Exhibit 99.1

 

 

News Release

Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

 

Overland Park, KS, February 2, 2021 — 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
oBoth gross sales and the overall redemption rate improved compared to the prior quarter and the same quarter in 2019, with unaffiliated sales notably improving.
oInvestment 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
oNet new Assets Under Administration3 (AUA) grew 1.5%, annualized, on the strength of positive net new Advisory AUA for the 8th consecutive quarter.
oNumber 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.”

  

 

1 Net (loss) income represents net (loss) income attributable to Waddell & Reed Financial, Inc.

2 See Non-GAAP Financial Measures section and Reconciliation of GAAP to Non-GAAP Financial Measures table

3 Net new advisory AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.

 

 

 

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.

  

 

1 Controllable expenses defined as compensation and benefits, general and administrative, occupancy, technology, and marketing and advertising costs

2 See Non-GAAP Financial Measures section and Reconciliation of GAAP to Non-GAAP Financial Measures table

 

 

 

Revenues Analysis

 

Investment management fees increased $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%                    

 

 

1Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity.
2Sales consist of gross sales and includes net reinvested dividends, capital gains and investment income.
3Excludes 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%

 

 

1Based 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%

 

 

1Average AUA are calculated as the average of the beginning of month AUA during each reporting period.
2Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.
3Excludes activity related to products held outside of our wealth management platform.  These assets represent less than 10% of total AUA.
4Annualized growth is calculated as annualized quarterly net new AUA divided by beginning AUA.
5Production 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%

  

 

1 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.

 

Contacts

 

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.

 

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.

 

 

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