News Release
Waddell & Reed Financial, Inc. Reports Third Quarter Results
Overland Park, KS, Oct. 30, 2018 — Waddell & Reed Financial, Inc. (NYSE: WDR) today reported third quarter 2018 net income1 of $46.3 million, or $0.58 per diluted share, compared to net income of $44.5 million, or $0.55 per diluted share, during the prior quarter and net income of $53.6 million, or $0.64 per diluted share, during the third quarter of 2017. The third quarter of 2017 included net gains of $25.1 million ($15.8 net of taxes, or $0.20 per diluted share) due to the freeze of our pension plan on September 30, 2017.
Revenues of $295.1 million during the quarter remained largely unchanged compared to the second quarter of 2018 and increased $5.7 million compared to the third quarter of 2017. Operating expenses of $235.6 million during the quarter declined $1.4 million sequentially and were unchanged compared to the same quarter in 2017. The operating margin was 20.2% during the current quarter, compared to 19.7% and 18.6% during the second quarter of 2018 and the third quarter of 2017, respectively.
Assets under management ended the quarter at $79.5 billion, increasing 1% compared to the prior quarter and declining 2% compared to the third quarter of 2017. Sales of $2.5 billion during the current quarter declined 13% compared to the second quarter of 2018 and 12% compared to the third quarter of 2017. Net outflows of $2.0 billion during the current quarter improved compared to net outflows of $3.1 billion during the second quarter of 2018 and net outflows of $2.8 billion during the third quarter of 2017. The improvement in net outflows was due to lower redemptions in our institutional channel.
Broker-dealer assets under administration ended the quarter at $58.1 billion, increasing 2% compared to the second quarter of 2018 and 5% compared to the same quarter in 2017. Average productivity per advisor, as measured by average trailing twelve-month revenue per advisor, was $350 thousand for the twelve-month period ended September 30, 2018, rising 46% compared September of 2017.
“Our focus remains on making the necessary strategic investments and operational improvements that will enhance the long-term competitive positioning of both our asset management business and our broker-dealer,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. “Strong investment performance is essential to support this effort and we continue to make solid progress in strengthening both our short- and long-term track records across much of the complex.”
Revenues Analysis
Investment management fees declined $1.1 million, or 1% sequentially, due to fee reductions in selected mutual funds and lower average assets under management, which were partly offset by an additional day during the current quarter. Compared with the same quarter in 2017, revenues declined $4.8 million, or 4%, due to fee reductions in selected mutual funds and lower average assets under management. During the current quarter, the effective management fee rate was 64.6 basis points compared to 65.4 basis points during the second quarter of 2018 and 66.1 basis points during the third quarter of 2017. Average assets under management were $79.5 billion during the current quarter, compared to $80.0 billion during the prior quarter and $80.5 billion during the third quarter of 2017.
Underwriting and distribution fees increased $2.4 million, or 2% sequentially, primarily due to higher asset-based advisory fees in the broker-dealer. Compared to the same quarter in 2017, fees increased $11.4 million, or 9%, due to
1 Net income represents net income attributable to Waddell & Reed Financial, Inc.
higher asset-based advisory fees as well as increased support and service revenues from independent financial advisors, which were partly offset by lower distribution fees.
Operating Expenses Analysis
Distribution expenses increased $2.3 million, or 2% sequentially, in correlation with the increase in underwriting and distribution revenues. Compared to the third quarter of 2017, expenses increased $9.7 million, or 9%, largely in line with the increase in underwriting and distribution revenues.
Compensation and benefits expenses declined $1.3 million, or 2% sequentially. The second quarter of 2018 included severance charges of $4.4 million, which were partly offset in the current quarter by increased incentive compensation due to improved fund performance. Compared to the third quarter of 2017, expenses declined $5.1 million, or 7%, due primarily to lower pension costs due to the plan freeze and a discretionary 401(k) contribution in 2017.
General and administrative expenses declined $1.6 million, or 8% sequentially, due primarily to lower usage of consultants and, to a lesser degree, lower sales convention costs. Compared to the third quarter of 2017, expenses declined $5.8 million, or 25%, due to lower legal costs and lower consulting costs, as a number of significant projects were completed in late 2017 or early 2018.
Technology expenses declined $1.8 million, or 11% sequentially, and declined $0.6 million, or 4% compared to the third quarter of 2017, as we continue to decommission older systems and replace them with more cost-effective solutions.
Depreciation expense included a charge of $2.4 million during the current quarter to adjust the useful life on certain internally developed software assets.
Investment and other income increased $31.6 million compared to the same quarter in 2017 due primarily to net gains related to the freeze of our pension plan in September of 2017.
Income taxes declined $16.4 million compared to the same quarter in 2017 due primarily to the lower tax rate as a result of the Tax Reform Act, which lowered the 2018 statutory rate to 21% compared to 35% in 2017.
Assets Under Management
(in millions)
|
| Three Months Ended |
| |||||||||||||
|
| Sep. 30, |
| Dec. 31, |
| Mar. 31, |
| Jun. 30, |
| Sep. 30, |
| |||||
|
| 2017 |
| 2018 |
| |||||||||||
Unaffiliated 1 |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning assets |
| $ | 30,307 |
| $ | 31,062 |
| $ | 31,133 |
| $ | 31,055 |
| $ | 30,782 |
|
Sales 2 |
| 1,790 |
| 1,577 |
| 2,245 |
| 1,779 |
| 1,589 |
| |||||
Redemptions |
| (2,486 | ) | (2,912 | ) | (2,692 | ) | (2,646 | ) | (2,425 | ) | |||||
Net exchanges |
| 213 |
| 316 |
| 247 |
| 284 |
| 360 |
| |||||
Net Flows |
| (483 | ) | (1,019 | ) | (200 | ) | (583 | ) | (476 | ) | |||||
Market action |
| 1,238 |
| 1,090 |
| 122 |
| 310 |
| 866 |
| |||||
Ending assets |
| $ | 31,062 |
| $ | 31,133 |
| $ | 31,055 |
| $ | 30,782 |
| $ | 31,172 |
|
Annualized organic growth rate |
| (6.4 | )% | (13.1 | )% | (2.6 | )% | (7.5 | )% | (6.2 | )% | |||||
Annualized redemption rate 3 |
| 33.0 | % | 37.9 | % | 35.8 | % | 34.9 | % | 31.8 | % | |||||
Institutional |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning assets |
| $ | 7,036 |
| $ | 6,365 |
| $ | 6,289 |
| $ | 6,449 |
| $ | 5,250 |
|
Sales 2 |
| 68 |
| 66 |
| 552 |
| 153 |
| 83 |
| |||||
Redemptions |
| (1,139 | ) | (521 | ) | (604 | ) | (1,652 | ) | (535 | ) | |||||
Net exchanges |
| — |
| — |
| — |
| — |
| — |
| |||||
Net Flows |
| (1,071 | ) | (455 | ) | (52 | ) | (1,499 | ) | (452 | ) | |||||
Market action |
| 400 |
| 379 |
| 212 |
| 300 |
| 389 |
| |||||
Ending assets |
| $ | 6,365 |
| $ | 6,289 |
| $ | 6,449 |
| $ | 5,250 |
| $ | 5,187 |
|
Annualized organic growth rate |
| (60.9 | )% | (28.6 | )% | (3.3 | )% | (93.0 | )% | (34.4 | )% | |||||
Annualized redemption rate 3 |
| 67.3 | % | 32.2 | % | 37.8 | % | 115.4 | % | 40.8 | % | |||||
Broker-Dealer |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning assets |
| $ | 43,084 |
| $ | 43,472 |
| $ | 43,660 |
| $ | 42,707 |
| $ | 42,619 |
|
Sales 2 |
| 1,024 |
| 1,077 |
| 1,001 |
| 1,002 |
| 874 |
| |||||
Redemptions |
| (2,049 | ) | (2,026 | ) | (1,958 | ) | (1,770 | ) | (1,612 | ) | |||||
Net exchanges |
| (213 | ) | (316 | ) | (247 | ) | (284 | ) | (360 | ) | |||||
Net Flows |
| (1,238 | ) | (1,265 | ) | (1,204 | ) | (1,052 | ) | (1,098 | ) | |||||
Market action |
| 1,626 |
| 1,453 |
| 251 |
| 964 |
| 1,662 |
| |||||
Ending assets |
| $ | 43,472 |
| $ | 43,660 |
| $ | 42,707 |
| $ | 42,619 |
| $ | 43,183 |
|
Annualized organic growth rate |
| (11.5 | )% | (11.6 | )% | (11.0 | )% | (9.9 | )% | (10.3 | )% | |||||
Annualized redemption rate 3 |
| 16.4 | % | 16.1 | % | 15.1 | % | 14.4 | % | 12.8 | % | |||||
Consolidated Total |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning assets |
| $ | 80,427 |
| $ | 80,899 |
| $ | 81,082 |
| $ | 80,211 |
| $ | 78,651 |
|
Sales 2 |
| 2,882 |
| 2,720 |
| 3,798 |
| 2,934 |
| 2,546 |
| |||||
Redemptions |
| (5,674 | ) | (5,459 | ) | (5,254 | ) | (6,068 | ) | (4,572 | ) | |||||
Net exchanges |
| — |
| — |
| — |
| — |
| — |
| |||||
Net Flows |
| (2,792 | ) | (2,739 | ) | (1,456 | ) | (3,134 | ) | (2,026 | ) | |||||
Market action |
| 3,264 |
| 2,922 |
| 585 |
| 1,574 |
| 2,917 |
| |||||
Ending assets |
| $ | 80,899 |
| $ | 81,082 |
| $ | 80,211 |
| $ | 78,651 |
| $ | 79,542 |
|
Annualized organic growth rate |
| (13.9 | )% | (13.5 | )% | (7.2 | )% | (15.6 | )% | (10.3 | )% | |||||
Annualized redemption rate 3 |
| 27.1 | % | 25.7 | % | 24.8 | % | 29.8 | % | 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.
Fund Rankings 1 |
| 1 Year |
| 3 Years |
| 5 Years |
|
Lipper |
|
|
|
|
|
|
|
Funds ranked in top half |
| 69 | % | 42 | % | 51 | % |
Assets ranked in top half |
| 76 | % | 56 | % | 55 | % |
MorningStar |
|
|
|
|
|
|
|
Funds ranked in top half |
| 57 | % | 35 | % | 45 | % |
Assets ranked in top half |
| 54 | % | 42 | % | 57 | % |
MorningStar Ratings 1 |
| Overall |
| 3 Years |
| 5 Years |
|
Funds with 4/5 stars |
| 41 | % | 22 | % | 32 | % |
Assets with 4/5 stars |
| 54 | % | 28 | % | 47 | % |
(1) Based on class I share, which reflects sales and asset concentrations.
|
| Three Months Ended |
| |||||||||||||
Broker-Dealer |
| Sep. 30, |
| Dec. 31, |
| Mar. 31, |
| Jun. 30, |
| Sep. 30, |
| |||||
(in millions) |
| 2017 |
| 2018 |
| |||||||||||
Assets under administration (AUA) |
|
|
|
|
|
|
|
|
|
|
| |||||
Advisory assets |
| $ | 20,734 |
| $ | 21,613 |
| $ | 22,050 |
| $ | 22,868 |
| $ | 23,653 |
|
Non-advisory assets |
| 34,856 |
| 35,073 |
| 34,216 |
| 34,210 |
| 34,468 |
| |||||
Total assets under administration |
| 55,590 |
| 56,686 |
| 56,266 |
| 57,078 |
| 58,121 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net new advisory assets 1 |
| $ | 420 |
| $ | 129 |
| $ | 392 |
| $ | 315 |
| $ | (87 | ) |
Net new non-advisory assets 1, 2 |
| (965 | ) | (1,047 | ) | (983 | ) | (916 | ) | (931 | ) | |||||
Total net new AUA 1,2 |
| (545 | ) | (918 | ) | (591 | ) | (601 | ) | (1,018 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Annualized advisory AUA growth 3 |
| 8.6 | % | 2.5 | % | 7.3 | % | 5.7 | % | (1.5 | )% | |||||
Annualized AUA growth 3 |
| (4.0 | )% | (6.6 | )% | (4.2 | )% | (4.3 | )% | (7.1 | )% | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Advisor count |
| 1,481 |
| 1,367 |
| 1,170 |
| 1,130 |
| 1,074 |
| |||||
Avg. trailing 12-month revenue per advisor 4 (in thousands) |
| $ | 240 |
| $ | 256 |
| $ | 285 |
| $ | 314 |
| $ | 350 |
|
Advisor associate count |
| 262 |
| 265 |
| 327 |
| 339 |
| 351 |
| |||||
(1) Net new assets is calculated as total client deposits and net transfers less client withdrawals.
(2) Excludes activity related to products held outside of our platform. These assets represent less than 10% of total AUA.
(3) Annualized growth is calculated as annualized quarterly net new assets divided by beginning assets under administration.
(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 financial advisors. “Other” underwriting and distribution fees predominantly includes fees paid by independent 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, |
| Sequential Qtr. |
| Year-over-Year Qtr. |
| |||||||||
|
| 2018 |
| 2018 |
| 2017 |
| Change |
| % |
| Change |
| % |
| |||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment management fees |
| $ | 129,302 |
| $ | 130,391 |
| $ | 134,149 |
| $ | (1,089 | ) | (0.8 | )% | $ | (4,847 | ) | (3.6 | )% |
Underwriting and distribution fees |
| 140,308 |
| 137,873 |
| 128,892 |
| 2,435 |
| 1.8 | % | 11,416 |
| 8.9 | % | |||||
Shareholder service fees |
| 25,508 |
| 27,074 |
| 26,406 |
| (1,566 | ) | (5.8 | )% | (898 | ) | (3.4 | )% | |||||
Total |
| 295,118 |
| 295,338 |
| 289,447 |
| (220 | ) | (0.1 | )% | 5,671 |
| 2.0 | % | |||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Distribution 1 |
| 116,591 |
| 114,315 |
| 106,878 |
| 2,276 |
| 2.0 | % | 9,713 |
| 9.1 | % | |||||
Compensation and benefits |
| 64,561 |
| 65,828 |
| 69,636 |
| (1,267 | ) | (1.9 | )% | (5,075 | ) | (7.3 | )% | |||||
General and administrative |
| 17,559 |
| 19,143 |
| 23,400 |
| (1,584 | ) | (8.3 | )% | (5,841 | ) | (25.0 | )% | |||||
Technology |
| 15,414 |
| 17,235 |
| 16,039 |
| (1,821 | ) | (10.6 | )% | (625 | ) | (3.9 | )% | |||||
Occupancy |
| 7,148 |
| 6,969 |
| 7,645 |
| 179 |
| 2.6 | % | (497 | ) | (6.5 | )% | |||||
Marketing and advertising |
| 2,461 |
| 2,896 |
| 3,197 |
| (435 | ) | (15.0 | )% | (736 | ) | (23.0 | )% | |||||
Depreciation |
| 8,141 |
| 5,819 |
| 5,230 |
| 2,322 |
| 39.9 | % | 2,911 |
| 55.7 | % | |||||
Subadvisory fees |
| 3,767 |
| 3,683 |
| 3,566 |
| 84 |
| 2.3 | % | 201 |
| 5.6 | % | |||||
Intangible asset impairment |
| — |
| 1,200 |
| — |
| (1,200 | ) | N/M |
| — |
| N/M |
| |||||
Total |
| 235,642 |
| 237,088 |
| 235,591 |
| (1,446 | ) | (0.6 | )% | 51 |
| 0.0 | % | |||||
Operating income |
| 59,476 |
| 58,250 |
| 53,856 |
| 1,226 |
| 2.1 | % | 5,620 |
| 10.4 | % | |||||
Investment and other income |
| 1,697 |
| 841 |
| 33,293 |
| 856 |
| 101.8 | % | (31,596 | ) | (94.9 | )% | |||||
Interest expense |
| (1,555 | ) | (1,551 | ) | (2,796 | ) | (4 | ) | (0.3 | )% | 1,241 |
| 44.4 | % | |||||
Income before provision for income taxes |
| 59,618 |
| 57,540 |
| 84,353 |
| 2,078 |
| 3.6 | % | (24,735 | ) | (29.3 | )% | |||||
Provision for income taxes |
| 13,105 |
| 13,284 |
| 29,499 |
| (179 | ) | (1.3 | )% | (16,394 | ) | (55.6 | )% | |||||
Net income |
| 46,513 |
| 44,256 |
| 54,854 |
| 2,257 |
| 5.1 | % | (8,341 | ) | (15.2 | )% | |||||
Net income (loss) attributable to redeemable noncontrolling interests |
| 208 |
| (222 | ) | 1,272 |
| 430 |
| 193.7 | % | (1,064 | ) | (83.6 | )% | |||||
Net income attributable to Waddell & Reed Financial, Inc. |
| $ | 46,305 |
| $ | 44,478 |
| $ | 53,582 |
| $ | 1,827 |
| 4.1 | % | $ | (7,277 | ) | (13.6 | )% |
Net income per share, basic and diluted: |
| $ | 0.58 |
| $ | 0.55 |
| $ | 0.64 |
|
|
|
|
|
|
|
|
| ||
Weighted average shares outstanding - basic and diluted |
| 79,595 |
| 81,449 |
| 83,476 |
|
|
|
|
|
|
|
|
| |||||
Operating margin |
| 20.2 | % | 19.7 | % | 18.6 | % |
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(1) Distribution expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Unaffiliated |
| 28,116 |
| 28,686 |
| 31,778 |
|
|
|
|
|
|
|
|
| |||||
Broker-dealer |
| 88,475 |
| 85,629 |
| 75,100 |
|
|
|
|
|
|
|
|
| |||||
|
| $ | 116,591 |
| $ | 114,315 |
| $ | 106,878 |
|
|
|
|
|
|
|
|
| ||
Unaudited Consolidated Statements of Income
(in thousands, except per share data and margin)
|
| Nine Months Ended |
|
|
|
|
| |||||
|
| Sep. 30, |
| Sep. 30, |
|
|
|
|
| |||
|
| 2018 |
| 2017 |
| Change |
| % |
| |||
Revenues: |
|
|
|
|
|
|
|
|
| |||
Investment management fees |
| $ | 393,385 |
| $ | 395,463 |
| $ | (2,078 | ) | (0.5 | )% |
Underwriting and distribution fees |
| 416,222 |
| 386,499 |
| 29,723 |
| 7.7 | % | |||
Shareholder service fees |
| 78,464 |
| 80,706 |
| (2,242 | ) | (2.8 | )% | |||
Total |
| 888,071 |
| 862,668 |
| 25,403 |
| 2.9 | % | |||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Distribution 1 |
| 345,376 |
| 324,375 |
| 21,001 |
| 6.5 | % | |||
Compensation and benefits |
| 199,174 |
| 202,003 |
| (2,829 | ) | (1.4 | )% | |||
General and administrative |
| 56,240 |
| 68,882 |
| (12,642 | ) | (18.4 | )% | |||
Technology |
| 49,293 |
| 50,796 |
| (1,503 | ) | (3.0 | )% | |||
Occupancy |
| 21,081 |
| 22,978 |
| (1,897 | ) | (8.3 | )% | |||
Marketing and advertising |
| 7,638 |
| 9,072 |
| (1,434 | ) | (15.8 | )% | |||
Depreciation |
| 19,262 |
| 15,626 |
| 3,636 |
| 23.3 | % | |||
Subadvisory fees |
| 11,158 |
| 9,457 |
| 1,701 |
| 18.0 | % | |||
Intangible asset impairment |
| 1,200 |
| 1,500 |
| (300 | ) | (20.0 | )% | |||
Total |
| 710,422 |
| 704,689 |
| 5,733 |
| 0.8 | % | |||
Operating income |
| 177,649 |
| 157,979 |
| 19,670 |
| 12.5 | % | |||
Investment and other income |
| 5,354 |
| 39,302 |
| (33,948 | ) | (86.4 | )% | |||
Interest expense |
| (4,908 | ) | (8,370 | ) | 3,462 |
| 41.4 | % | |||
Income before provision for income taxes |
| 178,095 |
| 188,911 |
| (10,816 | ) | (5.7 | )% | |||
Provision for income taxes |
| 41,355 |
| 74,988 |
| (33,633 | ) | (44.9 | )% | |||
Net income |
| 136,740 |
| 113,923 |
| 22,817 |
| 20.0 | % | |||
Net (loss) income attributable to redeemable noncontrolling interests |
| (380 | ) | 2,408 |
| (2,788 | ) | (115.8 | )% | |||
Net income attributable to Waddell & Reed Financial, Inc. |
| $ | 137,120 |
| $ | 111,515 |
| $ | 25,605 |
| 23.0 | % |
Net income per share, basic and diluted: |
| $ | 1.69 |
| $ | 1.33 |
|
|
|
|
| |
Weighted average shares outstanding - basic and diluted |
| 81,372 |
| 83,719 |
|
|
|
|
| |||
Operating margin |
| 20.0 | % | 18.3 | % |
|
|
|
| |||
|
|
|
|
|
|
|
|
|
| |||
(1) Distribution expense |
| 87,155 |
| 98,684 |
|
|
|
|
| |||
Unaffiliated |
| 258,221 |
| 225,691 |
|
|
|
|
| |||
Broker-dealer |
| $ | 345,376 |
| $ | 324,375 |
|
|
|
|
| |
Underwriting and distribution fees
(in thousands)
|
| For the three months ended Sep. 30, 2018 |
| |||||||
|
| Unaffiliated |
| Broker-Dealer |
| 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 three months ended Jun. 30, 2018 |
| |||||||
|
| Unaffiliated |
| Broker-Dealer |
| Total |
| |||
Fee-based asset allocation product revenues |
| $ | — |
| $ | 66,580 |
| $ | 66,580 |
|
Rule 12b-1 service and distribution fees |
| 20,051 |
| 18,109 |
| 38,160 |
| |||
Sales commissions on front-end load mutual funds and variable annuity products |
| 507 |
| 13,823 |
| 14,330 |
| |||
Sales commissions on other products |
| — |
| 9,065 |
| 9,065 |
| |||
Other revenues |
| 148 |
| 9,590 |
| 9,738 |
| |||
Total underwriting and distribution fees |
| $ | 20,706 |
| $ | 117,167 |
| $ | 137,873 |
|
|
| For the three months ended Sep. 30, 2017 |
| |||||||
|
| Unaffiliated |
| Broker-Dealer |
| Total |
| |||
Fee-based asset allocation product revenues |
| $ | — |
| $ | 61,115 |
| $ | 61,115 |
|
Rule 12b-1 service and distribution fees |
| 22,322 |
| 19,026 |
| 41,348 |
| |||
Sales commissions on front-end load mutual funds and variable annuity products |
| 353 |
| 12,941 |
| 13,294 |
| |||
Sales commissions on other products |
| — |
| 7,974 |
| 7,974 |
| |||
Other revenues |
| 217 |
| 4,944 |
| 5,161 |
| |||
Total underwriting and distribution fees |
| $ | 22,892 |
| $ | 106,000 |
| $ | 128,892 |
|
|
| For the nine months ended Sep. 30, 2018 |
| |||||||
|
| Unaffiliated |
| Broker-Dealer |
| 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 |
|
|
| For the nine months ended Sep. 30, 2017 |
| |||||||
|
| Unaffiliated |
| Broker-Dealer |
| Total |
| |||
Fee-based asset allocation product revenues |
| $ | — |
| $ | 176,184 |
| $ | 176,184 |
|
Rule 12b-1 service and distribution fees |
| 69,191 |
| 56,544 |
| 125,735 |
| |||
Sales commissions on front-end load mutual funds and variable annuity products |
| 1,118 |
| 41,796 |
| 42,914 |
| |||
Sales commissions on other products |
| — |
| 23,671 |
| 23,671 |
| |||
Other revenues |
| 996 |
| 16,999 |
| 17,995 |
| |||
Total underwriting and distribution fees |
| $ | 71,305 |
| $ | 315,194 |
| $ | 386,499 |
|
Unaudited Condensed Balance Sheet
(in thousands)
|
| Sep. 30, |
| Dec. 31, |
| ||
|
| 2018 |
| 2017 |
| ||
Assets |
|
|
|
|
| ||
Cash & cash equivalents (unrestricted) |
| $ | 270,478 |
| $ | 207,829 |
|
Investment securities |
| 588,407 |
| 700,492 |
| ||
Other assets |
| 218,701 |
| 241,305 |
| ||
Property and equipment, net |
| 69,340 |
| 87,667 |
| ||
Goodwill and intangible assets |
| 145,869 |
| 147,069 |
| ||
Total assets |
| $ | 1,292,795 |
| $ | 1,384,362 |
|
Liabilities, redeemable noncontrolling interests and equity |
|
|
|
|
| ||
Short-term notes payable |
| $ | — |
| $ | 94,996 |
|
Long-term debt |
| 94,836 |
| 94,783 |
| ||
Other liabilities |
| 288,316 |
| 307,190 |
| ||
Redeemable noncontrolling interests |
| 16,133 |
| 14,509 |
| ||
Total stockholders’ equity |
| 893,510 |
| 872,884 |
| ||
Liabilities, redeemable noncontrolling interests and equity |
| $ | 1,292,795 |
| $ | 1,384,362 |
|
Shares outstanding (in thousands) |
| 78,903 |
| 82,687 |
| ||
Unaudited Condensed Cash Flow
(in thousands)
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||
|
| Sep. 30, |
| Jun. 30, |
| Sep. 30, |
| Sep. 30, |
| Sep. 30, |
| |||||
|
| 2018 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||
Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
| |||||
Operating activities |
| $ | 90,652 |
| $ | 122,816 |
| $ | 17,935 |
| $ | 263,733 |
| $ | (12,166 | ) |
Investing activities |
| (7,160 | ) | (6,541 | ) | (181,312 | ) | 42,571 |
| (198,980 | ) | |||||
Financing activities |
| (50,131 | ) | (60,557 | ) | (41,387 | ) | (242,636 | ) | (113,620 | ) | |||||
Net change during period |
| $ | 33,361 |
| $ | 55,718 |
| $ | (204,764 | ) | $ | 63,668 |
| $ | (324,766 | ) |
|
| Three Months Ended |
| Nine Months Ended |
| |||||||||||
|
| Sep. 30, |
| Jun. 30, |
| Sep. 30, |
| Sep. 30, |
| Sep. 30, |
| |||||
(in thousands, except number of shares) |
| 2018 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||
Shares repurchased |
|
|
|
|
|
|
|
|
|
|
| |||||
Number of shares |
| 1,424,612 |
| 2,098,625 |
| 190,056 |
| 4,519,546 |
| 904,410 |
| |||||
Total cost |
| $ | 28,369 |
| $ | 40,142 |
| $ | 3,622 |
| $ | 89,018 |
| $ | 15,635 |
|
Dividend paid |
|
|
|
|
|
|
|
|
|
|
| |||||
Rate per share |
| $ | 0.25 |
| $ | 0.25 |
| $ | 0.46 |
| $ | 0.75 |
| $ | 1.38 |
|
Total paid |
| $ | 20,050 |
| $ | 20,591 |
| $ | 38,455 |
| $ | 61,531 |
| $ | 115,691 |
|
Capital returned to stockholders |
| $ | 48,419 |
| $ | 60,733 |
| $ | 42,077 |
| $ | 150,549 |
| $ | 131,326 |
|
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 ir.waddell.com. A Web cast replay will be made available shortly after the conclusion of the call and accessible for seven days.
Web Site Resources
We invite you to visit the Investor Relations section of our Web site at ir.waddell.com. Under the “Investor Information” tab you will find a link to presentations as well as to data tables, which include supplemental information schedules.
Contacts
Investor Contact:
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
Through its subsidiaries, Waddell & Reed Financial, Inc. has provided investment management and financial planning services to clients throughout the United States since 1937. Today, we distribute our investment products through the unaffiliated channel (encompassing broker/dealer, retirement, and registered investment advisors), our broker-dealer channel (through independent financial advisors), 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, 2017, 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, 2017 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2018. 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.