[July 31, 2018] |
|
Waddell & Reed Financial, Inc. Reports Second Quarter Results
Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter
2018 net income1 of $44.5 million, or $0.55 per diluted
share, compared to net income of $46.3 million, or $0.56 per diluted
share, during the prior quarter and net income of $24.1 million, or
$0.29 per diluted share, during the second quarter of 2017.
Revenues of $295.3 million during the quarter declined 1% sequentially
and increased 3% compared to the second quarter of 2017. Operating
expenses of $237.1 million during the quarter remained largely unchanged
compared to the prior quarter and increased less than 1% compared to the
same quarter in 2017. The operating margin was 19.7% during the current
quarter, compared to 20.1% and 17.8% during the first quarter of 2018
and the second quarter of 2017, respectively.
Assets under management ended the quarter at $78.7 billion, declining 2%
compared to the prior quarter and 2% compared to the second quarter of
2017. Sales of $2.9 billion during the current quarter declined 23%
compared to the first quarter of 2018 and were 11% lower than the second
quarter of 2017. Net outflows were $3.1 billion during the current
quarter, compared to net outflows of $1.5 billion during the prior
quarter and $2.5 billion during the second quarter of 2017, with the
current quarter redemption increase driven primarily by the
Institutional channel. A sequential improvement in market return helped
offset some of the outflows during the current quarter.
Broker-dealer assets under administration ended the quarter at $57.1
billion, increasing 1% compared to the first quarter of 2018 and 6%
compared to the second quarter of 2017. Average productivity per
advisor, as measured by average trailing twelve-month revenue per
advisor, was $314 thousand for the twelve-month period ended June 30,
2018; improving 10% compared to the twelve-month period ended March 31,
2018. Average productivity per advisor continues to rise as we focus our
programs and support on high-performing financial advisors.
"We continue to be focused on managing our product line to ensure its
competitiveness. Strengthening our investment performance and
dynamically managing our products and their distribution are key steps
in our progress," said Philip J. Sanders, Chief Executive Officer of
Waddell & Reed Financial, Inc. "We believe in the value we provide as
active managers, and our recent results have borne that out, with
performance improvement across a majority of our key strategies."
_____________________ 1 Net income represents net income
attributable to Waddell & Reed Financial, Inc.
Revenues Analysis
Investment management fee revenues decreased $3.3 million, or 2%,
sequentially, or slightly less than the decrease in average assets under
management due to an additional day in the current quarter. Compared to
the second quarter of 2017, fees declined less than 1%. During the
current quarter, the effective management fee rate was 65.4 basis
points, compared to 65.8 basis points during the first quarter of 2018
and 65.1 basis points during the second quarter of 2017. Average assets
under management were $80.0 billion during the current quarter, compared
to $82.4 billion during the prior quarter and $80.6 billion during the
second quarter of 2017.
Underwriting and distribution fees decreased $0.2 million, or less than
1%, sequentially. A decrease in distribution fees due to lower assets in
unaffiliated distribution was partially offset by higher asset-based
advisory fee revenues in the broker-dealer. Compared to the second
quarter of 2017, fees increased $9.1 million, or 7% due to higher
asset-based advisory fees in the broker-dealer and new revenues from
independent financial advisors for services, which were partially offset
by lower distribution fees.
Operating Expenses Analysis
Distribution expenses decreased $0.2 million, or less than 1%
sequentially, in correlation with the decrease in underwriting and
distribution revenues. Compared to the second quarter of 2017,
distribution expenses increased $5.3 million, or 5% due to higher
commissions paid to independent financial advisors under the new
commission structure that became effective on January 1, 2018 and higher
commissions on our asset-based advisory products due to advisory asset
growth. The increase was partly offset by lower commissions paid to
third-party distributors.
Compensation and benefits expenses declined $3.0 million, or 4%
sequentially, due to lower payroll taxes, savings plan costs and equity
compensation, which were partially offset by severance costs of $4.4
million during the current quarter. Compared to the second quarter of
2017, expenses rose $0.5 million, or less than 1%, as severance costs
and the annual merit increase were partly offset by lower pension costs
due to the prior year plan freeze.
General and administrative expenses declined $0.4 million, or 2%,
sequentially due to lower usage of consultants following the completion
of various projects and lower fund waiver costs. Compared to the second
quarter of 2017, expenses declined $4.1 million, or 18%, due to a
combination of lower usage of consultants during the current quarter,
primarily for Project E, the Department of Labor fiduciary rule, and to
fund merger costs in 2017.
Technology expenses increased $0.6 million, or 4%, sequentially due to a
combination of higher data service costs and consulting costs. Compared
to the second quarter of 2017, expenses declined $0.5 million, or 3% due
to lower software licensing costs.
The current quarter includes an intangible impairment charge of $1.2
million related to a terminated subadvisory agreement.
Income Taxes
During the second quarter, we resolved and closed an outstanding state
tax liability resulting in a benefit of $6.4 million, which was largely
offset by the tax shortfall on restricted stock vesting.
|
Assets Under Management
|
(in millions)
|
|
|
|
|
Three Months Ended
|
|
|
|
Jun. 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
|
2017
|
|
|
2018
|
Unaffiliated 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets
|
|
|
$
|
30,182
|
|
|
|
$
|
30,307
|
|
|
|
$
|
31,062
|
|
|
|
$
|
31,133
|
|
|
|
$
|
31,055
|
|
Sales 2
|
|
|
|
2,080
|
|
|
|
|
1,790
|
|
|
|
|
1,577
|
|
|
|
|
2,245
|
|
|
|
|
1,779
|
|
Redemptions
|
|
|
|
(2,886
|
)
|
|
|
|
(2,486
|
)
|
|
|
|
(2,912
|
)
|
|
|
|
(2,692
|
)
|
|
|
|
(2,646
|
)
|
Net exchanges
|
|
|
|
235
|
|
|
|
|
213
|
|
|
|
|
316
|
|
|
|
|
247
|
|
|
|
|
284
|
|
Net Flows
|
|
|
|
(571
|
)
|
|
|
|
(483
|
)
|
|
|
|
(1,019
|
)
|
|
|
|
(200
|
)
|
|
|
|
(583
|
)
|
Market action
|
|
|
|
696
|
|
|
|
|
1,238
|
|
|
|
|
1,090
|
|
|
|
|
122
|
|
|
|
|
310
|
|
Ending assets
|
|
|
$
|
30,307
|
|
|
|
$
|
31,062
|
|
|
|
$
|
31,133
|
|
|
|
$
|
31,055
|
|
|
|
$
|
30,782
|
|
Annualized organic growth rate
|
|
|
|
(7.6
|
)%
|
|
|
|
(6.4
|
)%
|
|
|
|
(13.1
|
)%
|
|
|
|
(2.6
|
)%
|
|
|
|
(7.5
|
)%
|
Annualized redemption rate 3
|
|
|
|
39.2
|
%
|
|
|
|
33.0
|
%
|
|
|
|
37.9
|
%
|
|
|
|
35.8
|
%
|
|
|
|
34.9
|
%
|
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets
|
|
|
$
|
7,792
|
|
|
|
$
|
7,036
|
|
|
|
$
|
6,365
|
|
|
|
$
|
6,289
|
|
|
|
$
|
6,449
|
|
Sales 2
|
|
|
|
78
|
|
|
|
|
68
|
|
|
|
|
66
|
|
|
|
|
552
|
|
|
|
|
153
|
|
Redemptions
|
|
|
|
(1,057
|
)
|
|
|
|
(1,139
|
)
|
|
|
|
(521
|
)
|
|
|
|
(604
|
)
|
|
|
|
(1,652
|
)
|
Net exchanges
|
|
|
|
6
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Net Flows
|
|
|
|
(973
|
)
|
|
|
|
(1,071
|
)
|
|
|
|
(455
|
)
|
|
|
|
(52
|
)
|
|
|
|
(1,499
|
)
|
Market action
|
|
|
|
217
|
|
|
|
|
400
|
|
|
|
|
379
|
|
|
|
|
212
|
|
|
|
|
300
|
|
Ending assets
|
|
|
$
|
7,036
|
|
|
|
$
|
6,365
|
|
|
|
$
|
6,289
|
|
|
|
$
|
6,449
|
|
|
|
$
|
5,250
|
|
Annualized organic growth rate
|
|
|
|
(49.9
|
)%
|
|
|
|
(60.9
|
)%
|
|
|
|
(28.6
|
)%
|
|
|
|
(3.3
|
)%
|
|
|
|
(93.0
|
)%
|
Annualized redemption rate 3
|
|
|
|
58.7
|
%
|
|
|
|
67.3
|
%
|
|
|
|
32.2
|
%
|
|
|
|
37.8
|
%
|
|
|
|
115.4
|
%
|
Broker-Dealer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets
|
|
|
$
|
43,110
|
|
|
|
$
|
43,084
|
|
|
|
$
|
43,472
|
|
|
|
$
|
43,660
|
|
|
|
$
|
42,707
|
|
Sales 2
|
|
|
|
1,142
|
|
|
|
|
1,024
|
|
|
|
|
1,077
|
|
|
|
|
1,001
|
|
|
|
|
1,002
|
|
Redemptions
|
|
|
|
(1,812
|
)
|
|
|
|
(2,049
|
)
|
|
|
|
(2,026
|
)
|
|
|
|
(1,958
|
)
|
|
|
|
(1,770
|
)
|
Net exchanges
|
|
|
|
(241
|
)
|
|
|
|
(213
|
)
|
|
|
|
(316
|
)
|
|
|
|
(247
|
)
|
|
|
|
(284
|
)
|
Net Flows
|
|
|
|
(911
|
)
|
|
|
|
(1,238
|
)
|
|
|
|
(1,265
|
)
|
|
|
|
(1,204
|
)
|
|
|
|
(1,052
|
)
|
Market action
|
|
|
|
885
|
|
|
|
|
1,626
|
|
|
|
|
1,453
|
|
|
|
|
251
|
|
|
|
|
964
|
|
Ending assets
|
|
|
$
|
43,084
|
|
|
|
$
|
43,472
|
|
|
|
$
|
43,660
|
|
|
|
$
|
42,707
|
|
|
|
$
|
42,619
|
|
Annualized organic growth rate
|
|
|
|
(8.5
|
)%
|
|
|
|
(11.5
|
)%
|
|
|
|
(11.6
|
)%
|
|
|
|
(11.0
|
)%
|
|
|
|
(9.9
|
)%
|
Annualized redemption rate 3
|
|
|
|
14.7
|
%
|
|
|
|
16.4
|
%
|
|
|
|
16.1
|
%
|
|
|
|
15.1
|
%
|
|
|
|
14.4
|
%
|
Consolidated Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning assets
|
|
|
$
|
81,084
|
|
|
|
$
|
80,427
|
|
|
|
$
|
80,899
|
|
|
|
$
|
81,082
|
|
|
|
$
|
80,211
|
|
Sales 2
|
|
|
|
3,300
|
|
|
|
|
2,882
|
|
|
|
|
2,720
|
|
|
|
|
3,798
|
|
|
|
|
2,934
|
|
Redemptions
|
|
|
|
(5,755
|
)
|
|
|
|
(5,674
|
)
|
|
|
|
(5,459
|
)
|
|
|
|
(5,254
|
)
|
|
|
|
(6,068
|
)
|
Net exchanges
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Net Flows
|
|
|
|
(2,455
|
)
|
|
|
|
(2,792
|
)
|
|
|
|
(2,739
|
)
|
|
|
|
(1,456
|
)
|
|
|
|
(3,134
|
)
|
Market action
|
|
|
|
1,798
|
|
|
|
|
3,264
|
|
|
|
|
2,922
|
|
|
|
|
585
|
|
|
|
|
1,574
|
|
Ending assets
|
|
|
$
|
80,427
|
|
|
|
$
|
80,899
|
|
|
|
$
|
81,082
|
|
|
|
$
|
80,211
|
|
|
|
$
|
78,651
|
|
Annualized organic growth rate
|
|
|
|
(12.1
|
)%
|
|
|
|
(13.9
|
)%
|
|
|
|
(13.5
|
)%
|
|
|
|
(7.2
|
)%
|
|
|
|
(15.6
|
)%
|
Annualized redemption rate 3
|
|
|
|
27.9
|
%
|
|
|
|
27.1
|
%
|
|
|
|
25.7
|
%
|
|
|
|
24.8
|
%
|
|
|
|
29.8
|
%
|
_____________________
|
(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 & capital gains and
investment income.
|
(3)
|
|
Excluding Money Market.
|
|
|
|
|
|
|
Fund Rankings
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
Lipper
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds ranked in top half
|
|
|
55
|
%
|
|
|
36
|
%
|
|
|
51
|
%
|
Assets ranked in top half
|
|
|
50
|
%
|
|
|
47
|
%
|
|
|
60
|
%
|
MorningStar
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds ranked in top half
|
|
|
48
|
%
|
|
|
35
|
%
|
|
|
49
|
%
|
Assets ranked in top half
|
|
|
47
|
%
|
|
|
36
|
%
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MorningStar Ratings
|
|
|
Overall
|
|
|
3 Years
|
|
|
5 Years
|
Funds with 4/5 stars
|
|
|
38
|
%
|
|
|
19
|
%
|
|
|
29
|
%
|
Assets with 4/5 stars
|
|
|
52
|
%
|
|
|
25
|
%
|
|
|
47
|
%
|
Based on class I share, which reflects sales and asset concentrations.
|
|
|
|
Three Months Ended
|
Broker-Dealer
|
|
|
Jun. 30,
|
|
|
Sep. 30,
|
|
|
Dec. 31,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
(in millions)
|
|
|
2017
|
|
|
2018
|
Assets under administration (AUA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory assets
|
|
|
$
|
19,535
|
|
|
|
$
|
20,734
|
|
|
|
$
|
21,613
|
|
|
|
$
|
22,050
|
|
|
|
$
|
22,868
|
|
Non-advisory assets
|
|
|
|
34,373
|
|
|
|
|
34,856
|
|
|
|
|
35,073
|
|
|
|
|
34,216
|
|
|
|
|
34,210
|
|
Total assets under administration
|
|
|
|
53,908
|
|
|
|
|
55,590
|
|
|
|
|
56,686
|
|
|
|
|
56,266
|
|
|
|
|
57,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net new advisory assets 1
|
|
|
$
|
22
|
|
|
|
$
|
420
|
|
|
|
$
|
129
|
|
|
|
$
|
392
|
|
|
|
$
|
315
|
|
Net new non-advisory assets 1, 2
|
|
|
|
(693
|
)
|
|
|
|
(965
|
)
|
|
|
|
(1,047
|
)
|
|
|
|
(983
|
)
|
|
|
|
(916
|
)
|
Total net new AUA 1
|
|
|
|
(671
|
)
|
|
|
|
(545
|
)
|
|
|
|
(918
|
)
|
|
|
|
(591
|
)
|
|
|
|
(601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized advisory AUA growth 3
|
|
|
|
0.5
|
%
|
|
|
|
8.6
|
%
|
|
|
|
2.5
|
%
|
|
|
|
7.3
|
%
|
|
|
|
5.7
|
%
|
Annualized AUA growth 3
|
|
|
|
(5.0
|
)%
|
|
|
|
(4.0
|
)%
|
|
|
|
(6.6
|
)%
|
|
|
|
(4.2
|
)%
|
|
|
|
(4.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisor headcount
|
|
|
|
1,581
|
|
|
|
|
1,481
|
|
|
|
|
1,367
|
|
|
|
|
1,170
|
|
|
|
|
1,130
|
|
Avg. trailing 12-month revenue per advisor 4 (in
thousands)
|
|
|
$
|
232
|
|
|
|
$
|
240
|
|
|
|
$
|
256
|
|
|
|
$
|
285
|
|
|
|
$
|
314
|
|
Advisor associates
|
|
|
|
254
|
|
|
|
|
262
|
|
|
|
|
265
|
|
|
|
|
327
|
|
|
|
|
339
|
|
_____________________
|
(1)
|
|
Net new assets is calculated by taking 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 by annualizing the 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
include 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,
|
|
|
Sequential Qtr.
|
|
Year-over-Year Qtr.
|
|
|
|
2018
|
|
2018
|
|
2017
|
|
|
Change
|
|
%
|
|
Change
|
|
%
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
$
|
130,391
|
|
|
|
$
|
133,692
|
|
|
|
$
|
130,878
|
|
|
|
|
$
|
(3,301
|
)
|
|
(2.5
|
)
|
%
|
|
$
|
(487
|
)
|
|
(0.4
|
)
|
%
|
Underwriting and distribution fees
|
|
|
|
137,873
|
|
|
|
|
138,041
|
|
|
|
|
128,776
|
|
|
|
|
|
(168
|
)
|
|
(0.1
|
)
|
%
|
|
|
9,097
|
|
|
7.1
|
|
%
|
Shareholder service fees
|
|
|
|
27,074
|
|
|
|
|
25,882
|
|
|
|
|
27,003
|
|
|
|
|
|
1,192
|
|
|
4.6
|
|
%
|
|
|
71
|
|
|
0.3
|
|
%
|
Total
|
|
|
|
295,338
|
|
|
|
|
297,615
|
|
|
|
|
286,657
|
|
|
|
|
|
(2,277
|
)
|
|
(0.8
|
)
|
%
|
|
|
8,681
|
|
|
3.0
|
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution 1
|
|
|
|
114,315
|
|
|
|
|
114,470
|
|
|
|
|
109,060
|
|
|
|
|
|
(155
|
)
|
|
(0.1
|
)
|
%
|
|
|
5,255
|
|
|
4.8
|
|
%
|
Compensation and benefits
|
|
|
|
65,828
|
|
|
|
|
68,785
|
|
|
|
|
65,332
|
|
|
|
|
|
(2,957
|
)
|
|
(4.3
|
)
|
%
|
|
|
496
|
|
|
0.8
|
|
%
|
General and administrative
|
|
|
|
19,143
|
|
|
|
|
19,538
|
|
|
|
|
23,287
|
|
|
|
|
|
(395
|
)
|
|
(2.0
|
)
|
%
|
|
|
(4,144
|
)
|
|
(17.8
|
)
|
%
|
Technology
|
|
|
|
17,235
|
|
|
|
|
16,644
|
|
|
|
|
17,780
|
|
|
|
|
|
591
|
|
|
3.6
|
|
%
|
|
|
(545
|
)
|
|
(3.1
|
)
|
%
|
Occupancy
|
|
|
|
6,969
|
|
|
|
|
6,964
|
|
|
|
|
7,548
|
|
|
|
|
|
5
|
|
|
0.1
|
|
%
|
|
|
(579
|
)
|
|
(7.7
|
)
|
%
|
Marketing and advertising
|
|
|
|
2,896
|
|
|
|
|
2,281
|
|
|
|
|
3,264
|
|
|
|
|
|
615
|
|
|
27.0
|
|
%
|
|
|
(368
|
)
|
|
(11.3
|
)
|
%
|
Depreciation
|
|
|
|
5,819
|
|
|
|
|
5,302
|
|
|
|
|
5,175
|
|
|
|
|
|
517
|
|
|
9.8
|
|
%
|
|
|
644
|
|
|
12.4
|
|
%
|
Subadvisory fees
|
|
|
|
3,683
|
|
|
|
|
3,708
|
|
|
|
|
3,194
|
|
|
|
|
|
(25
|
)
|
|
(0.7
|
)
|
%
|
|
|
489
|
|
|
15.3
|
|
%
|
Intangible asset impairment
|
|
|
|
1,200
|
|
|
|
|
-
|
|
|
|
|
900
|
|
|
|
|
|
1,200
|
|
|
N/M
|
|
|
|
|
300
|
|
|
33.3
|
|
%
|
Total
|
|
|
|
237,088
|
|
|
|
|
237,692
|
|
|
|
|
235,540
|
|
|
|
|
|
(604
|
)
|
|
(0.3
|
)
|
%
|
|
|
1,548
|
|
|
0.7
|
|
%
|
Operating income
|
|
|
|
58,250
|
|
|
|
|
59,923
|
|
|
|
|
51,117
|
|
|
|
|
|
(1,673
|
)
|
|
(2.8
|
)
|
%
|
|
|
7,133
|
|
|
14.0
|
|
%
|
Investment and other income (loss)
|
|
|
|
841
|
|
|
|
|
2,816
|
|
|
|
|
2,997
|
|
|
|
|
|
(1,975
|
)
|
|
(70.1
|
)
|
%
|
|
|
(2,156
|
)
|
|
(71.9
|
)
|
%
|
Interest expense
|
|
|
|
(1,551
|
)
|
|
|
|
(1,802
|
)
|
|
|
|
(2,788
|
)
|
|
|
|
|
251
|
|
|
13.9
|
|
%
|
|
|
1,237
|
|
|
44.4
|
|
%
|
Income before provision for income taxes
|
|
|
|
57,540
|
|
|
|
|
60,937
|
|
|
|
|
51,326
|
|
|
|
|
|
(3,397
|
)
|
|
(5.6
|
)
|
%
|
|
|
6,214
|
|
|
12.1
|
|
%
|
Provision for income taxes
|
|
|
|
13,284
|
|
|
|
|
14,966
|
|
|
|
|
26,608
|
|
|
|
|
|
(1,682
|
)
|
|
(11.2
|
)
|
%
|
|
|
(13,324
|
)
|
|
(50.1
|
)
|
%
|
Net income
|
|
|
|
44,256
|
|
|
|
|
45,971
|
|
|
|
|
24,718
|
|
|
|
|
|
(1,715
|
)
|
|
(3.7
|
)
|
%
|
|
|
19,538
|
|
|
79.0
|
|
%
|
Net income (loss) attributable to redeemable noncontrolling interests
|
|
|
|
(222
|
)
|
|
|
|
(366
|
)
|
|
|
|
656
|
|
|
|
|
|
144
|
|
|
39.3
|
|
%
|
|
|
(878
|
)
|
|
(133.8
|
)
|
%
|
Net income attributable to Waddell & Reed Financial, Inc.
|
|
|
$
|
44,478
|
|
|
|
$
|
46,337
|
|
|
|
$
|
24,062
|
|
|
|
|
$
|
(1,859
|
)
|
|
(4.0
|
)
|
%
|
|
$
|
20,416
|
|
|
84.8
|
|
%
|
Net income per share, basic and diluted:
|
|
|
$
|
0.55
|
|
|
|
$
|
0.56
|
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
|
81,449
|
|
|
|
|
83,111
|
|
|
|
|
83,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
|
19.7
|
%
|
|
|
20.1
|
%
|
|
|
17.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Distribution expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
|
|
|
|
28,686
|
|
|
|
|
30,354
|
|
|
|
|
32,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
|
|
85,629
|
|
|
|
|
84,116
|
|
|
|
|
76,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
114,315
|
|
|
|
$
|
114,470
|
|
|
|
$
|
109,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidated Statements of Income
|
(in thousands, except per share data and margin)
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
Jun. 30,
|
|
|
Jun. 30,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
%
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment management fees
|
|
|
$
|
264,083
|
|
|
|
$
|
261,314
|
|
|
|
$
|
2,769
|
|
|
|
1.1
|
|
%
|
Underwriting and distribution fees
|
|
|
|
275,914
|
|
|
|
|
257,607
|
|
|
|
|
18,307
|
|
|
|
7.1
|
|
%
|
Shareholder service fees
|
|
|
|
52,956
|
|
|
|
|
54,300
|
|
|
|
|
(1,344
|
)
|
|
|
(2.5
|
)
|
%
|
Total
|
|
|
|
592,953
|
|
|
|
|
573,221
|
|
|
|
|
19,732
|
|
|
|
3.4
|
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution 1
|
|
|
|
228,785
|
|
|
|
|
217,497
|
|
|
|
|
11,288
|
|
|
|
5.2
|
|
%
|
Compensation and benefits
|
|
|
|
134,613
|
|
|
|
|
132,367
|
|
|
|
|
2,246
|
|
|
|
1.7
|
|
%
|
General and administrative
|
|
|
|
38,681
|
|
|
|
|
45,482
|
|
|
|
|
(6,801
|
)
|
|
|
(15.0
|
)
|
%
|
Technology
|
|
|
|
33,879
|
|
|
|
|
34,757
|
|
|
|
|
(878
|
)
|
|
|
(2.5
|
)
|
%
|
Occupancy
|
|
|
|
13,933
|
|
|
|
|
15,333
|
|
|
|
|
(1,400
|
)
|
|
|
(9.1
|
)
|
%
|
Marketing and advertising
|
|
|
|
5,177
|
|
|
|
|
5,875
|
|
|
|
|
(698
|
)
|
|
|
(11.9
|
)
|
%
|
Depreciation
|
|
|
|
11,121
|
|
|
|
|
10,396
|
|
|
|
|
725
|
|
|
|
7.0
|
|
%
|
Subadvisory fees
|
|
|
|
7,391
|
|
|
|
|
5,891
|
|
|
|
|
1,500
|
|
|
|
25.5
|
|
%
|
Intangible asset impairment
|
|
|
|
1,200
|
|
|
|
|
1,500
|
|
|
|
|
(300
|
)
|
|
|
(20.0
|
)
|
%
|
Total
|
|
|
|
474,780
|
|
|
|
|
469,098
|
|
|
|
|
5,682
|
|
|
|
1.2
|
|
%
|
Operating income
|
|
|
|
118,173
|
|
|
|
|
104,123
|
|
|
|
|
14,050
|
|
|
|
13.5
|
|
%
|
Investment and other income (loss)
|
|
|
|
3,657
|
|
|
|
|
6,009
|
|
|
|
|
(2,352
|
)
|
|
|
(39.1
|
)
|
%
|
Interest expense
|
|
|
|
(3,353
|
)
|
|
|
|
(5,574
|
)
|
|
|
|
2,221
|
|
|
|
39.8
|
|
%
|
Income before provision for income taxes
|
|
|
|
118,477
|
|
|
|
|
104,558
|
|
|
|
|
13,919
|
|
|
|
13.3
|
|
%
|
Provision for income taxes
|
|
|
|
28,250
|
|
|
|
|
45,489
|
|
|
|
|
(17,239
|
)
|
|
|
(37.9
|
)
|
%
|
Net income
|
|
|
|
90,227
|
|
|
|
|
59,069
|
|
|
|
|
31,158
|
|
|
|
52.7
|
|
%
|
Net income attributable to redeemable noncontrolling interests
|
|
|
|
(588
|
)
|
|
|
|
1,136
|
|
|
|
|
(1,724
|
)
|
|
|
(151.8
|
)
|
%
|
Net income attributable to Waddell & Reed Financial, Inc.
|
|
|
$
|
90,815
|
|
|
|
$
|
57,933
|
|
|
|
$
|
32,882
|
|
|
|
56.8
|
|
%
|
Net income per share, basic and diluted:
|
|
|
$
|
1.10
|
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
|
82,275
|
|
|
|
|
83,843
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
|
19.9
|
%
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Distribution expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaffiliated
|
|
|
|
59,039
|
|
|
|
|
66,906
|
|
|
|
|
|
|
|
|
|
Broker-dealer
|
|
|
|
169,746
|
|
|
|
|
150,591
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
228,785
|
|
|
|
$
|
217,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting and distribution fees
|
(in thousands)
|
|
|
|
|
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 Mar. 31, 2018
|
|
|
|
Unaffiliated
|
|
|
Broker-Dealer
|
|
|
Total
|
Fee-based asset allocation product revenues
|
|
|
$
|
-
|
|
|
$
|
65,516
|
|
|
$
|
65,516
|
Rule 12b-1 service and distribution fees
|
|
|
|
20,976
|
|
|
|
18,377
|
|
|
|
39,353
|
Sales commissions on front-end load mutual funds and variable
annuity products
|
|
|
|
470
|
|
|
|
14,427
|
|
|
|
14,897
|
Sales commissions on other products
|
|
|
|
-
|
|
|
|
8,422
|
|
|
|
8,422
|
Other revenues
|
|
|
|
185
|
|
|
|
9,668
|
|
|
|
9,853
|
Total underwriting and distribution fees
|
|
|
$
|
21,631
|
|
|
$
|
116,410
|
|
|
$
|
138,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Jun. 30, 2017
|
|
|
|
Unaffiliated
|
|
|
Broker-Dealer
|
|
|
Total
|
Fee-based asset allocation product revenues
|
|
|
$
|
-
|
|
|
$
|
58,313
|
|
|
$
|
58,313
|
Rule 12b-1 service and distribution fees
|
|
|
|
22,852
|
|
|
|
18,863
|
|
|
|
41,715
|
Sales commissions on front-end load mutual funds and variable
annuity products
|
|
|
|
319
|
|
|
|
14,529
|
|
|
|
14,848
|
Sales commissions on other products
|
|
|
|
-
|
|
|
|
8,460
|
|
|
|
8,460
|
Other revenues
|
|
|
|
353
|
|
|
|
5,087
|
|
|
|
5,440
|
Total underwriting and distribution fees
|
|
|
$
|
23,524
|
|
|
$
|
105,252
|
|
|
$
|
128,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended Jun. 30, 2018
|
|
|
|
Unaffiliated
|
|
|
Broker-Dealer
|
|
|
Total
|
Fee-based asset allocation product revenues
|
|
|
$
|
-
|
|
|
$
|
132,097
|
|
|
$
|
132,097
|
Rule 12b-1 service and distribution fees
|
|
|
|
41,027
|
|
|
|
36,486
|
|
|
|
77,513
|
Sales commissions on front-end load mutual funds and variable
annuity products
|
|
|
|
977
|
|
|
|
28,249
|
|
|
|
29,226
|
Sales commissions on other products
|
|
|
|
-
|
|
|
|
17,487
|
|
|
|
17,487
|
Other revenues
|
|
|
|
333
|
|
|
|
19,258
|
|
|
|
19,591
|
Total underwriting and distribution fees
|
|
|
$
|
42,337
|
|
|
$
|
233,577
|
|
|
$
|
275,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended Jun. 30, 2017
|
|
|
|
Unaffiliated
|
|
|
Broker-Dealer
|
|
|
Total
|
Fee-based asset allocation product revenues
|
|
|
$
|
-
|
|
|
$
|
115,069
|
|
|
$
|
115,069
|
Rule 12b-1 service and distribution fees
|
|
|
|
46,869
|
|
|
|
37,518
|
|
|
|
84,387
|
Sales commissions on front-end load mutual funds and variable
annuity products
|
|
|
|
765
|
|
|
|
28,855
|
|
|
|
29,620
|
Sales commissions on other products
|
|
|
|
-
|
|
|
|
15,697
|
|
|
|
15,697
|
Other revenues
|
|
|
|
779
|
|
|
|
12,055
|
|
|
|
12,834
|
Total underwriting and distribution fees
|
|
|
$
|
48,413
|
|
|
$
|
209,194
|
|
|
$
|
257,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Balance Sheet
|
(in thousands)
|
|
|
|
|
Jun. 30,
|
|
|
Dec. 31,
|
|
|
|
2018
|
|
|
2017
|
Assets
|
|
|
|
|
|
|
|
|
Cash & cash equivalents (unrestricted)
|
|
|
$
|
240,420
|
|
|
$
|
207,829
|
Investment securities
|
|
|
|
584,769
|
|
|
|
700,492
|
Other assets
|
|
|
|
239,570
|
|
|
|
241,305
|
Property and equipment, net
|
|
|
|
77,154
|
|
|
|
87,667
|
Goodwill and intangible assets
|
|
|
|
145,869
|
|
|
|
147,069
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
1,287,782
|
|
|
$
|
1,384,362
|
Liabilities, redeemable noncontrolling interests and equity
|
|
|
|
|
|
|
|
|
Short-term notes payable
|
|
|
$
|
-
|
|
|
$
|
94,996
|
Long-term debt
|
|
|
|
94,819
|
|
|
|
94,783
|
Other liabilities
|
|
|
|
290,193
|
|
|
|
307,190
|
Redeemable noncontrolling interests
|
|
|
|
17,052
|
|
|
|
14,509
|
Total stockholders' equity
|
|
|
|
885,718
|
|
|
|
872,884
|
|
|
|
|
|
|
|
|
|
Liabilities, redeemable noncontrolling interests and equity
|
|
|
$
|
1,287,782
|
|
|
$
|
1,384,362
|
Shares outstanding (in millions)
|
|
|
|
80.4
|
|
|
|
82.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Cash Flow
|
(in thousands)
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
$
|
122,816
|
|
|
|
$
|
50,265
|
|
|
|
$
|
(93,666
|
)
|
|
|
$
|
173,081
|
|
|
|
$
|
(30,101
|
)
|
Investing activities
|
|
|
|
(6,541
|
)
|
|
|
|
56,272
|
|
|
|
|
(27,888
|
)
|
|
|
|
49,731
|
|
|
|
|
(17,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
(60,557
|
)
|
|
|
|
(131,948
|
)
|
|
|
|
(22,913
|
)
|
|
|
|
(192,505
|
)
|
|
|
|
(72,233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change during period
|
|
|
$
|
55,718
|
|
|
|
$
|
(25,411
|
)
|
|
|
$
|
(144,467
|
)
|
|
|
$
|
30,307
|
|
|
|
$
|
(120,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
Jun. 30,
|
|
|
Mar. 31,
|
|
|
Jun. 30,
|
|
|
June 30,
|
|
|
June 30,
|
(in thousands)
|
|
|
2018
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
Shares repurchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
|
2,098,625
|
|
|
|
|
996,309
|
|
|
|
|
237,472
|
|
|
|
|
3,094,934
|
|
|
|
|
714,354
|
|
Total cost
|
|
|
$
|
40,142
|
|
|
|
$
|
20,507
|
|
|
|
$
|
4,037
|
|
|
|
$
|
60,649
|
|
|
|
$
|
12,013
|
|
Dividend paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate per share
|
|
|
$
|
0.25
|
|
|
|
$
|
0.25
|
|
|
|
$
|
0.46
|
|
|
|
$
|
0.25
|
|
|
|
$
|
0.46
|
|
Total paid
|
|
|
$
|
20,591
|
|
|
|
$
|
20,890
|
|
|
|
$
|
38,465
|
|
|
|
$
|
41,481
|
|
|
|
$
|
77,236
|
|
Capital returned to stockholders
|
|
|
$
|
60,733
|
|
|
|
$
|
41,397
|
|
|
|
$
|
42,502
|
|
|
|
$
|
102,130
|
|
|
|
$
|
89,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
View source version on businesswire.com: https://www.businesswire.com/news/home/20180731005281/en/
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