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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):

October 30, 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 October 30, 2018, Waddell & Reed Financial, Inc. (the “Company”) issued a press release announcing the Company’s financial results for the fiscal quarter ended September 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 October 30, 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: October 30, 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 Third Quarter Results

 

Overland Park, KS, Oct. 30, 2018 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported third quarter 2018 net income1 of $46.3 million, or $0.58 per diluted share, compared to net income of $44.5 million, or $0.55 per diluted share, during the prior quarter and net income of $53.6 million, or $0.64 per diluted share, during the third quarter of 2017.   The third quarter of 2017 included net gains of $25.1 million ($15.8 net of taxes, or $0.20 per diluted share) due to the freeze of our pension plan on September 30, 2017.

 

Revenues of $295.1 million during the quarter remained largely unchanged compared to the second quarter of 2018 and increased $5.7 million compared to the third quarter of 2017.  Operating expenses of $235.6 million during the quarter declined $1.4 million sequentially and were unchanged compared to the same quarter in 2017.  The operating margin was 20.2% during the current quarter, compared to 19.7% and 18.6% during the second quarter of 2018 and the third quarter of 2017, respectively.

 

Assets under management ended the quarter at $79.5 billion, increasing 1% compared to the prior quarter and declining 2% compared to the third quarter of 2017.  Sales of $2.5 billion during the current quarter declined 13% compared to the second quarter of 2018 and 12% compared to the third quarter of 2017.  Net outflows of $2.0 billion during the current quarter improved compared to net outflows of $3.1 billion during the second quarter of 2018 and net outflows of $2.8 billion during the third quarter of 2017.  The improvement in net outflows was due to lower redemptions in our institutional channel.

 

Broker-dealer assets under administration ended the quarter at $58.1 billion, increasing 2% compared to the second quarter of 2018 and 5% compared to the same quarter in 2017.  Average productivity per advisor, as measured by average trailing twelve-month revenue per advisor, was $350 thousand for the twelve-month period ended September 30, 2018, rising 46% compared September of 2017.

 

“Our focus remains on making the necessary strategic investments and operational improvements that will enhance the long-term competitive positioning of both our asset management business and our broker-dealer,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. “Strong investment performance is essential to support this effort and we continue to make solid progress in strengthening both our short- and long-term track records across much of the complex.”

 

Revenues Analysis

 

Investment management fees declined $1.1 million, or 1% sequentially, due to fee reductions in selected mutual funds and lower average assets under management, which were partly offset by an additional day during the current quarter.  Compared with the same quarter in 2017, revenues declined $4.8 million, or 4%, due to fee reductions in selected mutual funds and lower average assets under management.  During the current quarter, the effective management fee rate was 64.6 basis points compared to 65.4 basis points during the second quarter of 2018 and 66.1 basis points during the third quarter of 2017.  Average assets under management were $79.5 billion during the current quarter, compared to $80.0 billion during the prior quarter and $80.5 billion during the third quarter of 2017.

 

Underwriting and distribution fees increased $2.4 million, or 2% sequentially, primarily due to higher asset-based advisory fees in the broker-dealer.  Compared to the same quarter in 2017, fees increased $11.4 million, or 9%, due to

 


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

 


 

higher asset-based advisory fees as well as increased support and service revenues from  independent financial advisors, which were partly offset by lower distribution fees.

 

Operating Expenses Analysis

 

Distribution expenses increased $2.3 million, or 2% sequentially, in correlation with the increase in underwriting and distribution revenues.  Compared to the third quarter of 2017, expenses increased $9.7 million, or 9%, largely in line with the increase in underwriting and distribution revenues.

 

Compensation and benefits expenses declined $1.3 million, or 2% sequentially.  The second quarter of 2018 included severance charges of $4.4 million, which were partly offset in the current quarter by increased incentive compensation due to improved fund performance.  Compared to the third quarter of 2017, expenses declined $5.1 million, or 7%, due primarily to lower pension costs due to the plan freeze and a discretionary 401(k) contribution in 2017.

 

General and administrative expenses declined $1.6 million, or 8% sequentially, due primarily to lower usage of consultants and, to a lesser degree, lower sales convention costs.  Compared to the third quarter of 2017, expenses declined $5.8 million, or 25%, due to lower legal costs and lower consulting costs, as a number of significant projects were completed in late 2017 or early 2018.

 

Technology expenses declined $1.8 million, or 11% sequentially, and declined $0.6 million, or 4% compared to the third quarter of 2017, as we continue to decommission older systems and replace them with more cost-effective solutions.

 

Depreciation expense included a charge of $2.4 million during the current quarter to adjust the useful life on certain internally developed software assets.

 

Investment and other income increased $31.6 million compared to the same quarter in 2017 due primarily to net gains related to the freeze of our pension plan in September of 2017.

 

Income taxes declined $16.4 million compared to the same quarter in 2017 due primarily to the lower tax rate as a result of the Tax Reform Act, which lowered the 2018 statutory rate to 21% compared to 35% in 2017.

 


 

Assets Under Management

(in millions)

 

 

 

Three Months Ended

 

 

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

 

 

2017

 

2018

 

Unaffiliated 1

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

30,307

 

$

31,062

 

$

31,133

 

$

31,055

 

$

30,782

 

Sales 2

 

1,790

 

1,577

 

2,245

 

1,779

 

1,589

 

Redemptions

 

(2,486

)

(2,912

)

(2,692

)

(2,646

)

(2,425

)

Net exchanges

 

213

 

316

 

247

 

284

 

360

 

Net Flows

 

(483

)

(1,019

)

(200

)

(583

)

(476

)

Market action

 

1,238

 

1,090

 

122

 

310

 

866

 

Ending assets

 

$

31,062

 

$

31,133

 

$

31,055

 

$

30,782

 

$

31,172

 

Annualized organic growth rate

 

(6.4

)%

(13.1

)%

(2.6

)%

(7.5

)%

(6.2

)%

Annualized redemption rate 3

 

33.0

%

37.9

%

35.8

%

34.9

%

31.8

%

Institutional

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

7,036

 

$

6,365

 

$

6,289

 

$

6,449

 

$

5,250

 

Sales 2

 

68

 

66

 

552

 

153

 

83

 

Redemptions

 

(1,139

)

(521

)

(604

)

(1,652

)

(535

)

Net exchanges

 

 

 

 

 

 

Net Flows

 

(1,071

)

(455

)

(52

)

(1,499

)

(452

)

Market action

 

400

 

379

 

212

 

300

 

389

 

Ending assets

 

$

6,365

 

$

6,289

 

$

6,449

 

$

5,250

 

$

5,187

 

Annualized organic growth rate

 

(60.9

)%

(28.6

)%

(3.3

)%

(93.0

)%

(34.4

)%

Annualized redemption rate 3

 

67.3

%

32.2

%

37.8

%

115.4

%

40.8

%

Broker-Dealer

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

43,084

 

$

43,472

 

$

43,660

 

$

42,707

 

$

42,619

 

Sales 2

 

1,024

 

1,077

 

1,001

 

1,002

 

874

 

Redemptions

 

(2,049

)

(2,026

)

(1,958

)

(1,770

)

(1,612

)

Net exchanges

 

(213

)

(316

)

(247

)

(284

)

(360

)

Net Flows

 

(1,238

)

(1,265

)

(1,204

)

(1,052

)

(1,098

)

Market action

 

1,626

 

1,453

 

251

 

964

 

1,662

 

Ending assets

 

$

43,472

 

$

43,660

 

$

42,707

 

$

42,619

 

$

43,183

 

Annualized organic growth rate

 

(11.5

)%

(11.6

)%

(11.0

)%

(9.9

)%

(10.3

)%

Annualized redemption rate 3

 

16.4

%

16.1

%

15.1

%

14.4

%

12.8

%

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

80,427

 

$

80,899

 

$

81,082

 

$

80,211

 

$

78,651

 

Sales 2

 

2,882

 

2,720

 

3,798

 

2,934

 

2,546

 

Redemptions

 

(5,674

)

(5,459

)

(5,254

)

(6,068

)

(4,572

)

Net exchanges

 

 

 

 

 

 

Net Flows

 

(2,792

)

(2,739

)

(1,456

)

(3,134

)

(2,026

)

Market action

 

3,264

 

2,922

 

585

 

1,574

 

2,917

 

Ending assets

 

$

80,899

 

$

81,082

 

$

80,211

 

$

78,651

 

$

79,542

 

Annualized organic growth rate

 

(13.9

)%

(13.5

)%

(7.2

)%

(15.6

)%

(10.3

)%

Annualized redemption rate 3

 

27.1

%

25.7

%

24.8

%

29.8

%

22.1

%

 


(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.

 


 

Fund Rankings 1

 

1 Year

 

3 Years

 

5 Years

 

Lipper

 

 

 

 

 

 

 

Funds ranked in top half

 

69

%

42

%

51

%

Assets ranked in top half

 

76

%

56

%

55

%

MorningStar

 

 

 

 

 

 

 

Funds ranked in top half

 

57

%

35

%

45

%

Assets ranked in top half

 

54

%

42

%

57

%

 

MorningStar Ratings 1

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

41

%

22

%

32

%

Assets with 4/5 stars

 

54

%

28

%

47

%

 


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

 

 

 

Three Months Ended

 

Broker-Dealer

 

Sep. 30,

 

Dec. 31,

 

Mar. 31,

 

Jun. 30,

 

Sep. 30,

 

(in millions)

 

2017

 

2018

 

Assets under administration (AUA)

 

 

 

 

 

 

 

 

 

 

 

Advisory assets

 

$

20,734

 

$

21,613

 

$

22,050

 

$

22,868

 

$

23,653

 

Non-advisory assets

 

34,856

 

35,073

 

34,216

 

34,210

 

34,468

 

Total assets under administration

 

55,590

 

56,686

 

56,266

 

57,078

 

58,121

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory assets 1

 

$

420

 

$

129

 

$

392

 

$

315

 

$

(87

)

Net new non-advisory assets 1, 2

 

(965

)

(1,047

)

(983

)

(916

)

(931

)

Total net new AUA 1,2

 

(545

)

(918

)

(591

)

(601

)

(1,018

)

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth 3

 

8.6

%

2.5

%

7.3

%

5.7

%

(1.5

)%

Annualized AUA growth 3

 

(4.0

)%

(6.6

)%

(4.2

)%

(4.3

)%

(7.1

)%

 

 

 

 

 

 

 

 

 

 

 

 

Advisor count

 

1,481

 

1,367

 

1,170

 

1,130

 

1,074

 

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

 

$

240

 

$

256

 

$

285

 

$

314

 

$

350

 

Advisor associate count

 

262

 

265

 

327

 

339

 

351

 

 


(1)         Net new assets is calculated as 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 as annualized 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 includes fees paid by independent advisors for programs and services.

 


 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Sequential Qtr.

 

Year-over-Year Qtr.

 

 

 

2018

 

2018

 

2017

 

Change

 

%

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

129,302

 

$

130,391

 

$

134,149

 

$

(1,089

)

(0.8

)%

$

(4,847

)

(3.6

)%

Underwriting and distribution fees

 

140,308

 

137,873

 

128,892

 

2,435

 

1.8

%

11,416

 

8.9

%

Shareholder service fees

 

25,508

 

27,074

 

26,406

 

(1,566

)

(5.8

)%

(898

)

(3.4

)%

Total

 

295,118

 

295,338

 

289,447

 

(220

)

(0.1

)%

5,671

 

2.0

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution 1

 

116,591

 

114,315

 

106,878

 

2,276

 

2.0

%

9,713

 

9.1

%

Compensation and benefits

 

64,561

 

65,828

 

69,636

 

(1,267

)

(1.9

)%

(5,075

)

(7.3

)%

General and administrative

 

17,559

 

19,143

 

23,400

 

(1,584

)

(8.3

)%

(5,841

)

(25.0

)%

Technology

 

15,414

 

17,235

 

16,039

 

(1,821

)

(10.6

)%

(625

)

(3.9

)%

Occupancy

 

7,148

 

6,969

 

7,645

 

179

 

2.6

%

(497

)

(6.5

)%

Marketing and advertising

 

2,461

 

2,896

 

3,197

 

(435

)

(15.0

)%

(736

)

(23.0

)%

Depreciation

 

8,141

 

5,819

 

5,230

 

2,322

 

39.9

%

2,911

 

55.7

%

Subadvisory fees

 

3,767

 

3,683

 

3,566

 

84

 

2.3

%

201

 

5.6

%

Intangible asset impairment

 

 

1,200

 

 

(1,200

)

N/M

 

 

N/M

 

Total

 

235,642

 

237,088

 

235,591

 

(1,446

)

(0.6

)%

51

 

0.0

%

Operating income

 

59,476

 

58,250

 

53,856

 

1,226

 

2.1

%

5,620

 

10.4

%

Investment and other income

 

1,697

 

841

 

33,293

 

856

 

101.8

%  

(31,596

)

(94.9

)%

Interest expense

 

(1,555

)

(1,551

)

(2,796

)

(4

)

(0.3

)%

1,241

 

44.4

%

Income before provision for income taxes

 

59,618

 

57,540

 

84,353

 

2,078

 

3.6

%

(24,735

)

(29.3

)%

Provision for income taxes

 

13,105

 

13,284

 

29,499

 

(179

)

(1.3

)%

(16,394

)

(55.6

)%

Net income

 

46,513

 

44,256

 

54,854

 

2,257

 

5.1

%

(8,341

)

(15.2

)%

Net income (loss) attributable to redeemable noncontrolling interests

 

208

 

(222

)

1,272

 

430

 

193.7

%

(1,064

)

(83.6

)%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

46,305

 

$

44,478

 

$

53,582

 

$

1,827

 

4.1

%

$

(7,277

)

(13.6

)%

Net income per share, basic and diluted:

 

$

0.58

 

$

0.55

 

$

0.64

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

79,595

 

81,449

 

83,476

 

 

 

 

 

 

 

 

 

Operating margin

 

20.2

%

19.7

%

18.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

28,116

 

28,686

 

31,778

 

 

 

 

 

 

 

 

 

Broker-dealer

 

88,475

 

85,629

 

75,100

 

 

 

 

 

 

 

 

 

 

 

$

116,591

 

$

114,315

 

$

106,878

 

 

 

 

 

 

 

 

 

 


 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

Sep. 30,

 

Sep. 30,

 

 

 

 

 

 

 

2018

 

2017

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

393,385

 

$

395,463

 

$

(2,078

)

(0.5

)%

Underwriting and distribution fees

 

416,222

 

386,499

 

29,723

 

7.7

%

Shareholder service fees

 

78,464

 

80,706

 

(2,242

)

(2.8

)%

Total

 

888,071

 

862,668

 

25,403

 

2.9

%

Operating expenses:

 

 

 

 

 

 

 

 

 

Distribution 1

 

345,376

 

324,375

 

21,001

 

6.5

%

Compensation and benefits

 

199,174

 

202,003

 

(2,829

)

(1.4

)%

General and administrative

 

56,240

 

68,882

 

(12,642

)

(18.4

)%

Technology

 

49,293

 

50,796

 

(1,503

)

(3.0

)%

Occupancy

 

21,081

 

22,978

 

(1,897

)

(8.3

)%

Marketing and advertising

 

7,638

 

9,072

 

(1,434

)

(15.8

)%

Depreciation

 

19,262

 

15,626

 

3,636

 

23.3

%

Subadvisory fees

 

11,158

 

9,457

 

1,701

 

18.0

%

Intangible asset impairment

 

1,200

 

1,500

 

(300

)

(20.0

)%

Total

 

710,422

 

704,689

 

5,733

 

0.8

%

Operating income

 

177,649

 

157,979

 

19,670

 

12.5

%

Investment and other income

 

5,354

 

39,302

 

(33,948

)

(86.4

)%

Interest expense

 

(4,908

)

(8,370

)

3,462

 

41.4

%

Income before provision for income taxes

 

178,095

 

188,911

 

(10,816

)

(5.7

)%

Provision for income taxes

 

41,355

 

74,988

 

(33,633

)

(44.9

)%

Net income

 

136,740

 

113,923

 

22,817

 

20.0

%

Net (loss) income attributable to redeemable noncontrolling interests

 

(380

)

2,408

 

(2,788

)

(115.8

)%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

137,120

 

$

111,515

 

$

25,605

 

23.0

%

Net income per share, basic and diluted:

 

$

1.69

 

$

1.33

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

81,372

 

83,719

 

 

 

 

 

Operating margin

 

20.0

%

18.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1) Distribution expense

 

87,155

 

98,684

 

 

 

 

 

Unaffiliated

 

258,221

 

225,691

 

 

 

 

 

Broker-dealer

 

$

 345,376

 

$

 324,375

 

 

 

 

 

 


 

Underwriting and distribution fees

(in thousands)

 

 

 

For the three months ended Sep. 30, 2018

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

 

 

 

 

 

 

 

 

Fee-based asset allocation product revenues

 

$

 

$

69,468

 

$

69,468

 

Rule 12b-1 service and distribution fees

 

19,707

 

18,106

 

37,813

 

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

 

441

 

13,651

 

14,092

 

Sales commissions on other products

 

 

9,111

 

9,111

 

Other revenues

 

126

 

9,698

 

9,824

 

Total underwriting and distribution fees

 

$

20,274

 

$

120,034

 

$

140,308

 

 

 

 

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 Sep. 30, 2017

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

61,115

 

$

61,115

 

Rule 12b-1 service and distribution fees

 

22,322

 

19,026

 

41,348

 

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

 

353

 

12,941

 

13,294

 

Sales commissions on other products

 

 

7,974

 

7,974

 

Other revenues

 

217

 

4,944

 

5,161

 

Total underwriting and distribution fees

 

$

22,892

 

$

106,000

 

$

128,892

 

 

 

 

For the nine months ended Sep. 30, 2018

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

201,565

 

$

201,565

 

Rule 12b-1 service and distribution fees

 

60,734

 

54,591

 

115,325

 

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

 

1,418

 

41,900

 

43,318

 

Sales commissions on other products

 

 

26,632

 

26,632

 

Other revenues

 

459

 

28,923

 

29,382

 

Total underwriting and distribution fees

 

$

62,611

 

$

353,611

 

$

416,222

 

 

 

 

For the nine months ended Sep. 30, 2017

 

 

 

Unaffiliated

 

Broker-Dealer

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

176,184

 

$

176,184

 

Rule 12b-1 service and distribution fees

 

69,191

 

56,544

 

125,735

 

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

 

1,118

 

41,796

 

42,914

 

Sales commissions on other products

 

 

23,671

 

23,671

 

Other revenues

 

996

 

16,999

 

17,995

 

Total underwriting and distribution fees

 

$

71,305

 

$

315,194

 

$

386,499

 

 


 

Unaudited Condensed Balance Sheet

(in thousands)

 

 

 

Sep. 30,

 

Dec. 31,

 

 

 

2018

 

2017

 

Assets

 

 

 

 

 

Cash & cash equivalents (unrestricted)

 

$

270,478

 

$

207,829

 

Investment securities

 

588,407

 

700,492

 

Other assets

 

218,701

 

241,305

 

Property and equipment, net

 

69,340

 

87,667

 

Goodwill and intangible assets

 

145,869

 

147,069

 

Total assets

 

$

1,292,795

 

$

1,384,362

 

Liabilities, redeemable noncontrolling interests and equity

 

 

 

 

 

Short-term notes payable

 

$

 

$

94,996

 

Long-term debt

 

94,836

 

94,783

 

Other liabilities

 

288,316

 

307,190

 

Redeemable noncontrolling interests

 

16,133

 

14,509

 

Total stockholders’ equity

 

893,510

 

872,884

 

Liabilities, redeemable noncontrolling interests and equity

 

$

1,292,795

 

$

1,384,362

 

Shares outstanding (in thousands)

 

78,903

 

82,687

 

 

Unaudited Condensed Cash Flow

(in thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Sep. 30,

 

Sep. 30,

 

 

 

2018

 

2018

 

2017

 

2018

 

2017

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

90,652

 

$

122,816

 

$

17,935

 

$

263,733

 

$

(12,166

)

Investing activities

 

(7,160

)

(6,541

)

(181,312

)

42,571

 

(198,980

)

Financing activities

 

(50,131

)

(60,557

)

(41,387

)

(242,636

)

(113,620

)

Net change during period

 

$

33,361

 

$

55,718

 

$

(204,764

)

$

63,668

 

$

(324,766

)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Sep. 30,

 

Sep. 30,

 

(in thousands, except number of shares)

 

2018

 

2018

 

2017

 

2018

 

2017

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

1,424,612

 

2,098,625

 

190,056

 

4,519,546

 

904,410

 

Total cost

 

$

28,369

 

$

40,142

 

$

3,622

 

$

89,018

 

$

15,635

 

Dividend paid

 

 

 

 

 

 

 

 

 

 

 

Rate per share

 

$

0.25

 

$

0.25

 

$

0.46

 

$

0.75

 

$

1.38

 

Total paid

 

$

20,050

 

$

20,591

 

$

38,455

 

$

61,531

 

$

115,691

 

Capital returned to stockholders

 

$

48,419

 

$

60,733

 

$

42,077

 

$

150,549

 

$

131,326

 

 


 

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 broker-dealer, fund management and investment advisory 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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