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Waddell & Reed Financial, Inc. Reports Third Quarter Results

Company Release - 10/29/2019 6:45 AM ET

OVERLAND PARK, Kan.--(BUSINESS WIRE)-- Waddell & Reed Financial, Inc. (NYSE: WDR) today reported third quarter 2019 net income1 of $33.1 million, or $0.46 per diluted share, compared to net income of $33.9 million, or $0.45 per diluted share, during the prior quarter and net income of $46.3 million, or $0.58 per diluted share, during the third quarter of 2018.

Revenues of $270.7 million increased slightly compared to the prior quarter and decreased $24.4 million compared to the third quarter of 2018. Operating expenses of $230.7 million increased $1.8 million compared to the prior quarter and declined $5.0 million compared to the same quarter of 2018. The operating margin was 14.8% during the current quarter, compared to 15.3% during the prior quarter and 20.2% during the third quarter of 2018.

Assets under management ended the quarter at $68.8 billion, a decrease of 4% compared to the prior quarter and a decrease of 14% compared to the third quarter of 2018. Average assets under management were $70.5 billion during the current quarter, compared to $71.4 billion during the prior quarter and $79.5 billion during the third quarter of 2018. Net outflows of $2.7 billion during the current quarter were slightly higher compared to net outflows of $2.4 billion in the second quarter of 2019 and were higher compared to net outflows of $2.0 billion in the third quarter of 2018. Sales of $1.8 billion during the current quarter declined 16% and 30% compared to the prior quarter and the third quarter of 2018, respectively. Equity markets during the quarter continued to experience volatility leading to lower sales in key products as investors preferred lower-risk fixed income and money market funds. Redemptions improved slightly compared to the prior quarter and improved 3% compared to the third quarter of 2018.

Wealth management assets under administration ended the quarter at $57.1 billion, a slight decrease compared to the second quarter of 2019, and a 2% decrease compared to the same quarter in 2018. For both comparative periods, assets under administration decreased primarily due to outflows in non-advisory assets.

Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “the quarter remained challenging from a flow perspective, especially within the unaffiliated channel of our asset management business. However, strong expense control, progress in our wealth management business and the continued strength of our balance sheet provides opportunities to add to and enhance our capabilities as a diversified financial services organization.”

____________________

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

Revenues Analysis

Investment management fees decreased $1.1 million, or 1%, compared to the second quarter of 2019 due to a 1% decrease in average assets under management and a lower effective management fee rate, partially offset by one additional day in the quarter. The effective management fee rate was 62.9 basis points and decreased compared to the prior quarter’s rate entirely due to a true-up in fund fee waiver expenses. Adjusting for the true-up amount, the effective fee rate was consistent with the second quarter’s rate. Compared to the third quarter of 2018, investment management fees declined $17.5 million, or 14%, due to lower average assets under management and a lower effective management fee rate, which was approximately two basis points lower due to fee reductions in selected mutual funds implemented in July 2018.

Underwriting and distribution fees increased $2.3 million, or 2%, compared to the prior quarter, primarily due to an increase in advisory assets under administration. Compared to the same quarter in 2018, fees decreased $4.5 million, or 3%, due to lower service and distribution fees and lower commissionable sales, partially offset by an increase in advisory fees.

Shareholder service fees decreased $0.7 million, or 3%, compared to the second quarter of 2019 due to a decrease in accounts and a nonrecurring decrease in revenue related to the outsourcing of our transfer agent transaction processing. Compared to the third quarter of 2018, shareholder service fees declined $2.4 million, or 9%, primarily due to fewer accounts and a decrease in average assets.

Operating Expenses Analysis

Distribution expenses increased $1.0 million, or 1%, compared to the prior quarter, as a result of the increase in underwriting and distribution revenue. Compared to the third quarter of 2018, expenses increased $0.8 million, or 1%. Rule 12b-1 commissions paid to third parties decreased consistent with the revenue decrease due to lower average mutual fund assets, however, this decrease was more than offset by an increase in the compensation grid for associated independent financial advisors starting in 2019.

Compensation and benefits expense increased $3.1 million, or 5%, compared to the prior quarter due to $3.0 million of severance expense, primarily related to the outsourcing of our transfer agency transactional processing operations. Compared to the third quarter of 2018, compensation and benefits expense increased $0.4 million, or 1%, as severance in the current quarter was partially offset by lower costs from reduced headcount as well as a $1.3 million decrease in share-based compensation due to previously-issued awards vesting fully, as well as forfeitures.

General and administrative expenses increased $0.6 million, or 4%, in the current quarter primarily due to increases in recruiting costs, state business tax and insurance costs compared to the second quarter. Compared to the third quarter of 2018, expenses improved $0.9 million, or 5%, due to lower legal and consulting costs.

Technology costs decreased $1.4 million and $0.4 million compared to the prior quarter and third quarter of 2018, respectively. The decrease in both periods was primarily related to a non-recurring benefit from the outsourcing of our transfer agent transactional processing operations. Compared to the third quarter of 2018, the benefit was partially offset by costs from the centralized advisor desktop platform which was rolled out during the second quarter of 2019.

Occupancy and Marketing and advertising expenses decreased a combined $1.3 million, or 14%, compared to the prior quarter. Compared to the third quarter of 2018, these expenses declined $1.8 million, or 19%. For both comparative periods, occupancy costs decreased as we realized cost savings from the closure of field offices, and marketing expenses decreased as prior period fund mergers have reduced fund-related marketing expenses.

Depreciation expense declined $0.4 million, or 8%, compared to the prior quarter and declined $3.3 million, or 41%, compared to the third quarter of 2018 primarily due to certain fixed assets reaching the end of their useful lives.

Investment and Other Income

Investment and other income declined $3.8 million compared to the prior quarter primarily due to lower unrealized gains on seed and corporate investment portfolios. Compared to the third quarter of 2018, investment and other income increased $3.5 million primarily due to unrealized gains on the seed and corporate investment portfolios and increased interest income from our corporate investment portfolio.

Assets Under Management

(in millions)

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

 

 

Prior Qtr.

 

 

 

Year-over-Year Qtr.

 

 

 

2019

 

2019

 

2018

 

 

 

Change

 

%

 

 

 

Change

 

%

 

Unaffiliated 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

27,545

 

 

$

27,506

 

 

$

30,782

 

 

 

$

39

 

 

0

 

%

 

$

(3,237

)

 

(11

)

%

Sales 2

 

 

999

 

 

 

1,291

 

 

 

1,589

 

 

 

 

(292

)

 

(23

)

%

 

 

(590

)

 

(37

)

%

Redemptions

 

 

(2,684

)

 

 

(2,441

)

 

 

(2,425

)

 

 

 

(243

)

 

(10

)

%

 

 

(259

)

 

(11

)

%

Net exchanges

 

 

334

 

 

 

303

 

 

 

360

 

 

 

 

31

 

 

10

 

%

 

 

(26

)

 

(7

)

%

Net Flows

 

 

(1,351

)

 

 

(847

)

 

 

(476

)

 

 

 

(504

)

 

(60

)

%

 

 

(875

)

 

(184

)

%

Market action

 

 

(337

)

 

 

886

 

 

 

866

 

 

 

 

(1,223

)

 

(138

)

%

 

 

(1,203

)

 

(139

)

%

Ending assets

 

$

25,857

 

 

$

27,545

 

 

$

31,172

 

 

 

$

(1,688

)

 

(6

)

%

 

$

(5,315

)

 

(17

)

%

Annualized organic growth rate

 

 

(19.6

)

%

 

(12.3

)

%

 

(6.2

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

40.9

 

%

 

36.7

 

%

 

31.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Institutional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

3,887

 

 

$

4,053

 

 

$

5,250

 

 

 

$

(166

)

 

(4

)

%

 

$

(1,363

)

 

(26

)

%

Sales 2

 

 

49

 

 

 

54

 

 

 

83

 

 

 

 

(5

)

 

(9

)

%

 

 

(34

)

 

(41

)

%

Redemptions

 

 

(230

)

 

 

(440

)

 

 

(535

)

 

 

 

210

 

 

48

 

%

 

 

305

 

 

57

 

%

Net exchanges

 

 

 

 

 

25

 

 

 

 

 

 

 

(25

)

 

NM

 

 

 

 

 

 

NM

 

%

Net Flows

 

 

(181

)

 

 

(361

)

 

 

(452

)

 

 

 

180

 

 

50

 

%

 

 

271

 

 

60

 

%

Market action

 

 

(29

)

 

 

195

 

 

 

389

 

 

 

 

(224

)

 

(115

)

%

 

 

(418

)

 

(107

)

%

Ending assets

 

$

3,677

 

 

$

3,887

 

 

$

5,187

 

 

 

$

(210

)

 

(5

)

%

 

$

(1,510

)

 

(29

)

%

Annualized organic growth rate

 

 

(18.6

)

%

 

(35.6

)

%

 

(34.4

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

23.9

 

%

 

46.1

 

%

 

40.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

40,444

 

 

$

40,095

 

 

$

42,619

 

 

 

$

349

 

 

1

 

%

 

$

(2,175

)

 

(5

)

%

Sales 2

 

 

744

 

 

 

789

 

 

 

874

 

 

 

 

(45

)

 

(6

)

%

 

 

(130

)

 

(15

)

%

Redemptions

 

 

(1,542

)

 

 

(1,609

)

 

 

(1,612

)

 

 

 

67

 

 

4

 

%

 

 

70

 

 

4

 

%

Net exchanges

 

 

(334

)

 

 

(328

)

 

 

(360

)

 

 

 

(6

)

 

(2

)

%

 

 

26

 

 

7

 

%

Net Flows

 

 

(1,132

)

 

 

(1,148

)

 

 

(1,098

)

 

 

 

16

 

 

1

 

%

 

 

(34

)

 

(3

)

%

Market action

 

 

(64

)

 

 

1,497

 

 

 

1,662

 

 

 

 

(1,561

)

 

(104

)

%

 

 

(1,726

)

 

(104

)

%

Ending assets

 

$

39,248

 

 

$

40,444

 

 

$

43,183

 

 

 

$

(1,196

)

 

(3

)

%

 

$

(3,935

)

 

(9

)

%

Annualized organic growth rate

 

 

(11.2

)

%

 

(11.5

)

%

 

(10.3

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

13.4

 

%

 

13.8

 

%

 

12.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

71,876

 

 

$

71,654

 

 

$

78,651

 

 

 

$

222

 

 

0

 

%

 

$

(6,775

)

 

(9

)

%

Sales 2

 

 

1,792

 

 

 

2,134

 

 

 

2,546

 

 

 

 

(342

)

 

(16

)

%

 

 

(754

)

 

(30

)

%

Redemptions

 

 

(4,456

)

 

 

(4,490

)

 

 

(4,572

)

 

 

 

34

 

 

1

 

%

 

 

116

 

 

3

 

%

Net exchanges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Flows

 

 

(2,664

)

 

 

(2,356

)

 

 

(2,026

)

 

 

 

(308

)

 

(13

)

%

 

 

(638

)

 

(31

)

%

Market action

 

 

(430

)

 

 

2,578

 

 

 

2,917

 

 

 

 

(3,008

)

 

(117

)

%

 

 

(3,347

)

 

(115

)

%

Ending assets

 

$

68,782

 

 

$

71,876

 

 

$

79,542

 

 

 

$

(3,094

)

 

(4

)

%

 

$

(10,760

)

 

(14

)

%

Annualized organic growth rate

 

 

(14.8

)

%

 

(13.2

)

%

 

(10.3

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

24.3

 

%

 

24.3

 

%

 

22.1

 

%

 

 

 

 

 

 

 

 

 

 

 

 

_________________________

(1)

Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only “DCIO”, Registered Investment Advisor “RIA” and Variable Annuity “VA”.

(2)

Sales is primarily gross sales (net of sales commissions). This amount also includes net reinvested dividends and capital gains, and investment income.

(3)

Excludes Money Market.

 

 

 

 

 

 

 

 

MorningStar Fund Rankings 1

 

1 Year

 

3 Years

 

5 Years

 

Funds ranked in top half

 

54

%

42

%

29

%

Assets ranked in top half

 

63

%

63

%

40

%

 

 

 

 

 

 

 

 

MorningStar Ratings 1

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

29

%

29

%

23

%

Assets with 4/5 stars

 

45

%

42

%

36

%

______________________

(1)

Based 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)

 

2019

 

2019

 

2018

 

 

Change

 

%

 

 

 

Change

 

%

 

Assets under administration (AUA)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisory assets

 

$

25,107

 

 

$

24,789

 

 

$

23,653

 

 

$

318

 

 

1

 

%

 

$

1,454

 

 

6

 

%

Non-advisory assets

 

 

32,006

 

 

 

32,641

 

 

 

34,468

 

 

 

(635

)

 

(2

)

%

 

 

(2,462

)

 

(7

)

%

Total assets under administration

 

 

57,113

 

 

 

57,430

 

 

 

58,121

 

 

 

(317

)

 

(1

)

%

 

 

(1,008

)

 

(2

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory assets 1

 

$

236

 

 

$

253

 

 

$

(87

)

 

$

(17

)

 

(7

)

%

 

$

323

 

 

371

 

%

Net new non-advisory assets 1, 2

 

 

(769

)

 

 

(885

)

 

 

(931

)

 

 

116

 

 

13

 

%

 

 

162

 

 

17

 

%

Total net new AUA 1, 2

 

 

(533

)

 

 

(632

)

 

 

(1,018

)

 

 

99

 

 

16

 

%

 

 

485

 

 

48

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth 3

 

 

3.8

 

%

 

4.3

 

%

 

(1.5

)

%

 

 

 

 

 

 

 

 

 

 

 

Annualized AUA growth 3

 

 

(3.7

)

%

 

(4.5

)

%

 

(7.1

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisors and advisor associates

 

 

1,344

 

 

 

1,347

 

 

 

1,425

 

 

 

(3

)

 

NM

 

 

 

 

(81

)

 

(6

)

%

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

 

$

422

 

 

$

408

 

 

$

351

 

 

$

14

 

 

3

 

%

 

$

71

 

 

20

 

%

_____________________________

(1)

Net new assets are calculated as total client deposits and net transfers less client withdrawals.

(2)

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

(3)

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

(4)

Production per Advisor is calculated as trailing 12- month Total underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of Advisors. “Other” underwriting and distribution fees predominantly includes fees paid by Advisors for programs and services.

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Prior Qtr.

 

Year-over-Year Qtr.

 

 

2019

 

2019

 

2018

 

Change

 

%

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

$

111,806

 

 

$

112,870

 

 

$

129,302

 

 

$

(1,064

)

 

(1

)

%

$

(17,496

)

 

(14

)

%

Underwriting and distribution fees

 

135,787

 

 

 

133,495

 

 

 

140,308

 

 

 

2,292

 

 

2

 

%

 

(4,521

)

 

(3

)

%

Shareholder service fees

 

23,087

 

 

 

23,789

 

 

 

25,508

 

 

 

(702

)

 

(3

)

%

 

(2,421

)

 

(9

)

%

Total

 

270,680

 

 

 

270,154

 

 

 

295,118

 

 

 

526

 

 

0

 

%

 

(24,438

)

 

(8

)

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

117,425

 

 

 

116,477

 

 

 

116,591

 

 

 

948

 

 

1

 

%

 

834

 

 

1

 

%

Compensation and benefits (including share-based compensation of $11,580, $11,199 and $12,856, respectively)

 

64,999

 

 

 

61,876

 

 

 

64,561

 

 

 

3,123

 

 

5

 

%

 

438

 

 

1

 

%

General and administrative

 

16,680

 

 

 

16,037

 

 

 

17,559

 

 

 

643

 

 

4

 

%

 

(879

)

 

(5

)

%

Technology

 

15,019

 

 

 

16,442

 

 

 

15,414

 

 

 

(1,423

)

 

(9

)

%

 

(395

)

 

(3

)

%

Occupancy

 

5,684

 

 

 

6,701

 

 

 

7,148

 

 

 

(1,017

)

 

(15

)

%

 

(1,464

)

 

(20

)

%

Marketing and advertising

 

2,134

 

 

 

2,399

 

 

 

2,461

 

 

 

(265

)

 

(11

)

%

 

(327

)

 

(13

)

%

Depreciation

 

4,833

 

 

 

5,228

 

 

 

8,141

 

 

 

(395

)

 

(8

)

%

 

(3,308

)

 

(41

)

%

Subadvisory fees

 

3,882

 

 

 

3,715

 

 

 

3,767

 

 

 

167

 

 

4

 

%

 

115

 

 

3

 

%

Total

 

230,656

 

 

 

228,875

 

 

 

235,642

 

 

 

1,781

 

 

1

 

%

 

(4,986

)

 

(2

)

%

Operating income

 

40,024

 

 

 

41,279

 

 

 

59,476

 

 

 

(1,255

)

 

(3

)

%

 

(19,452

)

 

(33

)

%

Investment and other income

 

5,212

 

 

 

9,025

 

 

 

1,697

 

 

 

(3,813

)

 

(42

)

%

 

3,515

 

 

207

 

%

Interest expense

 

(1,562

)

 

 

(1,552

)

 

 

(1,555

)

 

 

(10

)

 

(1

)

%

 

(7

)

 

(0

)

%

Income before provision for income taxes

 

43,674

 

 

 

48,752

 

 

 

59,618

 

 

 

(5,078

)

 

(10

)

%

 

(15,944

)

 

(27

)

%

Provision for income taxes

 

10,175

 

 

 

14,190

 

 

 

13,105

 

 

 

(4,015

)

 

(28

)

%

 

(2,930

)

 

(22

)

%

Net income

 

33,499

 

 

 

34,562

 

 

 

46,513

 

 

 

(1,063

)

 

(3

)

%

 

(13,014

)

 

(28

)

%

Net income (loss) attributable to redeemable noncontrolling interests

 

445

 

 

 

614

 

 

 

208

 

 

 

(169

)

 

(28

)

%

 

237

 

 

114

 

%

Net income attributable to Waddell & Reed Financial, Inc.

$

33,054

 

 

$

33,948

 

 

$

46,305

 

 

$

(894

)

 

(3

)

%

$

(13,251

)

 

(29

)

%

Net income per share, basic and diluted:

$

0.46

 

 

$

0.45

 

 

$

0.58

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

72,387

 

 

 

74,694

 

 

 

79,595

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

14.8

 

%

 

15.3

 

%

 

20.2

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

23,323

 

 

 

24,501

 

 

 

28,116

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

94,102

 

 

 

91,976

 

 

 

88,475

 

 

 

 

 

 

 

 

 

 

 

 

 

$

117,425

 

 

$

116,477

 

 

$

116,591

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

Sep. 30,

 

Sep. 30,

 

 

 

 

 

2019

 

2018

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

334,438

 

 

$

393,385

 

 

$

(58,947

)

 

(15

)

%

Underwriting and distribution fees

 

 

395,527

 

 

 

416,222

 

 

 

(20,695

)

 

(5

)

%

Shareholder service fees

 

 

70,279

 

 

 

78,464

 

 

 

(8,185

)

 

(10

)

%

Total

 

 

800,244

 

 

 

888,071

 

 

 

(87,827

)

 

(10

)

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

 

 

343,696

 

 

 

345,376

 

 

 

(1,680

)

 

(0

)

%

Compensation and benefits (including share-based compensation of $35,471 and $42,526, respectively)

 

 

191,718

 

 

 

199,174

 

 

 

(7,456

)

 

(4

)

%

General and administrative

 

 

47,421

 

 

 

56,240

 

 

 

(8,819

)

 

(16

)

%

Technology

 

 

47,769

 

 

 

49,293

 

 

 

(1,524

)

 

(3

)

%

Occupancy

 

 

19,100

 

 

 

21,081

 

 

 

(1,981

)

 

(9

)

%

Marketing and advertising

 

 

6,497

 

 

 

7,638

 

 

 

(1,141

)

 

(15

)

%

Depreciation

 

 

16,062

 

 

 

19,262

 

 

 

(3,200

)

 

(17

)

%

Subadvisory fees

 

 

11,154

 

 

 

11,158

 

 

 

(4

)

 

(0

)

%

Intangible asset impairment

 

 

 

 

 

1,200

 

 

 

(1,200

)

 

(100

)

%

Total

 

 

683,417

 

 

 

710,422

 

 

 

(27,005

)

 

(4

)

%

Operating income

 

 

116,827

 

 

 

177,649

 

 

 

(60,822

)

 

(34

)

%

Investment and other income

 

 

23,690

 

 

 

5,354

 

 

 

18,336

 

 

342

 

%

Interest expense

 

 

(4,662

)

 

 

(4,908

)

 

 

246

 

 

5

 

%

Income before provision for income taxes

 

 

135,855

 

 

 

178,095

 

 

 

(42,240

)

 

(24

)

%

Provision for income taxes

 

 

35,036

 

 

 

41,355

 

 

 

(6,319

)

 

(15

)

%

Net income

 

 

100,819

 

 

 

136,740

 

 

 

(35,921

)

 

(26

)

%

Net income (loss) attributable to redeemable noncontrolling interests

 

 

1,763

 

 

 

(380

)

 

 

2,143

 

 

564

 

%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

99,056

 

 

$

137,120

 

 

$

(38,064

)

 

(28

)

%

Net income per share, basic and diluted:

 

$

1.33

 

 

$

1.69

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

74,446

 

 

 

81,372

 

 

 

 

 

 

 

Operating margin

 

 

14.6

 

%

 

20.0

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

 

71,124

 

 

 

87,155

 

 

 

 

 

 

 

Wealth Management

 

 

272,572

 

 

 

258,221

 

 

 

 

 

 

$

343,696

$

345,376

 

Underwriting and distribution fees

(in thousands)

 

 

For the three months ended Sep. 30, 2019

 

 

Unaffiliated

 

Wealth
Management

 

Total

Fee-based asset allocation product revenues

 

$

 

$

73,356

 

$

73,356

Rule 12b-1 service and distribution fees

 

 

16,003

 

 

16,426

 

 

32,429

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

 

 

361

 

 

12,523

 

 

12,884

Sales commissions on other products

 

 

 

 

8,024

 

 

8,024

Other revenues

 

 

67

 

 

9,027

 

 

9,094

Total underwriting and distribution fees

 

$

16,431

 

$

119,356

 

$

135,787

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended Jun. 30, 2019

 

 

Unaffiliated

 

Wealth
Management

 

Total

Fee-based asset allocation product revenues

 

$

 

$

70,220

 

$

70,220

Rule 12b-1 service and distribution fees

 

 

16,329

 

 

16,327

 

 

32,656

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

 

 

488

 

 

12,302

 

 

12,790

Sales commissions on other products

 

 

 

 

8,497

 

 

8,497

Other revenues

 

 

83

 

 

9,249

 

 

9,332

Total underwriting and distribution fees

 

$

16,900

 

$

116,595

 

$

133,495

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended Sep. 30, 2018

 

 

Unaffiliated

 

Wealth
Management

 

Total

Fee-based asset allocation product revenues

 

$

 

$

69,468

 

$

69,468

Rule 12b-1 service and distribution fees

 

 

19,707

 

 

18,106

 

 

37,813

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

 

 

441

 

 

13,651

 

 

14,092

Sales commissions on other products

 

 

 

 

9,111

 

 

9,111

Other revenues

 

 

126

 

 

9,698

 

 

9,824

Total underwriting and distribution fees

 

$

20,274

 

$

120,034

 

$

140,308

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended Sep. 30, 2019

 

 

Unaffiliated

 

Wealth
Management

 

Total

Fee-based asset allocation product revenues

 

$

 

$

208,806

 

$

208,806

Rule 12b-1 service and distribution fees

 

 

48,514

 

 

48,441

 

 

96,955

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

 

 

1,287

 

 

36,845

 

 

38,132

Sales commissions on other products

 

 

 

 

24,127

 

 

24,127

Other revenues

 

 

242

 

 

27,265

 

 

27,507

Total underwriting and distribution fees

 

$

50,043

 

$

345,484

 

$

395,527

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended Sep. 30, 2018

 

 

Unaffiliated

 

Wealth
Management

 

Total

Fee-based asset allocation product revenues

 

$

 

$

201,565

 

$

201,565

Rule 12b-1 service and distribution fees

 

 

60,734

 

 

54,591

 

 

115,325

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

 

 

1,418

 

 

41,900

 

 

43,318

Sales commissions on other products

 

 

 

 

26,632

 

 

26,632

Other revenues

 

 

459

 

 

28,923

 

 

29,382

Total underwriting and distribution fees

 

$

62,611

 

$

353,611

 

$

416,222

Unaudited Condensed Balance Sheet

(in thousands)

 

 

Sep. 30,

 

Dec. 31,

 

 

2019

 

2018

Assets

 

 

 

 

 

 

Cash & cash equivalents (unrestricted)

 

$

162,567

 

$

231,997

Investment securities

 

 

691,616

 

 

617,135

Other assets

 

 

205,269

 

 

285,649

Property and equipment, net

 

 

49,785

 

 

63,429

Goodwill and intangible assets

 

 

145,869

 

 

145,869

Total assets

 

$

1,255,106

 

$

1,344,079

Liabilities, redeemable noncontrolling interests and equity

 

 

 

 

 

 

Long-term debt

 

 

94,908

 

 

94,854

Other liabilities

 

 

303,755

 

 

354,312

Redeemable noncontrolling interests

 

 

16,913

 

 

11,463

Total stockholders’ equity

 

 

839,530

 

 

883,450

Liabilities, redeemable noncontrolling interests and equity

 

$

1,255,106

 

$

1,344,079

Shares outstanding

 

 

71,211

 

 

76,790

Unaudited Condensed Cash Flow

(in thousands)

 

 

Three Months Ended

 

Nine Months Ended

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Sep. 30,

 

Sep. 30,

 

 

2019

 

2019

 

2018

 

2019

 

2018

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

61,084

 

 

$

40,644

 

 

$

90,652

 

 

$

84,231

 

 

$

263,733

 

Investing activities

 

 

(14,173

)

 

 

9,946

 

 

 

(7,160

)

 

 

(18,160

)

 

 

42,571

 

Financing activities

 

 

(58,591

)

 

 

(53,605

)

 

 

(50,131

)

 

 

(171,709

)

 

 

(242,636

)

Net change during period

 

$

(11,680

)

 

$

(3,015

)

 

$

33,361

 

 

$

(105,638

)

 

$

63,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Sep. 30,

 

Sep. 30,

(in thousands, except number of shares)

 

2019

 

2019

 

2018

 

2019

 

2018

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

2,480,019

 

 

2,142,894

 

 

1,424,612

 

 

6,849,238

 

 

4,519,546

Total cost

 

$

40,715

 

$

36,824

 

$

28,369

 

$

116,677

 

$

89,018

Dividend paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate per share

 

$

0.25

 

$

0.25

 

$

0.25

 

$

0.25

 

$

0.25

Total paid

 

$

18,372

 

$

18,840

 

$

20,050

 

$

56,560

 

$

61,531

Capital returned to stockholders

 

$

59,087

 

$

55,664

 

$

48,419

 

$

173,237

 

$

150,549

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, distribution sources, expense levels, redemption rates, stock repurchases and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to those discussed below. If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected. Certain important factors that could cause actual results to differ materially from our expectations are disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018, which include, without limitation:

  • The loss of existing distribution relationships or inability to access new distribution relationships;
  • A reduction in assets under our management on short notice, through increased redemptions in our distribution channels or our Funds, particularly those Funds with a high concentration of assets, or investors terminating their relationship with us or shifting their funds to other types of accounts with different rate structures;
  • The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body;
  • Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of evolving fiduciary standards;
  • The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes;
  • A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds;
  • Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our assets under management or our business environment;
  • Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies;
  • Our inability to attract and retain senior executive management and other key personnel to conduct our broker-dealer, fund management and investment advisory business;
  • A failure in, or breach of, our operational or security systems or our technology infrastructure, or those of third parties on which we rely; and
  • Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner.

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission, including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10-K for the year ended December 31, 2018 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2019. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

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.

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