Waddell & Reed Financial, Inc. (NYSE: WDR) today reported a
fourth quarter 2020 net loss1 of $6.9 million, or $0.11 per diluted
share, compared to net income of $30.5 million, or $0.48 per
diluted share, during the prior quarter and net income of $15.9
million, or $0.23 per diluted share, during the fourth quarter of
2019. The fourth quarter of 2020 included $39.6 million in costs
related to the proposed acquisition of Waddell & Reed
Financial, Inc. by Macquarie Asset Management, the asset management
division of Macquarie Group (“Macquarie”) pursuant to a merger
agreement announced on December 2, 2020. Excluding the
merger-related costs, adjusted net income2 for the fourth quarter
of 2020 was $25.5 million and adjusted net income per diluted
share2 was $0.41. The fourth quarter of 2019 included non-cash
asset impairment charges of $12.8 million in connection with
certain assets held for sale, including real property related to
our corporate headquarters move and the elimination of our internal
aviation operations, an $11.2 million non-cash charge related to
the annual revaluation of the pension plan liability and $2.3
million in severance expense related to the outsourcing of our
transfer agency transactional processing operations. Excluding the
non-cash charges and severance expense, adjusted net income2 for
the fourth quarter of 2019 was $36.0 million and adjusted net
income per diluted share2 was $0.51.
Highlights
- Announced execution of a merger agreement under which Macquarie
would acquire all the outstanding shares of Waddell & Reed
Financial, Inc. for $25.00 per share in cash representing total
consideration of approximately $1.7 billion. The transaction is
expected to close in the second quarter of 2021 subject to
regulatory approvals, Waddell & Reed Financial, Inc.
stockholder approval and other customary closing conditions.
- Continued solid financial performance, with a 3.9% increase in
revenues compared to the prior quarter led by higher average assets
benefiting both Investment Management fees and Wealth Management
Advisory fees
- Average Assets Under Management (AUM) increased 5% compared to
the prior quarter
- Both gross sales and the overall redemption rate improved
compared to the prior quarter and the same quarter in 2019, with
unaffiliated sales notably improving.
- Investment performance improved broadly across the complex. As
measured by percentage of assets, one- and five- year performance
improved while three-year performance remained consistent.
- Successful quarter for Wealth Management asset growth
- Net new Assets Under Administration3 (AUA) grew 1.5%,
annualized, on the strength of positive net new Advisory AUA for
the 8th consecutive quarter.
- Number of advisors and advisor associates increased to 1,333 on
strong recruiting results in the fourth quarter. Since January 1,
2020, 51 advisors have affiliated with Waddell & Reed with
combined prior firm AUA totaling over $2.8 billion.
- Declared a quarterly dividend of $0.25 per share paid on
February 1, 2021 to stockholders of record as of January 11,
2021.
- Balance sheet remains strong with $760.5 million in
unrestricted cash and investments at the end of the fourth quarter
of 2020; repaid $95.0 million Series B senior unsecured notes in
January 2021.
“2020 marked another year of solid progress in transforming our
firm into a more diversified and growth-oriented financial services
enterprise, with meaningful progress across both of our businesses
while successfully navigating a global pandemic,” said Philip J.
Sanders, Chief Executive Officer of Waddell & Reed Financial,
Inc. Mr. Sanders continued, “We are also well underway in planning
a seamless transition for our clients and advisors as we move
towards closing our merger agreement with Macquarie Asset
Management.”
- Net (loss) income represents net (loss) income attributable to
Waddell & Reed Financial, Inc.
- See Non-GAAP Financial Measures section and Reconciliation of
GAAP to Non-GAAP Financial Measures table
- Net new advisory AUA are calculated as total client deposits
and net transfers less client withdrawals. Client deposits include
dividends and interest.
Consolidated Financial Results
Three Months Ended
Year Ended
Dec. 31,
Sep. 30,
Dec. 31,
Dec. 31,
Dec. 31,
2020
2020
2019
2020
2019
GAAP basis (in thousands, except per share
data):
Revenue
$
278,060
$
267,670
$
270,071
$
1,049,497
$
1,070,315
Operating expenses
$
283,943
$
230,035
$
241,206
$
954,727
$
924,623
Operating (loss) income
$
(5,883
)
$
37,635
$
28,865
$
94,770
$
145,692
Operating margin
(2.1
)
%
14.1
%
10.7
%
9.0
%
13.6
%
Controllable expenses1
$
148,886
$
101,352
$
116,437
$
449,402
$
428,942
Net (loss) income
$
(6,877
)
$
30,523
$
16,146
$
72,657
$
116,965
Net (loss) income per share, basic and
diluted
$
(0.11
)
$
0.48
$
0.23
$
1.08
$
1.57
As adjusted2 (in thousands, except per
share data)
Revenue
$
278,060
$
267,670
$
270,071
$
1,049,497
$
1,070,315
Operating expenses
$
244,337
$
230,035
$
226,045
$
915,121
$
906,381
Operating income
$
33,723
$
37,635
$
44,026
$
134,376
$
163,934
Operating margin
12.1
%
14.1
%
16.3
%
12.8
%
15.3
%
Controllable expenses
$
109,280
$
101,352
$
101,276
$
409,796
$
410,700
Net income
$
25,503
$
30,523
$
35,983
$
102,837
$
137,381
Net income per share, basic and
diluted
$
0.41
$
0.48
$
0.51
$
1.58
$
1.87
AUM (in millions)
$
74,822
$
67,869
$
69,958
$
74,822
$
69,958
Average AUM (in millions)
$
71,093
$
67,946
$
69,102
$
66,736
$
70,273
AUA (in millions)
$
69,705
$
62,694
$
60,095
$
69,705
$
60,095
Average AUA (in millions)
$
63,992
$
61,400
$
57,998
$
59,935
$
56,327
Financial Summary
Revenues totaled $278.1 million for the quarter, an increase of
$10.4 million and $8.0 million, compared to the prior quarter and
the fourth quarter of 2019, respectively. Operating expenses for
the quarter of $283.9 million included $39.6 million in
merger-related costs, increasing $53.9 million compared to the
third quarter of 2020 and increasing $42.7 million compared to the
fourth quarter of 2019. Adjusted operating expenses2 increased
$14.3 million and $18.3 million, compared to the third quarter of
2020 and the fourth quarter of 2019, respectively. The operating
margin was (2.1)% during the current quarter, compared to 14.1% and
10.7% during the prior quarter and the fourth quarter of 2019,
respectively. The adjusted operating margin2 was 12.1% for the
current quarter compared to 14.1% and 16.3% during the prior
quarter and prior year fourth quarter, respectively.
AUM ended the quarter at $74.8 billion, an increase of 10% and
7%, compared to the prior quarter and the fourth quarter of 2019,
respectively. The increase in both comparative periods was due to
market appreciation. Average AUM were $71.1 billion during the
current quarter, compared to $67.9 billion during the prior quarter
and $69.1 billion during the fourth quarter of 2019. Net outflows
of $1.8 billion during the current quarter were consistent compared
to the prior quarter and were lower compared to net outflows of
$3.4 billion in the fourth quarter of 2019. Sales of $2.0 billion
during the current quarter increased 9% and 28%, compared to the
prior quarter and the fourth quarter of 2019, respectively. The
sales improvements were led by our Mid Cap suite with sales of both
strategies improving from the prior quarter. Redemptions increased
slightly compared to the prior quarter and were 24% better compared
to the fourth quarter of 2019. We continue to see elevated
redemptions in our International Core Equity product despite
improved short‑term performance.
Wealth management AUA ended the quarter at $69.7 billion, an
increase of 11% and 16%, compared to the third quarter of 2020 and
the fourth quarter of 2019, respectively. Average AUA were $64.0
billion during the current quarter, compared to $61.4 billion
during the prior quarter and $58.0 billion during the fourth
quarter of 2019. Positive market action as well as positive net new
AUA of $228 million both contributed to the increase in AUA and
average AUA.
- Controllable expenses defined as compensation and benefits,
general and administrative, occupancy, technology, and marketing
and advertising costs
- See Non-GAAP Financial Measures section and Reconciliation of
GAAP to Non-GAAP Financial Measures table
Revenues Analysis
Investment management fees increased $5.5 million, or 5%,
compared to the third quarter of 2020 due to a 5% increase in
average AUM and a slight increase in the effective management fee
rate. The effective management fee rate for the current quarter was
62.7 basis points compared to 62.4 basis points for the prior
quarter. Compared to the fourth quarter of 2019, investment
management fees increased $1.4 million, or 1%, primarily due to
higher average AUM, partially offset by a lower effective
management fee rate. The effective management fee rate decrease
from 63.6 basis points in the prior year was due to targeted
pricing reductions on certain products made in previous periods and
increased money market fee waivers.
Underwriting and distribution fees increased $5.0 million, or
4%, compared to the prior quarter due to higher advisory fees and
higher service and distribution fees from higher asset levels.
Compared to the same quarter in 2019, underwriting and distribution
fees increased $8.1 million, or 6%, due to increased advisory fees
from higher asset levels, partially offset by lower sales
commission revenues.
Shareholder service fees remained consistent with the third
quarter of 2020. Compared to the fourth quarter of 2019,
shareholder service fees declined $1.5 million, or 6%, due to a
reduction in fund reimbursement revenues related to the outsourcing
of our transfer agency transactional processing operations, which
was offset by lower reimbursable costs.
Operating Expenses Analysis
Distribution expenses increased $6.3 million, or 5%, compared to
the prior quarter and increased $11.2 million, or 10%, compared to
the fourth quarter of 2019 primarily as a result of the increase in
underwriting and distribution revenue. The expense increase
compared to the fourth 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 $33.6 million, or
54%, compared to the prior quarter and increased $33.2 million, or
53%, compared to the fourth quarter of 2019. For both comparative
periods, compensation and benefits expense increased primarily due
to merger-related compensation expense of $29.1 million, including
mark-to-market adjustments on outstanding restricted share units as
a result of the increase in share price of Waddell & Reed
Financial, Inc. Class A common stock, retention award accruals, and
higher cash incentive payments. In addition, compensation and
benefits expense increased due to deferred compensation plan
valuation adjustments and higher incentive accruals.
General and administrative expenses increased $13.4 million, or
70%, compared to the third quarter of 2020 primarily due to
merger-related expenses of $10.5 million, including legal expense,
consulting expense, and project-related asset impairments. The
remaining increase was due to higher virtual sales incentive
meeting accruals and non-cash impairment charges related to field
office closures. Compared to the same quarter in 2019, general and
administrative expenses increased $2.5 million, or 8%, due to
merger-related expenses and 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 offsetting
these increases were lower travel and meetings costs and lower
non-cash impairment charges.
Technology costs increased $0.8 million, or 6%, compared to the
prior quarter primarily due to higher technology consulting costs
related to ongoing strategic projects. Technology costs decreased
$0.8 million, or 5%, compared to the fourth 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
technology consulting and software costs for new technologies.
Occupancy expenses decreased $0.8 million, or 18%, compared to
the prior quarter and decreased $1.7 million, or 34%, compared to
the fourth quarter of 2019. For both comparative periods, occupancy
costs decreased as a result of the planned transition from advisors
leasing space from the Company to advisors utilizing personal
branch offices.
Marketing and advertising expenses increased $0.5 million, or
36%, compared to the prior quarter primarily due to higher
sponsorship fees. Compared to the fourth quarter of 2019, marketing
and advertising expenses decreased $0.6 million, or 24%, primarily
due to lower sponsorship fees in connection with the shift to
virtual industry conferences.
Depreciation expense increased slightly compared to the prior
quarter and declined $0.7 million, or 17%, compared to the fourth
quarter of 2019. The decrease compared to 2019 was due to
capitalized software development assets becoming fully
depreciated.
Investment and Other Income
Investment and other income decreased $4.1 million compared to
the prior quarter primarily due to lower unrealized gains, net of
hedging activity, on the seed and corporate investment portfolios.
Compared to the fourth quarter of 2019, investment and other income
increased $6.2 million primarily due to lower pension costs due to
the non-cash charge related to the revaluation of the pension plan
liability in the fourth quarter of 2019. This increase was
partially offset by lower unrealized gains, net of hedging
activity, on the seed and corporate investment portfolios and a
decline in interest income for the corporate investment
portfolio.
The effective tax rate was (12.8)% for the quarter compared to
24.8% in the prior quarter and 28.3% last year. The lower effective
tax rate in the current quarter was due to a pre-tax book loss,
which was partially offset by higher tax expense from certain
non-deductible merger-related costs.
AUM
(in millions)
Three Months Ended
Dec. 31,
Sep. 30,
Dec. 31,
Prior Qtr.
Year-over-Year Qtr.
2020
2020
2019
Change
%
Change
%
Unaffiliated 1
Beginning assets
$
24,868
$
23,724
$
25,857
$
1,144
5
%
$
(989
)
(4
)
%
Sales 2
1,254
1,127
854
127
11
%
400
47
%
Redemptions
(1,921
)
(1,977
)
(2,502
)
56
3
%
581
23
%
Net exchanges
205
239
278
(34
)
(14
)
%
(73
)
(26
)
%
Net Flows
(462
)
(611
)
(1,370
)
149
24
%
908
66
%
Market action
3,571
1,755
1,777
1,816
103
%
1,794
101
%
Ending assets
$
27,977
$
24,868
$
26,264
$
3,109
13
%
$
1,713
7
%
Annualized organic growth rate
(7.4
)
%
(10.3
)
%
(21.2
)
%
Annualized redemption rate 3
29.6
%
32.3
%
39.3
%
Institutional
Beginning assets
$
3,188
$
2,997
$
3,677
$
191
6
%
$
(489
)
(13
)
%
Sales 2
46
59
32
(13
)
(22
)
%
14
44
%
Redemptions
(189
)
(165
)
(874
)
(24
)
(15
)
%
685
78
%
Net exchanges
—
—
—
—
NM
—
NM
Net Flows
(143
)
(106
)
(842
)
(37
)
(35
)
%
699
83
%
Market action
525
297
261
228
77
%
264
101
%
Ending assets
$
3,570
$
3,188
$
3,096
$
382
12
%
$
474
15
%
Annualized organic growth rate
(17.9
)
%
(14.1
)
%
(91.6
)
%
Annualized redemption rate 3
23.0
%
20.5
%
104.1
%
Wealth Management
Beginning assets
$
39,813
$
38,245
$
39,248
$
1,568
4
%
$
565
1
%
Sales 2
688
634
662
54
9
%
26
4
%
Redemptions
(1,644
)
(1,488
)
(1,535
)
(156
)
(10
)
%
(109
)
(7
)
%
Net exchanges
(205
)
(239
)
(278
)
34
14
%
73
26
%
Net Flows
(1,161
)
(1,093
)
(1,151
)
(68
)
(6
)
%
(10
)
(1
)
%
Market action
4,623
2,661
2,501
1,962
74
%
2,122
85
%
Ending assets
$
43,275
$
39,813
$
40,598
$
3,462
9
%
$
2,677
7
%
Annualized organic growth rate
(11.7
)
%
(11.4
)
%
(11.7
)
%
Annualized redemption rate 3
14.1
%
13.1
%
13.6
%
Consolidated Total
Beginning assets
$
67,869
$
64,966
$
68,782
$
2,903
4
%
$
(913
)
(1
)
%
Sales 2
1,988
1,820
1,548
168
9
%
440
28
%
Redemptions
(3,754
)
(3,630
)
(4,911
)
(124
)
(3
)
%
1,157
24
%
Net exchanges
—
—
—
—
—
—
—
Net Flows
(1,766
)
(1,810
)
(3,363
)
44
2
%
1,597
47
%
Market action
8,719
4,713
4,539
4,006
85
%
4,180
92
%
Ending assets
$
74,822
$
67,869
$
69,958
$
6,953
10
%
$
4,864
7
%
Annualized organic growth rate
(10.4
)
%
(11.1
)
%
(19.6
)
%
Annualized redemption rate 3
20.2
%
20.5
%
27.7
%
- Unaffiliated includes National channel (home office and
wholesale), Defined Contribution Investment Only, Registered
Investment Advisor and Variable Annuity.
- Sales consist of gross sales and includes net reinvested
dividends, capital gains and investment income.
- Excludes Money Market.
MorningStar Fund Rankings 1
1 Year
3 Years
5 Years
Funds ranked in top half
52
%
48
%
43
%
Assets ranked in top half
51
%
52
%
55
%
MorningStar Ratings 1
Overall
3 Years
5 Years
Funds with 4/5 stars
28
%
30
%
21
%
Assets with 4/5 stars
48
%
44
%
43
%
- Based on class I share, which reflects the largest
concentration of sales and assets.
Three Months Ended
Wealth Management
Dec. 31,
Sep. 30,
Dec. 31,
Prior Qtr.
Year-over-Year Qtr.
(in millions)
2020
2020
2019
Change
%
Change
%
AUA
Ending advisory AUA
$
33,100
$
29,330
$
26,947
$
3,770
13
%
$
6,153
23
%
Ending non-advisory AUA
36,605
33,364
33,148
3,241
10
%
3,457
10
%
Ending total AUA
69,705
62,694
60,095
7,011
11
%
9,610
16
%
Average advisory AUA 1
$
30,036
$
28,502
$
25,672
$
1,534
5
%
$
4,364
17
%
Average non-advisory AUA 1
33,956
32,898
32,326
1,058
3
%
1,630
5
%
Average AUA 1
63,992
61,400
57,998
2,592
4
%
5,994
10
%
Net new advisory AUA 2
$
627
$
437
$
470
$
190
43
%
$
157
33
%
Net new non-advisory AUA 2, 3
(399
)
(475
)
(747
)
76
16
%
348
47
%
Total net new AUA 2, 3
228
(38
)
(277
)
266
700
%
505
182
%
Annualized advisory AUA growth 4
8.5
%
6.4
%
7.5
%
Annualized AUA growth 4
1.5
%
(0.3
)
%
(1.9
)
%
Advisors and advisor associates
1,333
1,313
1,327
20
2
%
6
0
%
Avg. trailing 12-month revenue per advisor
5 (in thousands)
$
487
$
474
$
438
$
13
3
%
$
49
11
%
- Average AUA are calculated as the average of the beginning of
month AUA during each reporting period.
- Net new AUA are calculated as total client deposits and net
transfers less client withdrawals. Client deposits include
dividends and interest.
- Excludes activity related to products held outside of our
wealth management platform. These assets represent less than 10% of
total AUA.
- Annualized growth is calculated as annualized quarterly net new
AUA divided by beginning AUA.
- 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
(Loss) Income
(in thousands, except per share
data and margin)
Three Months Ended
Dec. 31,
Sep. 30,
Dec. 31,
Prior Qtr.
Year-over-Year Qtr.
2020
2020
2019
Change
%
Change
%
Revenues:
Investment management fees
$
112,068
$
106,617
$
110,706
$
5,451
5
%
$
1,362
1
%
Underwriting and distribution fees
144,408
139,456
136,309
4,952
4
%
8,099
6
%
Shareholder service fees
21,584
21,597
23,056
(13
)
(0
)
%
(1,472
)
(6
)
%
Total
278,060
267,670
270,071
10,390
4
%
7,989
3
%
Operating expenses:
Distribution1
128,474
122,195
117,225
6,279
5
%
11,249
10
%
Compensation and benefits (including
share-based compensation of $23,177, $11,080 and $11,142,
respectively)
96,007
62,416
62,816
33,591
54
%
33,191
53
%
General and administrative
32,535
19,156
30,061
13,379
70
%
2,474
8
%
Technology
15,077
14,250
15,950
827
6
%
(873
)
(5
)
%
Occupancy
3,399
4,160
5,143
(761
)
(18
)
%
(1,744
)
(34
)
%
Marketing and advertising
1,868
1,370
2,467
498
36
%
(599
)
(24
)
%
Depreciation
3,113
2,998
3,767
115
4
%
(654
)
(17
)
%
Subadvisory fees
3,470
3,490
3,777
(20
)
(1
)
%
(307
)
(8
)
%
Total
283,943
230,035
241,206
53,908
23
%
42,737
18
%
Operating (loss) income
(5,883
)
37,635
28,865
(43,518
)
(116
)
%
(34,748
)
(120
)
%
Investment and other income (loss)
1,391
5,449
(4,804
)
(4,058
)
(74
)
%
6,195
129
%
Interest expense
(1,603
)
(1,542
)
(1,533
)
(61
)
(4
)
%
(70
)
(5
)
%
(Loss) income before provision for income
taxes
(6,095
)
41,542
22,528
(47,637
)
(115
)
%
(28,623
)
(127
)
%
Provision for income taxes
782
10,296
6,382
(9,514
)
(92
)
%
(5,600
)
(88
)
%
Net (loss) income
(6,877
)
31,246
16,146
(38,123
)
(122
)
%
(23,023
)
(143
)
%
Net income attributable to redeemable
noncontrolling interests
—
723
210
(723
)
(100
)
%
(210
)
(100
)
%
Net (loss) income attributable to
Waddell & Reed Financial, Inc.
$
(6,877
)
$
30,523
$
15,936
$
(37,400
)
(123
)
%
$
(22,813
)
(143
)
%
Net (loss) income per share, basic and
diluted:
$
(0.11
)
$
0.48
$
0.23
Weighted average shares outstanding -
basic and diluted
62,527
64,240
69,896
Operating margin
(2.1
)
%
14.1
%
10.7
%
1 Distribution expense
Unaffiliated
24,213
22,733
23,392
Wealth Management
104,262
99,462
93,833
$
128,475
$
122,195
$
117,225
Unaudited Consolidated Statements of
Income (in thousands, except per share data and margin)
Year Ended
Dec. 31,
Dec. 31,
2020
2019
Change
%
Revenues:
Investment management fees
$
419,728
$
445,144
$
(25,416
)
(6
)
%
Underwriting and distribution fees
544,440
531,836
12,604
2
%
Shareholder service fees
85,329
93,335
(8,006
)
(9
)
%
Total
1,049,497
1,070,315
(20,818
)
(2
)
%
Operating expenses:
Distribution1
478,578
460,921
17,657
4
%
Compensation and benefits (including
share-based compensation of $56,772 and $46,613, respectively)
278,711
254,534
24,177
9
%
General and administrative
90,813
77,482
13,331
17
%
Technology
57,066
63,719
(6,653
)
(10
)
%
Occupancy
16,559
24,243
(7,684
)
(32
)
%
Marketing and advertising
6,253
8,964
(2,711
)
(30
)
%
Depreciation
12,833
19,829
(6,996
)
(35
)
%
Subadvisory fees
13,914
14,931
(1,017
)
(7
)
%
Total
954,727
924,623
30,104
3
%
Operating income
94,770
145,692
(50,922
)
(35
)
%
Investment and other income
14,243
18,886
(4,643
)
(25
)
%
Interest expense
(6,233
)
(6,195
)
(38
)
(1
)
%
Income before provision for income
taxes
102,780
158,383
(55,603
)
(35
)
%
Provision for income taxes
30,123
41,418
(11,295
)
(27
)
%
Net income
72,657
116,965
(44,308
)
(38
)
%
Net income attributable to redeemable
noncontrolling interests
2,200
1,973
227
12
%
Net income attributable to Waddell
& Reed Financial, Inc.
$
70,457
$
114,992
$
(44,535
)
(39
)
%
Net income per share, basic and
diluted:
$
1.08
$
1.57
Weighted average shares outstanding -
basic and diluted
64,974
73,299
Operating margin
9.0
%
13.6
%
1 Distribution expense
Unaffiliated
91,157
96,718
Wealth Management
387,421
364,203
$
478,578
$
460,921
Underwriting and distribution fees
(in thousands)
For the three months ended
Dec. 31, 2020
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
86,721
$
86,721
Service and distribution fees
14,938
16,053
30,991
Sales commissions
17
17,795
17,812
Other revenues
55
8,829
8,884
Total underwriting and distribution
fees
$
15,010
$
129,398
$
144,408
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
Dec. 31, 2019
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
75,382
$
75,382
Service and distribution fees
15,860
15,609
31,469
Sales commissions
431
19,826
20,257
Other revenues
48
9,153
9,201
Total underwriting and distribution
fees
$
16,339
$
119,970
$
136,309
For the year ended Dec. 31,
2020
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
318,964
$
318,964
Service and distribution fees
58,507
59,547
118,054
Sales commissions
1,065
71,333
72,399
Other revenues
362
34,662
35,023
Total underwriting and distribution
fees
$
59,934
$
484,506
$
544,440
For the year ended Dec. 31,
2019
Unaffiliated
Wealth Management
Total
Advisory fees
$
—
$
284,188
$
284,188
Service and distribution fees
65,227
63,197
128,424
Sales commissions
1,730
80,785
82,515
Other revenues
290
36,419
36,709
Total underwriting and distribution
fees
$
67,247
$
464,589
$
531,836
Unaudited Condensed Balance Sheet
(in thousands)
Dec. 31,
Dec. 31,
2020
2019
Assets
Cash & cash equivalents
(unrestricted)
$
273,756
$
151,815
Investment securities
486,765
688,346
Other assets
225,538
245,572
Property and equipment, net
21,903
34,726
Goodwill and intangible assets
145,869
145,869
Total assets
$
1,153,831
$
1,266,328
Liabilities, redeemable noncontrolling
interests and equity
Short-term notes payable
$
94,997
$
—
Long-term debt
—
94,926
Other liabilities
331,077
343,300
Redeemable noncontrolling interests
—
19,205
Total stockholders’ equity
727,757
808,897
Liabilities, redeemable noncontrolling
interests and equity
$
1,153,831
$
1,266,328
Shares outstanding
62,398
68,847
Unaudited Condensed Cash Flow (in
thousands)
Three Months Ended
Year Ended
Dec. 31,
Sep. 30,
Dec. 31,
Dec. 31,
Dec. 31,
2020
2020
2019
2020
2019
Cash provided by (used in):
Operating activities
$
96,072
$
63,222
$
89,382
$
188,044
$
165,983
Investing activities
32,452
18,084
11,309
98,660
(6,851
)
Financing activities
(18,366
)
(55,634
)
(52,838
)
(175,494
)
(224,547
)
Net change during period
$
110,158
$
25,672
$
47,853
$
111,210
$
(65,415
)
Three Months Ended
Year Ended
Dec. 31,
Sep. 30,
Dec. 31,
Dec. 31,
Dec. 31,
(in thousands, except number of
shares)
2020
2020
2019
2020
2019
Shares repurchased
Number of shares
102,817
2,617,108
2,315,326
7,995,730
9,164,564
Total cost
$
2,618
$
40,052
$
37,542
$
114,670
$
154,219
Dividend paid
Rate per share
$
0.25
$
0.25
$
0.25
$
1.00
$
1.00
Total paid
$
15,637
$
16,292
$
17,731
$
65,576
$
74,291
Capital returned to
stockholders
$
18,255
$
56,344
$
55,273
$
180,246
$
228,510
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,” “adjusted operating income,” 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
Year Ended
Dec. 31,
Sep. 30,
Dec. 31,
Dec. 31,
Dec. 31,
2020
2020
2019
2020
2019
Net (loss) income attributable to Waddell
& Reed Financial, Inc. (GAAP)
$
(6,877
)
$
30,523
$
15,936
$
70,457
$
114,992
Adjustments
Merger-related costs1
39,606
—
—
39,606
—
Severance
—
—
2,320
—
5,401
Non-cash asset impairments
—
—
12,841
—
12,841
Pension revaluation
—
—
11,217
—
11,217
Tax effect of adjustments
(7,226
)
—
(6,331
)
(7,226
)
(7,070
)
Adjusted net income attributable to
Waddell & Reed Financial, Inc. (non-GAAP)
$
25,503
$
30,523
$
35,983
$
102,837
$
137,381
Weighted average share outstanding-basic
and diluted
62,527
64,240
69,896
64,974
73,299
Adjusted net income per share, basic and
diluted (non-GAAP)
$
0.41
$
0.48
$
0.51
$
1.58
$
1.87
Controllable expenses (GAAP)
$
148,886
$
101,352
$
116,437
$
449,402
$
428,942
Adjustments
Merger-related costs
39,606
—
—
39,606
—
Severance
—
—
2,320
—
5,401
Non-cash asset impairments
—
—
12,841
—
12,841
Adjusted controllable expenses
(non-GAAP)
$
109,280
$
101,352
$
101,276
$
409,796
$
410,700
Operating expenses (GAAP)
$
283,943
$
230,035
$
241,206
$
954,727
$
924,623
Adjustments
Merger-related costs
39,606
—
—
39,606
—
Severance
—
—
2,320
—
5,401
Non-cash asset impairments
—
—
12,841
—
12,841
Adjusted operating expenses (non-GAAP)
$
244,337
$
230,035
$
226,045
$
915,121
$
906,381
Operating (loss) income (GAAP)
$
(5,883
)
$
37,635
$
28,865
$
94,770
$
145,692
Adjustments
Merger-related costs
39,606
—
—
39,606
—
Severance
—
—
2,320
—
5,401
Non-cash asset impairments
—
—
12,841
—
12,841
Adjusted operating income (non-GAAP)
$
33,723
$
37,635
$
44,026
$
134,376
$
163,934
Operating revenue
$
278,060
$
267,670
$
270,071
$
1,049,497
$
1,070,315
Operating margin (GAAP)
(2.1
)
%
14.1
%
10.7
%
9.0
%
13.6
%
Adjusted operating margin (non-GAAP)
12.1
%
14.1
%
16.3
%
12.8
%
15.3
%
- Primarily represents increased compensation from mark-to-market
adjustments on outstanding restricted share units as a result of
the increase in share price of Waddell & Reed Financial, Inc.
Class A common stock, retention award accruals, higher cash
incentive payments, legal and consulting costs and project-related
asset impairments all related to the proposed acquisition of
Waddell & Reed Financial, Inc. by Macquarie.
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 our plans, assumptions, expectations, beliefs and objectives
with respect to the merger, 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. Important transaction-related and other
risk factors that may cause such differences include, without
limitation: (i) the occurrence of any event, change or other
circumstances that could give rise to the termination of the merger
agreement; (ii) the transaction closing conditions may not be
satisfied in a timely manner or at all, including due to the
failure to obtain Waddell & Reed Financial, Inc. stockholder
approval and regulatory and client approvals or as a result of a
decrease in assets under administration or assets under management;
(iii) the announcement and pendency of the merger may disrupt our
business operations (including the threatened or actual loss of
employees, clients, independent financial advisors associated with
Waddell & Reed or vendors); (iv) the amount of the costs, fees,
expenses and other charges related to the merger, including in the
event of any unexpected delays; and (v) we could experience
financial or other setbacks if the transaction encounters
unanticipated problems. Other 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 administration or assets under our
management on short notice;
- 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/20210202005245/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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