OVERLAND PARK, Kan.--(BUSINESS WIRE)-- Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter 2016 net income1 of $22.4 million, or $0.27 per diluted share, compared to net income of $53.8 million, or $0.65 per diluted share, during the prior quarter and net income of $62.9 million, or $0.76 per diluted share, during the fourth quarter of 2015. Net income for the year ended December 31, 2016 was $146.9 million, or $1.78 per diluted share, compared to net income of $245.5 million, or $2.94 per diluted share, for the year ended December 31, 2015.
Fourth quarter 2016 net income, adjusted for certain charges, was $40.0 million, or $0.48 per diluted share, compared to net income, adjusted for certain charges, of $53.3 million, or $0.64 per diluted share, during the third quarter of 2016. For the year ended December 31, 2016, net income, adjusted for certain charges, was $177.1 million, or $2.14 per diluted share. A detailed schedule reconciling non-GAAP financial measures to GAAP net income and earnings per diluted share is provided in the “Adjusted Results” tables at the end of this release.
Business Discussion
Flow pressure lessened during the quarter with net outflows of $4.4 billion comparing favorably to both the prior quarter and to the fourth quarter of 2015. Sales rose every month during the quarter, improving 8% compared to the third quarter. However, sales for the year remain at a multi-year low and, while we have made progress, there remains a need for continued improvement. Assets under management ended the year at $81 billion, declining 5% during the quarter and 23% compared to December 31, 2015.
We successfully implemented a cost reduction program in 2016, which led to a 9% year-over-year reduction in operating costs. Several charges were incurred during the year, which added $48 million to 2016 operating costs, making our anticipated run-rate for 2017 even more favorable. These costs included severance charges, a pension settlement charge, and the impairment of intangible assets, and were partly offset by a curtailment gain on our post-retirement medical benefit plan. We also incurred costs for the implementation of Project E and costs for the implementation of the Department of Labor’s fiduciary standard rule, which will continue into 2017 but then subside.
“Our entire organization is committed to strengthening our competitive position during this period of unprecedented change in our industry,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. “We are focused on all aspects of our business, including organizational structure, operational efficiencies, product offerings, and fee levels.”
Management Fee Revenue Analysis
Management fees declined 4% sequentially, while average assets under management declined 6%. Fees declined at a lesser rate than average assets under management due to an increase in the effective fee rate, which was a result of a mix-shift within the asset base. Compared to the same quarter last year, management fees declined 20%, while average assets under management declined 25%. The loss of $7.5 billion in institutional assets, which had a low fee rate, as well as a mix-shift in the retail asset base led revenues to decline at a lesser rate than average assets under management.
Average assets under management were $82 billion during the current quarter, compared to $87 billion during the prior quarter and $109 billion during the same period in 2015. The effective fee rate for the current quarter was 64.4 basis points compared to 63.6 basis points and 60.6 basis points during the third quarter of 2016 and fourth quarter of 2015, respectively.
Underwriting and Distribution Analysis
Underwriting and Distribution Revenues
Revenues declined 2% sequentially due to lower asset-based Rule 12b-1 service and distribution fees in our retail unaffiliated channel resulting from a decline in asset levels. Compared to the same period last year, revenues declined 17% due to lower asset-based Rule 12b-1 fees in our retail unaffiliated channel, as well as the impact of the third quarter’s share conversion of load-waived Class A shares, previously offered in our advisory products, to Class I shares, which do not charge Rule 12b-1 fees.
Underwriting and Distribution Costs
Costs rose 7% compared to the third quarter. Direct costs declined 3% in correlation with the decrease in revenues, while indirect costs rose 33%. Several items contributed to the increase in indirect costs, including the pension settlement charge, the curtailment gain due to an amendment to our post-retirement medical benefit plan during the prior quarter and, to a lesser degree, severance costs associated with the realignment of our retail unaffiliated and institutional distribution channels.
Compared to the fourth quarter of 2015, costs declined 14%. Direct costs declined 23% due to lower asset levels, which resulted in lower asset-based Rule 12b-1 service and distribution fees and, to a lesser degree, lower sales commissions and lower wholesaler commissions. Indirect costs increased 12% due to the pension settlement charge and, to a lesser degree, costs associated with the implementation of Project E. Excluding these charges, indirect costs were flat.
Compensation and Related Expense Analysis
Costs increased 45% sequentially due to a pension settlement charge in the current quarter and the curtailment gain related to an amendment of our post-retirement medical benefit plan during the prior quarter. Compared to the fourth quarter of 2015, costs increased 21% due to the pension settlement charge. Excluding these charges, costs declined modestly due to workforce reductions and lower incentive compensation.
General and Administrative Expense Analysis
Costs declined 4% compared to the prior quarter due to continued cost control across the organization. Compared to the same quarter last year, costs declined 14%. Lower dealer service costs and a reduction in advertising more than offset an increase in legal and consulting costs primarily attributable to the implementation of the new DOL fiduciary rule.
Changes in Assets Under Management | ||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||||
Mar 31, | Jun 30, | Sept 30, | Dec 31, | Mar 31, | Jun 30, | Sept 30, | Dec 31, | Dec 31, | Dec 31, | |||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||||||||
Retail Unaffiliated Distribution | ||||||||||||||||||||||
Beginning assets | $60,335 | $59,412 | $57,545 | $49,320 | $45,641 | $38,623 | $35,197 | $33,290 | $60,335 | $45,641 | ||||||||||||
Sales* | 3,870 | 3,239 | 2,768 | 2,341 | 2,144 | 1,526 | 1,320 | 1,373 | 12,218 | 6,363 | ||||||||||||
Redemptions | (6,259) | (4,558) | (5,569) | (7,300) | (7,680) | (5,543) | (4,824) | (4,390) | (23,686) | (22,437) | ||||||||||||
Net Exchanges | 224 | 144 | 265 | 176 | 158 | 127 | 161 | 11 | 809 | 457 | ||||||||||||
Net flows | (2,165) | (1,175) | (2,536) | (4,783) | (5,378) | (3,890) | (3,343) | (3,006) | (10,659) | (15,617) | ||||||||||||
Market action | 1,242 | (692) | (5,689) | 1,104 | (1,640) | 464 | 1,436 | 11 | (4,035) | 271 | ||||||||||||
Ending assets | $59,412 | $57,545 | $49,320 | $45,641 | $38,623 | $35,197 |
$33,290 |
$30,295 | $45,641 | $30,295 | ||||||||||||
Retail Broker-Dealer | ||||||||||||||||||||||
Beginning assets | $45,517 | $46,385 | $45,947 | $42,215 | $43,344 | $42,142 | $42,261 | $43,170 | $45,517 | $43,344 | ||||||||||||
Sales* | 1,270 | 1,347 | 1,238 | 1,218 | 1,068 | 1,094 | 1,024 | 1,101 | 5,073 | 4,287 | ||||||||||||
Redemptions | (1,279) | (1,279) | (1,242) | (1,245) | (1,197) | (1,329) | (1,542) | (1,669) | (5,045) | (5,737) | ||||||||||||
Net Exchanges | (224) | (144) | (265) | (176) | (172) | (163) | (194) | (182) | (809) | (711) | ||||||||||||
Net flows | (233) | (76) | (269) | (203) | (301) | (398) | (712) | (750) | (781) | (2,161) | ||||||||||||
Market action | 1,101 | (362) | (3,463) | 1,332 | (901) | 517 | 1,621 | (98) | (1,392) | 1,139 | ||||||||||||
Ending assets | $46,385 | $45,947 | $42,215 | $43,344 | $42,142 | $42,261 | $43,170 | $42,322 | $43,344 | $42,322 | ||||||||||||
Institutional | ||||||||||||||||||||||
Beginning assets | $17,798 | $17,097 | $17,214 | $14,657 | $15,414 | $14,426 | $8,993 | $8,595 | $17,798 | $15,414 | ||||||||||||
Sales* | 300 | 1,203 | 465 | 773 | 453 | 190 | 180 | 242 | 2,741 | 1,065 | ||||||||||||
Redemptions | (1,460) | (1,003) | (1,817) | (799) | (1,068) | (5,699) | (1,051) | (1,042) | (5,079) | (8,860) | ||||||||||||
Net Exchanges | - | - | - | - | 14 | 36 | 33 | 171 | - | 254 | ||||||||||||
Net flows | (1,160) | 200 | (1,352) | (26) | (601) | (5,473) | (838) | (629) | (2,338) | (7,541) | ||||||||||||
Market action | 459 | (83) | (1,205) | 783 | (387) | 40 | 440 | (62) | (46) | 31 | ||||||||||||
Ending assets | $17,097 | $17,214 | $14,657 | $15,414 | $14,426 | $8,993 | $8,595 | $7,904 | $15,414 | $7,904 | ||||||||||||
Consolidated Total | ||||||||||||||||||||||
Beginning assets | $123,650 | $122,894 | $120,706 | $106,192 | $104,399 | $95,191 | $86,451 | $85,055 | $123,650 | $104,399 | ||||||||||||
Sales* | 5,440 | 5,789 | 4,471 | 4,332 | 3,665 | 2,810 | 2,524 | 2,716 | 20,032 | 11,715 | ||||||||||||
Redemptions | (8,998) | (6,840) | (8,628) | (9,344) | (9,945) | (12,571) | (7,417) | (7,101) | (33,810) | (37,034) | ||||||||||||
Net Exchanges | - | - | - | - | - | - | - | - | - | - | ||||||||||||
Net flows | (3,558) | (1,051) | (4,157) | (5,012) | (6,280) | (9,761) | (4,893) | (4,385) | (13,778) | (25,319) | ||||||||||||
Market action | 2,802 | (1,137) | (10,357) | 3,219 | (2,928) | 1,021 | 3,497 | (149) | (5,473) | 1,441 | ||||||||||||
Ending assets | $122,894 | $120,706 | $106,192 | $104,399 | $95,191 | $86,451 | $85,055 | $80,521 | $104,399 | $80,521 | ||||||||||||
* Sales is primarily gross sales (net of sales commissions). This amount also includes net reinvested dividends & capital gains and investment income. |
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Supplemental Information | |||||||||||||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||||||||||||
Asset Manager | Mar 31, | Jun 30, | Sept 30, | Dec 31, | Mar 31, | Jun 30, | Sept 30, | Dec 31, | |||||||||||||||||||||||||||
($ in millions) | 2015 | 2016 | |||||||||||||||||||||||||||||||||
Retail Unaffiliated Distribution | |||||||||||||||||||||||||||||||||||
AUM | $ | 59,412 | $ | 57,545 | $ | 49,320 | $ | 45,641 | $ | 38,623 | $ | 35,197 | $ | 33,290 | $ | 30,295 | |||||||||||||||||||
Net flows | ($2,165 | ) | ($1,175 | ) | ($2,536 | ) | ($4,783 | ) | ($5,378 | ) | ($3,890 | ) | ($3,343 | ) | ($3,006 | ) | |||||||||||||||||||
Organic growth | -14.4 | % | -7.9 | % | -17.6 | % | -38.8 | % | -47.1 | % | -40.3 | % | -38.0 | % | -36.1 | % | |||||||||||||||||||
Redemption Rate | 42.9 | % | 31.0 | % | 41.2 | % | 59.3 | % | 77.7 | % | 61.3 | % | 56.2 | % | 56.7 | % | |||||||||||||||||||
Retail Broker-Dealer | |||||||||||||||||||||||||||||||||||
AUM | $ | 46,385 | $ | 45,947 | $ | 42,215 | $ | 43,344 | $ | 42,142 | $ | 42,261 | $ | 43,170 | $ | 42,322 | |||||||||||||||||||
Net flows | ($233 | ) | ($76 | ) | ($269 | ) | ($203 | ) | ($301 | ) | ($398 | ) | ($712 | ) | ($750 | ) | |||||||||||||||||||
Organic growth | -2.0 | % | -0.7 | % | -2.3 | % | -1.9 | % | -2.8 | % | -3.8 | % | -6.7 | % | -6.9 | % | |||||||||||||||||||
Redemption Rate | 9.0 | % | 9.0 | % | 8.9 | % | 9.3 | % | 9.3 | % | 10.5 | % | 12.1 | % | 12.5 | % | |||||||||||||||||||
Institutional | |||||||||||||||||||||||||||||||||||
AUM | $ | 17,097 | $ | 17,214 | $ | 14,657 | $ | 15,414 | $ | 14,426 | $ | 8,993 | $ | 8,595 | $ | 7,904 | |||||||||||||||||||
Net flows | ($1,160 | ) | $ | 200 | ($1,352 | ) | ($26 | ) | ($601 | ) | ($5,473 | ) | ($838 | ) | ($629 | ) | |||||||||||||||||||
Organic growth | -26.1 | % | 4.7 | % | -31.4 | % | -0.7 | % | -15.6 | % | -151.8 | % | -37.3 | % | -29.3 | % | |||||||||||||||||||
Redemption Rate | 33.7 | % | 23.2 | % | 45.4 | % | 20.5 | % | 29.9 | % | 198.9 | % | 46.4 | % | 51.3 | % | |||||||||||||||||||
Fund Rankings | 1 Year | 3 Years | 5 Years | ||||||||||||||||||||||||||||||||
Lipper | |||||||||||||||||||||||||||||||||||
Funds ranked in top half | 43 | % | 35 | % | 33 | % | |||||||||||||||||||||||||||||
Assets ranked in top half | 33 | % | 28 | % | 42 | % | |||||||||||||||||||||||||||||
MorningStar | |||||||||||||||||||||||||||||||||||
Funds with 4/5 stars | 29 | % | 17 | % | 19 | % | |||||||||||||||||||||||||||||
Assets with 4/5 stars | 31 | % | 13 | % | 24 | % | |||||||||||||||||||||||||||||
Three Months Ended | |||||||||||||||||||||||||||||||||||
Mar 31, | Jun 30, | Sept 30, | Dec 31, | Mar 31, | Jun 30, | Sept 30, | Dec 31, | ||||||||||||||||||||||||||||
Broker-Dealer | 2015 | 2016 | |||||||||||||||||||||||||||||||||
AUA* (in billions) | $ | 53.7 | $ | 53.6 | $ | 49.4 | $ | 51.0 | $ | 49.9 | $ | 50.5 | $ | 52.1 | $ | 51.7 | |||||||||||||||||||
AUA* fee based accounts (in billions) | $ | 18.0 | $ | 18.3 | $ | 17.0 | $ | 17.6 | $ | 17.4 | $ | 17.8 | $ | 18.5 | $ | 18.4 | |||||||||||||||||||
# Advisors | 1,745 | 1,780 | 1,795 | 1,819 | 1,803 | 1,799 | 1,796 | 1,780 | |||||||||||||||||||||||||||
Advisor productivity (in thousands) | $ | 65.9 | $ | 67.9 | $ | 66.3 | $ | 64.9 | $ | 61.3 | $ | 63.1 | $ | 59.0 | $ | 59.4 | |||||||||||||||||||
U&D revenues (in thousands) | $ | 114,836 | $ | 119,740 | $ | 118,090 | $ | 117,291 | $ | 110,735 | $ | 113,802 | $ | 105,787 | $ | 105,931 | |||||||||||||||||||
* AUA represent Assets Under Administration | |||||||||||||||||||||||||||||||||||
Unaudited Consolidated Statement of Income | |||||||||||||||||||||||||
($ in thousands, except per share data) | Three Months Ended | ||||||||||||||||||||||||
Dec. 31, | Sept. 30, | Dec. 31, | Sequential Qtr. | Year-over-Year Qtr. | |||||||||||||||||||||
2016 | 2016 | 2015 | Change | % | Change | % | |||||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||||
Investment management fees | $ | 132,709 | $ | 138,745 | $ | 166,325 | ($6,036 | ) | -4.4 | % | ($33,616 | ) | -20.2 | % | |||||||||||
Underwriting and distribution fees | 132,922 | 135,778 | 160,382 | (2,856 | ) | -2.1 | % | (27,460 | ) | -17.1 | % | ||||||||||||||
Shareholder service fees | 27,282 | 28,563 | 34,367 | (1,281 | ) | -4.5 | % | (7,085 | ) | -20.6 | % | ||||||||||||||
Total operating revenues | 292,913 | 303,086 | 361,074 | (10,173 | ) | -3.4 | % | (68,161 | ) | -18.9 | % | ||||||||||||||
Operating Expenses: | |||||||||||||||||||||||||
Underwriting and distribution | 163,025 | 152,999 | 189,534 | 10,026 | 6.6 | % | (26,509 | ) | -14.0 | % | |||||||||||||||
Compensation and related costs | 58,354 | 40,214 | 48,271 | 18,140 | 45.1 | % | 10,083 | 20.9 | % | ||||||||||||||||
General and administrative | 22,288 | 23,280 | 26,033 | (992 | ) | -4.3 | % | (3,745 | ) | -14.4 | % | ||||||||||||||
Subadvisory fees | 2,588 | 2,566 | 2,048 | 22 | 0.9 | % | 540 | 26.4 | % | ||||||||||||||||
Depreciation | 5,196 | 4,541 | 3,831 | 655 | 14.4 | % | 1,365 | 35.6 | % | ||||||||||||||||
Intangible impairment | 4,049 | 5,700 | - | (1,651 | ) | -29.0 | % | 4,049 | N/A | ||||||||||||||||
Total operating expenses | 255,500 | 229,300 | 269,717 | 26,200 | 11.4 | % | (14,217 | ) | -5.3 | % | |||||||||||||||
Operating Income | 37,413 | 73,786 | 91,357 | (36,373 | ) | -49.3 | % | (53,944 | ) | -59.0 | % | ||||||||||||||
Investment and other income/(loss) | 890 | 7,878 | 7,647 | (6,988 | ) | -88.7 | % | (6,757 | ) | -88.4 | % | ||||||||||||||
Interest expense | (2,786 | ) | (2,792 | ) | (2,772 | ) | 6 | -0.2 | % | (14 | ) | 0.5 | % | ||||||||||||
Income before taxes | 35,517 | 78,872 | 96,232 | (43,355 | ) | -55.0 | % | (60,715 | ) | -63.1 | % | ||||||||||||||
Provision for taxes | 13,041 | 24,067 | 33,312 | (11,026 | ) | -45.8 | % | (20,271 | ) | -60.9 | % | ||||||||||||||
Net Income | 22,476 | 54,805 | 62,920 | (32,329 | ) | -59.0 | % | (40,444 | ) | -64.3 | % | ||||||||||||||
Noncontrolling interests | 59 | 978 | - | (919 | ) | -94.0 | % | 59 | N/A | ||||||||||||||||
Net Income Attributable to Waddell & Reed Financial, Inc. | $ | 22,417 | $ | 53,827 | $ | 62,920 | ($31,410 | ) | -58.4 | % | ($40,503 | ) | -64.4 | % | |||||||||||
Net income per share, basic and diluted: | 0.27 | 0.65 | 0.76 | ||||||||||||||||||||||
Weighted average shares outstanding - basic and diluted | 82,783 | 82,834 | 82,873 | ||||||||||||||||||||||
Operating margin | 12.8 | % | 24.3 | % | 25.3 | % | |||||||||||||||||||
Net Distribution Cost Analysis | Three Months Ended | ||||||||||||||||||||||||
($ in thousands) | Dec. 31, | Sept. 30, | Dec. 31, | Sequential Qtr. | Year-over-Year Qtr. | ||||||||||||||||||||
2016 | 2016 | 2015 | Change | % | Change | % | |||||||||||||||||||
Retail Unaffiliated Distribution1 | |||||||||||||||||||||||||
U&D Revenues | $ | 26,991 | $ | 29,991 | $ | 43,091 | ($3,000 | ) | -10.0 | % | ($16,100 | ) | -37.4 | % | |||||||||||
U&D Expenses - Direct | (35,854 | ) | (39,489 | ) | (57,119 | ) | 3,635 | -9.2 | % | 21,265 | -37.2 | % | |||||||||||||
U&D Expenses - Indirect | (13,916 | ) | (10,643 | ) | (14,614 | ) | (3,273 | ) | 30.8 | % | 698 | -4.8 | % | ||||||||||||
Net Distribution (Costs) | ($22,779 | ) | ($20,141 | ) | ($28,642 | ) | (2,638 | ) | 13.1 | % | 5,863 | -20.5 | % | ||||||||||||
Retail Broker-Dealer2 | |||||||||||||||||||||||||
U&D Revenues | $ | 105,931 | $ | 105,787 | $ | 117,291 | $ | 144 | 0.1 | % | ($11,360 | ) | -9.7 | % | |||||||||||
U&D Expenses - Direct | (72,380 | ) | (72,276 | ) | (83,413 | ) | (104 | ) | 0.1 | % | 11,033 | -13.2 | % | ||||||||||||
U&D Expenses - Indirect | (40,875 | ) | (30,591 | ) | (34,388 | ) | (10,284 | ) | 33.6 | % | (6,487 | ) | 18.9 | % | |||||||||||
Net Distribution Excess/(Costs) | ($7,324 | ) | $ | 2,920 | ($510 | ) | (10,244 | ) | -350.8 | % | (6,814 | ) | 1336.1 | % | |||||||||||
1 Retail Unaffiliated Distribution was previously referred to as the "Wholesale channel" |
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2 Retail Broker-Dealer was previously referred to as the "Advisors channel" | |||||||||||||||||||||||||
Unaudited Consolidated Statement of Income | ||||||||||||||
($ in thousand, except per share data) | Year Ended | |||||||||||||
Dec. 31, | Dec. 31, | |||||||||||||
2016 | 2015 | Change | % | |||||||||||
Operating Revenues: | ||||||||||||||
Investment management fees | $ | 557,112 | $ | 709,562 | ($152,450 | ) | -21.5 | % | ||||||
Underwriting and distribution fees | 561,670 | 663,998 | (102,328 | ) | -15.4 | % | ||||||||
Shareholder service fees | 120,241 | 143,071 | (22,830 | ) | -16.0 | % | ||||||||
Total operating revenues | 1,239,023 | 1,516,631 | (277,608 | ) | -18.3 | % | ||||||||
Operating Expenses: | ||||||||||||||
Underwriting and distribution | 671,105 | 769,781 | (98,676 | ) | -12.8 | % | ||||||||
Compensation and related costs | 209,849 | 200,752 | 9,097 | 4.5 | % | |||||||||
General and administrative | 83,996 | 105,066 | (21,070 | ) | -20.1 | % | ||||||||
Subadvisory fees | 9,572 | 9,134 | 438 | 4.8 | % | |||||||||
Depreciation | 18,359 | 16,046 | 2,313 | 14.4 | % | |||||||||
Intangible impairment | 9,749 | - | 9,749 | N/A | ||||||||||
Total operating expenses | 1,002,630 | 1,100,779 | (98,149 | ) | -8.9 | % | ||||||||
Operating Income | 236,393 | 415,852 | (179,459 | ) | -43.2 | % | ||||||||
Investment and other income/(loss) | (763 | ) | (5,244 | ) | 4,481 | -85.5 | % | |||||||
Interest expense | (11,122 | ) | (11,068 | ) | (54 | ) | 0.5 | % | ||||||
Income before taxes | 224,508 | 399,540 | (175,032 | ) | -43.8 | % | ||||||||
Provision for taxes | 76,187 | 154,004 | (77,817 | ) | -50.5 | % | ||||||||
Net Income | 148,321 | 245,536 | (97,215 | ) | -39.6 | % | ||||||||
Noncontrolling interests | 1,414 | - | 1,414 | N/A | ||||||||||
Net Income Attributable to Waddell & Reed Financial, Inc. | $ | 146,907 | $ | 245,536 | ($98,629 | ) | -40.2 | % | ||||||
Net income per share, basic and diluted: | 1.78 | 2.94 | ||||||||||||
Weighted average shares outstanding - basic and diluted | 82,668 | 83,499 | ||||||||||||
Operating margin | 19.1 | % | 27.4 | % | ||||||||||
Net Distribution Cost Analysis | Year Ended | |||||||||||||
($ in thousands) | Dec. 31, | Dec. 31, | ||||||||||||
2016 | 2015 | Change | % | |||||||||||
Retail Unaffiliated Distribution1 | ||||||||||||||
U&D Revenues | $ | 125,415 | $ | 194,041 | ($68,626 | ) | -35.4 | % | ||||||
U&D Expenses - Direct | (164,641 | ) | (254,778 | ) | 90,137 | -35.4 | % | |||||||
U&D Expenses - Indirect | (52,847 | ) | (55,944 | ) | 3,097 | -5.5 | % | |||||||
Net Distribution (Costs) | ($92,073 | ) | ($116,681 | ) | 24,608 | -21.1 | % | |||||||
Retail Broker-Dealer2 | ||||||||||||||
U&D Revenues | $ | 436,255 | $ | 469,957 | ($33,702 | ) | -7.2 | % | ||||||
U&D Expenses - Direct | (312,673 | ) | (335,032 | ) | 22,359 | -6.7 | % | |||||||
U&D Expenses - Indirect | (140,944 | ) | (124,027 | ) | (16,917 | ) | 13.6 | % | ||||||
Net Distribution Excess/(Costs) | ($17,362 | ) | $ | 10,898 | (28,260 | ) | -259.3 | % | ||||||
1 Retail Unaffiliated Distribution was previously referred to as the "Wholesale channel" | ||||||||||||||
2 Retail Broker-Dealer was previously referred to as the "Advisors channel" | ||||||||||||||
Unaudited Condensed Balance Sheet | ||||||||||||||||||||
Dec. 31, | Dec. 31, | |||||||||||||||||||
($ in thousands) | 2016 | 2015 | ||||||||||||||||||
Assets | ||||||||||||||||||||
Cash & cash equivalents (unrestricted) | $ | 555,102 | $ | 558,495 | ||||||||||||||||
Investment securities | 328,750 | 291,743 | ||||||||||||||||||
Other assets | 271,401 | 441,360 | ||||||||||||||||||
Property and equipment, net | 102,449 | 105,434 | ||||||||||||||||||
Goodwill and intangible assets | 148,569 | 158,118 | ||||||||||||||||||
Total assets | $ | 1,406,271 | $ | 1,555,150 | ||||||||||||||||
Liabilities, redeemable noncontrolling interests and equity | ||||||||||||||||||||
Long-term debt | $ | 189,605 | $ | 189,432 | ||||||||||||||||
Other liabilities | 362,011 | 519,263 | ||||||||||||||||||
Redeemable noncontrolling interests | 10,653 | - | ||||||||||||||||||
Total equity | 844,002 | 846,455 | ||||||||||||||||||
Liabilities, redeemable noncontrolling interests and equity | $ | 1,406,271 | $ | 1,555,150 | ||||||||||||||||
Shares outstanding (in millions) | 83.1 | 82.9 | ||||||||||||||||||
Unaudited Condensed Cash Flow | ||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||
($ in thousands) | Dec. 31, | Sept. 30, | Dec. 31, | Dec. 31, | Dec. 31, | |||||||||||||||
Cash provided by (used in): | 2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Operating activities | $ | 57,588 | $ | 47,613 | $ | 3,377 | $ | 123,647 | $ | 233,950 | ||||||||||
Investing activities | 6,590 | 53,973 | (4,230 | ) | 75,871 | (22,595 | ) | |||||||||||||
Financing activities | (38,860 | ) | (39,260 | ) | (53,312 | ) | (202,911 | ) | (219,481 | ) | ||||||||||
Net change during period | $ | 25,318 | $ | 62,326 | ($54,165 | ) | ($3,393 | ) | ($8,126 | ) | ||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||
($ in thousands) | Dec. 31, | Sept. 30, | Dec. 31, | Dec. 31, | Dec. 31, | |||||||||||||||
Shares repurchased | 2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Number of shares | 90,692 | 28,537 | 520,154 | 2,320,726 | 1,955,509 | |||||||||||||||
Total cost | $ | 1,769 | $ | 522 | $ | 17,058 | $ | 49,753 | $ | 80,335 | ||||||||||
Dividend paid | ||||||||||||||||||||
Rate per share | $ | 0.46 | $ | 0.46 | $ | 0.46 | $ | 1.84 | $ | 1.75 | ||||||||||
Total paid | $ | 38,094 | $ | 38,120 | $ | 35,710 | $ | 152,830 | $ | 143,959 | ||||||||||
Capital returned to stockholders | $ | 39,863 | $ | 38,642 | $ | 52,768 | $ | 202,583 | $ | 224,294 | ||||||||||
On December 31, 2016, we granted 447,277 shares of restricted stock | ||||||||||||||||||||
In early January 2016, we granted an additional 1,131,538 shares of restricted stock and an additional 1,131,538 cash-settled restricted stock units, which does not impact share count. |
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Unaudited Supplemental Information
In addition to reporting results in accordance with U.S. generally accepted accounting principles (“GAAP”), management believes adjusting results to exclude certain items provides investors with financial measures that better reflect the company’s core operating performance and allow for more appropriate comparisons to prior periods. However, non-GAAP financial measures should not be considered a substitute for performance measures calculated in accordance with GAAP.
Adjusted Results |
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($ in thousands, except for per share data) | |||||||||||||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||||||
Dec. 31, 2016 | Sept. 30, 2016 | Dec, 31, 2016 | |||||||||||||||||||||||||||||||||||
GAAP | Adj. 1 | Adjusted | GAAP | Adj.2 | Adjusted | GAAP | Adj.3 | Adjusted | |||||||||||||||||||||||||||||
Operating Revenues: | |||||||||||||||||||||||||||||||||||||
Investment management fees | $ | 132,709 | - | $ | 132,709 | $ | 138,745 | - | $ | 138,745 | $ | 557,112 | - | $ | 557,112 | ||||||||||||||||||||||
Underwriting and distribution fees | 132,922 | - | 132,922 | 135,778 | - | 135,778 | 561,670 | - | 561,670 | ||||||||||||||||||||||||||||
Shareholder service fees | 27,282 | - | 27,282 | 28,563 | - | 28,563 | 120,241 | - | 120,241 | ||||||||||||||||||||||||||||
Total operating revenues | 292,913 | - | 292,913 | 303,086 | - | 303,086 | 1,239,023 | - | 1,239,023 | ||||||||||||||||||||||||||||
Operating Expenses: | |||||||||||||||||||||||||||||||||||||
Underwriting and distribution | 163,025 | (7,882 | ) | 155,143 | 152,999 | 3,457 | 156,456 | 671,105 | (15,599 | ) | 655,506 | ||||||||||||||||||||||||||
Compensation and related costs | 58,354 | (14,334 | ) | 44,020 | 40,214 | 3,752 | 43,966 | 209,849 | (20,356 | ) | 189,493 | ||||||||||||||||||||||||||
General and administrative | 22,288 | (1,748 | ) | 20,540 | 23,280 | (662 | ) | 22,618 | 83,996 | (2,410 | ) | 81,586 | |||||||||||||||||||||||||
Subadvisory fees | 2,588 | - | 2,588 | 2,566 | - | 2,566 | 9,572 | - | 9,572 | ||||||||||||||||||||||||||||
Depreciation | 5,196 | - | 5,196 | 4,541 | - | 4,541 | 18,359 | - | 18,359 | ||||||||||||||||||||||||||||
Intangible impairment | 4,049 | (4,049 | ) | - | 5,700 | (5,700 | ) | - | 9,749 | (9,749 | ) | - | |||||||||||||||||||||||||
Total operating expenses | 255,500 | (28,013 | ) | 227,487 | 229,300 | 847 | 230,147 | 1,002,630 | (48,114 | ) | 954,516 | ||||||||||||||||||||||||||
Operating Income | 37,413 | 28,013 | 65,426 | 73,786 | (847 | ) | 72,939 | 236,393 | 48,114 | 284,507 | |||||||||||||||||||||||||||
Investment and other income/(loss) | 890 | - | 890 | 7,878 | - | 7,878 | (763 | ) | - | (763 | ) | ||||||||||||||||||||||||||
Interest expense | (2,786 | ) | - | (2,786 | ) | (2,792 | ) | - | (2,792 | ) | (11,122 | ) | - | (11,122 | ) | ||||||||||||||||||||||
Income before taxes | 35,517 | 28,013 | 63,530 | 78,872 | (847 | ) | 78,025 | 224,508 | 48,114 | 272,622 | |||||||||||||||||||||||||||
Provision for taxes | 13,041 | 10,416 | 23,457 | 24,067 | (316 | ) | 23,751 | 76,187 | 17,886 | 94,073 | |||||||||||||||||||||||||||
Net Income | 22,476 | 17,597 | 40,073 | 54,805 | (531 | ) | 54,274 | 148,321 | 30,228 | 178,549 | |||||||||||||||||||||||||||
Noncontrolling interests | 59 | - | 59 | 978 | - | 978 | 1,414 | - | 1,414 | ||||||||||||||||||||||||||||
Net Income Attributable to Waddell & Reed Financial, Inc. | $ | 22,417 | $ | 17,597 | $ | 40,014 | $ | 53,827 | ($531 | ) | $ | 53,296 | $ | 146,907 | $ | 30,228 | $ | 177,135 | |||||||||||||||||||
Net income per share, basic and diluted: | 0.27 | 0.21 | 0.48 | 0.65 | (0.01 | ) | 0.64 | 1.78 | 0.37 | 2.14 | |||||||||||||||||||||||||||
Weighted average shares outstanding - basic and diluted | 82,783 | 82,783 | 82,783 | 82,834 | 82,834 | 82,834 | 82,668 | 82,668 | 82,668 | ||||||||||||||||||||||||||||
Operating margin | 12.8 | % | 22.3 | % | 24.3 | % | 24.1 | % | 19.1 | % | 23.0 | % |
1 Adjustments during the fourth quarter were:
2 Adjustments during the third quarter were:
3 Adjustments during the full year were:
Net Distribution Cost Analysis | ||||||||||||||||||||||||||||||||||
Reconciliation to GAAP | ||||||||||||||||||||||||||||||||||
($ in thousands) | Three Months Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||||
Dec. 31, 2016 | Sept. 30, 2016 | Dec, 31, 2016 | ||||||||||||||||||||||||||||||||
GAAP | Adj. | Adjusted | GAAP | Adj. | Adjusted | GAAP | Adj. | Adjusted | ||||||||||||||||||||||||||
Retail Unaffiliated Distribution1 | ||||||||||||||||||||||||||||||||||
U&D Revenues | $ | 26,991 | - | $ | 26,991 | $ | 29,991 | - | $ | 29,991 | $ | 125,415 | - | $ | 125,415 | |||||||||||||||||||
U&D Expenses - Direct | (35,854 | ) | - | (35,854 | ) | (39,489 | ) | - | (39,489 | ) | (164,641 | ) | - | (164,641 | ) | |||||||||||||||||||
U&D Expenses - Indirect | (13,916 | ) | 899 | (13,017 | ) | (10,643 | ) | (523 | ) | (11,166 | ) | (52,847 | ) | 2,633 | (50,214 | ) | ||||||||||||||||||
Net Distribution (Costs) | ($22,779 | ) | $ | 899 | ($21,880 | ) | ($20,141 | ) | ($523 | ) | ($20,664 | ) | ($92,073 | ) | $ | 2,633 | ($89,440 | ) | ||||||||||||||||
Retail Broker-Dealer2 | ||||||||||||||||||||||||||||||||||
U&D Revenues | $ | 105,931 | - | $ | 105,931 | $ | 105,787 | - | $ | 105,787 | $ | 436,255 | - | $ | 436,255 | |||||||||||||||||||
U&D Expenses - Direct | (72,380 | ) | - | (72,380 | ) | (72,276 | ) | - | (72,276 | ) | (312,673 | ) | 1,384 | (311,289 | ) | |||||||||||||||||||
U&D Expenses - Indirect | (40,875 | ) | 6,983 | (33,892 | ) | (30,591 | ) | (2,934 | ) | (33,525 | ) | (140,944 | ) | 11,582 | (129,362 | ) | ||||||||||||||||||
Net Distribution Excess/(Costs) | ($7,324 | ) | $ | 6,983 | ($341 | ) | $ | 2,920 | ($2,934 | ) | ($14 | ) | ($17,362 | ) | $ | 12,966 | ($4,396 | ) | ||||||||||||||||
1 Retail Unaffiliated Distribution was previously referred to as the "Wholesale channel" | ||||||||||||||||||||||||||||||||||
2 Retail Broker-Dealer was previously referred to as the "Advisors channel" | ||||||||||||||||||||||||||||||||||
Earnings Conference Call
Stockholders, members of the investment community and the general public are invited to listen to a live Web cast of our earnings release conference call today at 10:00 a.m. Eastern. During this call, Philip J. Sanders, CEO and CIO, will review our quarterly results. Live access to the teleconference will be available on the “Investor Relations” section of our Web site at www.waddell.com. A Web cast replay will be made available shortly after the conclusion of the call and accessible for seven days.
Web Site Resources
We invite you to visit the Investor Relations section of our Web site at ir.waddell.com. Under the “Investor Information” tab you will find a link to presentations as well as to data tables, which include supplemental information schedules.
Contacts
Investor Contact:
Nicole Russell, VP,
Investor Relations, (913) 236-1880, nrussell@waddell.com
Mutual Fund Investor Contact:
Call
(888) WADDELL, or visit www.waddell.com
or www.ivyfunds.com.
Past
performance is no guarantee of future results. Please invest carefully.
About the Company
Waddell & Reed, Inc., founded in 1937, is one of the oldest mutual fund complexes in the United States, having introduced the Waddell & Reed Advisors Group of Mutual Funds in 1940. Today, we distribute our investment products through the retail unaffiliated distribution channel (encompassing broker/dealer, retirement, and registered investment advisors), our retail broker-dealer channel (through financial advisors), and our Institutional channel (including defined benefit plans, pension plans and endowments, and our subadvisory partnership with Mackenzie in Canada).
Through its subsidiaries, Waddell & Reed Financial, Inc. provides investment management and financial planning services to clients throughout the United States and internationally. Waddell & Reed Investment Management Company serves as investment adviser to the Waddell & Reed Advisors Group of Mutual Funds, while Ivy Investment Management Company serves as investment adviser to Ivy Funds, Ivy NextShares, Ivy Variable Insurance Portfolios and InvestEd Portfolios, and investment adviser and global distributor to the Ivy Global Investors SICAV, an umbrella UCITS fund range domiciled in Luxembourg. Waddell & Reed, Inc. serves as principal underwriter and distributor to the Waddell & Reed Advisors Group of Mutual Funds and InvestEd Portfolios, while Ivy Distributors, Inc. serves as principal underwriter and distributor to Ivy Funds and Ivy Funds Variable Insurance Portfolios.
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 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, 2015, which include, without limitation:
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, 2015 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2016. 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.
__________________________________
1 Net income represents net income attributable to Waddell & Reed Financial, Inc.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170131005096/en/
Waddell & Reed Financial, Inc.
Investor
Contact:
Nicole Russell, 913-236-1880
VP, Investor
Relations
nrussell@waddell.com
or
Mutual
Fund Investor Contact:
888-WADDELL
www.waddell.com
www.ivyfunds.com
Source: Waddell & Reed Financial, Inc.