Waddell & Reed Financial, Inc. Reports Fourth Quarter Results
Waddell & Reed Financial, Inc. (NYSE: WDR) today reported fourth quarter 2018 net income1 of $46.5
million, or $0.60 per diluted share, compared to net income of $46.3 million, or $0.58 per diluted share, during the prior quarter
and net income of $29.8 million, or $0.36 per diluted share, during the fourth quarter of 2017. The fourth quarter of 2018 included
a gain of $16.1 million compared to a loss of $6.5 million in the prior year fourth quarter related to the annual revaluation of
the pension plan liability. The prior year also included a non-recurring tax charge of $5.4 million related to the Tax Cuts and
Jobs Act.
Revenues of $272.2 million during the quarter decreased $22.9 million and $22.3 million compared to the third quarter of 2018
and the fourth quarter of 2017, respectively. Operating expenses of $227.8 million declined $7.8 million compared to the prior
quarter and declined $4.9 million compared to the same quarter in 2017. The operating margin was 16.3% during the current quarter,
compared to 20.2% and 21.0% during the third quarter of 2018 and the fourth quarter of 2017, respectively. For the twelve-month
period ended December 31, 2018, the operating margin was 19.1%, consistent with the prior year’s operating margin of 19.0%.
Assets under management ended the quarter at $65.8 billion, a 17% decrease compared to the prior quarter and a decrease of 19%
compared to the fourth quarter of 2017. The lower assets under management were primarily driven by market volatility in the
quarter. Sales of $2.7 billion during the current quarter improved 7%, compared to the prior quarter and were comparable with the
fourth quarter of 2017. Net outflows of $3.8 billion during the current quarter included $1.0 billion of previously disclosed
outflows related to institutional accounts primarily due to certain portfolio manager departures. Excluding the impact of the
institutional accounts, net outflows were higher compared to net outflows of $2.0 billion in the third quarter of 2018 and were
consistent with the fourth quarter of 2017. Redemptions continued to improve in 2018, with net outflows for the year improving 9%
to $10.4 billion compared to $11.4 billion in 2017.
Broker-dealer assets under administration ended the quarter at $51.3 billion, a 12% decrease compared to the third quarter of
2018 primarily due to market depreciation. Compared to the same quarter in 2017, assets under administration decreased 10% due to a
reduction in net new assets of $3.1 billion and market depreciation. Average productivity per advisor, as measured by average
trailing twelve-month revenue per advisor, was $378 thousand for the twelve-month period ended December 31, 2018, rising 8%
compared to the prior quarter and 48% compared to the prior year.
“While the industry landscape remains challenging, we continued to make foundational improvements over the past year that will
better position our company for long term success,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed
Financial, Inc. “Within our asset management business, we improved investment performance track records across much of the complex
and realigned our sales leadership to provide more focused coverage across all distribution channels. We also made meaningful
progress toward improving the competitiveness of our broker-dealer by optimizing our field and support structure, announcing
significant technology investments and enhancing our product offerings and advisory programs – all to the benefit of advisors and
clients.”
Revenues Analysis
Investment management fees declined $14.8 million, or 11%, and $21.9 million, or 16%, compared to the third quarter of 2018 and
the fourth quarter of 2017, respectively, primarily due to lower average assets under management. Previously announced fee
reductions in selected mutual funds also contributed, to a lesser extent, to the decrease. During the current quarter, the
effective management fee rate was 63.5 basis points compared to 64.6 basis points during the third quarter of 2018 and 66.5 basis
points during the fourth quarter of 2017. Average assets under management were $71.6 billion during the current quarter, compared
to $79.5 billion during the prior quarter and $81.3 billion during the fourth quarter of 2017.
Underwriting and distribution fees decreased $6.5 million, or 5% sequentially, primarily due to lower assets under
administration. Compared to the same quarter in 2017, fees increased $1.6 million, or 1%, due to higher asset-based advisory fees
as well as increased support and service revenues from independent financial advisors, which were partially offset by lower
distribution fees.
Operating Expenses Analysis
Distribution expenses decreased $5.1 million, or 4%, compared to the prior quarter, primarily due to the decrease in
underwriting and distribution revenues. Compared to the fourth quarter of 2017, expenses increased $3.6 million, or 3%, as a result
of the increase in underwriting and distribution revenues as well as an increase in the compensation grid for associated
independent financial advisors.
Compensation and benefits expenses declined $0.4 million, or 1%, compared to the prior quarter. The fourth quarter of 2018
benefited from lower incentive compensation of $2.0 million and a reduction in share-based compensation of $2.5 million resulting
from a change in the stock price. These decreases were partially offset by severance charges of $3.2 million and a net increase in
other items of $0.9 million. Compared to the fourth quarter of 2017, expenses declined $5.1 million, or 7%, due to lower
share-based compensation costs.
General and administrative expenses improved $0.2 million, or 1%, compared to the third quarter of 2018 and improved $2.7
million, or 13%, compared to the fourth quarter of 2017 due to lower consulting costs as a number of significant projects were
completed in late 2017 or early 2018.
Technology expenses increased $0.6 million, or 4%, compared to the prior quarter, and increased $0.7 million, or 5% compared to
the fourth quarter of 2017, primarily due to transition costs as we continue to decommission older systems and replace them with
more cost-effective solutions.
Occupancy expenses decreased $1.0 million, or 14%, and $1.6 million, or 21%, compared to the prior quarter and the fourth
quarter of 2017, respectively, as we realize cost savings from field offices closed during 2018.
Depreciation expense declined primarily due to a charge during the prior quarter to adjust the useful life on certain internally
developed software assets.
Investment and other income increased $15.7 million compared to the prior quarter and $19.6 million compared to the same quarter
in 2017 primarily due to the annual revaluation of the pension plan liability.
Income tax expense was consistent with the prior quarter and declined compared to the prior year fourth quarter primarily due to
the Tax Cuts and Jobs Act, which reduced the federal corporate tax rate and resulted in a non-recurring tax charge to revalue our
net deferred tax asset of $5.4 million in the fourth quarter of 2017.
Assets Under Management
(in millions)
|
|
|
Three Months Ended |
|
|
|
Dec. 31, |
|
Mar. 31, |
|
Jun. 30, |
|
Sep. 30, |
|
Dec. 31, |
|
|
|
|
2017 |
|
2018 |
| Unaffiliated 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning assets |
|
|
$ |
31,062 |
|
|
$ |
31,133 |
|
|
$ |
31,055 |
|
|
$ |
30,782 |
|
|
$ |
31,172 |
|
|
| Sales 2 |
|
|
|
1,577 |
|
|
|
2,245 |
|
|
|
1,779 |
|
|
|
1,589 |
|
|
|
1,673 |
|
|
| Redemptions |
|
|
|
(2,912 |
) |
|
|
(2,692 |
) |
|
|
(2,646 |
) |
|
|
(2,425 |
) |
|
|
(3,637 |
) |
|
| Net exchanges |
|
|
|
316 |
|
|
|
247 |
|
|
|
284 |
|
|
|
360 |
|
|
|
(131 |
) |
|
| Net Flows |
|
|
|
(1,019 |
) |
|
|
(200 |
) |
|
|
(583 |
) |
|
|
(476 |
) |
|
|
(2,095 |
) |
|
| Market action |
|
|
|
1,090 |
|
|
|
122 |
|
|
|
310 |
|
|
|
866 |
|
|
|
(4,100 |
) |
|
| Ending assets |
|
|
$ |
31,133 |
|
|
$ |
31,055 |
|
|
$ |
30,782 |
|
|
$ |
31,172 |
|
|
$ |
24,977 |
|
|
| Annualized organic growth rate |
|
|
|
(13.1 |
) |
% |
|
(2.6 |
) |
% |
|
(7.5 |
) |
% |
|
(6.2 |
) |
% |
|
(26.9 |
) |
% |
| Annualized redemption rate 3 |
|
|
|
37.9 |
|
% |
|
35.8 |
|
% |
|
34.9 |
|
% |
|
31.8 |
|
% |
|
53.8 |
|
% |
| Institutional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning assets |
|
|
$ |
6,365 |
|
|
$ |
6,289 |
|
|
$ |
6,449 |
|
|
$ |
5,250 |
|
|
$ |
5,187 |
|
|
| Sales 2 |
|
|
|
66 |
|
|
|
552 |
|
|
|
153 |
|
|
|
83 |
|
|
|
85 |
|
|
| Redemptions |
|
|
|
(521 |
) |
|
|
(604 |
) |
|
|
(1,652 |
) |
|
|
(535 |
) |
|
|
(1,316 |
) |
|
| Net exchanges |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
511 |
|
|
| Net Flows |
|
|
|
(455 |
) |
|
|
(52 |
) |
|
|
(1,499 |
) |
|
|
(452 |
) |
|
|
(720 |
) |
|
| Market action |
|
|
|
379 |
|
|
|
212 |
|
|
|
300 |
|
|
|
389 |
|
|
|
(812 |
) |
|
| Ending assets |
|
|
$ |
6,289 |
|
|
$ |
6,449 |
|
|
$ |
5,250 |
|
|
$ |
5,187 |
|
|
$ |
3,655 |
|
|
| Annualized organic growth rate |
|
|
|
(28.6 |
) |
% |
|
(3.3 |
) |
% |
|
(93.0 |
) |
% |
|
(34.4 |
) |
% |
|
(55.5 |
) |
% |
| Annualized redemption rate 3 |
|
|
|
32.2 |
|
% |
|
37.8 |
|
% |
|
115.4 |
|
% |
|
40.8 |
|
% |
|
117.3 |
|
% |
| Broker-Dealer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning assets |
|
|
$ |
43,472 |
|
|
$ |
43,660 |
|
|
$ |
42,707 |
|
|
$ |
42,619 |
|
|
$ |
43,183 |
|
|
| Sales 2 |
|
|
|
1,077 |
|
|
|
1,001 |
|
|
|
1,002 |
|
|
|
874 |
|
|
|
958 |
|
|
| Redemptions |
|
|
|
(2,026 |
) |
|
|
(1,958 |
) |
|
|
(1,770 |
) |
|
|
(1,612 |
) |
|
|
(1,547 |
) |
|
| Net exchanges |
|
|
|
(316 |
) |
|
|
(247 |
) |
|
|
(284 |
) |
|
|
(360 |
) |
|
|
(380 |
) |
|
| Net Flows |
|
|
|
(1,265 |
) |
|
|
(1,204 |
) |
|
|
(1,052 |
) |
|
|
(1,098 |
) |
|
|
(969 |
) |
|
| Market action |
|
|
|
1,453 |
|
|
|
251 |
|
|
|
964 |
|
|
|
1,662 |
|
|
|
(5,037 |
) |
|
| Ending assets |
|
|
$ |
43,660 |
|
|
$ |
42,707 |
|
|
$ |
42,619 |
|
|
$ |
43,183 |
|
|
$ |
37,177 |
|
|
| Annualized organic growth rate |
|
|
|
(11.6 |
) |
% |
|
(11.0 |
) |
% |
|
(9.9 |
) |
% |
|
(10.3 |
) |
% |
|
(9.0 |
) |
% |
| Annualized redemption rate 3 |
|
|
|
16.1 |
|
% |
|
15.1 |
|
% |
|
14.4 |
|
% |
|
12.8 |
|
% |
|
13.1 |
|
% |
| Consolidated Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning assets |
|
|
$ |
80,899 |
|
|
$ |
81,082 |
|
|
$ |
80,211 |
|
|
$ |
78,651 |
|
|
$ |
79,542 |
|
|
| Sales 2 |
|
|
|
2,720 |
|
|
|
3,798 |
|
|
|
2,934 |
|
|
|
2,546 |
|
|
|
2,716 |
|
|
| Redemptions |
|
|
|
(5,459 |
) |
|
|
(5,254 |
) |
|
|
(6,068 |
) |
|
|
(4,572 |
) |
|
|
(6,500 |
) |
|
| Net exchanges |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
| Net Flows |
|
|
|
(2,739 |
) |
|
|
(1,456 |
) |
|
|
(3,134 |
) |
|
|
(2,026 |
) |
|
|
(3,784 |
) |
|
| Market action |
|
|
|
2,922 |
|
|
|
585 |
|
|
|
1,574 |
|
|
|
2,917 |
|
|
|
(9,949 |
) |
|
| Ending assets |
|
|
$ |
81,082 |
|
|
$ |
80,211 |
|
|
$ |
78,651 |
|
|
$ |
79,542 |
|
|
$ |
65,809 |
|
|
| Annualized organic growth rate |
|
|
|
(13.5 |
) |
% |
|
(7.2 |
) |
% |
|
(15.6 |
) |
% |
|
(10.3 |
) |
% |
|
(19.0 |
) |
% |
| Annualized redemption rate 3 |
|
|
|
25.7 |
|
% |
|
24.8 |
|
% |
|
29.8 |
|
% |
|
22.1 |
|
% |
|
35.4 |
|
% |
| (1) |
|
Unaffiliated includes National channel (home office and wholesale), Defined
Contribution Investment Only “DCIO”, Registered Investment Advisor “RIA” and Variable Annuity “VA”. |
| (2) |
|
Sales is primarily gross sales (net of sales commissions). This amount also includes
net reinvested dividends and capital gains, and investment income. |
| (3) |
|
Excludes Money Market. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund Rankings 1 |
|
|
1 Year |
|
|
3 Years |
|
|
5 Years |
|
| Lipper |
|
|
|
|
|
|
|
|
|
|
| Funds ranked in top half |
|
|
70 |
% |
|
37 |
% |
|
47 |
% |
| Assets ranked in top half |
|
|
69 |
% |
|
40 |
% |
|
54 |
% |
| MorningStar |
|
|
|
|
|
|
|
|
|
|
| Funds ranked in top half |
|
|
59 |
% |
|
33 |
% |
|
38 |
% |
| Assets ranked in top half |
|
|
58 |
% |
|
41 |
% |
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
| MorningStar Ratings 1 |
|
|
Overall |
|
|
3 Years |
|
|
5 Years |
|
| Funds with 4/5 stars |
|
|
38 |
% |
|
30 |
% |
|
28 |
% |
| Assets with 4/5 stars |
|
|
52 |
% |
|
38 |
% |
|
33 |
% |
(1) Based on class I share, which reflects sales and asset concentrations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
| Broker-Dealer |
|
|
Dec. 31, |
|
Mar. 31, |
|
Jun. 30, |
|
Sep. 30, |
|
Dec. 31, |
|
| (in millions) |
|
|
2017 |
|
2018 |
|
| Assets under administration (AUA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Advisory assets |
|
|
$ |
21,613 |
|
|
$ |
22,050 |
|
|
$ |
22,868 |
|
|
$ |
23,653 |
|
|
$ |
21,207 |
|
|
| Non-advisory assets |
|
|
|
35,073 |
|
|
|
34,216 |
|
|
|
34,210 |
|
|
|
34,468 |
|
|
|
30,059 |
|
|
| Total assets under administration |
|
|
|
56,686 |
|
|
|
56,266 |
|
|
|
57,078 |
|
|
|
58,121 |
|
|
|
51,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net new advisory assets 1 |
|
|
$ |
129 |
|
|
$ |
392 |
|
|
$ |
315 |
|
|
$ |
(87 |
) |
|
$ |
(45 |
) |
|
| Net new non-advisory assets 1, 2 |
|
|
|
(1,047 |
) |
|
|
(983 |
) |
|
|
(916 |
) |
|
|
(931 |
) |
|
|
(840 |
) |
|
| Total net new AUA 1 |
|
|
|
(918 |
) |
|
|
(591 |
) |
|
|
(601 |
) |
|
|
(1,018 |
) |
|
|
(885 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Annualized advisory AUA growth 3 |
|
|
|
2.5 |
|
% |
|
7.3 |
|
% |
|
5.7 |
|
% |
|
(1.5 |
) |
% |
|
(0.8 |
) |
% |
| Annualized AUA growth 3 |
|
|
|
(6.6 |
) |
% |
|
(4.2 |
) |
% |
|
(4.3 |
) |
% |
|
(7.1 |
) |
% |
|
(6.1 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Advisor count |
|
|
|
1,367 |
|
|
|
1,170 |
|
|
|
1,130 |
|
|
|
1,074 |
|
|
|
1,060 |
|
|
| Avg. trailing 12-month revenue per advisor 4 (in thousands) |
|
|
$ |
256 |
|
|
$ |
285 |
|
|
$ |
314 |
|
|
$ |
350 |
|
|
$ |
378 |
|
|
| Advisor associate count |
|
|
|
265 |
|
|
|
327 |
|
|
|
339 |
|
|
|
351 |
|
|
|
343 |
|
|
| (1) |
|
Net new assets is calculated as total client deposits and net transfers less client
withdrawals. |
| (2) |
|
Excludes activity related to products held outside of our platform. These assets
represent less than 10% of total AUA. |
| (3) |
|
Annualized growth is calculated as annualized quarterly net new assets divided by
beginning assets under administration. |
| (4) |
|
Production per advisor is calculated as trailing 12- month total underwriting and
distribution fees less “other” underwriting and distribution fees divided by the average number of financial advisors. “Other”
underwriting and distribution fees predominantly includes fees paid by independent advisors for programs and services. |
|
|
|
|
|
|
Unaudited Consolidated Statements of Income
(in thousands, except per share data and margin)
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
Sep. 30, |
|
|
Dec. 31, |
|
|
Sequential Qtr. |
|
|
Year-over-Year Qtr. |
|
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
Change |
|
% |
|
|
Change |
|
|
% |
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment management fees |
|
|
$ |
114,521 |
|
|
|
$ |
129,302 |
|
|
|
$ |
136,387 |
|
|
|
$ |
(14,781 |
) |
|
(11.4 |
) |
% |
|
$ |
(21,866 |
) |
|
|
(16.0 |
) |
% |
| Underwriting and distribution fees |
|
|
|
133,788 |
|
|
|
|
140,308 |
|
|
|
|
132,200 |
|
|
|
|
(6,520 |
) |
|
(4.6 |
) |
% |
|
|
1,588 |
|
|
|
1.2 |
|
% |
| Shareholder service fees |
|
|
|
23,921 |
|
|
|
|
25,508 |
|
|
|
|
25,889 |
|
|
|
|
(1,587 |
) |
|
(6.2 |
) |
% |
|
|
(1,968 |
) |
|
|
(7.6 |
) |
% |
| Total |
|
|
|
272,230 |
|
|
|
|
295,118 |
|
|
|
|
294,476 |
|
|
|
|
(22,888 |
) |
|
(7.8 |
) |
% |
|
|
(22,246 |
) |
|
|
(7.6 |
) |
% |
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Distribution 1 |
|
|
|
111,456 |
|
|
|
|
116,591 |
|
|
|
|
107,889 |
|
|
|
|
(5,135 |
) |
|
(4.4 |
) |
% |
|
|
3,567 |
|
|
|
3.3 |
|
% |
| Compensation and benefits (including share-based compensation of $9,039, $12,856 and
$15,297, respectively) |
|
|
|
64,155 |
|
|
|
|
64,561 |
|
|
|
|
69,273 |
|
|
|
|
(406 |
) |
|
(0.6 |
) |
% |
|
|
(5,118 |
) |
|
|
(7.4 |
) |
% |
| General and administrative |
|
|
|
17,403 |
|
|
|
|
17,559 |
|
|
|
|
20,069 |
|
|
|
|
(156 |
) |
|
(0.9 |
) |
% |
|
|
(2,666 |
) |
|
|
(13.3 |
) |
% |
| Technology |
|
|
|
15,982 |
|
|
|
|
15,414 |
|
|
|
|
15,282 |
|
|
|
|
568 |
|
|
3.7 |
|
% |
|
|
700 |
|
|
|
4.6 |
|
% |
| Occupancy |
|
|
|
6,116 |
|
|
|
|
7,148 |
|
|
|
|
7,743 |
|
|
|
|
(1,032 |
) |
|
(14.4 |
) |
% |
|
|
(1,627 |
) |
|
|
(21.0 |
) |
% |
| Marketing and advertising |
|
|
|
2,685 |
|
|
|
|
2,461 |
|
|
|
|
3,353 |
|
|
|
|
224 |
|
|
9.1 |
|
% |
|
|
(668 |
) |
|
|
(19.9 |
) |
% |
| Depreciation |
|
|
|
6,387 |
|
|
|
|
8,141 |
|
|
|
|
5,357 |
|
|
|
|
(1,754 |
) |
|
(21.5 |
) |
% |
|
|
1,030 |
|
|
|
19.2 |
|
% |
| Subadvisory fees |
|
|
|
3,647 |
|
|
|
|
3,767 |
|
|
|
|
3,717 |
|
|
|
|
(120 |
) |
|
(3.2 |
) |
% |
|
|
(70 |
) |
|
|
(1.9 |
) |
% |
| Total |
|
|
|
227,831 |
|
|
|
|
235,642 |
|
|
|
|
232,683 |
|
|
|
|
(7,811 |
) |
|
(3.3 |
) |
% |
|
|
(4,852 |
) |
|
|
(2.1 |
) |
% |
| Operating income |
|
|
|
44,399 |
|
|
|
|
59,476 |
|
|
|
|
61,793 |
|
|
|
|
(15,077 |
) |
|
(25.3 |
) |
% |
|
|
(17,394 |
) |
|
|
(28.1 |
) |
% |
| Investment and other income |
|
|
|
17,351 |
|
|
|
|
1,697 |
|
|
|
|
(2,218 |
) |
|
|
|
15,654 |
|
|
922.5 |
|
% |
|
|
19,569 |
|
|
|
(882.3 |
) |
% |
| Interest expense |
|
|
|
(1,553 |
) |
|
|
|
(1,555 |
) |
|
|
|
(2,909 |
) |
|
|
|
2 |
|
|
0.1 |
|
% |
|
|
1,356 |
|
|
|
46.6 |
|
% |
| Income before provision for income taxes |
|
|
|
60,197 |
|
|
|
|
59,618 |
|
|
|
|
56,666 |
|
|
|
|
579 |
|
|
1.0 |
|
% |
|
|
3,531 |
|
|
|
6.2 |
|
% |
| Provision for income taxes |
|
|
|
14,125 |
|
|
|
|
13,105 |
|
|
|
|
26,380 |
|
|
|
|
1,020 |
|
|
7.8 |
|
% |
|
|
(12,255 |
) |
|
|
(46.5 |
) |
% |
| Net income |
|
|
|
46,072 |
|
|
|
|
46,513 |
|
|
|
|
30,286 |
|
|
|
|
(441 |
) |
|
(0.9 |
) |
% |
|
|
15,786 |
|
|
|
52.1 |
|
% |
| Net (loss) income attributable to redeemable noncontrolling interests |
|
|
|
(396 |
) |
|
|
|
208 |
|
|
|
|
522 |
|
|
|
|
(604 |
) |
|
290.4 |
|
% |
|
|
(918 |
) |
|
|
(175.9 |
) |
% |
| Net income attributable to Waddell & Reed Financial, Inc. |
|
|
$ |
46,468 |
|
|
|
$ |
46,305 |
|
|
|
$ |
29,764 |
|
|
|
$ |
163 |
|
|
0.4 |
|
% |
|
$ |
16,704 |
|
|
|
56.1 |
|
% |
| Net income per share, basic and diluted: |
|
|
$ |
0.60 |
|
|
|
$ |
0.58 |
|
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding - basic and diluted |
|
|
|
77,786 |
|
|
|
|
79,595 |
|
|
|
|
83,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating margin |
|
|
|
16.3 |
|
% |
|
|
20.2 |
|
% |
|
|
21.0 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) Distribution expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaffiliated |
|
|
|
25,406 |
|
|
|
|
28,116 |
|
|
|
|
31,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Broker-dealer |
|
|
|
86,050 |
|
|
|
|
88,475 |
|
|
|
|
76,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
111,456 |
|
|
|
$ |
116,591 |
|
|
|
$ |
107,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Consolidated Statements of Income
(in thousands, except per share data and margin)
|
|
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
Change |
|
|
% |
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment management fees |
|
|
$ |
507,906 |
|
|
|
$ |
531,850 |
|
|
|
$ |
(23,944 |
) |
|
|
(4.5 |
) |
% |
| Underwriting and distribution fees |
|
|
|
550,010 |
|
|
|
|
518,699 |
|
|
|
|
31,311 |
|
|
|
6.0 |
|
% |
| Shareholder service fees |
|
|
|
102,385 |
|
|
|
|
106,595 |
|
|
|
|
(4,210 |
) |
|
|
(3.9 |
) |
% |
| Total |
|
|
|
1,160,301 |
|
|
|
|
1,157,144 |
|
|
|
|
3,157 |
|
|
|
0.3 |
|
% |
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Distribution 1 |
|
|
|
456,832 |
|
|
|
|
432,264 |
|
|
|
|
24,568 |
|
|
|
5.7 |
|
% |
| Compensation and benefits (including share-based compensation of $51,565 and $57,716,
respectively) |
|
|
|
263,329 |
|
|
|
|
271,276 |
|
|
|
|
(7,947 |
) |
|
|
(2.9 |
) |
% |
| General and administrative |
|
|
|
73,643 |
|
|
|
|
88,951 |
|
|
|
|
(15,308 |
) |
|
|
(17.2 |
) |
% |
| Technology |
|
|
|
65,275 |
|
|
|
|
66,078 |
|
|
|
|
(803 |
) |
|
|
(1.2 |
) |
% |
| Occupancy |
|
|
|
27,197 |
|
|
|
|
30,721 |
|
|
|
|
(3,524 |
) |
|
|
(11.5 |
) |
% |
| Marketing and advertising |
|
|
|
10,323 |
|
|
|
|
12,425 |
|
|
|
|
(2,102 |
) |
|
|
(16.9 |
) |
% |
| Depreciation |
|
|
|
25,649 |
|
|
|
|
20,983 |
|
|
|
|
4,666 |
|
|
|
22.2 |
|
% |
| Subadvisory fees |
|
|
|
14,805 |
|
|
|
|
13,174 |
|
|
|
|
1,631 |
|
|
|
12.4 |
|
% |
| Intangible asset impairment |
|
|
|
1,200 |
|
|
|
|
1,500 |
|
|
|
|
(300 |
) |
|
|
(20.0 |
) |
% |
| Total |
|
|
|
938,253 |
|
|
|
|
937,372 |
|
|
|
|
881 |
|
|
|
0.1 |
|
% |
| Operating income |
|
|
|
222,048 |
|
|
|
|
219,772 |
|
|
|
|
2,276 |
|
|
|
1.0 |
|
% |
| Investment and other income |
|
|
|
22,705 |
|
|
|
|
37,084 |
|
|
|
|
(14,379 |
) |
|
|
(38.8 |
) |
% |
| Interest expense |
|
|
|
(6,461 |
) |
|
|
|
(11,279 |
) |
|
|
|
4,818 |
|
|
|
42.7 |
|
% |
| Income before provision for income taxes |
|
|
|
238,292 |
|
|
|
|
245,577 |
|
|
|
|
(7,285 |
) |
|
|
(3.0 |
) |
% |
| Provision for income taxes |
|
|
|
55,480 |
|
|
|
|
101,368 |
|
|
|
|
(45,888 |
) |
|
|
(45.3 |
) |
% |
| Net income |
|
|
|
182,812 |
|
|
|
|
144,209 |
|
|
|
|
38,603 |
|
|
|
26.8 |
|
% |
| Net (loss) income attributable to redeemable noncontrolling interests |
|
|
|
(776 |
) |
|
|
|
2,930 |
|
|
|
|
(3,706 |
) |
|
|
(126.5 |
) |
% |
| Net income attributable to Waddell & Reed Financial, Inc. |
|
|
$ |
183,588 |
|
|
|
$ |
141,279 |
|
|
|
$ |
42,309 |
|
|
|
29.9 |
|
% |
| Net income per share, basic and diluted: |
|
|
$ |
2.28 |
|
|
|
$ |
1.69 |
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding - basic and diluted |
|
|
|
80,468 |
|
|
|
|
83,573 |
|
|
|
|
|
|
|
|
|
| Operating margin |
|
|
|
19.1 |
|
% |
|
|
19.0 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) Distribution expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaffiliated |
|
|
|
112,562 |
|
|
|
|
130,079 |
|
|
|
|
|
|
|
|
|
| Broker-dealer |
|
|
|
344,270 |
|
|
|
|
302,185 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
456,832 |
|
|
|
$ |
432,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting and distribution fees
(in thousands)
|
|
|
For the three months ended Dec. 31, 2018 |
|
|
|
Unaffiliated |
|
|
Broker-Dealer |
|
|
Total |
| Fee-based asset allocation product revenues |
|
|
$ |
— |
|
|
$ |
67,504 |
|
|
$ |
67,504 |
| Rule 12b-1 service and distribution fees |
|
|
|
17,307 |
|
|
|
16,347 |
|
|
|
33,654 |
| Sales commissions on front-end load mutual funds and variable annuity products |
|
|
|
468 |
|
|
|
12,994 |
|
|
|
13,462 |
| Sales commissions on other products |
|
|
|
— |
|
|
|
9,533 |
|
|
|
9,533 |
| Other revenues |
|
|
|
109 |
|
|
|
9,526 |
|
|
|
9,635 |
| Total underwriting and distribution fees |
|
|
$ |
17,884 |
|
|
$ |
115,904 |
|
|
$ |
133,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Sep. 30, 2018 |
|
|
|
Unaffiliated |
|
|
Broker-Dealer |
|
|
Total |
| Fee-based asset allocation product revenues |
|
|
$ |
— |
|
|
$ |
69,468 |
|
|
$ |
69,468 |
| Rule 12b-1 service and distribution fees |
|
|
|
19,707 |
|
|
|
18,106 |
|
|
|
37,813 |
| Sales commissions on front-end load mutual funds and variable annuity products |
|
|
|
441 |
|
|
|
13,651 |
|
|
|
14,092 |
| Sales commissions on other products |
|
|
|
— |
|
|
|
9,111 |
|
|
|
9,111 |
| Other revenues |
|
|
|
126 |
|
|
|
9,698 |
|
|
|
9,824 |
| Total underwriting and distribution fees |
|
|
$ |
20,274 |
|
|
$ |
120,034 |
|
|
$ |
140,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended Dec. 31, 2017 |
|
|
|
Unaffiliated |
|
|
Broker-Dealer |
|
|
Total |
| Fee-based asset allocation product revenues |
|
|
$ |
— |
|
|
$ |
63,905 |
|
|
$ |
63,905 |
| Rule 12b-1 service and distribution fees |
|
|
|
22,122 |
|
|
|
19,306 |
|
|
|
41,428 |
| Sales commissions on front-end load mutual funds and variable annuity products |
|
|
|
380 |
|
|
|
13,497 |
|
|
|
13,877 |
| Sales commissions on other products |
|
|
|
— |
|
|
|
7,615 |
|
|
|
7,615 |
| Other revenues |
|
|
|
186 |
|
|
|
5,189 |
|
|
|
5,375 |
| Total underwriting and distribution fees |
|
|
$ |
22,688 |
|
|
$ |
109,512 |
|
|
$ |
132,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended Dec. 31, 2018 |
|
|
|
Unaffiliated |
|
|
Broker-Dealer |
|
|
Total |
| Fee-based asset allocation product revenues |
|
|
$ |
— |
|
|
$ |
269,069 |
|
|
$ |
269,069 |
| Rule 12b-1 service and distribution fees |
|
|
|
78,041 |
|
|
|
70,938 |
|
|
|
148,979 |
| Sales commissions on front-end load mutual funds and variable annuity products |
|
|
|
1,886 |
|
|
|
54,895 |
|
|
|
56,781 |
| Sales commissions on other products |
|
|
|
— |
|
|
|
36,131 |
|
|
|
36,131 |
| Other revenues |
|
|
|
568 |
|
|
|
38,482 |
|
|
|
39,050 |
| Total underwriting and distribution fees |
|
|
$ |
80,495 |
|
|
$ |
469,515 |
|
|
$ |
550,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended Dec. 31, 2017 |
|
|
|
Unaffiliated |
|
|
Broker-Dealer |
|
|
Total |
| Fee-based asset allocation product revenues |
|
|
$ |
— |
|
|
$ |
240,089 |
|
|
$ |
240,089 |
| Rule 12b-1 service and distribution fees |
|
|
|
91,313 |
|
|
|
75,850 |
|
|
|
167,163 |
| Sales commissions on front-end load mutual funds and variable annuity products |
|
|
|
1,498 |
|
|
|
55,293 |
|
|
|
56,791 |
| Sales commissions on other products |
|
|
|
— |
|
|
|
31,286 |
|
|
|
31,286 |
| Other revenues |
|
|
|
1,182 |
|
|
|
22,188 |
|
|
|
23,370 |
| Total underwriting and distribution fees |
|
|
$ |
93,993 |
|
|
$ |
424,706 |
|
|
$ |
518,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Condensed Balance Sheet
(in thousands)
|
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2018 |
|
|
2017 |
| Assets |
|
|
|
|
|
|
|
|
| Cash & cash equivalents (unrestricted) |
|
|
$ |
231,997 |
|
|
$ |
207,829 |
| Investment securities |
|
|
|
617,135 |
|
|
|
700,492 |
| Other assets |
|
|
|
285,649 |
|
|
|
241,305 |
| Property and equipment, net |
|
|
|
63,429 |
|
|
|
87,667 |
| Goodwill and intangible assets |
|
|
|
145,869 |
|
|
|
147,069 |
| Total assets |
|
|
$ |
1,344,079 |
|
|
$ |
1,384,362 |
| Liabilities, redeemable noncontrolling interests and equity |
|
|
|
|
|
|
|
|
| Short-term notes payable |
|
|
$ |
— |
|
|
$ |
94,996 |
| Long-term debt |
|
|
|
94,854 |
|
|
|
94,783 |
| Other liabilities |
|
|
|
354,312 |
|
|
|
307,190 |
| Redeemable noncontrolling interests |
|
|
|
11,463 |
|
|
|
14,509 |
| Total stockholders’ equity |
|
|
|
883,450 |
|
|
|
872,884 |
| Liabilities, redeemable noncontrolling interests and equity |
|
|
$ |
1,344,079 |
|
|
$ |
1,384,362 |
| Shares outstanding |
|
|
|
76,790 |
|
|
|
82,687 |
|
|
|
|
|
|
|
|
|
Unaudited Condensed Cash Flow
(in thousands)
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
Dec. 31, |
|
|
Sep. 30, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
| Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating activities |
|
|
$ |
93,278 |
|
|
|
$ |
90,652 |
|
|
|
$ |
70,519 |
|
|
|
$ |
357,011 |
|
|
|
$ |
53,832 |
|
| Investing activities |
|
|
|
(32,224 |
) |
|
|
|
(7,160 |
) |
|
|
|
(13,415 |
) |
|
|
|
10,347 |
|
|
|
|
(212,395 |
) |
| Financing activities |
|
|
|
(69,152 |
) |
|
|
|
(50,131 |
) |
|
|
|
(75,197 |
) |
|
|
|
(311,788 |
) |
|
|
|
(188,710 |
) |
| Net change during period |
|
|
$ |
(8,098 |
) |
|
|
$ |
33,361 |
|
|
|
$ |
(18,093 |
) |
|
|
$ |
55,570 |
|
|
|
$ |
(347,273 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Year Ended |
|
|
|
Dec. 31, |
|
|
Sep. 30, |
|
|
Dec. 31, |
|
|
Dec. 31, |
|
|
Dec. 31, |
| (in thousands, except number of shares) |
|
|
2018 |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
| Shares repurchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares |
|
|
|
2,443,723 |
|
|
|
1,424,612 |
|
|
|
937,927 |
|
|
|
6,963,269 |
|
|
|
1,842,337 |
| Total cost |
|
|
$ |
46,873 |
|
|
$ |
28,369 |
|
|
$ |
20,133 |
|
|
$ |
135,891 |
|
|
$ |
35,768 |
| Dividend paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rate per share |
|
|
$ |
0.25 |
|
|
$ |
0.25 |
|
|
$ |
0.46 |
|
|
$ |
1.00 |
|
|
$ |
1.84 |
| Total paid |
|
|
$ |
19,684 |
|
|
$ |
20,050 |
|
|
$ |
38,351 |
|
|
$ |
81,215 |
|
|
$ |
154,042 |
| Capital returned to stockholders |
|
|
$ |
66,557 |
|
|
$ |
48,419 |
|
|
$ |
58,484 |
|
|
$ |
217,106 |
|
|
$ |
189,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
1 Net income represents net income attributable to Waddell & Reed Financial, Inc.
Waddell & Reed Financial, Inc.
Investor Contact:
Mike Daley, Vice President – Corporate Controller & Investor Relations, (913) 236-1795, mdaley1@waddell.com
or
Mutual Fund Investor Contact:
Call (888) WADDELL, or visit
www.waddell.com or
www.ivyfunds.com.
View source version on businesswire.com: https://www.businesswire.com/news/home/20190205005183/en/