Waddell & Reed Financial, Inc. (NYSE: WDR) today reported
third quarter 2020 net income1 of $30.5 million, or $0.48 per
diluted share, compared to net income of $24.8 million, or $0.38
per diluted share, during the prior quarter and net income of $33.1
million, or $0.46 per diluted share, during the third quarter of
2019. The third quarter of 2019 included $3.1 million in severance
expense related to the outsourcing of our transfer agency
transactional processing operations. Excluding the severance
expense, adjusted net income for the third quarter of 2019 was
$35.4 million and adjusted net income per diluted share was
$0.492.
Highlights
- Strong financial performance, with 11.5% increase in revenues
compared to the prior quarter due to higher average assets
benefiting both Investment Management revenues and Wealth
Management Advisory revenues
- Continued execution of strategic initiatives in Asset
Management, with average Assets Under Management (AUM) up 10%
compared to the prior quarter
- Both sales and redemptions improved vs. the same quarter in
2019, particularly in institutional and unaffiliated
- Continued progress in strategic pricing evaluation, with 75% of
AUM at or better than competitor median fees
- Successful quarter for Wealth Management recruiting and asset
growth
- Net new Assets Under Administration3 (AUA) continue to improve,
and net new Advisory AUA were positive for the 7th consecutive
quarter
- Since January 1, 2020, 32 advisors have affiliated with Waddell
& Reed with combined prior firm AUA totaling over $1.9
billion
- $474 thousand average trailing 12-month productivity per
Advisor for the third quarter of 2020 improved 2% and 12% compared
to the prior quarter and the third quarter of 2019,
respectively
- Robust balance sheet continued to support investment in
strategic growth and meaningful capital return
- $744.6 million in cash and investments at the end of the third
quarter of 20204
- $56.3 million was returned to shareholders in the third quarter
of 2020, including $40.1 million of share repurchases
- Hired two executives focused on strategic growth – one to lead
the technology teams dedicated to leveraging technology as a
strategic asset across the organization, and one to develop and
lead strategies in support of best-in-class client and advisor
experience, processes and procedures
Philip J. Sanders, Chief Executive Officer of Waddell & Reed
Financial, Inc. shared, “I am pleased with the progress in
transforming our wealth management business this quarter with
continued recruiting success, growth in advisory assets and further
advancement of our technologies. At the same time, flows within our
asset management business improved compared to the prior year, and
our teams are seeing solid engagement across our distribution
network.” Mr. Sanders continued, “While the operating environment
remains challenging, we are as focused as ever on partnering with
clients to help them realize their long-term financial goals
through superior investment performance, advice and client
service.”
______________________________
1 Net income represents net income
attributable to Waddell & Reed Financial, Inc.
2 See Non-GAAP Financial Measures section
and Reconciliation of GAAP to Non-GAAP Financial Measures table
3 Net new advisory AUA are calculated as
total client deposits and net transfers less client withdrawals.
Client deposits include dividends and interest.
4 Excluding restricted cash
Consolidated Financial Results
Three Months Ended
Nine Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Sep. 30,
Sep. 30,
2020
2020
2019
2020
2019
GAAP basis (in thousands, except per share
data):
Revenue
$
267,670
$
240,034
$
270,680
$
771,437
$
800,244
Operating expenses
$
230,035
$
216,407
$
230,656
$
670,784
$
683,417
Operating income
$
37,635
$
23,627
$
40,024
$
100,653
$
116,827
Operating margin
14.1
%
9.8
%
14.8
%
13.0
%
14.6
%
Controllable expenses1
$
101,352
$
102,034
$
104,516
$
300,516
$
312,505
Net income
$
30,523
$
24,824
$
33,054
$
77,333
$
99,056
Net income per share, basic and
diluted
$
0.48
$
0.38
$
0.46
$
1.18
$
1.33
As adjusted2 (in thousands, except per
share data)
Revenue
$
267,670
$
240,034
$
270,680
$
771,437
$
800,244
Operating expenses
$
230,035
$
216,407
$
227,575
$
670,784
$
680,336
Operating income
$
37,635
$
23,627
$
43,105
$
100,653
$
119,908
Operating margin
14.1
%
9.8
%
15.9
%
13.0
%
15.0
%
Controllable expenses
$
101,352
$
102,034
$
101,435
$
300,516
$
309,424
Net income
$
30,523
$
24,824
$
35,396
$
77,333
$
101,398
Net income per share, basic and
diluted
$
0.48
$
0.38
$
0.49
$
1.18
$
1.36
Assets under management (in millions)
$
67,869
$
64,966
$
68,782
$
67,869
$
68,782
Average assets under management (in
millions)
$
67,946
$
61,718
$
70,527
$
65,272
$
70,667
Assets under administration (in
millions)
$
62,694
$
58,991
$
57,113
$
62,694
$
57,113
Average assets under administration (in
millions)
$
61,400
$
55,181
$
57,411
$
58,583
$
55,770
Financial Summary
Revenues totaled $267.7 million for the quarter, an increase of
$27.6 million, compared to the prior quarter and a decrease of $3.0
million compared to the third quarter of 2019. Operating expenses
for the quarter of $230.0 million increased $13.6 million compared
to the second quarter of 2020 and decreased $0.6 million compared
to the third quarter of 2019. Adjusted operating expenses2
increased $2.5 million compared to the third quarter of 2019. The
operating margin was 14.1% during the current quarter, compared to
9.8% and 14.8% during the prior quarter and the third quarter of
2019, respectively. The adjusted operating margin2 was 15.9% during
the third quarter of 2019.
AUM ended the quarter at $67.9 billion, an increase of 4%
compared to the prior quarter primarily due to market appreciation
and a decrease of 1% compared to the third quarter of 2019. Average
AUM were $67.9 billion during the current quarter, compared to
$61.7 billion during the prior quarter and $70.5 billion during the
third quarter of 2019. Net outflows of $1.8 billion during the
current quarter were higher compared to net outflows of $1.4
billion in the prior quarter and were lower compared to net
outflows of $2.7 billion in the third quarter of 2019. Sales of
$1.8 billion during the current quarter decreased 17% compared to
the prior quarter and increased 2% compared to the third quarter of
2019. Redemptions were slightly better compared to the prior
quarter and were 19% better compared to the third quarter of
2019.
Wealth management AUA ended the quarter at $62.7 billion, an
increase of 6% and 10%, compared to the second quarter of 2020 and
the third quarter of 2019, respectively. Average AUA were $61.4
billion during the current quarter, compared to $55.2 billion
during the prior quarter and $57.4 billion during the third quarter
of 2019. Net new advisory AUA was $437.3 million, as advisory
products continue to drive the majority of new sales. Non-advisory
asset flows continue to be negative, experiencing an increase in
outflows compared to the prior quarter and reduced outflows
compared to the same quarter in 2019.
______________________________
1 Controllable expenses defined as
compensation and benefits, general and administrative, occupancy,
technology, and marketing and advertising costs
2 See Non-GAAP Financial Measures section
and Reconciliation of GAAP to Non-GAAP Financial Measures table
Revenues Analysis
Investment management fees increased $10.8 million, or 11%,
compared to the second quarter of 2020 due to a 10% increase in
average AUM and one additional day in the quarter partially offset
by additional money market fee waivers. The effective management
fee rate for the current quarter was 62.4 basis points remaining
consistent with the prior quarter’s rate. Compared to the third
quarter of 2019, investment management fees declined $5.2 million,
or 5%, primarily due to lower average AUM and a lower effective
management fee rate due to targeted fee reductions made in previous
periods and money market fee waivers.
Underwriting and distribution fees increased $15.8 million, or
13%, compared to the prior quarter due to higher advisory fees and
higher service and distribution fees due to higher asset levels. In
addition, sales commissions were $2.7 million higher compared to
the prior quarter as a result of increased sales activity across
insurance product lines. Compared to the same quarter in 2019,
underwriting and distribution fees increased $3.7 million, or 3%,
due to increased advisory fees from higher asset levels, partially
offset by lower sales commissions and lower service and
distribution fees from lower asset levels.
Shareholder service fees increased $1.0 million, or 5%, compared
to the second quarter of 2020 primarily due to an increase in
average assets and one additional day in the quarter. Compared to
the third quarter of 2019, shareholder service fees declined $1.5
million, or 6%, due to a decrease in average assets and fewer
accounts. There was also a reduction in fund reimbursement revenues
related to the outsourcing of our transfer agency transactional
processing operations which was offset by lower costs.
Operating Expenses Analysis
Controllable expenses decreased $0.7 million and $3.2 million
compared to the prior quarter and the third quarter of 2019,
respectively as investment in targeted growth areas of our strategy
continue.
Distribution expenses increased $14.3 million, or 13%, compared
to the prior quarter and increased $4.8 million, or 4%, compared to
the third quarter of 2019 as a result of the increase in
underwriting and distribution revenue. The expense increase
compared to the third quarter of 2019 was larger than the revenue
increase primarily due to an increase in the average advisor payout
rate from continued increases in production.
Compensation and benefits expense increased $0.6 million, or 1%,
compared to the prior quarter primarily due to an increase in base
salaries and benefits expense due to an increase in headcount.
These increases were partially offset by mark-to-market adjustments
on equity-based compensation. Compared to the third quarter of
2019, compensation and benefits expense decreased $2.6 million, or
4%, due to severance paid related to the outsourcing of our
transfer agency transactional processing operations in the third
quarter of 2019, lower costs from reduced headcount and lower
equity-based compensation. These decreases were partially offset by
mark-to-market adjustments on deferred compensation plans.
General and administrative expenses decreased $1.4 million, or
7%, compared to the second quarter of 2020 primarily due to lower
meeting costs. Compared to the same quarter in 2019, general and
administrative expenses increased $2.5 million, or 15%, due to a
shift of our transfer agency transactional processing operations
costs from technology expenses to general and administrative
expenses as a result of outsourcing and increased strategic project
spending, partially offset by lower travel and meetings costs.
Technology costs were consistent with the prior quarter as
higher software costs for new technologies were offset by lower
technology consulting costs. Technology costs decreased $0.8
million, or 5%, compared to the third quarter of 2019 as costs
related to the transfer agency transactional processing operations
outsourcing were shifted to general and administrative expenses.
This decrease was partially offset by increased consulting and
software costs for new technologies.
Occupancy expenses decreased $0.1 million, or 3%, compared to
the prior quarter and decreased $1.5 million, or 27%, compared to
the third quarter of 2019. For both comparative periods, occupancy
costs decreased as a result of the planned transition out of
corporate field offices in our wealth manager.
Marketing and advertising expenses increased slightly compared
to the prior quarter and decreased $0.8 million, or 36%, compared
to the third quarter of 2019 primarily due to lower sponsorship
fees in connection with the shift to virtual industry
conferences.
Depreciation expense declined slightly compared to the prior
quarter and declined $1.8 million, or 38%, compared to the third
quarter of 2019 due to capitalized software development assets
becoming fully depreciated.
Investment and Other Income
Investment and other income decreased $9.7 million compared to
the prior quarter due to lower unrealized gains, net of hedging
activity, on the seed and corporate investment portfolios and an
increase in pension expense as a result of the pension plan
liquidation in the third quarter of 2020. Compared to the third
quarter of 2019, investment and other income increased slightly as
higher unrealized gains, net of hedging activity, on the seed and
corporate investment portfolio were offset by an increase in
pension expense due to the plan liquidation and a decline in
interest income for the corporate investment portfolio.
The effective tax rate was 24.8% and was consistent with the
prior quarter’s rate of 25.3%. Compared to the third quarter of
2019, the rate increased slightly, primarily due to increased state
taxes as a result of additional filings in the current quarter.
AUM (in millions)
Three Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Prior Qtr.
Year-over-Year Qtr.
2020
2020
2019
Change
%
Change
%
Unaffiliated1
Beginning assets
$
23,724
$
20,244
$
27,545
$
3,480
17
%
$
(3,821
)
(14
)%
Sales2
1,127
1,490
999
(363
)
(24
)%
128
13
%
Redemptions
(1,977
)
(2,179
)
(2,684
)
202
9
%
707
26
%
Net exchanges
239
205
334
34
17
%
(95
)
(28
)%
Net Flows
(611
)
(484
)
(1,351
)
(127
)
(26
)%
740
55
%
Market action
1,755
3,964
(337
)
(2,209
)
(56
)%
2,092
621
%
Ending assets
$
24,868
$
23,724
$
25,857
$
1,144
5
%
$
(989
)
(4
)%
Annualized organic growth rate
(10.3
)%
(9.6
)%
(19.6
)%
Annualized redemption rate3
32.3
%
39.9
%
40.9
%
Institutional
Beginning assets
$
2,997
$
2,427
$
3,887
$
570
23
%
$
(890
)
(23
)%
Sales2
59
52
49
7
13
%
10
20
%
Redemptions
(165
)
(202
)
(230
)
37
18
%
65
28
%
Net exchanges
—
22
—
(22
)
NM
—
NM
%
Net Flows
(106
)
(128
)
(181
)
22
17
%
75
41
%
Market action
297
698
(29
)
(401
)
(57
)%
326
1,124
%
Ending assets
$
3,188
$
2,997
$
3,677
$
191
6
%
$
(489
)
(13
)%
Annualized organic growth rate
(14.1
)%
(21.1
)%
(18.6
)%
Annualized redemption rate3
20.5
%
28.6
%
23.9
%
Wealth Management
Beginning assets
$
38,245
$
33,339
$
40,444
$
4,906
15
%
$
(2,199
)
(5
)%
Sales2
634
649
744
(15
)
(2
)%
(110
)
(15
)%
Redemptions
(1,488
)
(1,259
)
(1,542
)
(229
)
(18
)%
54
4
%
Net exchanges
(239
)
(227
)
(334
)
(12
)
(5
)%
95
28
%
Net Flows
(1,093
)
(837
)
(1,132
)
(256
)
(31
)%
39
3
%
Market action
2,661
5,743
(64
)
(3,082
)
(54
)%
2,725
4,258
%
Ending assets
$
39,813
$
38,245
$
39,248
$
1,568
4
%
$
565
1
%
Annualized organic growth rate
(11.4
)%
(10.0
)%
(11.2
)%
Annualized redemption rate3
13.1
%
11.6
%
13.4
%
Consolidated Total
Beginning assets
$
64,966
$
56,010
$
71,876
$
8,956
16
%
$
(6,910
)
(10
)%
Sales2
1,820
2,191
1,792
(371
)
(17
)%
28
2
%
Redemptions
(3,630
)
(3,640
)
(4,456
)
10
—
%
826
19
%
Net exchanges
—
—
—
—
—
—
—
Net Flows
(1,810
)
(1,449
)
(2,664
)
(361
)
(25
)%
854
32
%
Market action
4,713
10,405
(430
)
(5,692
)
(55
)%
5,143
1,196
%
Ending assets
$
67,869
$
64,966
$
68,782
$
2,903
4
%
$
(913
)
(1
)%
Annualized organic growth rate
(11.1
)%
(10.3
)%
(14.8
)%
Annualized redemption rate3
20.5
%
22.6
%
24.3
%
____________________________
1
Unaffiliated includes National channel
(home office and wholesale), Defined Contribution Investment Only,
Registered Investment Advisor and Variable Annuity.
2
Sales consist of gross sales and includes
net reinvested dividends, capital gains and investment income.
3
Excludes Money Market.
MorningStar Fund Rankings1
1 Year
3 Years
5 Years
Funds ranked in top half
49
%
49
%
39
%
Assets ranked in top half
43
%
52
%
47
%
MorningStar Ratings1
Overall
3 Years
5 Years
Funds with 4/5 stars
26
%
28
%
19
%
Assets with 4/5 stars
40
%
42
%
35
%
_____________________
1 Based on class I share, which reflects
the largest concentration of sales and assets.
Wealth Management
Sep. 30,
Jun. 30,
Sep. 30,
Prior Qtr.
Year-over-Year Qtr.
(in millions)
2020
2020
2019
Change
%
Change
%
AUA
Ending advisory AUA
$
29,330
$
27,155
$
25,107
$
2,175
8
%
$
4,223
17
%
Ending non-advisory AUA
33,364
31,836
32,006
1,528
5
%
1,358
4
%
Ending total AUA
62,694
58,991
57,113
3,703
6
%
5,581
10
%
Average advisory AUA 1
$
28,502
$
25,030
$
24,921
$
3,472
14
%
$
3,581
14
%
Average non-advisory AUA 1
32,898
30,151
32,490
2,747
9
%
408
1
%
Average AUA 1
61,400
55,181
57,411
6,219
11
%
3,989
7
%
Net new advisory AUA 2
$
437
$
189
$
328
$
248
131
%
$
109
33
%
Net new non-advisory AUA 2, 3
(475
)
(346
)
(720
)
(129
)
(37
)%
245
34
%
Total net new AUA 2, 3
(38
)
(157
)
(392
)
119
76
%
354
90
%
Annualized advisory AUA growth 4
6.4
%
3.3
%
5.3
%
Annualized AUA growth 4
(0.3
)%
(1.2
)%
(2.7
)%
Advisors and advisor associates
1,313
1,317
1,344
(4
)
—
%
(31
)
(2
)%
Avg. trailing 12-month revenue per advisor
5 (in thousands)
$
474
$
464
$
422
$
10
2
%
$
52
12
%
_________________________
1
Average AUA are calculated as the average
of the beginning of month AUA during each reporting period.
2
Net new AUA are calculated as total client
deposits and net transfers less client withdrawals. Client deposits
include dividends and interest.
3
Excludes activity related to products held
outside of our wealth management platform. These assets
represent less than 10% of total AUA.
4
Annualized growth is calculated as
annualized quarterly net new AUA divided by beginning AUA.
5
Production per Advisor is calculated as
trailing 12- month Total underwriting and distribution fees less
“other” underwriting and distribution fees divided by the average
number of advisors. “Other” underwriting and distribution
fees predominantly includes fees paid by advisors for programs and
services.
Unaudited Consolidated Statements of Income
(in thousands, except per share data and
margin)
Three Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Prior Qtr.
Year-over-Year Qtr.
2020
2020
2019
Change
%
Change
%
Revenues:
Investment management fees
$
106,617
$
95,824
$
111,806
$
10,793
11
%
$
(5,189
)
(5
)%
Underwriting and distribution fees
139,456
123,633
135,787
15,823
13
%
3,669
3
%
Shareholder service fees
21,597
20,577
23,087
1,020
5
%
(1,490
)
(6
)%
Total
267,670
240,034
270,680
27,636
12
%
(3,010
)
(1
)%
Operating expenses:
Distribution1
122,195
107,876
117,425
14,319
13
%
4,770
4
%
Compensation and benefits (including
share-based compensation of $11,080, $12,532 and $11,580,
respectively)
62,416
61,863
64,999
553
1
%
(2,583
)
(4
)%
General and administrative
19,156
20,524
16,680
(1,368
)
(7
)%
2,476
15
%
Technology
14,250
14,237
15,019
13
0
%
(769
)
(5
)%
Occupancy
4,160
4,291
5,684
(131
)
(3
)%
(1,524
)
(27
)%
Marketing and advertising
1,370
1,119
2,134
251
22
%
(764
)
(36
)%
Depreciation
2,998
3,209
4,833
(211
)
(7
)%
(1,835
)
(38
)%
Subadvisory fees
3,490
3,288
3,882
202
6
%
(392
)
(10
)%
Total
230,035
216,407
230,656
13,628
6
%
(621
)
—
%
Operating income
37,635
23,627
40,024
14,008
59
%
(2,389
)
(6
)%
Investment and other income
5,449
15,148
5,212
(9,699
)
(64
)%
237
5
%
Interest expense
(1,542
)
(1,539
)
(1,562
)
(3
)
—
%
20
1
%
Income before provision for income
taxes
41,542
37,236
43,674
4,306
12
%
(2,132
)
(5
)%
Provision for income taxes
10,296
9,412
10,175
884
9
%
121
1
%
Net income
31,246
27,824
33,499
3,422
12
%
(2,253
)
(7
)%
Net income attributable to redeemable
noncontrolling interests
723
3,000
445
(2,277
)
(76
)%
278
62
%
Net income attributable to Waddell
& Reed Financial, Inc.
$
30,523
$
24,824
$
33,054
$
5,699
23
%
$
(2,531
)
(8
)%
Net income per share, basic and
diluted:
$
0.48
$
0.38
$
0.46
Weighted average shares outstanding -
basic and diluted
64,240
65,488
72,387
Operating margin
14.1
%
9.8
%
14.8
%
1Distribution expense
Unaffiliated
22,733
20,587
24,068
Wealth Management
99,462
87,289
93,357
$
122,195
$
107,876
$
117,425
Unaudited Consolidated Statements of
Income
(in thousands, except per share
data and margin)
Nine Months Ended
Sep. 30,
Sep. 30,
2020
2019
Change
%
Revenues:
Investment management fees
$
307,660
$
334,438
$
(26,778
)
(8
)%
Underwriting and distribution fees
400,032
395,527
4,505
1
%
Shareholder service fees
63,745
70,279
(6,534
)
(9
)%
Total
771,437
800,244
(28,807
)
(4
)%
Operating expenses:
Distribution1
350,104
343,696
6,408
2
%
Compensation and benefits (including
share-based compensation of $33,595 and $35,471, respectively)
182,704
191,718
(9,014
)
(5
)%
General and administrative
58,278
47,421
10,857
23
%
Technology
41,989
47,769
(5,780
)
(12
)%
Occupancy
13,160
19,100
(5,940
)
(31
)%
Marketing and advertising
4,385
6,497
(2,112
)
(33
)%
Depreciation
9,720
16,062
(6,342
)
(39
)%
Subadvisory fees
10,444
11,154
(710
)
(6
)%
Total
670,784
683,417
(12,633
)
(2
)%
Operating income
100,653
116,827
(16,174
)
(14
)%
Investment and other income
12,852
23,690
(10,838
)
(46
)%
Interest expense
(4,630
)
(4,662
)
32
1
%
Income before provision for income
taxes
108,875
135,855
(26,980
)
(20
)%
Provision for income taxes
29,341
35,036
(5,695
)
(16
)%
Net income
79,534
100,819
(21,285
)
(21
)%
Net income attributable to redeemable
noncontrolling interests
2,201
1,763
438
25
%
Net income attributable to Waddell
& Reed Financial, Inc.
$
77,333
$
99,056
$
(21,723
)
(22
)%
Net income per share, basic and
diluted:
$
1.18
$
1.33
Weighted average shares outstanding -
basic and diluted
65,795
74,446
Operating margin
13.0
%
14.6
%
1Distribution expense
Unaffiliated
66,944
73,326
Wealth Management
283,160
270,370
$
350,104
$
343,696
Underwriting and distribution
fees
(in thousands)
For the three months ended
Sep. 30, 2020
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
82,591
$
82,591
Service and distribution fees
14,623
15,305
29,928
Sales commissions
223
17,847
18,070
Other revenues
82
8,785
8,867
Total underwriting and distribution
fees
$
14,928
$
124,528
$
139,456
For the three months ended
Jun. 30, 2020
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
72,534
$
72,534
Service and distribution fees
13,670
13,600
27,270
Sales commissions
373
15,034
15,407
Other revenues
91
8,331
8,422
Total underwriting and distribution
fees
$
14,134
$
109,499
$
123,633
For the three months ended
Sep. 30, 2019
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
73,356
$
73,356
Service and distribution fees
16,286
16,143
32,429
Sales commissions
364
20,544
20,908
Other revenues
67
9,027
9,094
Total underwriting and distribution
fees
$
16,717
$
119,070
$
135,787
For the nine months ended Sep.
30, 2020
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
232,243
$
232,243
Service and distribution fees
43,569
43,494
87,063
Sales commissions
1,047
53,538
54,585
Other revenues
308
25,833
26,141
Total underwriting and distribution
fees
$
44,924
$
355,108
$
400,032
For the nine months ended Sep.
30, 2019
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
208,806
$
208,806
Service and distribution fees
49,366
47,589
96,955
Sales commissions
1,300
60,959
62,259
Other revenues
242
27,265
27,507
Total underwriting and distribution
fees
$
50,908
$
344,619
$
395,527
Unaudited Condensed Balance
Sheet
(in thousands)
Sep. 30,
Dec. 31,
2020
2019
Assets
Cash & cash equivalents
(unrestricted)
$
165,259
$
151,815
Investment securities
579,344
688,346
Other assets
207,745
245,572
Property and equipment, net
27,213
34,726
Goodwill and intangible assets
145,869
145,869
Total assets
$
1,125,430
$
1,266,328
Liabilities, redeemable noncontrolling
interests and equity
Short-term notes payable
$
94,980
$
—
Long-term debt
—
94,926
Other liabilities
282,939
343,300
Redeemable noncontrolling interests
—
19,205
Total stockholders’ equity
747,511
808,897
Liabilities, redeemable noncontrolling
interests and equity
$
1,125,430
$
1,266,328
Shares outstanding
62,548
68,847
Unaudited Condensed Cash Flow
(in thousands)
Three Months Ended
Nine Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Sep. 30,
Sep. 30,
2020
2020
2019
2020
2019
Cash provided by (used in):
Operating activities
$
63,222
$
(526
)
$
61,084
$
91,972
$
84,231
Investing activities
18,084
20,430
(14,173
)
66,208
(18,160
)
Financing activities
(55,634
)
(32,123
)
(58,591
)
(157,128
)
(171,709
)
Net change during period
$
25,672
$
(12,219
)
$
(11,680
)
$
1,052
$
(105,638
)
Three Months Ended
Nine Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Sep. 30,
Sep. 30,
(in thousands, except number of
shares)
2020
2020
2019
2020
2019
Shares repurchased
Number of shares
2,617,108
1,468,367
2,480,019
7,892,913
6,849,238
Total cost
$
40,052
$
18,061
$
40,715
$
112,052
$
116,677
Dividend paid
Rate per share
$
0.25
$
0.25
$
0.25
$
0.75
$
0.75
Total paid
$
16,292
$
16,528
$
18,372
$
49,939
$
56,560
Capital returned to
stockholders
$
56,344
$
34,589
$
59,087
$
161,991
$
173,237
Non-GAAP Financial Measures
“Adjusted net income attributable to Waddell & Reed
Financial, Inc.,” “adjusted net income per share, basic and
diluted,” “adjusted controllable expenses,” “adjusted operating
expenses,” and “adjusted operating margin” are non-GAAP financial
measures that are not presented in accordance with U.S. generally
accepted accounting principles (GAAP). We believe that these
non-GAAP financial measures provide meaningful supplemental
information regarding our performance by excluding charges and
gains that are not indicative of our core operating results, and
allow management and investors to better evaluate our performance
between periods and compared to other companies in our
industry.
These non-GAAP financial measures should not be considered a
substitute for financial measures presented in accordance with GAAP
and you should not rely on non-GAAP financial measures alone as
measures of our performance.
A reconciliation of these non-GAAP financial measures to the
comparable GAAP financial measures is included in the table
below.
Three Months Ended
Nine Months Ended
Sep. 30,
Jun. 30,
Sep. 30,
Sep. 30,
Sep. 30,
2020
2020
2019
2020
2019
Net income attributable to Waddell &
Reed Financial, Inc. (GAAP)
$
30,523
$
24,824
$
33,054
$
77,333
$
99,056
Adjustments
Severance
—
—
3,081
—
3,081
Tax effect of adjustments
—
—
(739
)
—
(739
)
Adjusted net income attributable to
Waddell & Reed Financial, Inc. (non-GAAP)
$
30,523
$
24,824
$
35,396
$
77,333
$
101,398
Weighted average shares outstanding -
basic and diluted
64,240
65,488
72,387
65,795
74,446
Adjusted net income per share, basic and
diluted (non-GAAP):
$
0.48
$
0.38
$
0.49
$
1.18
$
1.36
Controllable expenses (GAAP)
$
101,352
$
102,034
$
104,516
$
300,516
$
312,505
Adjustments
Severance
—
—
(3,081
)
—
(3,081
)
Adjusted controllable expenses
(non-GAAP)
101,352
102,034
101,435
300,516
309,424
Operating expenses (GAAP)
$
230,035
$
216,407
$
230,656
$
670,784
$
683,417
Adjustments
Severance
—
—
(3,081
)
—
(3,081
)
Adjusted operating expenses (non-GAAP)
230,035
216,407
227,575
670,784
680,336
Operating income (GAAP)
$
37,635
$
23,627
$
40,024
$
100,653
$
116,827
Adjustments
Severance
—
—
3,081
—
3,081
Adjusted operating income (non-GAAP)
$
37,635
$
23,627
$
43,105
$
100,653
$
119,908
Operating revenue
$
267,670
$
240,034
$
270,680
$
771,437
$
800,244
Operating margin (GAAP)
14.1
%
9.8
%
14.8
%
13.0
%
14.6
%
Adjusted operating margin (non-GAAP)
14.1
%
9.8
%
15.9
%
13.0
%
15.0
%
Earnings Conference Call
Stockholders, members of the investment community and the
general public are invited to listen to a live Web cast of our
earnings release conference call today at 10:00 a.m. Eastern.
During this call, Philip J. Sanders, CEO, will review our quarterly
results. Live access to the teleconference will be available on the
“Investor Relations” section of our Web site at ir.waddell.com. A
Web cast replay will be made available shortly after the conclusion
of the call and accessible for seven days.
Web Site Resources
We invite you to visit the Investor Relations section of our Web
site at ir.waddell.com. Under the “Investor Information” tab you
will find a link to presentations as well as to data tables, which
include supplemental information schedules.
Past performance is no guarantee of future results. Please
invest carefully.
About the Company
Through its subsidiaries, Waddell & Reed Financial, Inc. has
provided investment management and wealth management services to
clients throughout the United States since 1937. Today, we
distribute our investment products through the unaffiliated channel
under the IVY INVESTMENTS® brand (encompassing broker/dealer,
retirement, and registered investment advisors), our wealth
management channel (through independent financial advisors
associated with WADDELL & REED, INC.), and our institutional
channel (including defined benefit plans, pension plans, endowments
and subadvisory relationships). For more information, visit
ir.waddell.com.
Forward-Looking Statements
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which reflect the current views and assumptions of
management with respect to future events regarding our business and
industry in general. These forward-looking statements include all
statements, other than statements of historical fact, regarding our
financial position, business strategy and other plans and
objectives for future operations, including statements with respect
to revenues and earnings, the amount and composition of assets
under management and assets under administration, distribution
sources, expense levels, redemption rates, stock repurchases and
the financial markets and other conditions. These statements are
generally identified by the use of such words as “may,” “could,”
“should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,”
“expect,” “intend,” “plan,” “project,” “outlook,” “will,”
“potential” and similar statements of a future or forward-looking
nature. Readers are cautioned that any forward-looking information
provided by us or on our behalf is not a guarantee of future
performance. Actual results may differ materially from those
contained in these forward-looking statements as a result of
various factors, including but not limited to the impact of the
COVID-19 pandemic and related economic conditions, as well as the
factors discussed below. If one or more events related to these or
other risks, contingencies or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may
differ materially from those forecasted or expected. Certain
important factors that could cause actual results to differ
materially from our expectations are disclosed in the “Risk
Factors” section of our Annual Report on Form 10-K for the year
ended December 31, 2019, which include, without limitation:
- The loss of existing distribution relationships or inability to
access new distribution relationships;
- A reduction in assets under our management on short notice,
through increased redemptions in our distribution channels or our
Funds, particularly those Funds with a high concentration of
assets, or investors terminating their relationship with us or
shifting their funds to other types of accounts with different rate
structures;
- The adverse ruling or resolution of any litigation, regulatory
investigations and proceedings, or securities arbitrations by a
federal or state court or regulatory body;
- Changes in our business model, operations and procedures,
including our methods of distributing our proprietary products, as
a result of evolving fiduciary standards;
- The introduction of legislative or regulatory proposals or
judicial rulings that change the independent contractor
classification of our financial advisors at the federal or state
level for employment tax or other employee benefit purposes;
- A decline in the securities markets or in the relative
investment performance of our Funds and other investment portfolios
and products as compared to competing funds;
- Our inability to reduce expenses rapidly enough to align with
declines in our revenues due to various factors, including fee
pressure, the level of our assets under management or our business
environment;
- Non-compliance with applicable laws or regulations and changes
in current legal, regulatory, accounting, tax or compliance
requirements or governmental policies;
- Our inability to attract and retain senior executive management
and other key personnel to conduct our wealth management and
investment management business;
- A failure in, or breach of, our operational or security systems
or our technology infrastructure, or those of third parties on
which we rely; and
- Our inability to implement new information technology and
systems, or our inability to complete such implementation in a
timely or cost effective manner.
The foregoing factors should not be construed as exhaustive and
should be read together with other cautionary statements included
in this and other reports and filings we make with the Securities
and Exchange Commission, including the information in Item 1
“Business” and Item 1A “Risk Factors” of Part I and Item 7
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” of Part II to our Annual Report on Form 10‑
K for the year ended December 31, 2019 and as updated in our
quarterly reports on Form 10-Q for the year ending December 31,
2020. All forward-looking statements speak only as of the date on
which they are made and we undertake no duty to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent
required by law.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201027005225/en/
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.
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