WDR
$16.32
Waddell & Reed Financial
($.24)
(1.45%)
Earnings Details
3rd Quarter September 2020
Tuesday, October 27, 2020 6:45:00 AM
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Summary

Waddell & Reed Financial (WDR) Reports 3rd Quarter Earnings

Waddell & Reed Financial (WDR) reported 3rd Quarter September 2020 earnings of $0.48 per share on revenue of $267.7 million. The consensus earnings estimate was $0.41 per share on revenue of $253.7 million. Revenue fell 1.1% compared to the same quarter a year ago.

Waddell & Reed Financial, Inc., is engaged in providing investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds and institutional and separately managed accounts.

Results
Reported Earnings
$0.48
Earnings Whisper
-
Consensus Estimate
$0.41
Reported Revenue
$267.7 Mil
Revenue Estimate
$253.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Waddell & Reed Financial, Inc. Reports Third Quarter Results

OVERLAND PARK, Kan.--(BUSINESS WIRE)--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
    • Both sales and redemptions improved vs. the same quarter in 2019, particularly in institutional and unaffiliated
    • Continued 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
    • Net new Assets Under Administration3 (AUA) continue to improve, and net new Advisory AUA were positive for the 7th consecutive quarter
    • Since January 1, 2020, 32 advisors have affiliated with Waddell & Reed with combined prior firm AUA totaling over $1.9 billion
    • $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
    • $744.6 million in cash and investments at the end of the third quarter of 20204
    • $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

%

_____________________

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

 

 

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

%

_________________________

1 

Average AUA are calculated as the average of the beginning of month AUA during each reporting period.

2 

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

3 

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

4 

Annualized growth is calculated as annualized quarterly net new AUA divided by beginning AUA.

5 

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

 

 

 

 

 

 

 

 

 

 

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.

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.

Investor Contact:
Mike Daley, Vice President, Chief Accounting Officer & Investor Relations, (913) 236-1795, mdaley1@waddell.com

Mutual Fund Investor Contact:
Call (888) WADDELL, or visit www.waddell.com or www.ivyinvestments.com.

Source: Waddell & Reed Financial, Inc.