Dealer

 

Jun. 30,

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

(in millions)

 

2017

 

2018

 

Assets under administration (AUA)

 

 

 

 

 

 

 

 

 

 

 

Advisory assets

 

$

19,535

 

$

20,734

 

$

21,613

 

$

22,050

 

$

22,868

 

Non-advisory assets

 

34,373

 

34,856

 

35,073

 

34,216

 

34,210

 

Total assets under administration

 

53,908

 

55,590

 

56,686

 

56,266

 

57,078

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory assets (1)

 

$

22

 

$

420

 

$

129

 

$

392

 

$

315

 

Net new non-advisory assets (1), (2)

 

(693

)

(965

)

(1,047

)

(983

)

(916

)

Total net new AUA (1)

 

(671

)

(545

)

(918

)

(591

)

(601

)

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth (3)

 

0.5

%

8.6

%

2.5

%

7.3

%

5.7

%

Annualized AUA growth (3)

 

(5.0

)%  

(4.0

)%

(6.6

)%

(4.2

)%

(4.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

Advisor headcount

 

1,581

 

1,481

 

1,367

 

1,170

 

1,130

 

Avg. trailing 12-month revenue per advisor (4) (in thousands)

 

$

232

 

$

240

 

$

256

 

$

285

 

$

314

 

Advisor associates

 

254

 

262

 

265

 

327

 

339

 

 


(1)         Net new assets is calculated by taking total client deposits and net transfers less client withdrawals.

(2)         Excludes activity related to products held outside of our platform.  These assets represent less than 10% of total AUA.

(3)         Annualized growth is calculated by annualizing the quarterly net new assets divided by beginning assets under administration.

(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 financial advisors.  “Other” underwriting and distribution fees predominantly include fees paid by advisors for programs and services.

 



 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Sequential Qtr.

 

Year-over-Year Qtr.

 

 

 

2018

 

2018

 

2017

 

Change

 

%

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

130,391

 

$

133,692

 

$

130,878

 

$

(3,301

)

(2.5

)%

$

(487

)

(0.4

)%

Underwriting and distribution fees

 

137,873

 

138,041

 

128,776

 

(168

)

(0.1

)%

9,097

 

7.1

%

Shareholder service fees

 

27,074

 

25,882

 

27,003

 

1,192

 

4.6

%

71

 

0.3

%

Total

 

295,338

 

297,615

 

286,657

 

(2,277

)

(0.8

)%

8,681

 

3.0

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution (1)

 

114,315

 

114,470

 

109,060

 

(155

)

(0.1

)%

5,255

 

4.8

%

Compensation and benefits

 

65,828

 

68,785

 

65,332

 

(2,957

)

(4.3

)%

496

 

0.8

%

General and administrative

 

19,143

 

19,538

 

23,287

 

(395

)

(2.0

)%

(4,144

)

(17.8

)%

Technology

 

17,235

 

16,644

 

17,780

 

591

 

3.6

%

(545

)

(3.1

)%

Occupancy

 

6,969

 

6,964

 

7,548

 

5

 

0.1

%

(579

)

(7.7

)%

Marketing and advertising

 

2,896

 

2,281

 

3,264

 

615

 

27.0

%

(368

)

(11.3

)%

Depreciation

 

5,819

 

5,302

 

5,175

 

517

 

9.8

%

644

 

12.4

%

Subadvisory fees

 

3,683

 

3,708

 

3,194

 

(25

)

(0.7

)%

489

 

15.3

%

Intangible asset impairment

 

1,200

 

 

900

 

1,200

 

N/M

 

300

 

33.3

%

Total

 

237,088

 

237,692

 

235,540

 

(604

)

(0.3

)%

1,548

 

0.7

%

Operating income

 

58,250

 

59,923

 

51,117

 

(1,673

)

(2.8

)%

7,133

 

14.0

%

Investment and other income (loss)

 

841

 

2,816

 

2,997

 

(1,975

)

(70.1

)%

(2,156

)

(71.9

)%

Interest expense

 

(1,551

)

(1,802

)

(2,788

)

251

 

13.9

%

1,237

 

44.4

%

Income before provision for income taxes

 

57,540

 

60,937

 

51,326

 

(3,397

)

(5.6

)%

6,214

 

12.1

%

Provision for income taxes

 

13,284

 

14,966

 

26,608

 

(1,682

)

(11.2

)%

(13,324

)

(50.1

)%

Net income

 

44,256

 

45,971

 

24,718

 

(1,715

)

(3.7

)%

19,538

 

79.0

%

Net income (loss) attributable to redeemable noncontrolling interests

 

(222

)

(366

)

656

 

144

 

39.3

%

(878

)

(133.8

)%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

44,478

 

$

46,337

 

$

24,062

 

$

(1,859

)

(4.0

) %

$

20,416

 

84.8

%

Net income per share, basic and diluted:

 

$

0.55

 

$

0.56

 

$

0.29

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

81,449

 

83,111

 

83,611

 

 

 

 

 

 

 

 

 

Operating margin

 

19.7

%

20.1

%

17.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

28,686

 

30,354

 

32,998

 

 

 

 

 

 

 

 

 

Broker-dealer

 

85,629

 

84,116

 

76,062

 

 

 

 

 

 

 

 

 

 

 

$

114,315

 

$

114,470

 

$

109,060

 

 

 

 

 

 

 

 

 

 



 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

 

Six Months Ended

 

 

 

 

 

 

 

Jun. 30,

 

Jun. 30,

 

 

 

 

 

 

 

2018

 

2017

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

264,083

 

$

261,314

 

$

2,769

 

1.1

%

Underwriting and distribution fees

 

275,914

 

257,607

 

18,307

 

7.1

%

Shareholder service fees

 

52,956

 

54,300

 

(1,344

)

(2.5

)%

Total

 

592,953

 

573,221

 

19,732

 

3.4

%

Operating expenses:

 

 

 

 

 

 

 

 

 

Distribution (1)

 

228,785

 

217,497

 

11,288

 

5.2

%

Compensation and benefits

 

134,613

 

132,367

 

2,246

 

1.7

%

General and administrative

 

38,681

 

45,482

 

(6,801

)

(15.0

)%

Technology

 

33,879

 

34,757

 

(878

)

(2.5

)%

Occupancy

 

13,933

 

15,333

 

(1,400

)

(9.1

)%

Marketing and advertising

 

5,177

 

5,875

 

(698

)

(11.9

)%

Depreciation

 

11,121

 

10,396

 

725

 

7.0

%

Subadvisory fees

 

7,391

 

5,891

 

1,500

 

25.5

%

Intangible asset impairment

 

1,200

 

1,500

 

(300

)

(20.0

)%

Total

 

474,780

 

469,098

 

5,682

 

1.2

%

Operating income

 

118,173

 

104,123

 

14,050

 

13.5

%

Investment and other income (loss)

 

3,657

 

6,009

 

(2,352

)

(39.1

)%

Interest expense

 

(3,353

)

(5,574

)

2,221

 

39.8

%

Income before provision for income taxes

 

118,477

 

104,558

 

13,919

 

13.3

%

Provision for income taxes

 

28,250

 

45,489

 

(17,239

)

(37.9

)%

Net income

 

90,227

 

59,069

 

31,158

 

52.7

%

Net income attributable to redeemable noncontrolling interests

 

(588

)

1,136

 

(1,724

)

(151.8

)%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

90,815

 

$

57,933

 

$

32,882

 

56.8

%

Net income per share, basic and diluted:

 

$

1.10

 

$

0.69

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

82,275

 

83,843

 

 

 

 

 

Operating margin

 

19.9

%

18.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Distribution expense

 

 

 

 

 

 

 

 

 

Unaffiliated

 

59,039

 

66,906

 

 

 

 

 

Broker-dealer

 

169,746

 

150,591

 

 

 

 

 

 

 

$

228,785

 

$

217,497

 

 

 

 

 

 



 

Underwriting and distribution fees

(in thousands)

 

 

 

For the three months ended Jun. 30, 2018

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

 66,580

 

$

 66,580

 

Rule 12b-1 service and distribution fees

 

20,051

 

18,109

 

38,160

 

Sales commissions on front-end load mutual funds and variable annuity products

 

507

 

13,823

 

14,330

 

Sales commissions on other products

 

 

9,065

 

9,065

 

Other revenues

 

148

 

9,590

 

9,738

 

Total underwriting and distribution fees

 

$

20,706

 

$

117,167

 

$

137,873

 

 

 

 

For the three months ended Mar. 31, 2018

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

65,516

 

$

65,516

 

Rule 12b-1 service and distribution fees

 

20,976

 

18,377

 

39,353

 

Sales commissions on front-end load mutual funds and variable annuity products

 

470

 

14,427

 

14,897

 

Sales commissions on other products

 

 

8,422

 

8,422

 

Other revenues

 

185

 

9,668

 

9,853

 

Total underwriting and distribution fees

 

$

21,631

 

$

116,410

 

$

138,041

 

 

 

 

For the three months ended Jun. 30, 2017

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

58,313

 

$

58,313

 

Rule 12b-1 service and distribution fees

 

22,852

 

18,863

 

41,715

 

Sales commissions on front-end load mutual funds and variable annuity products

 

319

 

14,529

 

14,848

 

Sales commissions on other products

 

 

8,460

 

8,460

 

Other revenues

 

353

 

5,087

 

5,440

 

Total underwriting and distribution fees

 

$

23,524

 

$

105,252

 

$

128,776

 

 

 

 

For the six months ended Jun. 30, 2018

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

132,097

 

$

132,097

 

Rule 12b-1 service and distribution fees

 

41,027

 

36,486

 

77,513

 

Sales commissions on front-end load mutual funds and variable annuity products

 

977

 

28,249

 

29,226

 

Sales commissions on other products

 

 

17,487

 

17,487

 

Other revenues

 

333

 

19,258

 

19,591

 

Total underwriting and distribution fees

 

$

42,337

 

$

233,577

 

$

275,914

 

 

 

 

For the six months ended Jun. 30, 2017

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

115,069

 

$

115,069

 

Rule 12b-1 service and distribution fees

 

46,869

 

37,518

 

84,387

 

Sales commissions on front-end load mutual funds and variable annuity products

 

765

 

28,855

 

29,620

 

Sales commissions on other products

 

 

15,697

 

15,697

 

Other revenues

 

779

 

12,055

 

12,834

 

Total underwriting and distribution fees

 

$

48,413

 

$

209,194

 

$

257,607

 

 



 

Unaudited Condensed Balance Sheet

(in thousands)

 

 

 

Jun. 30,

 

Dec. 31,

 

 

 

2018

 

2017

 

Assets

 

 

 

 

 

Cash & cash equivalents (unrestricted)

 

$

240,420

 

$

207,829

 

Investment securities

 

584,769

 

700,492

 

Other assets

 

239,570

 

241,305

 

Property and equipment, net

 

77,154

 

87,667

 

Goodwill and intangible assets

 

145,869

 

147,069

 

Total assets

 

$

1,287,782

 

$

1,384,362

 

Liabilities, redeemable noncontrolling interests and equity

 

 

 

 

 

Short-term notes payable

 

$

 

$

94,996

 

Long-term debt

 

94,819

 

94,783

 

Other liabilities

 

290,193

 

307,190

 

Redeemable noncontrolling interests

 

17,052

 

14,509

 

Total stockholders’ equity

 

885,718

 

872,884

 

Liabilities, redeemable noncontrolling interests and equity

 

$

1,287,782

 

$

1,384,362

 

Shares outstanding (in millions)

 

80.4

 

82.7

 

 

Unaudited Condensed Cash Flow

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

June 30, 

 

June 30, 

 

 

 

2018

 

2018

 

2017

 

2018

 

2017

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

122,816

 

$

50,265

 

$

(93,666

)

$

173,081

 

$

(30,101

)

Investing activities

 

(6,541

)

56,272

 

(27,888

)

49,731

 

(17,668

)

Financing activities

 

(60,557

)

(131,948

)

(22,913

)

(192,505

)

(72,233

)

Net change during period

 

$

55,718

 

$

(25,411

)

$

(144,467

)

$

30,307

 

$

(120,002

)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

June 30, 

 

June 30, 

 

(in thousands)

 

2018

 

2018

 

2017

 

2018

 

2017

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

2,098,625

 

996,309

 

237,472

 

3,094,934

 

714,354

 

Total cost

 

$

40,142

 

$

20,507

 

$

4,037

 

$

60,649

 

$

12,013

 

Dividend paid

 

 

 

 

 

 

 

 

 

 

 

Rate per share

 

$

0.25

 

$

0.25

 

$

0.46

 

$

0.25

 

$

0.46

 

Total paid

 

$

20,591

 

$

20,890

 

$

38,465

 

$

41,481

 

$

77,236

 

Capital returned to stockholders

 

$

60,733

 

$

41,397

 

$

42,502

 

$

102,130

 

$

89,249

 

 



 

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 and CIO, 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:

Nicole Russell, VP, Investor Relations, (913) 236-1880, nrussell@waddell.com

 

Mutual Fund Investor Contact:

Call (888) WADDELL, or visit www.waddell.com or www.ivyfunds.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 financial planning services to clients throughout the United States since 1937.  Today, we distribute our investment products through the unaffiliated channel (encompassing broker/dealer, retirement, and registered investment advisors), our broker-dealer channel (through independent financial advisors), 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, 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, 2017, 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 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, 2017 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2018. 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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