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

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):

October 27, 2020

 

WADDELL & REED FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

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

 

6300 Lamar Avenue

Overland Park, Kansas 66202

(Address of Principal Executive Offices) (Zip Code)

 

(913) 236-2000

(Registrant’s telephone number, including area code)

 

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Emerging growth company  ¨

 

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

 

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

 

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

 

 

 

 

 

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

On October 27, 2020, Waddell & Reed Financial, Inc. (the "Company") issued a press release announcing the Company's financial results for the fiscal quarter ended September 30, 2020 (the “Press Release”). A copy of the Press Release is furnished as Exhibit 99.1 and incorporated herein by reference.

 

ITEM 9.01FINANCIAL STATEMENTS AND EXHIBITS.

 

(d)       Exhibits.

 

Exhibit No. Description
   
99.1 Press Release dated October 27, 2020
   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

 

 

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 27, 2020 By: /s/ Benjamin R. Clouse
    Senior Vice President and Chief Financial Officer

 

 

 

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

 

 

News Release

Waddell & Reed Financial, Inc. Reports Third Quarter Results

 

Overland Park, KS, October 27, 2020 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported third quarter 2020 net income1 of $30.5 million, or $0.48 per diluted share, compared to net income of $24.8 million, or $0.38 per diluted share, during the prior quarter and net income of $33.1 million, or $0.46 per diluted share, during the third quarter of 2019. The third quarter of 2019 included $3.1 million in severance expense related to the outsourcing of our transfer agency transactional processing operations. Excluding the severance expense, adjusted net income for the third quarter of 2019 was $35.4 million and adjusted net income per diluted share was $0.492.

 

Highlights

 

·Strong financial performance, with 11.5% increase in revenues compared to the prior quarter due to higher average assets benefiting both Investment Management revenues and Wealth Management Advisory revenues
·Continued execution of strategic initiatives in Asset Management, with average Assets Under Management (AUM) up 10% compared to the prior quarter
oBoth sales and redemptions improved vs. the same quarter in 2019, particularly in institutional and unaffiliated
oContinued progress in strategic pricing evaluation, with 75% of AUM at or better than competitor median fees
·Successful quarter for Wealth Management recruiting and asset growth
oNet new Assets Under Administration3 (AUA) continue to improve, and net new Advisory AUA were positive for the 7th consecutive quarter
oSince January 1, 2020, 32 advisors have affiliated with Waddell & Reed with combined prior firm AUA totaling over $1.9 billion
o$474 thousand average trailing 12-month productivity per Advisor for the third quarter of 2020 improved 2% and 12% compared to the prior quarter and the third quarter of 2019, respectively
·Robust balance sheet continued to support investment in strategic growth and meaningful capital return
o$744.6 million in cash and investments at the end of the third quarter of 20204
o$56.3 million was returned to shareholders in the third quarter of 2020, including $40.1 million of share repurchases
·Hired two executives focused on strategic growth – one to lead the technology teams dedicated to leveraging technology as a strategic asset across the organization, and one to develop and lead strategies in support of best-in-class client and advisor experience, processes and procedures

 

Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “I am pleased with the progress in transforming our wealth management business this quarter with continued recruiting success, growth in advisory assets and further advancement of our technologies.  At the same time, flows within our asset management business improved compared to the prior year, and our teams are seeing solid engagement across our distribution network.”  Mr. Sanders continued, “While the operating environment remains challenging, we are as focused as ever on partnering with clients to help them realize their long-term financial goals through superior investment performance, advice and client service.”

 

 

 

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

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

3 Net new advisory AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.

4 Excluding restricted cash

 

 

 

 

Consolidated Financial Results  Three Months Ended   Nine Months Ended 
   Sep. 30,   Jun. 30,   Sep. 30,   Sep. 30,   Sep. 30, 
   2020   2020   2019   2020   2019 
GAAP basis (in thousands, except per share data):                    
Revenue  $267,670   $240,034   $270,680   $771,437   $800,244 
Operating expenses  $230,035   $216,407   $230,656   $670,784   $683,417 
Operating income  $37,635   $23,627   $40,024   $100,653   $116,827 
Operating margin   14.1%   9.8%   14.8%   13.0%   14.6%
Controllable expenses1  $101,352   $102,034   $104,516   $300,516   $312,505 
Net income  $30,523   $24,824   $33,054   $77,333   $99,056 
Net income per share, basic and diluted  $0.48   $0.38   $0.46   $1.18   $1.33 
As adjusted2 (in thousands, except per share data)                         
Revenue  $267,670   $240,034   $270,680   $771,437   $800,244 
Operating expenses  $230,035   $216,407   $227,575   $670,784   $680,336 
Operating income  $37,635   $23,627   $43,105   $100,653   $119,908 
Operating margin   14.1%   9.8%   15.9%   13.0%   15.0%
Controllable expenses  $101,352   $102,034   $101,435   $300,516   $309,424 
Net income  $30,523   $24,824   $35,396   $77,333   $101,398 
Net income per share, basic and diluted  $0.48   $0.38   $0.49   $1.18   $1.36 
Assets under management (in millions)  $67,869   $64,966   $68,782   $67,869   $68,782 
Average assets under management (in millions)  $67,946   $61,718   $70,527   $65,272   $70,667 
Assets under administration (in millions)  $62,694   $58,991   $57,113   $62,694   $57,113 
Average assets under administration (in millions)  $61,400   $55,181   $57,411   $58,583   $55,770 

 

Financial Summary

 

Revenues totaled $267.7 million for the quarter, an increase of $27.6 million, compared to the prior quarter and a decrease of $3.0 million compared to the third quarter of 2019. Operating expenses for the quarter of $230.0 million increased $13.6 million compared to the second quarter of 2020 and decreased $0.6 million compared to the third quarter of 2019. Adjusted operating expenses2 increased $2.5 million compared to the third quarter of 2019. The operating margin was 14.1% during the current quarter, compared to 9.8% and 14.8% during the prior quarter and the third quarter of 2019, respectively. The adjusted operating margin2 was 15.9% during the third quarter of 2019.

 

AUM ended the quarter at $67.9 billion, an increase of 4% compared to the prior quarter primarily due to market appreciation and a decrease of 1% compared to the third quarter of 2019. Average AUM were $67.9 billion during the current quarter, compared to $61.7 billion during the prior quarter and $70.5 billion during the third quarter of 2019. Net outflows of $1.8 billion during the current quarter were higher compared to net outflows of $1.4 billion in the prior quarter and were lower compared to net outflows of $2.7 billion in the third quarter of 2019. Sales of $1.8 billion during the current quarter decreased 17% compared to the prior quarter and increased 2% compared to the third quarter of 2019. Redemptions were slightly better compared to the prior quarter and were 19% better compared to the third quarter of 2019.

 

Wealth management AUA ended the quarter at $62.7 billion, an increase of 6% and 10%, compared to the second quarter of 2020 and the third quarter of 2019, respectively. Average AUA were $61.4 billion during the current quarter, compared to $55.2 billion during the prior quarter and $57.4 billion during the third quarter of 2019. Net new advisory

AUA was $437.3 million, as advisory products continue to drive the majority of new sales. Non-advisory asset flows continue to be negative, experiencing an increase in outflows compared to the prior quarter and reduced outflows compared to the same quarter in 2019.

 

 

 

1 Controllable expenses defined as compensation and benefits, general and administrative, occupancy, technology, and marketing and advertising costs

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

 

 

 

 

Revenues Analysis

 

Investment management fees increased $10.8 million, or 11%, compared to the second quarter of 2020 due to a 10% increase in average AUM and one additional day in the quarter partially offset by additional money market fee waivers. The effective management fee rate for the current quarter was 62.4 basis points remaining consistent with the prior quarter’s rate. Compared to the third quarter of 2019, investment management fees declined $5.2 million, or 5%, primarily due to lower average AUM and a lower effective management fee rate due to targeted fee reductions made in previous periods and money market fee waivers.

 

Underwriting and distribution fees increased $15.8 million, or 13%, compared to the prior quarter due to higher advisory fees and higher service and distribution fees due to higher asset levels. In addition, sales commissions were $2.7 million higher compared to the prior quarter as a result of increased sales activity across insurance product lines. Compared to the same quarter in 2019, underwriting and distribution fees increased $3.7 million, or 3%, due to increased advisory fees from higher asset levels, partially offset by lower sales commissions and lower service and distribution fees from lower asset levels.

 

Shareholder service fees increased $1.0 million, or 5%, compared to the second quarter of 2020 primarily due to an increase in average assets and one additional day in the quarter. Compared to the third quarter of 2019, shareholder service fees declined $1.5 million, or 6%, due to a decrease in average assets and fewer accounts. There was also a reduction in fund reimbursement revenues related to the outsourcing of our transfer agency transactional processing operations which was offset by lower costs.

 

Operating Expenses Analysis

 

Controllable expenses decreased $0.7 million and $3.2 million compared to the prior quarter and the third quarter of 2019, respectively as investment in targeted growth areas of our strategy continue.

 

Distribution expenses increased $14.3 million, or 13%, compared to the prior quarter and increased $4.8 million, or 4%, compared to the third quarter of 2019 as a result of the increase in underwriting and distribution revenue. The expense increase compared to the third quarter of 2019 was larger than the revenue increase primarily due to an increase in the average advisor payout rate from continued increases in production.

 

Compensation and benefits expense increased $0.6 million, or 1%, compared to the prior quarter primarily due to an increase in base salaries and benefits expense due to an increase in headcount. These increases were partially offset by mark-to-market adjustments on equity-based compensation. Compared to the third quarter of 2019, compensation and benefits expense decreased $2.6 million, or 4%, due to severance paid related to the outsourcing of our transfer agency transactional processing operations in the third quarter of 2019, lower costs from reduced headcount and lower equity-based compensation. These decreases were partially offset by mark-to-market adjustments on deferred compensation plans.

 

General and administrative expenses decreased $1.4 million, or 7%, compared to the second quarter of 2020 primarily due to lower meeting costs. Compared to the same quarter in 2019, general and administrative expenses increased $2.5 million, or 15%, due to a shift of our transfer agency transactional processing operations costs from technology expenses to general and administrative expenses as a result of outsourcing and increased strategic project spending, partially offset by lower travel and meetings costs.

 

Technology costs were consistent with the prior quarter as higher software costs for new technologies were offset by lower technology consulting costs. Technology costs decreased $0.8 million, or 5%, compared to the third quarter of 2019 as costs related to the transfer agency transactional processing operations outsourcing were shifted to general and administrative expenses. This decrease was partially offset by increased consulting and software costs for new technologies.

 

Occupancy expenses decreased $0.1 million, or 3%, compared to the prior quarter and decreased $1.5 million, or 27%, compared to the third quarter of 2019. For both comparative periods, occupancy costs decreased as a result of the planned transition out of corporate field offices in our wealth manager.

 

 

 

 

Marketing and advertising expenses increased slightly compared to the prior quarter and decreased $0.8 million, or 36%, compared to the third quarter of 2019 primarily due to lower sponsorship fees in connection with the shift to virtual industry conferences.

 

Depreciation expense declined slightly compared to the prior quarter and declined $1.8 million, or 38%, compared to the third quarter of 2019 due to capitalized software development assets becoming fully depreciated.

 

Investment and Other Income

 

Investment and other income decreased $9.7 million compared to the prior quarter due to lower unrealized gains, net of hedging activity, on the seed and corporate investment portfolios and an increase in pension expense as a result of the pension plan liquidation in the third quarter of 2020. Compared to the third quarter of 2019, investment and other income increased slightly as higher unrealized gains, net of hedging activity, on the seed and corporate investment portfolio were offset by an increase in pension expense due to the plan liquidation and a decline in interest income for the corporate investment portfolio.

 

The effective tax rate was 24.8% and was consistent with the prior quarter’s rate of 25.3%. Compared to the third quarter of 2019, the rate increased slightly, primarily due to increased state taxes as a result of additional filings in the current quarter.

 

 

 

 

AUM

(in millions)

 

   Three Months Ended                 
   Sep. 30,   Jun. 30,   Sep. 30,   Prior Qtr.   Year-over-Year Qtr. 
   2020   2020   2019   Change   %   Change   % 
Unaffiliated1                                   
Beginning assets  $23,724   $20,244   $27,545   $3,480    17%  $(3,821)   (14)%
Sales2   1,127    1,490    999    (363)   (24)%   128    13%
Redemptions   (1,977)   (2,179)   (2,684)   202    9%   707    26%
Net exchanges   239    205    334    34    17%   (95)   (28)%
Net Flows   (611)   (484)   (1,351)   (127)   (26)%   740    55%
Market action   1,755    3,964    (337)   (2,209)   (56)%   2,092    621%
Ending assets  $24,868   $23,724   $25,857   $1,144    5%  $(989)   (4)%
Annualized organic growth rate   (10.3)%   (9.6)%   (19.6)%                    
Annualized redemption rate3   32.3%   39.9%   40.9%                    
Institutional                                   
Beginning assets  $2,997   $2,427   $3,887   $570    23%  $(890)   (23)%
Sales2   59    52    49    7    13%   10    20%
Redemptions   (165)   (202)   (230)   37    18%   65    28%
Net exchanges       22        (22)   NM        NM%
Net Flows   (106)   (128)   (181)   22    17%   75    41%
Market action   297    698    (29)   (401)   (57)%   326    1,124%
Ending assets  $3,188   $2,997   $3,677   $191    6%  $(489)   (13)%
Annualized organic growth rate   (14.1)%   (21.1)%   (18.6)%                    
Annualized redemption rate3   20.5%   28.6%   23.9%                    
Wealth Management                                   
Beginning assets  $38,245   $33,339   $40,444   $4,906    15%  $(2,199)   (5)%
Sales2   634    649    744    (15)   (2)%   (110)   (15)%
Redemptions   (1,488)   (1,259)   (1,542)   (229)   (18)%   54    4%
Net exchanges   (239)   (227)   (334)   (12)   (5)%   95    28%
Net Flows   (1,093)   (837)   (1,132)   (256)   (31)%   39    3%
Market action   2,661    5,743    (64)   (3,082)   (54)%   2,725    4,258%
Ending assets  $39,813   $38,245   $39,248   $1,568    4%  $565    1%
Annualized organic growth rate   (11.4)%   (10.0)%   (11.2)%                    
Annualized redemption rate3   13.1%   11.6%   13.4%                    
Consolidated Total                                   
Beginning assets  $64,966   $56,010   $71,876   $8,956    16%  $(6,910)   (10)%
Sales2   1,820    2,191    1,792    (371)   (17)%   28    2%
Redemptions   (3,630)   (3,640)   (4,456)   10    %   826    19%
Net exchanges                            
Net Flows   (1,810)   (1,449)   (2,664)   (361)   (25)%   854    32%
Market action   4,713    10,405    (430)   (5,692)   (55)%   5,143    1,196%
Ending assets  $67,869   $64,966   $68,782   $2,903    4%  $(913)   (1)%
Annualized organic growth rate   (11.1)%   (10.3)%   (14.8)%                    
Annualized redemption rate3   20.5%   22.6%   24.3%                    

 

 

 

1 Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity.

2 Sales consist of gross sales and includes net reinvested dividends, capital gains and investment income.

3 Excludes Money Market.

 

 

 

 

 

MorningStar Fund Rankings1  1 Year   3 Years   5 Years 
Funds ranked in top half   49%   49%   39%
Assets ranked in top half   43%   52%   47%

 

MorningStar Ratings1  Overall   3 Years   5 Years 
Funds with 4/5 stars   26%   28%   19%
Assets with 4/5 stars   40%   42%   35%

 

 

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

 

   Three Months Ended                 
Wealth Management  Sep. 30,   Jun. 30,   Sep. 30,   Prior Qtr.   Year-over-Year Qtr. 
(in millions)  2020   2020   2019   Change   %   Change   % 
AUA                            
Ending advisory AUA  $29,330   $27,155   $25,107   $2,175    8%  $4,223    17%
Ending non-advisory AUA   33,364    31,836    32,006    1,528    5%   1,358    4%
Ending total AUA   62,694    58,991    57,113    3,703    6%   5,581    10%
                                    
Average advisory AUA 1  $28,502   $25,030   $24,921   $3,472    14%  $3,581    14%
Average non-advisory AUA 1   32,898    30,151    32,490    2,747    9%   408    1%
Average AUA 1   61,400    55,181    57,411    6,219    11%   3,989    7%
                                    
Net new advisory AUA 2  $437   $189   $328   $248    131%  $109    33%
Net new non-advisory AUA 2, 3   (475)   (346)   (720)   (129)   (37)%   245    34%
Total net new AUA 2, 3   (38)   (157)   (392)   119    76%   354    90%
                                    
Annualized advisory AUA growth 4   6.4%   3.3%   5.3%                    
Annualized AUA growth 4   (0.3)%   (1.2)%   (2.7)%                    
                                    
Advisors and advisor associates   1,313    1,317    1,344    (4)   %   (31)   (2)%
Avg. trailing 12-month revenue per
advisor 5 (in thousands)
  $474   $464   $422   $10    2%  $52    12%

 

 

1Average AUA are calculated as the average of the beginning of month AUA during each reporting period.
2Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.
3Excludes activity related to products held outside of our wealth management platform.  These assets represent less than 10% of total AUA.
4Annualized growth is calculated as annualized quarterly net new AUA divided by beginning AUA.
5Production 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                 
   Sep. 30,   Jun. 30,   Sep. 30,   Prior Qtr.   Year-over-Year Qtr. 
   2020   2020   2019   Change   %   Change   % 
Revenues:                                   
Investment management fees  $106,617   $95,824   $111,806   $10,793    11%  $(5,189)   (5)%
Underwriting and distribution fees   139,456    123,633    135,787    15,823    13%   3,669    3%
Shareholder service fees   21,597    20,577    23,087    1,020    5%   (1,490)   (6)%
Total   267,670    240,034    270,680    27,636    12%   (3,010)   (1)%
Operating expenses:                                   
Distribution1    122,195    107,876    117,425    14,319    13%   4,770    4%
Compensation and benefits (including share-based compensation of $11,080, $12,532 and $11,580, respectively)   62,416    61,863    64,999    553    1%   (2,583)   (4)%
General and administrative   19,156    20,524    16,680    (1,368)   (7)%   2,476    15%
Technology   14,250    14,237    15,019    13    0%   (769)   (5)%
Occupancy   4,160    4,291    5,684    (131)   (3)%   (1,524)   (27)%
Marketing and advertising   1,370    1,119    2,134    251    22%   (764)   (36)%
Depreciation   2,998    3,209    4,833    (211)   (7)%   (1,835)   (38)%
Subadvisory fees   3,490    3,288    3,882    202    6%   (392)   (10)%
Total   230,035    216,407    230,656    13,628    6%   (621)   %
Operating income   37,635    23,627    40,024    14,008    59%   (2,389)   (6)%
Investment and other income   5,449    15,148    5,212    (9,699)   (64)%   237    5%
Interest expense   (1,542)   (1,539)   (1,562)   (3)   %   20    1%
Income before provision for income taxes   41,542    37,236    43,674    4,306    12%   (2,132)   (5)%
Provision for income taxes   10,296    9,412    10,175    884    9%   121    1%
Net income   31,246    27,824    33,499    3,422    12%   (2,253)   (7)%
Net income attributable to redeemable noncontrolling interests   723    3,000    445    (2,277)   (76)%   278    62%
Net income attributable to Waddell & Reed Financial, Inc.  $30,523   $24,824   $33,054   $5,699    23%  $(2,531)   (8)%
Net income per share, basic and diluted:  $0.48   $0.38   $0.46                     
Weighted average shares outstanding - basic and diluted   64,240    65,488    72,387                     
Operating margin   14.1%   9.8%   14.8%                    
                                    
1Distribution expense                                   
Unaffiliated   22,733    20,587    24,068                     
Wealth Management   99,462    87,289    93,357                     
   $122,195   $107,876   $117,425                     

 

 

 

 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

   Nine Months Ended         
   Sep. 30,   Sep. 30,     
   2020   2019   Change   % 
Revenues:                
Investment management fees  $307,660   $334,438   $(26,778)   (8)%
Underwriting and distribution fees   400,032    395,527    4,505    1%
Shareholder service fees   63,745    70,279    (6,534)   (9)%
Total   771,437    800,244    (28,807)   (4)%
Operating expenses:                    
Distribution1    350,104    343,696    6,408    2%
Compensation and benefits (including share-based compensation of $33,595 and $35,471, respectively)   182,704    191,718    (9,014)   (5)%
General and administrative   58,278    47,421    10,857    23%
Technology   41,989    47,769    (5,780)   (12)%
Occupancy   13,160    19,100    (5,940)   (31)%
Marketing and advertising   4,385    6,497    (2,112)   (33)%
Depreciation   9,720    16,062    (6,342)   (39)%
Subadvisory fees   10,444    11,154    (710)   (6)%
Total   670,784    683,417    (12,633)   (2)%
Operating income   100,653    116,827    (16,174)   (14)%
Investment and other income   12,852    23,690    (10,838)   (46)%
Interest expense   (4,630)   (4,662)   32    1%
Income before provision for income taxes   108,875    135,855    (26,980)   (20)%
Provision for income taxes   29,341    35,036    (5,695)   (16)%
Net income   79,534    100,819    (21,285)   (21)%
Net income attributable to redeemable noncontrolling interests   2,201    1,763    438    25%
Net income attributable to Waddell & Reed Financial, Inc.  $77,333   $99,056   $(21,723)   (22)%
Net income per share, basic and diluted:  $1.18   $1.33           
Weighted average shares outstanding - basic and diluted   65,795    74,446           
Operating margin   13.0%   14.6%          
                     
1Distribution expense                    
Unaffiliated   66,944    73,326           
Wealth Management   283,160    270,370           
   $350,104   $343,696           

 

 

 

 

Underwriting and distribution fees

(in thousands)

 

   For the three months ended Sep. 30, 2020 
   Unaffiliated   Wealth
Management
   Total 
Advisory fees  $   $82,591   $82,591 
Service and distribution fees   14,623    15,305    29,928 
Sales commissions   223    17,847    18,070 
Other revenues   82    8,785    8,867 
Total underwriting and distribution fees  $14,928   $124,528   $139,456 

 

   For the three months ended Jun. 30, 2020 
   Unaffiliated   Wealth
Management
   Total 
Advisory fees  $   $72,534   $72,534 
Service and distribution fees   13,670    13,600    27,270 
Sales commissions   373    15,034    15,407 
Other revenues   91    8,331    8,422 
Total underwriting and distribution fees  $14,134   $109,499   $123,633 

 

   For the three months ended Sep. 30, 2019 
   Unaffiliated   Wealth
Management
   Total 
Advisory fees  $   $73,356   $73,356 
Service and distribution fees   16,286    16,143    32,429 
Sales commissions   364    20,544    20,908 
Other revenues   67    9,027    9,094 
Total underwriting and distribution fees  $16,717   $119,070   $135,787 

 

   For the nine months ended Sep. 30, 2020 
   Unaffiliated   Wealth
Management
   Total 
Advisory fees  $   $232,243   $232,243 
Service and distribution fees   43,569    43,494    87,063 
Sales commissions   1,047    53,538    54,585 
Other revenues   308    25,833    26,141 
Total underwriting and distribution fees  $44,924   $355,108   $400,032 

 

   For the nine months ended Sep. 30, 2019 
   Unaffiliated   Wealth
Management
   Total 
Advisory fees  $   $208,806   $208,806 
Service and distribution fees   49,366    47,589    96,955 
Sales commissions   1,300    60,959    62,259 
Other revenues   242    27,265    27,507 
Total underwriting and distribution fees  $50,908   $344,619   $395,527 

 

 

 

 

 

 

 

 

 

 

 

 

  

Unaudited Condensed Balance Sheet

(in thousands)

 

   Sep. 30,   Dec. 31, 
   2020   2019 
Assets          
Cash & cash equivalents (unrestricted)  $165,259   $151,815 
Investment securities   579,344    688,346 
Other assets   207,745    245,572 
Property and equipment, net   27,213    34,726 
Goodwill and intangible assets   145,869    145,869 
Total assets  $1,125,430   $1,266,328 
Liabilities, redeemable noncontrolling interests and equity          
Short-term notes payable  $94,980   $ 
Long-term debt       94,926 
Other liabilities   282,939    343,300 
Redeemable noncontrolling interests       19,205 
Total stockholders’ equity   747,511    808,897 
Liabilities, redeemable noncontrolling interests and equity  $1,125,430   $1,266,328 
Shares outstanding   62,548    68,847 

  

Unaudited Condensed Cash Flow

(in thousands)

 

   Three Months Ended   Nine Months Ended 
   Sep. 30,   Jun. 30,   Sep. 30,   Sep. 30,   Sep. 30, 
   2020   2020   2019   2020   2019 
Cash provided by (used in):                         
Operating activities  $63,222   $(526)  $61,084   $91,972   $84,231 
Investing activities   18,084    20,430    (14,173)   66,208    (18,160)
Financing activities   (55,634)   (32,123)   (58,591)   (157,128)   (171,709)
Net change during period  $25,672   $(12,219)  $(11,680)  $1,052   $(105,638)

 

  

 

Three Months Ended

   Nine Months Ended 
   Sep. 30,   Jun. 30,   Sep. 30,   Sep. 30,   Sep. 30, 
(in thousands, except number of shares)  2020   2020   2019   2020   2019 
Shares repurchased                    
Number of shares   2,617,108    1,468,367    2,480,019    7,892,913    6,849,238 
Total cost  $40,052   $18,061   $40,715   $112,052   $116,677 
Dividend paid                         
Rate per share  $0.25   $0.25   $0.25   $0.75   $0.75 
Total paid  $16,292   $16,528   $18,372   $49,939   $56,560 
Capital returned to stockholders  $56,344   $34,589   $59,087   $161,991   $173,237 

 

 

Non-GAAP Financial Measures

 

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

 

 

 

 

 

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

 

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

 

   Three Months Ended   Nine Months Ended 
   Sep. 30,   Jun. 30,   Sep. 30,   Sep. 30,   Sep. 30, 
   2020   2020   2019   2020   2019 
Net income attributable to Waddell & Reed Financial, Inc. (GAAP)  $30,523   $24,824   $33,054   $77,333   $99,056 
Adjustments                         
Severance           3,081        3,081 
Tax effect of adjustments           (739)       (739)
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP)  $30,523   $24,824   $35,396   $77,333   $101,398 
                          
Weighted average shares outstanding - basic and diluted   64,240    65,488    72,387    65,795    74,446 
Adjusted net income per share, basic and diluted (non-GAAP):  $0.48   $0.38   $0.49   $1.18   $1.36 
                          
Controllable expenses (GAAP)  $101,352   $102,034   $104,516   $300,516   $312,505 
Adjustments                         
Severance           (3,081)       (3,081)
Adjusted controllable expenses (non-GAAP)   101,352    102,034    101,435    300,516    309,424 
                          
Operating expenses (GAAP)  $230,035   $216,407   $230,656   $670,784   $683,417 
Adjustments                         
Severance           (3,081)       (3,081)
Adjusted operating expenses (non-GAAP)   230,035    216,407    227,575    670,784    680,336 
                          
Operating income (GAAP)  $37,635   $23,627   $40,024   $100,653   $116,827 
Adjustments                         
Severance           3,081        3,081 
Adjusted operating income (non-GAAP)  $37,635   $23,627   $43,105   $100,653   $119,908 
                          
Operating revenue  $267,670   $240,034   $270,680   $771,437   $800,244 
Operating margin (GAAP)   14.1%   9.8%   14.8%   13.0%   14.6%
Adjusted operating margin (non-GAAP)   14.1%   9.8%   15.9%   13.0%   15.0%

 

Earnings Conference Call

 

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

 

Web Site Resources

 

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

 

 

 

 

Contacts

 

Investor Contact:

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

 

Mutual Fund Investor Contact:

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

 

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

 

About the Company

 

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

 

Forward-Looking Statements

 

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to revenues and earnings, the amount and composition of assets under management and assets under administration, distribution sources, expense levels, redemption rates, stock repurchases and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to the impact of the COVID-19 pandemic and related economic conditions, as well as the factors 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, 2019, which include, without limitation:

 

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

 

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

 

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

 

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

 

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

 

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

 

 

 

 

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

 

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

 

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

 

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

 

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

 

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission, including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10- K for the year ended December 31, 2019 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2020. 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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