Menu

Waddell & Reed Financial, Inc. Reports Second Quarter Results

Company Release - 7/28/2020 6:45 AM ET

OVERLAND PARK, Kan.--(BUSINESS WIRE)-- Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2020 net income1 of $24.8 million, or $0.38 per diluted share, compared to net income of $22.0 million, or $0.32 per diluted share, during the prior quarter and net income of $33.9 million, or $0.45 per diluted share, during the second quarter of 2019.

Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “Despite the continued challenging circumstances as we navigate the global pandemic, our teams have remained focused on delivering quality service to our clients and affiliated advisors every day while executing on the key components of our long-term vision and growth strategy. We continue to make measurable progress in a number of key areas of our strategy, while maintaining a strong financial profile.”

Highlights

  • Significant progress in wealth management transformation continued, with enhanced focus on recruiting, improving operating metrics and additional growth opportunities
    • Since January 1, 2020, 21 advisors have affiliated with Waddell & Reed with combined prior firm assets under administration (AUA) totaling $1.4 billion. Advisor count inflected modestly, stabilizing at 1,317 affiliated advisors and advisor associates at June 30, 2020.
    • Advisory AUA net flows were positive for the 6th straight quarter despite a challenging market backdrop, illustrating the wealth manager’s ability to capture assets through market cycles.
    • Launched the second phase of our wealth management technology transformation, ONESource, which seamlessly connects data across platforms for advisors, and ONEService, a digital repository of processes, procedures and other information available to all advisors.
    • Introduced a High Net Worth suite of products and services as well as a new Separately Managed Account Strategies product offering.
  • For Ivy Investments, assets under management (AUM) rebounded along with the broader markets in addition to meaningful improvement in net outflows resulting from lower redemptions
    • Introduced two additional strategies in a model-delivery format, bringing the total offering to nine strategies.
    • As a result of changes stemming from ongoing strategic evaluation of Ivy fund fees, 76% of AUM is now priced at or below its respective peer median.
  • Balance sheet a continued source of strength – maintained significant liquidity while continuing active capital return program and flexibility for organic and inorganic growth opportunities.
  • Hired two executives focused on strategic growth – one to support the buildout of enterprise-wide data analytics and related capabilities, and one to support M&A origination, evaluation, and integration.

Financial Summary

The second quarter of 2020 included $12.7 million, or $0.15 per share, of unrealized gains on our investment portfolio within the investment and other (loss) income line compared to $11.0 million, or $0.12 per share, of unrealized losses during the prior quarter and $5.1 million, or $0.05 per share, of unrealized gains during the second quarter of 2019.

Revenues totaled $240.0 million for the quarter, a decrease of $23.7 million and $30.1 million, compared to the prior quarter and the second quarter of 2019, respectively. Operating expenses of $216.4 million decreased $7.9 million and $12.5 million, compared to the first quarter of 2020 and the second quarter of 2019, respectively. The operating margin was 9.8% during the current quarter, compared to 14.9% and 15.3% during the prior quarter and the second quarter of 2019, respectively.

AUM ended the quarter at $65.0 billion, an increase of 16% compared to the prior quarter primarily due to market appreciation and a decrease of 10% compared to the second quarter of 2019. Average AUM were $61.7 billion during the current quarter, compared to $66.1 billion during the prior quarter and $71.4 billion during the second quarter of 2019. Net outflows of $1.4 billion during the current quarter were lower compared to net outflows of $2.3 billion and $2.4 billion in the prior quarter and second quarter of 2019, respectively. Sales of $2.2 billion during the current quarter decreased 13% compared to the prior quarter as second quarter is generally seasonally lower. Sales increased 3% compared to the second quarter of 2019. Redemptions were 24% and 19% lower compared to the prior quarter and second quarter of 2019, respectively.

Wealth management AUA ended the quarter at $59.0 billion, an increase of 14% and 3%, compared to the first quarter of 2020 and the second quarter of 2019, respectively. Average AUA were $56.4 billion during the current quarter, compared to $57.8 billion during the prior quarter and $56.4 billion during the second quarter of 2019. Net new advisory assets were $189.2 million and advisory products continue to drive the majority of new sales. Brokerage asset flows continue to be negative, however, to a lesser extent compared to the prior quarter and the same quarter in 2019. In addition, market appreciation was stronger compared to both the first quarter of 2020 and second quarter of 2019. Starting in the second quarter of 2020, we updated our definition of net new AUA to include dividends and interest for consistency with peers and have reflected this new definition for all periods presented.

Revenues Analysis

Investment management fees decreased $9.4 million, or 9%, compared to the first quarter of 2020 due to a 7% decrease in average AUM and a lower effective management fee rate, partially offset by one more day in the quarter. The effective management fee rate for the current quarter was 64.5 basis points and decreased compared to the prior quarter’s rate due to a shift in product mix as well as targeted fee reductions implemented in the quarter on our large cap growth and core bond products. Compared to the second quarter of 2019, investment management fees declined $17.0 million, or 15%, primarily due to lower average AUM and a lower effective management fee rate due to the previously mentioned fee reductions.

Underwriting and distribution fees decreased $13.3 million, or 10%, compared to the prior quarter due to lower advisory fees and lower service and distribution fees due to lower asset levels. In addition, sales commissions were $5.7 million lower compared to the prior quarter as a result of slower sales activity across insurance product lines. Compared to the same quarter in 2019, underwriting and distribution fees decreased $9.9 million, or 7%, due to lower sales commissions and lower service and distribution fees from lower asset levels, partially offset by an increase in advisory fees as a result of the ongoing shift in sales towards advisory products.

Shareholder service fees decreased $1.0 million, or 5%, compared to the first quarter of 2020 primarily due to a decrease in average assets. Compared to the second quarter of 2019, shareholder service fees declined $3.2 million, or 14%, due to a decrease in average assets and fewer accounts. There was also a reduction in fund reimbursements related to the outsourcing of our transfer agency transactional processing operations and a corresponding reduction in costs.

Operating Expenses Analysis

Distribution expenses decreased $12.2 million, or 10%, compared to the prior quarter and decreased $8.6 million, or 7%, compared to the second quarter of 2019. The decrease compared to both periods is a result of the decrease in underwriting and distribution revenue from lower asset levels and insurance product sales.

Compensation and benefits expense increased $3.4 million, or 6%, compared to the prior quarter primarily due to mark-to-market adjustments on equity compensation and deferred compensation plans. Compensation and benefits was consistent with the second quarter of 2019, as lower headcount was offset by higher equity compensation due to mark-to-market adjustments.

General and administrative expenses increased $1.9 million, or 10%, compared to the first quarter of 2020 due to increased strategic project spending. Compared to the same quarter in 2019, general and administrative expenses increased $4.5 million, or 28%, 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 increased $0.7 million, or 5%, compared to the prior quarter primarily due to increased software costs for new technologies. Technology costs decreased $2.2 million, or 13%, compared to the second 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 $0.4 million, or 9%, compared to the prior quarter and decreased $2.4 million, or 36%, compared to the second quarter of 2019. For both comparative periods, occupancy costs decreased as a result of the planned transition of corporate field offices to independent financial advisors associated with our wealth manager.

Marketing and advertising expenses decreased $0.8 million, or 41%, compared to the prior quarter and decreased $1.3 million, or 53%, compared to the second quarter of 2019. For both comparative periods, marketing and advertising expenses decreased due to lower sponsorship fees in connection with the ongoing shift to virtual industry conferences.

Depreciation expense declined slightly compared to the prior quarter and declined $2.0 million, or 39%, compared to the second quarter of 2019 due to capitalized software development assets becoming fully depreciated.

Investment and Other Income (Loss)

Investment and other income for the second quarter was $15.1 million compared to investment and other losses of $7.7 million in the prior quarter. The $22.9 million increase is primarily due to unrealized gains, net of hedging activity, on the seed and corporate investment portfolios. Compared to the second quarter of 2019, investment and other income increased $6.1 million due to unrealized gains, net of hedging activity, on the seed and corporate investment portfolios, partially offset by a decline in interest income for the corporate investment portfolio due to lower interest rates.

The effective tax rate was 25.3% for the quarter compared to 32.0% in the prior quarter and 29.1% in the second quarter of 2019. The primary driver of the lower tax rate is the impact of market volatility on our estimated pre-tax income for the remainder of 2020 which resulted in a decrease in our annualized effective tax rate during the second quarter of 2020.

__________________

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

AUM

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

 

 

Prior Qtr.

 

 

 

Year-over-Year Qtr.

 

 

 

2020

 

 

2020

 

 

2019

 

 

 

 

Change

 

%

 

 

 

Change

 

%

 

Unaffiliated 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

20,244

 

 

$

26,264

 

 

$

27,506

 

 

 

$

(6,020

)

 

(23

)

%

 

$

(7,262

)

 

(26

)

%

Sales 2

 

 

1,490

 

 

 

1,581

 

 

 

1,291

 

 

 

 

(91

)

 

(6

)

%

 

 

199

 

 

15

 

%

Redemptions

 

 

(2,179

)

 

 

(3,019

)

 

 

(2,441

)

 

 

 

840

 

 

28

 

%

 

 

262

 

 

11

 

%

Net exchanges

 

 

205

 

 

 

326

 

 

 

303

 

 

 

 

(121

)

 

(37

)

%

 

 

(98

)

 

(32

)

%

Net Flows

 

 

(484

)

 

 

(1,112

)

 

 

(847

)

 

 

 

628

 

 

56

 

%

 

 

363

 

 

43

 

%

Market action

 

 

3,964

 

 

 

(4,908

)

 

 

886

 

 

 

 

8,872

 

 

181

 

%

 

 

3,078

 

 

347

 

%

Ending assets

 

$

23,724

 

 

$

20,244

 

 

$

27,545

 

 

 

$

3,480

 

 

17

 

%

 

$

(3,821

)

 

(14

)

%

Annualized organic growth rate

 

 

(9.6

)

%

 

(16.9

)

%

 

(12.3

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

39.9

 

%

 

50.9

 

%

 

36.7

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Institutional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

2,427

 

 

$

3,096

 

 

$

4,053

 

 

 

$

(669

)

 

(22

)

%

 

$

(1,626

)

 

(40

)

%

Sales 2

 

 

52

 

 

 

43

 

 

 

54

 

 

 

 

9

 

 

21

 

%

 

 

(2

)

 

(4

)

%

Redemptions

 

 

(202

)

 

 

(179

)

 

 

(440

)

 

 

 

(23

)

 

(13

)

%

 

 

238

 

 

54

 

%

Net exchanges

 

 

22

 

 

 

 

 

25

 

 

 

 

22

 

 

NM

 

 

 

 

(3

)

 

(12

)

%

Net Flows

 

 

(128

)

 

 

(136

)

 

 

(361

)

 

 

 

8

 

 

6

 

%

 

 

233

 

 

65

 

%

Market action

 

 

698

 

 

 

(533

)

 

 

195

 

 

 

 

1,231

 

 

231

 

%

 

 

503

 

 

258

 

%

Ending assets

 

$

2,997

 

 

$

2,427

 

 

$

3,887

 

 

 

$

570

 

 

23

 

%

 

$

(890

)

 

(23

)

%

Annualized organic growth rate

 

 

(21.1

)

%

 

(17.6

)

%

 

(35.6

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

28.6

 

%

 

24.9

 

%

 

46.1

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

33,339

 

 

$

40,598

 

 

$

40,095

 

 

 

$

(7,259

)

 

(18

)

%

 

$

(6,756

)

 

(17

)

%

Sales 2

 

 

649

 

 

 

895

 

 

 

789

 

 

 

 

(246

)

 

(27

)

%

 

 

(140

)

 

(18

)

%

Redemptions

 

 

(1,259

)

 

 

(1,588

)

 

 

(1,609

)

 

 

 

329

 

 

21

 

%

 

 

350

 

 

22

 

%

Net exchanges

 

 

(227

)

 

 

(326

)

 

 

(328

)

 

 

 

99

 

 

30

 

%

 

 

101

 

 

31

 

%

Net Flows

 

 

(837

)

 

 

(1,019

)

 

 

(1,148

)

 

 

 

182

 

 

18

 

%

 

 

311

 

 

27

 

%

Market action

 

 

5,743

 

 

 

(6,240

)

 

 

1,497

 

 

 

 

11,983

 

 

192

 

%

 

 

4,246

 

 

284

 

%

Ending assets

 

$

38,245

 

 

$

33,339

 

 

$

40,444

 

 

 

$

4,906

 

 

15

 

%

 

$

(2,199

)

 

(5

)

%

Annualized organic growth rate

 

 

(10.0

)

%

 

(10.0

)

%

 

(11.5

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

11.6

 

%

 

14.6

 

%

 

13.8

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

56,010

 

 

$

69,958

 

 

$

71,654

 

 

 

$

(13,948

)

 

(20

)

%

 

$

(15,644

)

 

(22

)

%

Sales 2

 

 

2,191

 

 

 

2,519

 

 

 

2,134

 

 

 

 

(328

)

 

(13

)

%

 

 

57

 

 

3

 

%

Redemptions

 

 

(3,640

)

 

 

(4,786

)

 

 

(4,490

)

 

 

 

1,146

 

 

24

 

%

 

 

850

 

 

19

 

%

Net exchanges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Flows

 

 

(1,449

)

 

 

(2,267

)

 

 

(2,356

)

 

 

 

818

 

 

36

 

%

 

 

907

 

 

38

 

%

Market action

 

 

10,405

 

 

 

(11,681

)

 

 

2,578

 

 

 

 

22,086

 

 

189

 

%

 

 

7,827

 

 

304

 

%

Ending assets

 

$

64,966

 

 

$

56,010

 

 

$

71,876

 

 

 

$

8,956

 

 

16

 

%

 

$

(6,910

)

 

(10

)

%

Annualized organic growth rate

 

 

(10.3

)

%

 

(13.0

)

%

 

(13.2

)

%

 

 

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate 3

 

 

22.6

 

%

 

28.5

 

%

 

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 Rankings 1

 

1 Year

 

3 Years

 

5 Years

 

Funds ranked in top half

 

48

%

49

%

37

%

Assets ranked in top half

 

45

%

48

%

38

%

 

 

 

 

 

 

 

 

MorningStar Ratings 1

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

28

%

28

%

26

%

Assets with 4/5 stars

 

41

%

39

%

41

%

____________________________

1

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

 

Prior Qtr.

 

 

 

Year-over-Year Qtr.

 

(in millions)

 

2020

 

 

2020

 

 

2019

 

 

 

Change

 

%

 

 

 

Change

 

%

 

AUA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending advisory AUA

 

$

27,155

 

 

$

23,192

 

 

$

24,789

 

 

$

3,963

 

 

17

 

%

 

$

2,366

 

 

10

 

%

Ending non-advisory AUA

 

 

31,836

 

 

 

28,644

 

 

 

32,641

 

 

 

3,192

 

 

11

 

%

 

 

(805

)

 

(2

)

%

Ending total AUA

 

 

58,991

 

 

 

51,836

 

 

 

57,430

 

 

 

7,155

 

 

14

 

%

 

 

1,561

 

 

3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average advisory AUA 1

 

$

25,030

 

 

$

26,680

 

 

$

23,917

 

 

$

(1,650

)

 

(6

)

%

 

$

1,113

 

 

5

 

%

Average non-advisory AUA 1

 

 

30,151

 

 

 

32,488

 

 

 

32,272

 

 

 

(2,337

)

 

(7

)

%

 

 

(2,121

)

 

(7

)

%

Average AUA 1

 

 

55,181

 

 

 

59,168

 

 

 

56,189

 

 

 

(3,987

)

 

(7

)

%

 

 

(1,008

)

 

(2

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory AUA 2

 

$

189

 

 

$

442

 

 

$

349

 

 

$

(253

)

 

(57

)

%

 

$

(160

)

 

(46

)

%

Net new non-advisory AUA 2, 3

 

 

(346

)

 

 

(658

)

 

 

(747

)

 

 

312

 

 

47

 

%

 

 

401

 

 

54

 

%

Total net new AUA 2, 3

 

 

(157

)

 

 

(216

)

 

 

(398

)

 

 

59

 

 

27

 

%

 

 

241

 

 

61

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth 4

 

 

3.3

 

%

 

6.6

 

%

 

5.9

 

%

 

 

 

 

 

 

 

 

 

 

 

Annualized AUA growth 4

 

 

(1.2

)

%

 

(1.4

)

%

 

(2.8

)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisors and advisor associates

 

 

1,317

 

 

 

1,316

 

 

 

1,347

 

 

 

1

 

 

 

 

 

(30

)

 

(2

)

%

Avg. trailing 12-month revenue per advisor 5 (in thousands)

 

$

464

 

 

$

462

 

 

$

408

 

 

$

2

 

 

 

 

$

56

 

 

14

 

%

_________________________

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

 

 

 

 

 

 

 

 

 

 

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Prior Qtr.

 

Year-over-Year Qtr.

 

 

2020

 

 

2020

 

 

2019

 

 

Change

 

%

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

$

95,824

 

 

$

105,219

 

 

$

112,870

 

 

$

(9,395

)

 

(9

)

%

$

(17,046

)

 

(15

)

%

Underwriting and distribution fees

 

123,633

 

 

 

136,943

 

 

 

133,495

 

 

 

(13,310

)

 

(10

)

%

 

(9,862

)

 

(7

)

%

Shareholder service fees

 

20,577

 

 

 

21,571

 

 

 

23,789

 

 

 

(994

)

 

(5

)

%

 

(3,212

)

 

(14

)

%

Total

 

240,034

 

 

 

263,733

 

 

 

270,154

 

 

 

(23,699

)

 

(9

)

%

 

(30,120

)

 

(11

)

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution1

 

107,876

 

 

 

120,033

 

 

 

116,477

 

 

 

(12,157

)

 

(10

)

%

 

(8,601

)

 

(7

)

%

Compensation and benefits (including share-based compensation of $12,532, $9,983 and $11,119, respectively)

 

61,863

 

 

 

58,425

 

 

 

61,876

 

 

 

3,438

 

 

6

 

%

 

(13

)

 

 

General and administrative

 

20,524

 

 

 

18,598

 

 

 

16,037

 

 

 

1,926

 

 

10

 

%

 

4,487

 

 

28

 

%

Technology

 

14,237

 

 

 

13,502

 

 

 

16,442

 

 

 

735

 

 

5

 

%

 

(2,205

)

 

(13

)

%

Occupancy

 

4,291

 

 

 

4,709

 

 

 

6,701

 

 

 

(418

)

 

(9

)

%

 

(2,410

)

 

(36

)

%

Marketing and advertising

 

1,119

 

 

 

1,896

 

 

 

2,399

 

 

 

(777

)

 

(41

)

%

 

(1,280

)

 

(53

)

%

Depreciation

 

3,209

 

 

 

3,513

 

 

 

5,228

 

 

 

(304

)

 

(9

)

%

 

(2,019

)

 

(39

)

%

Subadvisory fees

 

3,288

 

 

 

3,666

 

 

 

3,715

 

 

 

(378

)

 

(10

)

%

 

(427

)

 

(11

)

%

Total

 

216,407

 

 

 

224,342

 

 

 

228,875

 

 

 

(7,935

)

 

(4

)

%

 

(12,468

)

 

(5

)

%

Operating income

 

23,627

 

 

 

39,391

 

 

 

41,279

 

 

 

(15,764

)

 

(40

)

%

 

(17,652

)

 

(43

)

%

Investment and other income (loss)

 

15,148

 

 

 

(7,745

)

 

 

9,025

 

 

 

22,893

 

 

296

 

%

 

6,123

 

 

68

 

%

Interest expense

 

(1,539

)

 

 

(1,549

)

 

 

(1,552

)

 

 

10

 

 

1

 

%

 

13

 

 

1

 

%

Income before provision for income taxes

 

37,236

 

 

 

30,097

 

 

 

48,752

 

 

 

7,139

 

 

24

 

%

 

(11,516

)

 

(24

)

%

Provision for income taxes

 

9,412

 

 

 

9,633

 

 

 

14,190

 

 

 

(221

)

 

(2

)

%

 

(4,778

)

 

(34

)

%

Net income

 

27,824

 

 

 

20,464

 

 

 

34,562

 

 

 

7,360

 

 

36

 

%

 

(6,738

)

 

(19

)

%

Net income (loss) attributable to redeemable noncontrolling interests

 

3,000

 

 

 

(1,522

)

 

 

614

 

 

 

4,522

 

 

297

 

%

 

2,386

 

 

389

 

%

Net income attributable to Waddell & Reed Financial, Inc.

$

24,824

 

 

$

21,986

 

 

$

33,948

 

 

$

2,838

 

 

13

 

%

$

(9,124

)

 

(27

)

%

Net income per share, basic and diluted:

$

0.38

 

 

$

0.32

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

65,488

 

 

 

67,675

 

 

 

74,694

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

9.8

 

%

 

14.9

 

%

 

15.3

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

20,587

 

 

 

23,624

 

 

 

25,242

 

 

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

87,289

 

 

 

96,409

 

 

 

91,235

 

 

 

 

 

 

 

 

 

 

 

 

 

$

107,876

 

 

$

120,033

 

 

$

116,477

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

Six Months Ended

 

 

 

 

 

 

 

 

Jun. 30,

 

Jun. 30,

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

201,043

 

 

$

222,632

 

 

$

(21,589

)

 

(10

)

%

Underwriting and distribution fees

 

 

260,576

 

 

 

259,740

 

 

 

836

 

 

 

Shareholder service fees

 

 

42,148

 

 

 

47,192

 

 

 

(5,044

)

 

(11

)

%

Total

 

 

503,767

 

 

 

529,564

 

 

 

(25,797

)

 

(5

)

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Distribution1

 

 

227,909

 

 

 

226,271

 

 

 

1,638

 

 

1

 

%

Compensation and benefits (including share-based compensation of $22,515 and $23,892, respectively)

 

 

120,288

 

 

 

126,719

 

 

 

(6,431

)

 

(5

)

%

General and administrative

 

 

39,122

 

 

 

30,741

 

 

 

8,381

 

 

27

 

%

Technology

 

 

27,739

 

 

 

32,750

 

 

 

(5,011

)

 

(15

)

%

Occupancy

 

 

9,000

 

 

 

13,416

 

 

 

(4,416

)

 

(33

)

%

Marketing and advertising

 

 

3,015

 

 

 

4,363

 

 

 

(1,348

)

 

(31

)

%

Depreciation

 

 

6,722

 

 

 

11,229

 

 

 

(4,507

)

 

(40

)

%

Subadvisory fees

 

 

6,954

 

 

 

7,272

 

 

 

(318

)

 

(4

)

%

Total

 

 

440,749

 

 

 

452,761

 

 

 

(12,012

)

 

(3

)

%

Operating income

 

 

63,018

 

 

 

76,803

 

 

 

(13,785

)

 

(18

)

%

Investment and other income

 

 

7,403

 

 

 

18,478

 

 

 

(11,075

)

 

(60

)

%

Interest expense

 

 

(3,088

)

 

 

(3,100

)

 

 

12

 

 

 

Income before provision for income taxes

 

 

67,333

 

 

 

92,181

 

 

 

(24,848

)

 

(27

)

%

Provision for income taxes

 

 

19,045

 

 

 

24,861

 

 

 

(5,816

)

 

(23

)

%

Net income

 

 

48,288

 

 

 

67,320

 

 

 

(19,032

)

 

(28

)

%

Net income attributable to redeemable noncontrolling interests

 

 

1,478

 

 

 

1,318

 

 

 

160

 

 

12

 

%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

46,810

 

 

$

66,002

 

 

$

(19,192

)

 

(29

)

%

Net income per share, basic and diluted:

 

$

0.70

 

 

$

0.87

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

66,581

 

 

 

75,492

 

 

 

 

 

 

 

Operating margin

 

 

12.5

 

%

 

14.5

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

 

44,211

 

 

 

49,258

 

 

 

 

 

 

 

Wealth Management

 

 

183,698

 

 

 

177,013

 

 

 

 

 

 

 

 

 

$

227,909

 

 

$

226,271

 

 

 

 

 

 

 

Underwriting and distribution fees

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

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 Mar. 31, 2020

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

77,118

 

$

77,118

Service and distribution fees

 

 

15,276

 

 

14,589

 

 

29,865

Sales commissions

 

 

451

 

 

20,657

 

 

21,108

Other revenues

 

 

135

 

 

8,717

 

 

8,852

Total underwriting and distribution fees

 

$

15,862

 

$

121,081

 

$

136,943

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended Jun. 30, 2019

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

70,220

 

$

70,220

Service and distribution fees

 

 

16,615

 

 

16,041

 

 

32,656

Sales commissions

 

 

493

 

 

20,794

 

 

21,287

Other revenues

 

 

83

 

 

9,249

 

 

9,332

Total underwriting and distribution fees

 

$

17,191

 

$

116,304

 

$

133,495

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended Jun. 30, 2020

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

149,652

 

$

149,652

Service and distribution fees

 

 

28,946

 

 

28,189

 

 

57,135

Sales commissions

 

 

824

 

 

35,691

 

 

36,515

Other revenues

 

 

226

 

 

17,048

 

 

17,274

Total underwriting and distribution fees

 

$

29,996

 

$

230,580

 

$

260,576

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended Jun. 30, 2019

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

135,450

 

$

135,450

Service and distribution fees

 

 

33,081

 

 

31,445

 

 

64,526

Sales commissions

 

 

935

 

 

40,416

 

 

41,351

Other revenues

 

 

175

 

 

18,238

 

 

18,413

Total underwriting and distribution fees

 

$

34,191

 

$

225,549

 

$

259,740

 

Unaudited Condensed Balance Sheet

(in thousands)

 

 

 

 

 

 

 

 

 

Jun. 30,

 

Dec. 31,

 

 

2020

 

2019

Assets

 

 

 

 

 

 

Cash & cash equivalents (unrestricted)

 

$

156,710

 

$

151,815

Investment securities

 

 

619,052

 

 

688,346

Other assets

 

 

212,443

 

 

245,572

Property and equipment, net

 

 

31,928

 

 

34,726

Goodwill and intangible assets

 

 

145,869

 

 

145,869

Total assets

 

$

1,166,002

 

$

1,266,328

Liabilities, redeemable noncontrolling interests and equity

 

 

 

 

 

 

Short-term notes payable

 

$

94,962

 

$

Long-term debt

 

 

 

 

94,926

Other liabilities

 

 

278,480

 

 

343,300

Redeemable noncontrolling interests

 

 

25,857

 

 

19,205

Total stockholders’ equity

 

 

766,703

 

 

808,897

Liabilities, redeemable noncontrolling interests and equity

 

$

1,166,002

 

$

1,266,328

Shares outstanding

 

 

65,174

 

 

68,847

Unaudited Condensed Cash Flow

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Jun. 30,

 

Jun. 30,

 

 

2020

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

(526

)

 

$

29,276

 

 

$

40,644

 

 

$

28,750

 

 

$

23,147

 

Investing activities

 

 

20,430

 

 

 

27,694

 

 

 

9,946

 

 

 

48,124

 

 

 

(3,987

)

Financing activities

 

 

(32,123

)

 

 

(69,371

)

 

 

(53,605

)

 

 

(101,494

)

 

 

(113,118

)

Net change during period

 

$

(12,219

)

 

$

(12,401

)

 

$

(3,015

)

 

$

(24,620

)

 

$

(93,958

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

Jun. 30,

 

Mar. 31,

 

Jun. 30,

 

Jun. 30,

 

Jun. 30,

(in thousands, except number of shares)

 

2020

 

2020

 

2019

 

2020

 

2019

Shares repurchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

1,468,367

 

 

3,807,438

 

 

2,142,894

 

 

5,275,805

 

 

4,369,219

Total cost

 

$

18,061

 

$

53,939

 

$

36,824

 

$

72,000

 

$

75,963

Dividend paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rate per share

 

$

0.25

 

$

0.25

 

$

0.25

 

$

0.50

 

$

0.50

Total paid

 

$

16,528

 

$

17,119

 

$

18,840

 

$

33,647

 

$

38,188

Capital returned to stockholders

 

$

34,589

 

$

71,058

 

$

55,664

 

$

105,647

 

$

114,151

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 assu