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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 30, 2019

 

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

 

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 2.02                                  RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On July 30, 2019, Waddell & Reed Financial, Inc. (the “Company”) issued a press release announcing the Company’s financial results for the fiscal quarter ended June 30, 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

 

 

 

99.1

 

Press Release dated July 30, 2019

 

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 30, 2019

By:

/s/ Benjamin R. Clouse

 

 

Senior Vice President, Chief Financial Officer and Treasurer

 

3


(Back To Top)

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 30, 2019 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2019 net income(1) of $33.9 million, or $0.45 per diluted share, compared to net income of $32.1 million, or $0.42 per diluted share, during the prior quarter and net income of $44.5 million, or $0.55 per diluted share, during the second quarter of 2018.  The second quarter of 2019 included an income tax charge related to shortfalls from the vesting of restricted shares of $2.4 million ($0.03 per diluted share).  In addition, both the first and second quarters of 2019 included a benefit from unrealized gains on our seed and corporate investment portfolios of approximately $0.06 per diluted share.

 

Revenues of $270.2 million during the quarter increased $10.7 million compared to the prior quarter and decreased $25.2 million compared to the second quarter of 2018.  Operating expenses of $228.9 million increased $5.0 million compared to the prior quarter and declined $8.2 million compared to the same quarter in 2018.  The operating margin was 15.3% during the current quarter, compared to 13.7% during the prior quarter and 19.7% during the second quarter of 2018.

 

Assets under management ended the quarter at $71.9 billion, a slight increase compared to the prior quarter and a decrease of 9% compared to the second quarter of 2018.  Average assets under management were $71.4 billion during the current quarter, compared to $70.1 billion during the prior quarter and $80.0 billion during the second quarter of 2018.  Net outflows of $2.4 billion during the current quarter were higher compared to net outflows of $1.8 billion in the first quarter of 2019 and improved compared to net outflows of $3.1 billion in the second quarter of 2018.  Sales of $2.1 billion during the current quarter declined 14% and 27% compared to the prior quarter and the second quarter of 2018, respectively. Increased volatility in the equity markets during the quarter again led to slower sales in key products as investors preferred lower-risk fixed income and money market funds.  Redemptions increased slightly compared to the prior quarter and improved 26% compared to the second quarter of 2018, as the prior year included elevated, event-driven institutional redemptions.

 

Wealth management assets under administration ended the quarter at $57.4 billion, a 2% increase compared to the first quarter of 2019, and a slight increase compared to the same quarter in 2018. For both comparative periods, assets under administration increased due to market appreciation. Average productivity per associated independent financial advisor (“Advisor”), measured as average trailing twelve-month revenue per Advisor, was $408 thousand for the current quarter, rising 2% compared to the prior quarter and 30% compared to the same quarter in the prior year.

 

“This quarter we announced a number of significant, strategic actions, all aimed at accelerating our business transformation and enabling long-term organizational agility and effectiveness.  Throughout this journey, we remain focused on the key activities that will drive shareholder value over the long-term, while ensuring we’re delivering on our commitments to our clients and employees every day,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc.

 

Revenues Analysis

 

Investment management fees increased $3.1 million, or 3%, compared to the first quarter of 2019, primarily due to a 2% increase in average assets under management and one additional day in the quarter. The effective management fee rate of 63.4 basis points declined slightly compared to the prior quarter. Compared to the second quarter of 2018, investment

 


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

 


 

management fees declined $17.5 million, or 13%, due to lower average assets under management and a lower effective management fee rate, which was approximately 2 basis points lower due to previously-announced fee reductions in selected mutual funds, consistent with the expectations.

 

Underwriting and distribution fees increased $7.2 million, or 6%, compared to the prior quarter primarily due to one additional day and an increase in assets under administration during the period. In addition, commissionable sales increased.  Compared to the same quarter in 2018, fees decreased $4.4 million, or 3%, due to lower service and distribution fees and lower commissionable sales, partially offset by an increase in advisory fees.

 

Shareholder service fees increased $0.4 million, or 2%, compared to the first quarter of 2019 due to one additional day in the quarter and a slight increase in average assets. Compared to the second quarter of 2018, shareholder service fees declined $3.3 million, or 12%, primarily due to a decrease in average assets and fewer accounts.

 

Operating Expenses Analysis

 

Distribution expenses in the current quarter increased $6.7 million, or 6%, as a result of the increase in underwriting and distribution revenues.  Compared to the second quarter of 2018, expenses increased $2.2 million, or 2%, due to an increase in the compensation grid for Advisors, effective January 1, 2019, partially offset by lower service and distribution fees due to lower average assets.

 

Compensation and benefits expenses decreased $3.0 million, or 5%, compared to the prior quarter. Share-based compensation decreased $1.5 million primarily due to previously issued awards vesting fully. In addition, payroll taxes decreased by $1.1 million due to seasonality.  Compared to the second quarter of 2018, expenses decreased $4.0 million, or 6%, due to severance costs in the second quarter of 2018.

 

General and administrative expenses increased $1.3 million, or 9%, primarily due to increases in certain discretionary categories compared to the first quarter.  Compared to the second quarter of 2018, expenses improved $3.1 million, or 16%, due to lower contractor, legal and consulting costs as significant projects were completed in 2018.

 

Technology, Occupancy and Marketing and advertising expenses increased a combined $0.6 million compared to the prior quarter primarily due to a seasonal increase in marketing.  Compared to the second quarter of 2018, these expenses declined $1.6 million, or 6%. Technology costs decreased due to lower shareholder servicing expense resulting from fewer accounts.  Occupancy costs decreased as we realized cost savings from the closure of field offices.  Marketing and advertising expenses decreased due to the timing of marketing activity.

 

Depreciation expense declined $0.8 million, or 13%, compared to the prior quarter and declined $0.6 million, or 10%, compared to the second quarter of 2018 primarily due to lower expense on certain internally developed software assets.

 

Investment and Other Income

 

Investment and other income was relatively consistent with the prior quarter as both quarters included a benefit from unrealized gains on our seed and corporate investment portfolios of approximately $0.06 per share.  Compared to the second quarter of 2018, investment and other income increased $8.2 million primarily due to market appreciation and increased interest income from our corporate investment portfolio.

 


 

Assets Under Management

(in millions)

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Prior Qtr.

 

Year-over-Year Qtr.

 

 

 

2019

 

2019

 

2018

 

Change

 

%

 

Change

 

%

 

Unaffiliated (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

27,506

 

$

24,977

 

$

31,055

 

$

2,529

 

10

%

$

(3,549

)

(11

)%

Sales (2)

 

1,291

 

1,593

 

1,779

 

(302

)

(19

)%

(488

)

(27

)%

Redemptions

 

(2,441

)

(2,306

)

(2,646

)

(135

)

(6

)%

205

 

8

%

Net exchanges

 

303

 

276

 

284

 

27

 

10

%

19

 

7

%

Net Flows

 

(847

)

(437

)

(583

)

(410

)

(94

)%

(264

)

(45

)%

Market action

 

886

 

2,966

 

310

 

(2,080

)

(70

)%

576

 

186

%

Ending assets

 

$

27,545

 

$

27,506

 

$

30,782

 

$

39

 

0

%

$

(3,237

)

(11

)%

Annualized organic growth rate

 

(12.3

)%

(7.0

)%

(7.5

)%

 

 

 

 

 

 

 

 

Annualized redemption rate (3)

 

36.7

%

35.7

%

34.9

%

 

 

 

 

 

 

 

 

Institutional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

4,053

 

$

3,655

 

$

6,449

 

$

398

 

11

%

$

(2,396

)

(37

)%

Sales (2)

 

54

 

141

 

153

 

(87

)

(62

)%

(99

)

(65

)%

Redemptions

 

(440

)

(357

)

(1,652

)

(83

)

(23

)%

1,212

 

73

%

Net exchanges

 

25

 

 

 

25

 

NM

 

25

 

NM

 

Net Flows

 

(361

)

(216

)

(1,499

)

(145

)

(67

)%

1,138

 

76

%

Market action

 

195

 

614

 

300

 

(419

)

(68

)%

(105

)

(35

)%

Ending assets

 

$

3,887

 

$

4,053

 

$

5,250

 

$

(166

)

(4

)%

$

(1,363

)

(26

)%

Annualized organic growth rate

 

(35.6

)%

(23.6

)%

(93.0

)%

 

 

 

 

 

 

 

 

Annualized redemption rate (3)

 

46.1

%

36.6

%

115.4

%

 

 

 

 

 

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

40,095

 

$

37,177

 

$

42,707

 

$

2,918

 

8

%

$

(2,612

)

(6

)%

Sales (2)

 

789

 

754

 

1,002

 

35

 

5

%

(213

)

(21

)%

Redemptions

 

(1,609

)

(1,626

)

(1,770

)

17

 

1

%

161

 

9

%

Net exchanges

 

(328

)

(276

)

(284

)

(52

)

(19

)%

(44

)

(15

)%

Net Flows

 

(1,148

)

(1,148

)

(1,052

)

 

%

(96

)

(9

)%

Market action

 

1,497

 

4,066

 

964

 

(2,569

)

(63

)%

533

 

55

%

Ending assets

 

$

40,444

 

$

40,095

 

$

42,619

 

$

349

 

1

%

$

(2,175

)

(5

)%

Annualized organic growth rate

 

(11.5

)%

(12.4

)%

(9.9

)%

 

 

 

 

 

 

 

 

Annualized redemption rate (3)

 

13.8

%

14.5

%

14.4

%

 

 

 

 

 

 

 

 

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

71,654

 

$

65,809

 

$

80,211

 

$

5,845

 

9

%

$

(8,557

)

(11

)%

Sales (2)

 

2,134

 

2,488

 

2,934

 

(354

)

(14

)%

(800

)

(27

)%

Redemptions

 

(4,490

)

(4,289

)

(6,068

)

(201

)

(5

)%

1,578

 

26

%

Net exchanges

 

 

 

 

 

 

 

 

Net Flows

 

(2,356

)

(1,801

)

(3,134

)

(555

)

(31

)%

778

 

25

%

Market action

 

2,578

 

7,646

 

1,574

 

(5,068

)

(66

)%

1,004

 

64

%

Ending assets

 

$

71,876

 

$

71,654

 

$

78,651

 

$

222

 

0

%

$

(6,775

)

(9

)%

Annualized organic growth rate

 

(13.2

)%

(10.9

)%

(15.6

)%

 

 

 

 

 

 

 

 

Annualized redemption rate (3)

 

24.3

%

23.9

%

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 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

 

56

%

40

%

25

%

Assets ranked in top half

 

60

%

59

%

39

%

 

MorningStar Ratings (1)

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

26

%

26

%

20

%

Assets with 4/5 stars

 

46

%

43

%

24

%

 


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

 

 

 

Three Months Ended

 

 

 

Year-over-Year 

 

Wealth Management

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Prior Qtr.

 

Qtr.

 

(in millions)

 

2019

 

2019

 

2018

 

Change

 

%

 

Change

 

%

 

Assets under administration (AUA)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory assets

 

$

24,789

 

$

23,671

 

$

22,868

 

$

1,118

 

5

%

$

1,921

 

8

%

Non-advisory assets

 

32,641

 

32,418

 

34,210

 

223

 

1

%

(1,569

)

(5

)%

Total assets under administration

 

57,430

 

56,089

 

57,078

 

1,341

 

2

%

352

 

1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory assets (1)

 

$

253

 

$

220

 

$

315

 

$

33

 

15

%

$

(62

)

(20

)%

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

 

(885

)

(820

)

(916

)

(65

)

(8

)%

31

 

3

%

Total net new AUA (1), (2)

 

(632

)

(600

)

(601

)

(32

)

(5

)%

(31

)

(5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth (3)

 

4.3

%

4.2

%

5.7

%

 

 

 

 

 

 

 

 

Annualized AUA growth (3)

 

(4.5

)%

(4.7

)%

(4.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisors and advisor associates

 

1,347

 

1,367

 

1,469

 

(20

)

(1

)%

(122

)

(8

)%

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

 

$

408

 

$

400

 

$

314

 

$

8

 

2

%

$

94

 

30

%

 


(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

 

 

 

 

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Prior Qtr.

 

Year-over-Year Qtr.

 

 

 

2019

 

2019

 

2018

 

Change

 

%

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

112,870

 

$

109,762

 

$

130,391

 

$

3,108

 

3

%

$

(17,521

)

(13

)%

Underwriting and distribution fees

 

133,495

 

126,245

 

137,873

 

7,250

 

6

%

(4,378

)

(3

)%

Shareholder service fees

 

23,789

 

23,403

 

27,074

 

386

 

2

%

(3,285

)

(12

)%

Total

 

270,154

 

259,410

 

295,338

 

10,744

 

4

%

(25,184

)

(9

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

116,477

 

109,794

 

114,315

 

6,683

 

6

%

2,162

 

2

%

Compensation and benefits (including share-based compensation of $11,199, $12,693 and $14,902, respectively)

 

61,876

 

64,843

 

65,828

 

(2,967

)

(5

)%

(3,952

)

(6

)%

General and administrative

 

16,037

 

14,704

 

19,143

 

1,333

 

9

%

(3,106

)

(16

)%

Technology

 

16,442

 

16,308

 

17,235

 

134

 

1

%

(793

)

(5

)%

Occupancy

 

6,701

 

6,715

 

6,969

 

(14

)

(0

)%

(268

)

(4

)%

Marketing and advertising

 

2,399

 

1,964

 

2,896

 

435

 

22

%

(497

)

(17

)%

Depreciation

 

5,228

 

6,001

 

5,819

 

(773

)

(13

)%

(591

)

(10

)%

Subadvisory fees

 

3,715

 

3,557

 

3,683

 

158

 

4

%

32

 

1

%

Intangible asset impairment

 

 

 

1,200

 

 

NM

 

(1,200

)

(100

)%

Total

 

228,875

 

223,886

 

237,088

 

4,989

 

2

%

(8,213

)

(3

)%

Operating income

 

41,279

 

35,524

 

58,250

 

5,755

 

16

%

(16,971

)

(29

)%

Investment and other income

 

9,025

 

9,453

 

841

 

(428

)

(5

)%

8,184

 

973

%

Interest expense

 

(1,552

)

(1,548

)

(1,551

)

(4

)

(0

)%

(1

)

(0

)%

Income before provision for income taxes

 

48,752

 

43,429

 

57,540

 

5,323

 

12

%

(8,788

)

(15

)%

Provision for income taxes

 

14,190

 

10,671

 

13,284

 

3,519

 

33

%

906

 

7

%

Net income

 

34,562

 

32,758

 

44,256

 

1,804

 

6

%

(9,694

)

(22

)%

Net income (loss) attributable to redeemable noncontrolling interests

 

614

 

705

 

(222

)

(91

)

(13

)%

836

 

377

%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

33,948

 

$

32,053

 

$

44,478

 

$

1,895

 

6

%

$

(10,530

)

(24

)%

Net income per share, basic and diluted:

 

$

0.45

 

$

0.42

 

$

0.55

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

74,694

 

76,299

 

81,449

 

 

 

 

 

 

 

 

 

Operating margin

 

15.3

%

13.7

%

19.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

24,501

 

23,300

 

28,686

 

 

 

 

 

 

 

 

 

Wealth Management

 

91,976

 

86,494

 

85,629

 

 

 

 

 

 

 

 

 

 

 

$

116,477

 

$

109,794

 

$

114,315

 

 

 

 

 

 

 

 

 

 


 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

 

Six Months Ended

 

 

 

 

 

 

 

Jun. 30,

 

Jun. 30,

 

 

 

 

 

 

 

2019

 

2018

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

222,632

 

$

264,083

 

$

(41,451

)

(16

)%

Underwriting and distribution fees

 

259,740

 

275,914

 

(16,174

)

(6

)%

Shareholder service fees

 

47,192

 

52,956

 

(5,764

)

(11

)%

Total

 

529,564

 

592,953

 

(63,389

)

(11

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

Distribution

 

226,271

 

228,785

 

(2,514

)

(1

)%

Compensation and benefits (including share-based compensation of $23,892 and $29,670, respectively)

 

126,719

 

134,613

 

(7,894

)

(6

)%

General and administrative

 

30,741

 

38,681

 

(7,940

)

(21

)%

Technology

 

32,750

 

33,879

 

(1,129

)

(3

)%

Occupancy

 

13,416

 

13,933

 

(517

)

(4

)%

Marketing and advertising

 

4,363

 

5,177

 

(814

)

(16

)%

Depreciation

 

11,229

 

11,121

 

108

 

1

%

Subadvisory fees

 

7,272

 

7,391

 

(119

)

(2

)%

Intangible asset impairment

 

 

1,200

 

(1,200

)

(100

)%

Total

 

452,761

 

474,780

 

(22,019

)

(5

)%

Operating income

 

76,803

 

118,173

 

(41,370

)

(35

)%

Investment and other income

 

18,478

 

3,657

 

14,821

 

405

%

Interest expense

 

(3,100

)

(3,353

)

253

 

8

%

Income before provision for income taxes

 

92,181

 

118,477

 

(26,296

)

(22

)%

Provision for income taxes

 

24,861

 

28,250

 

(3,389

)

(12

)%

Net income

 

67,320

 

90,227

 

(22,907

)

(25

)%

Net income (loss) attributable to redeemable noncontrolling interests

 

1,318

 

(588

)

1,906

 

324

%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

66,002

 

$

90,815

 

$

(24,813

)

(27

)%

Net income per share, basic and diluted:

 

$

0.87

 

$

1.10

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

75,492

 

82,275

 

 

 

 

 

Operating margin

 

14.5

%

19.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Distribution expense

 

 

 

 

 

 

 

 

 

Unaffiliated

 

47,800

 

59,039

 

 

 

 

 

Wealth Management

 

178,471

 

169,746

 

 

 

 

 

 

 

$

226,271

 

$

228,785

 

 

 

 

 

 


 

Underwriting and distribution fees

(in thousands)

 

 

 

For the three months ended Jun. 30, 2019

 

 

 

Unaffiliated

 

Wealth
Management

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

70,220

 

$

70,220

 

Rule 12b-1 service and distribution fees

 

16,329

 

16,327

 

32,656

 

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

 

488

 

12,302

 

12,790

 

Sales commissions on other products

 

 

8,497

 

8,497

 

Other revenues

 

83

 

9,249

 

9,332

 

Total underwriting and distribution fees

 

$

16,900

 

$

116,595

 

$

133,495

 

 

 

 

For the three months ended Mar. 31, 2019

 

 

 

Unaffiliated

 

Wealth
Management

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

65,230

 

$

65,230

 

Rule 12b-1 service and distribution fees

 

16,182

 

15,688

 

31,870

 

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

 

438

 

12,020

 

12,458

 

Sales commissions on other products

 

 

7,606

 

7,606

 

Other revenues

 

92

 

8,989

 

9,081

 

Total underwriting and distribution fees

 

$

16,712

 

$

109,533

 

$

126,245

 

 

 

 

For the three months ended Jun. 30, 2018

 

 

 

Unaffiliated

 

Wealth
Management

 

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 six months ended Jun. 30, 2019

 

 

 

Unaffiliated

 

Wealth
Management

 

Total

 

Fee-based asset allocation product revenues

 

$

 

$

135,450

 

$

135,450

 

Rule 12b-1 service and distribution fees

 

32,511

 

32,015

 

64,526

 

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

 

926

 

24,322

 

25,248

 

Sales commissions on other products

 

 

16,103

 

16,103

 

Other revenues

 

175

 

18,238

 

18,413

 

Total underwriting and distribution fees

 

$

33,612

 

$

226,128

 

$

259,740

 

 

 

 

For the six months ended Jun. 30, 2018

 

 

 

Unaffiliated

 

Wealth
Management

 

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

 

 


 

Unaudited Condensed Balance Sheet

(in thousands)

 

 

 

Jun. 30,

 

Dec. 31,

 

 

 

2019

 

2018

 

Assets

 

 

 

 

 

Cash & cash equivalents (unrestricted)

 

$

168,926

 

$

231,997

 

Investment securities

 

697,903

 

617,135

 

Other assets

 

201,955

 

285,649

 

Property and equipment, net

 

54,029

 

63,429

 

Goodwill and intangible assets

 

145,869

 

145,869

 

Total assets

 

$

1,268,682

 

$

1,344,079

 

Liabilities, redeemable noncontrolling interests and equity

 

 

 

 

 

Long-term debt

 

94,890

 

94,854

 

Other liabilities

 

302,021

 

354,312

 

Redeemable noncontrolling interests

 

15,115

 

11,463

 

Total stockholders’ equity

 

856,656

 

883,450

 

Liabilities, redeemable noncontrolling interests and equity

 

$

1,268,682

 

$

1,344,079

 

Shares outstanding

 

73,712

 

76,790

 

 

Unaudited Condensed Cash Flow

(in thousands)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Jun. 30,

 

Jun. 30,

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

40,644

 

$

(17,497

)

$

122,816

 

$

23,147

 

$

173,081

 

Investing activities

 

9,946

 

(13,933

)

(6,541

)

(3,987

)

49,731

 

Financing activities

 

(53,605

)

(59,513

)

(60,557

)

(113,118

)

(192,505

)

Net change during period

 

$

(3,015

)

$

(90,943

)

$

55,718

 

$

(93,958

)

$

30,307

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Jun. 30,

 

Jun. 30,

 

(in thousands, except number of shares)

 

2019

 

2019

 

2018

 

2019

 

2018

 

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

2,142,894

 

2,226,325

 

2,098,625

 

4,369,219

 

3,094,934

 

Total cost

 

$

36,824

 

$

39,139

 

$

40,142

 

$

75,963

 

$

60,649

 

Dividend paid

 

 

 

 

 

 

 

 

 

 

 

Rate per share

 

$

0.25

 

$

0.25

 

$

0.25

 

$

0.25

 

$

0.25

 

Total paid

 

$

18,840

 

$

19,348

 

$

20,591

 

$

38,188

 

$

41,481

 

Capital returned to stockholders

 

$

55,664

 

$

58,487

 

$

60,733

 

$

114,151

 

$

102,130

 

 


 

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, Corporate Controller & 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, 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 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, 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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