Waddell & Reed Financial, Inc. (NYSE: WDR) today reported
fourth quarter 2016 net income1 of $22.4 million, or $0.27 per
diluted share, compared to net income of $53.8 million, or $0.65
per diluted share, during the prior quarter and net income of $62.9
million, or $0.76 per diluted share, during the fourth quarter of
2015. Net income for the year ended December 31, 2016 was $146.9
million, or $1.78 per diluted share, compared to net income of
$245.5 million, or $2.94 per diluted share, for the year ended
December 31, 2015.
Fourth quarter 2016 net income, adjusted for certain charges,
was $40.0 million, or $0.48 per diluted share, compared to net
income, adjusted for certain charges, of $53.3 million, or $0.64
per diluted share, during the third quarter of 2016. For the year
ended December 31, 2016, net income, adjusted for certain charges,
was $177.1 million, or $2.14 per diluted share. A detailed schedule
reconciling non-GAAP financial measures to GAAP net income and
earnings per diluted share is provided in the “Adjusted Results”
tables at the end of this release.
Business Discussion
Flow pressure lessened during the quarter with net outflows of
$4.4 billion comparing favorably to both the prior quarter and to
the fourth quarter of 2015. Sales rose every month during the
quarter, improving 8% compared to the third quarter. However, sales
for the year remain at a multi-year low and, while we have made
progress, there remains a need for continued improvement. Assets
under management ended the year at $81 billion, declining 5% during
the quarter and 23% compared to December 31, 2015.
We successfully implemented a cost reduction program in 2016,
which led to a 9% year-over-year reduction in operating costs.
Several charges were incurred during the year, which added $48
million to 2016 operating costs, making our anticipated run-rate
for 2017 even more favorable. These costs included severance
charges, a pension settlement charge, and the impairment of
intangible assets, and were partly offset by a curtailment gain on
our post-retirement medical benefit plan. We also incurred costs
for the implementation of Project E and costs for the
implementation of the Department of Labor’s fiduciary standard
rule, which will continue into 2017 but then subside.
“Our entire organization is committed to strengthening our
competitive position during this period of unprecedented change in
our industry,” said Philip J. Sanders, Chief Executive Officer of
Waddell & Reed Financial, Inc. “We are focused on all aspects
of our business, including organizational structure, operational
efficiencies, product offerings, and fee levels.”
Management Fee Revenue Analysis
Management fees declined 4% sequentially, while average assets
under management declined 6%. Fees declined at a lesser rate than
average assets under management due to an increase in the effective
fee rate, which was a result of a mix-shift within the asset base.
Compared to the same quarter last year, management fees declined
20%, while average assets under management declined 25%. The loss
of $7.5 billion in institutional assets, which had a low fee rate,
as well as a mix-shift in the retail asset base led revenues to
decline at a lesser rate than average assets under management.
Average assets under management were $82 billion during the
current quarter, compared to $87 billion during the prior quarter
and $109 billion during the same period in 2015. The effective fee
rate for the current quarter was 64.4 basis points compared to 63.6
basis points and 60.6 basis points during the third quarter of 2016
and fourth quarter of 2015, respectively.
Underwriting and Distribution Analysis
Underwriting and Distribution Revenues
Revenues declined 2% sequentially due to lower asset-based Rule
12b-1 service and distribution fees in our retail unaffiliated
channel resulting from a decline in asset levels. Compared to the
same period last year, revenues declined 17% due to lower
asset-based Rule 12b-1 fees in our retail unaffiliated channel, as
well as the impact of the third quarter’s share conversion of
load-waived Class A shares, previously offered in our advisory
products, to Class I shares, which do not charge Rule 12b-1
fees.
Underwriting and Distribution Costs
Costs rose 7% compared to the third quarter. Direct costs
declined 3% in correlation with the decrease in revenues, while
indirect costs rose 33%. Several items contributed to the increase
in indirect costs, including the pension settlement charge, the
curtailment gain due to an amendment to our post-retirement medical
benefit plan during the prior quarter and, to a lesser degree,
severance costs associated with the realignment of our retail
unaffiliated and institutional distribution channels.
Compared to the fourth quarter of 2015, costs declined 14%.
Direct costs declined 23% due to lower asset levels, which resulted
in lower asset-based Rule 12b-1 service and distribution fees and,
to a lesser degree, lower sales commissions and lower wholesaler
commissions. Indirect costs increased 12% due to the pension
settlement charge and, to a lesser degree, costs associated with
the implementation of Project E. Excluding these charges, indirect
costs were flat.
Compensation and Related Expense Analysis
Costs increased 45% sequentially due to a pension settlement
charge in the current quarter and the curtailment gain related to
an amendment of our post-retirement medical benefit plan during the
prior quarter. Compared to the fourth quarter of 2015, costs
increased 21% due to the pension settlement charge. Excluding these
charges, costs declined modestly due to workforce reductions and
lower incentive compensation.
General and Administrative Expense Analysis
Costs declined 4% compared to the prior quarter due to continued
cost control across the organization. Compared to the same quarter
last year, costs declined 14%. Lower dealer service costs and a
reduction in advertising more than offset an increase in legal and
consulting costs primarily attributable to the implementation of
the new DOL fiduciary rule.
Changes in Assets Under Management ($ in
millions)
Three Months Ended Year Ended Mar
31, Jun 30, Sept 30, Dec
31, Mar 31, Jun 30, Sept 30,
Dec 31, Dec 31, Dec 31,
2015 2016 2015 2016 Retail
Unaffiliated Distribution Beginning assets $60,335 $59,412
$57,545 $49,320 $45,641 $38,623 $35,197 $33,290 $60,335 $45,641
Sales* 3,870 3,239 2,768 2,341 2,144 1,526 1,320 1,373 12,218 6,363
Redemptions (6,259) (4,558) (5,569) (7,300) (7,680) (5,543) (4,824)
(4,390) (23,686) (22,437) Net Exchanges 224 144 265
176 158 127 161 11 809 457
Net flows (2,165) (1,175) (2,536) (4,783) (5,378) (3,890)
(3,343) (3,006) (10,659) (15,617) Market action 1,242 (692)
(5,689) 1,104 (1,640) 464 1,436
11 (4,035) 271 Ending assets $59,412 $57,545
$49,320 $45,641 $38,623 $35,197
$33,290
$30,295 $45,641 $30,295
Retail
Broker-Dealer Beginning assets $45,517 $46,385 $45,947 $42,215
$43,344 $42,142 $42,261 $43,170 $45,517 $43,344 Sales* 1,270 1,347
1,238 1,218 1,068 1,094 1,024 1,101 5,073 4,287 Redemptions (1,279)
(1,279) (1,242) (1,245) (1,197) (1,329) (1,542) (1,669) (5,045)
(5,737) Net Exchanges (224) (144) (265) (176)
(172) (163) (194) (182) (809) (711)
Net flows (233) (76) (269) (203) (301) (398) (712) (750)
(781) (2,161) Market action 1,101 (362) (3,463)
1,332 (901) 517 1,621 (98) (1,392)
1,139 Ending assets $46,385 $45,947 $42,215
$43,344 $42,142 $42,261 $43,170 $42,322
$43,344 $42,322
Institutional Beginning assets
$17,798 $17,097 $17,214 $14,657 $15,414 $14,426 $8,993 $8,595
$17,798 $15,414 Sales* 300 1,203 465 773 453 190 180 242 2,741
1,065 Redemptions (1,460) (1,003) (1,817) (799) (1,068) (5,699)
(1,051) (1,042) (5,079) (8,860) Net Exchanges - - -
- 14 36 33 171 - 254
Net
flows (1,160) 200 (1,352) (26) (601) (5,473) (838) (629)
(2,338) (7,541) Market action 459 (83) (1,205)
783 (387) 40 440 (62) (46) 31 Ending
assets $17,097 $17,214 $14,657 $15,414 $14,426
$8,993 $8,595 $7,904 $15,414 $7,904
Consolidated Total Beginning assets $123,650 $122,894
$120,706 $106,192 $104,399 $95,191 $86,451 $85,055 $123,650
$104,399 Sales* 5,440 5,789 4,471 4,332 3,665 2,810 2,524 2,716
20,032 11,715 Redemptions (8,998) (6,840) (8,628) (9,344) (9,945)
(12,571) (7,417) (7,101) (33,810) (37,034) Net Exchanges - -
- - - - - - - -
Net
flows (3,558) (1,051) (4,157) (5,012) (6,280) (9,761) (4,893)
(4,385) (13,778) (25,319) Market action 2,802 (1,137)
(10,357) 3,219 (2,928) 1,021 3,497
(149) (5,473) 1,441 Ending assets $122,894 $120,706
$106,192 $104,399 $95,191 $86,451
$85,055 $80,521 $104,399 $80,521
* Sales is primarily gross sales (net of
sales commissions). This amount also includes net reinvested
dividends & capital gains and investment income.
Supplemental Information
Three Months Ended
Asset Manager Mar 31, Jun 30,
Sept 30, Dec 31, Mar 31, Jun
30, Sept 30, Dec 31, ($ in
millions)
2015 2016 Retail
Unaffiliated Distribution AUM $ 59,412 $ 57,545 $ 49,320 $
45,641 $ 38,623 $ 35,197 $ 33,290 $ 30,295 Net flows ($2,165 )
($1,175 ) ($2,536 ) ($4,783 ) ($5,378 ) ($3,890 ) ($3,343 ) ($3,006
) Organic growth -14.4 % -7.9 % -17.6 % -38.8 % -47.1 % -40.3 %
-38.0 % -36.1 % Redemption Rate 42.9 % 31.0 % 41.2 % 59.3 % 77.7 %
61.3 % 56.2 % 56.7 %
Retail Broker-Dealer AUM $ 46,385 $
45,947 $ 42,215 $ 43,344 $ 42,142 $ 42,261 $ 43,170 $ 42,322 Net
flows ($233 ) ($76 ) ($269 ) ($203 ) ($301 ) ($398 ) ($712 ) ($750
) Organic growth -2.0 % -0.7 % -2.3 % -1.9 % -2.8 % -3.8 % -6.7 %
-6.9 % Redemption Rate 9.0 % 9.0 % 8.9 % 9.3 % 9.3 % 10.5 % 12.1 %
12.5 %
Institutional AUM $ 17,097 $ 17,214 $ 14,657 $ 15,414
$ 14,426 $ 8,993 $ 8,595 $ 7,904 Net flows ($1,160 ) $ 200 ($1,352
) ($26 ) ($601 ) ($5,473 ) ($838 ) ($629 ) Organic growth -26.1 %
4.7 % -31.4 % -0.7 % -15.6 % -151.8 % -37.3 % -29.3 % Redemption
Rate 33.7 % 23.2 % 45.4 %
20.5 % 29.9 % 198.9 %
46.4 % 51.3 %
Fund Rankings 1 Year 3 Years
5 Years Lipper Funds ranked in top half 43 % 35 % 33
% Assets ranked in top half 33 % 28 % 42 %
MorningStar Funds
with 4/5 stars 29 % 17 % 19 % Assets with 4/5 stars 31 %
13 % 24 %
Three Months
Ended Mar 31, Jun 30, Sept
30, Dec 31, Mar 31, Jun 30,
Sept 30, Dec 31, Broker-Dealer
2015 2016 AUA* (in billions) $ 53.7 $
53.6 $ 49.4 $ 51.0 $ 49.9 $ 50.5 $ 52.1 $ 51.7 AUA* fee based
accounts (in billions) $ 18.0 $ 18.3 $ 17.0 $ 17.6 $ 17.4 $ 17.8 $
18.5 $ 18.4 # Advisors 1,745 1,780 1,795 1,819 1,803 1,799 1,796
1,780 Advisor productivity (in thousands) $ 65.9 $ 67.9 $ 66.3 $
64.9 $ 61.3 $ 63.1 $ 59.0 $ 59.4 U&D revenues (in thousands) $
114,836 $ 119,740 $ 118,090
$ 117,291 $ 110,735 $ 113,802
$ 105,787 $ 105,931 * AUA
represent Assets Under Administration
Unaudited
Consolidated Statement of Income
($ in thousands, except per share data)
Three Months Ended Dec. 31, Sept. 30, Dec.
31, Sequential Qtr. Year-over-Year Qtr.
2016 2016 2015
Change % Change
% Operating Revenues: Investment management
fees $ 132,709 $ 138,745 $ 166,325 ($6,036 ) -4.4 % ($33,616 )
-20.2 % Underwriting and distribution fees 132,922 135,778 160,382
(2,856 ) -2.1 % (27,460 ) -17.1 % Shareholder service fees
27,282 28,563 34,367
(1,281 ) -4.5 % (7,085 ) -20.6 % Total operating
revenues 292,913 303,086 361,074
(10,173 ) -3.4 % (68,161 ) -18.9 %
Operating Expenses: Underwriting and distribution 163,025
152,999 189,534 10,026 6.6 % (26,509 ) -14.0 % Compensation and
related costs 58,354 40,214 48,271 18,140 45.1 % 10,083 20.9 %
General and administrative 22,288 23,280 26,033 (992 ) -4.3 %
(3,745 ) -14.4 % Subadvisory fees 2,588 2,566 2,048 22 0.9 % 540
26.4 % Depreciation 5,196 4,541 3,831 655 14.4 % 1,365 35.6 %
Intangible impairment 4,049 5,700
- (1,651 ) -29.0 % 4,049
N/A Total operating expenses 255,500
229,300 269,717 26,200
11.4 % (14,217 ) -5.3 %
Operating Income 37,413
73,786 91,357 (36,373 ) -49.3 % (53,944 ) -59.0 % Investment and
other income/(loss) 890 7,878 7,647 (6,988 ) -88.7 % (6,757 ) -88.4
% Interest expense (2,786 ) (2,792 ) (2,772 )
6 -0.2 % (14 ) 0.5 % Income before taxes 35,517
78,872 96,232 (43,355 ) -55.0 % (60,715 ) -63.1 % Provision for
taxes 13,041 24,067 33,312
(11,026 ) -45.8 % (20,271 ) -60.9 %
Net Income
22,476 54,805 62,920
(32,329 ) -59.0 % (40,444 ) -64.3 % Noncontrolling interests
59 978 - (919 )
-94.0 % 59 N/A
Net Income Attributable to Waddell &
Reed Financial, Inc. $ 22,417 $ 53,827 $ 62,920
($31,410 ) -58.4 % ($40,503 ) -64.4 % Net income per share,
basic and diluted: 0.27 0.65
0.76 Weighted average shares outstanding - basic and diluted
82,783 82,834 82,873
Operating margin 12.8 % 24.3 % 25.3 %
Net Distribution Cost Analysis Three Months
Ended ($ in thousands)
Dec. 31, Sept. 30, Dec.
31, Sequential Qtr. Year-over-Year Qtr.
2016 2016 2015
Change % Change
% Retail Unaffiliated Distribution1
U&D Revenues $ 26,991 $ 29,991 $ 43,091 ($3,000 ) -10.0 %
($16,100 ) -37.4 % U&D Expenses - Direct (35,854 ) (39,489 )
(57,119 ) 3,635 -9.2 % 21,265 -37.2 % U&D Expenses - Indirect
(13,916 ) (10,643 ) (14,614 ) (3,273 )
30.8 % 698 -4.8 % Net Distribution (Costs)
($22,779 ) ($20,141 ) ($28,642 ) (2,638
) 13.1 % 5,863 -20.5 %
Retail
Broker-Dealer2 U&D Revenues $ 105,931 $ 105,787 $
117,291 $ 144 0.1 % ($11,360 ) -9.7 % U&D Expenses - Direct
(72,380 ) (72,276 ) (83,413 ) (104 ) 0.1 % 11,033 -13.2 % U&D
Expenses - Indirect (40,875 ) (30,591 )
(34,388 ) (10,284 ) 33.6 % (6,487 ) 18.9 % Net
Distribution Excess/(Costs) ($7,324 ) $ 2,920
($510 ) (10,244 ) -350.8 % (6,814 ) 1336.1 %
1 Retail Unaffiliated Distribution was
previously referred to as the "Wholesale channel"
2 Retail Broker-Dealer was previously referred to as the "Advisors
channel"
Unaudited Consolidated Statement of Income
($ in thousand, except per share data)
Year Ended Dec. 31, Dec. 31,
2016 2015 Change
% Operating Revenues: Investment management
fees $ 557,112 $ 709,562 ($152,450 ) -21.5 % Underwriting and
distribution fees 561,670 663,998 (102,328 ) -15.4 % Shareholder
service fees 120,241 143,071 (22,830 )
-16.0 % Total operating revenues 1,239,023
1,516,631 (277,608 ) -18.3 %
Operating
Expenses: Underwriting and distribution 671,105 769,781 (98,676
) -12.8 % Compensation and related costs 209,849 200,752 9,097 4.5
% General and administrative 83,996 105,066 (21,070 ) -20.1 %
Subadvisory fees 9,572 9,134 438 4.8 % Depreciation 18,359 16,046
2,313 14.4 % Intangible impairment 9,749 -
9,749 N/A Total operating expenses
1,002,630 1,100,779 (98,149 )
-8.9 %
Operating Income 236,393 415,852 (179,459 ) -43.2 %
Investment and other income/(loss) (763 ) (5,244 ) 4,481 -85.5 %
Interest expense (11,122 ) (11,068 ) (54 ) 0.5 %
Income before taxes 224,508 399,540 (175,032 ) -43.8 % Provision
for taxes 76,187 154,004 (77,817 )
-50.5 %
Net Income 148,321 245,536
(97,215 ) -39.6 % Noncontrolling interests 1,414
- 1,414 N/A
Net Income Attributable
to Waddell & Reed Financial, Inc. $ 146,907 $ 245,536
($98,629 ) -40.2 % Net income per share, basic and diluted:
1.78 2.94 Weighted average shares outstanding
- basic and diluted 82,668 83,499
Operating margin 19.1 % 27.4 %
Net Distribution Cost Analysis Year Ended ($ in
thousands)
Dec. 31, Dec. 31, 2016
2015 Change %
Retail Unaffiliated Distribution1 U&D
Revenues $ 125,415 $ 194,041 ($68,626 ) -35.4 % U&D Expenses -
Direct (164,641 ) (254,778 ) 90,137 -35.4 % U&D Expenses -
Indirect (52,847 ) (55,944 ) 3,097 -5.5
% Net Distribution (Costs) ($92,073 ) ($116,681 )
24,608 -21.1 %
Retail
Broker-Dealer2 U&D Revenues $ 436,255 $ 469,957
($33,702 ) -7.2 % U&D Expenses - Direct (312,673 ) (335,032 )
22,359 -6.7 % U&D Expenses - Indirect (140,944 )
(124,027 ) (16,917 ) 13.6 % Net Distribution Excess/(Costs)
($17,362 ) $ 10,898 (28,260 ) -259.3 %
1 Retail Unaffiliated Distribution was previously referred
to as the "Wholesale channel" 2 Retail Broker-Dealer was previously
referred to as the "Advisors channel"
Unaudited Condensed
Balance Sheet Dec.
31, Dec. 31, ($ in thousands) 2016
2015 Assets Cash & cash
equivalents (unrestricted) $ 555,102 $ 558,495 Investment
securities 328,750 291,743 Other assets 271,401 441,360 Property
and equipment, net 102,449 105,434 Goodwill and intangible assets
148,569 158,118
Total assets $
1,406,271 $ 1,555,150
Liabilities,
redeemable noncontrolling interests and equity Long-term debt $
189,605 $ 189,432 Other liabilities 362,011 519,263 Redeemable
noncontrolling interests 10,653 - Total equity 844,002
846,455
Liabilities, redeemable
noncontrolling interests and equity $ 1,406,271 $
1,555,150
Shares outstanding (in millions)
83.1 82.9 Unaudited Condensed Cash
Flow Three Months Ended Year Ended ($
in thousands) Dec. 31, Sept. 30, Dec. 31,
Dec. 31, Dec. 31, Cash provided by (used in):
2016 2016
2015 2016
2015 Operating activities $ 57,588 $ 47,613 $ 3,377 $
123,647 $ 233,950 Investing activities 6,590 53,973 (4,230 ) 75,871
(22,595 ) Financing activities (38,860 ) (39,260 )
(53,312 ) (202,911 ) (219,481 ) Net
change during period $ 25,318 $ 62,326
($54,165 ) ($3,393 ) ($8,126 )
Three
Months Ended Year Ended ($ in thousands) Dec.
31, Sept. 30, Dec. 31, Dec. 31, Dec.
31, Shares repurchased 2016
2016 2015 2016
2015 Number of shares 90,692
28,537 520,154 2,320,726 1,955,509 Total cost $ 1,769 $ 522 $
17,058 $ 49,753 $ 80,335
Dividend paid Rate per share
$ 0.46 $ 0.46 $ 0.46 $ 1.84 $ 1.75 Total paid $ 38,094 $ 38,120 $
35,710 $ 152,830 $ 143,959
Capital returned to
stockholders $ 39,863 $ 38,642
$ 52,768 $ 202,583 $
224,294 On December 31, 2016, we granted 447,277
shares of restricted stock
In early January 2016, we granted an
additional 1,131,538 shares of restricted stock and an additional
1,131,538 cash-settled restricted stock units, which does not
impact share count.
Unaudited Supplemental Information
In addition to reporting results in accordance with U.S.
generally accepted accounting principles (“GAAP”), management
believes adjusting results to exclude certain items provides
investors with financial measures that better reflect the company’s
core operating performance and allow for more appropriate
comparisons to prior periods. However, non-GAAP financial measures
should not be considered a substitute for performance measures
calculated in accordance with GAAP.
Adjusted ResultsReconciliation
to GAAP
($ in thousands, except for per share data)
Three Months Ended
Three Months Ended Year Ended Dec. 31, 2016
Sept. 30, 2016 Dec, 31, 2016 GAAP
Adj. 1 Adjusted
GAAP Adj.2 Adjusted
GAAP Adj.3 Adjusted
Operating Revenues: Investment management fees $ 132,709 - $
132,709 $ 138,745 - $ 138,745 $ 557,112 - $ 557,112 Underwriting
and distribution fees 132,922 - 132,922 135,778 - 135,778 561,670 -
561,670 Shareholder service fees 27,282
- 27,282 28,563
- 28,563 120,241
- 120,241 Total
operating revenues 292,913 -
292,913 303,086
- 303,086 1,239,023
- 1,239,023
Operating Expenses: Underwriting and distribution 163,025
(7,882 ) 155,143 152,999 3,457 156,456 671,105 (15,599 ) 655,506
Compensation and related costs 58,354 (14,334 ) 44,020 40,214 3,752
43,966 209,849 (20,356 ) 189,493 General and administrative 22,288
(1,748 ) 20,540 23,280 (662 ) 22,618 83,996 (2,410 ) 81,586
Subadvisory fees 2,588 - 2,588 2,566 - 2,566 9,572 - 9,572
Depreciation 5,196 - 5,196 4,541 - 4,541 18,359 - 18,359 Intangible
impairment 4,049 (4,049 )
- 5,700 (5,700 )
- 9,749 (9,749 )
- Total operating expenses 255,500
(28,013 ) 227,487
229,300 847 230,147
1,002,630 (48,114 )
954,516
Operating Income 37,413 28,013 65,426
73,786 (847 ) 72,939 236,393 48,114 284,507 Investment and other
income/(loss) 890 - 890 7,878 - 7,878 (763 ) - (763 ) Interest
expense (2,786 ) -
(2,786 ) (2,792 ) -
(2,792 ) (11,122 ) -
(11,122 ) Income before taxes 35,517 28,013 63,530 78,872 (847 )
78,025 224,508 48,114 272,622 Provision for taxes
13,041 10,416 23,457
24,067 (316 )
23,751 76,187 17,886
94,073
Net Income 22,476
17,597 40,073
54,805 (531 ) 54,274
148,321 30,228
178,549 Noncontrolling interests 59
- 59
978 - 978 1,414
- 1,414
Net
Income Attributable to Waddell & Reed Financial, Inc.
$ 22,417 $ 17,597 $ 40,014
$ 53,827 ($531 ) $ 53,296
$ 146,907 $ 30,228 $ 177,135 Net
income per share, basic and diluted: 0.27
0.21 0.48
0.65 (0.01 ) 0.64 1.78
0.37 2.14 Weighted
average shares outstanding - basic and diluted 82,783
82,783 82,783
82,834 82,834
82,834 82,668 82,668
82,668 Operating margin 12.8 %
22.3 % 24.3 %
24.1 % 19.1 %
23.0 %
1 Adjustments during the fourth quarter were:
- $20.7 million related to a pension
settlement charge. $6.4 million in U&D indirect (unaffiliated
distribution $0.9 million and broker-dealer $5.5 million) and $14.3
million in compensation;
- $4.0 million charge related to the
impairment of an intangible asset;
- $1.7 million charge related to DOL
preparation to G&A costs; and
- $1.5 million charge related to the
implementation of Project E to U&D indirect costs
(broker-dealer).
2 Adjustments during the third quarter were:
- $8.5 million related to a curtailment
gain. $4.7 million in U&D indirect (unaffiliated distribution
$0.5 million and broker-dealer $4.2 million) and $3.8 million in
compensation;
- $5.7 million charge related to the
impairment of an intangible asset;
- $1.3 million charge related to the
implementation of Project E to U&D indirect costs
(broker-dealer); and
- $0.7 million charge related to DOL
preparation to G&A costs.
3 Adjustments during the full year were:
- $20.7 million related to a pension
settlement charge. $6.4 million in U&D indirect (unaffiliated
distribution $0.9 million and broker-dealer $5.5 million) and $14.3
million in compensation);
- $9.8 million for severance and related
charges to compensation and related costs;
- $7.1 million for severance and related
charges to U&D indirect costs (unaffiliated distribution $2.2
million; broker-dealer $4.9 million);
- $9.7 million charge related to the
impairment of intangible assets;
- $8.5 million related to a curtailment
gain. $4.7 million in U&D indirect (unaffiliated distribution
$0.5 million and broker-dealer $4.2 million) and $3.8 million in
compensation);
- $5.4 million charge related to the
implementation of Project E to U&D indirect costs
(broker-dealer);
- $2.4 million charge related to DOL
preparation to G&A costs; and
- $1.4 million related to the accelerated
amortization of DAC to U&D direct costs (broker-dealer) due to
a share class conversion.
Net Distribution Cost Analysis Reconciliation to
GAAP
($ in thousands)
Three Months Ended
Three Months Ended Year Ended Dec. 31, 2016
Sept. 30, 2016 Dec, 31, 2016 GAAP
Adj. Adjusted GAAP
Adj. Adjusted GAAP Adj.
Adjusted Retail Unaffiliated
Distribution1
U&D Revenues $ 26,991 - $ 26,991 $ 29,991 - $ 29,991 $ 125,415
- $ 125,415 U&D Expenses - Direct (35,854 ) - (35,854 ) (39,489
) - (39,489 ) (164,641 ) - (164,641 ) U&D Expenses - Indirect
(13,916 ) 899 (13,017 )
(10,643 ) (523 ) (11,166 )
(52,847 ) 2,633 (50,214 ) Net
Distribution (Costs) ($22,779 ) $ 899
($21,880 ) ($20,141 ) ($523 )
($20,664 ) ($92,073 ) $ 2,633 ($89,440
)
Retail Broker-Dealer2 U&D Revenues $
105,931 - $ 105,931 $ 105,787 - $ 105,787 $ 436,255 - $ 436,255
U&D Expenses - Direct (72,380 ) - (72,380 ) (72,276 ) - (72,276
) (312,673 ) 1,384 (311,289 ) U&D Expenses - Indirect
(40,875 ) 6,983 (33,892 )
(30,591 ) (2,934 ) (33,525 ) (140,944 )
11,582 (129,362 ) Net Distribution
Excess/(Costs) ($7,324 ) $ 6,983 ($341
) $ 2,920 ($2,934 ) ($14 )
($17,362 ) $ 12,966 ($4,396 ) 1
Retail Unaffiliated Distribution was previously referred to as the
"Wholesale channel" 2 Retail Broker-Dealer was previously referred
to as the "Advisors channel"
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 www.waddell.com. A Web cast replay will be made
available shortly after the conclusion of the call and accessible
for seven days.
Web Site Resources
We invite you to visit the Investor Relations section of our Web
site at ir.waddell.com. Under the “Investor Information” tab you
will find a link to presentations as well as to data tables, which
include supplemental information schedules.
Contacts
Investor Contact:Nicole Russell,
VP, Investor Relations, (913) 236-1880, nrussell@waddell.com
Mutual Fund Investor Contact:Call
(888) WADDELL, or visit www.waddell.com or www.ivyfunds.com.Past
performance is no guarantee of future results. Please invest
carefully.
About the Company
Waddell & Reed, Inc., founded in 1937, is one of the oldest
mutual fund complexes in the United States, having introduced the
Waddell & Reed Advisors Group of Mutual Funds in 1940. Today,
we distribute our investment products through the retail
unaffiliated distribution channel (encompassing broker/dealer,
retirement, and registered investment advisors), our retail
broker-dealer channel (through financial advisors), and our
Institutional channel (including defined benefit plans, pension
plans and endowments, and our subadvisory partnership with
Mackenzie in Canada).
Through its subsidiaries, Waddell & Reed Financial, Inc.
provides investment management and financial planning services to
clients throughout the United States and internationally. Waddell
& Reed Investment Management Company serves as investment
adviser to the Waddell & Reed Advisors Group of Mutual Funds,
while Ivy Investment Management Company serves as investment
adviser to Ivy Funds, Ivy NextShares, Ivy Variable Insurance
Portfolios and InvestEd Portfolios, and investment adviser and
global distributor to the Ivy Global Investors SICAV, an umbrella
UCITS fund range domiciled in Luxembourg. Waddell & Reed, Inc.
serves as principal underwriter and distributor to the Waddell
& Reed Advisors Group of Mutual Funds and InvestEd Portfolios,
while Ivy Distributors, Inc. serves as principal underwriter and
distributor to Ivy Funds and Ivy Funds Variable Insurance
Portfolios.
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 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, 2015, which include, without limitation:
- The loss of existing distribution
channels or inability to access new distribution channels;
- 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 the Department of Labor’s
new fiduciary rule;
- 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, 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, 2015 and as updated in our
quarterly reports on Form 10-Q for the year ending December 31,
2016. 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.
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version on businesswire.com: http://www.businesswire.com/news/home/20170131005096/en/
Waddell & Reed Financial, Inc.Investor Contact:Nicole Russell, 913-236-1880VP,
Investor Relationsnrussell@waddell.comorMutual
Fund Investor
Contact:888-WADDELLwww.waddell.comwww.ivyfunds.com
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