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Waddell & Reed Financial, Inc. Reports Second Quarter Results
Overland Park, KS, Aug. 1, 2017 Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2017 net income(1) of $23.3 million, or $0.28 per diluted share, compared to net income of $33.1 million, or $0.39 per diluted share, during the prior quarter and net income of $33.7 million, or $0.41 per diluted share, during the second quarter of 2016. The second quarter of 2017 included a tax charge of $8.9 million ($0.11 per diluted share) related to the implementation of new accounting guidance regarding the tax consequences of share-based payments. The second quarter of 2016 included severance charges of $16.9 million ($0.13 per diluted share) and a charge of $5.9 million ($0.04 per diluted share) for the accelerated amortization of deferred acquisition costs associated with the share class conversion in 2016.
Operating revenues of $286.7 million during the second quarter of 2017 remained unchanged sequentially as a small decline in average assets under management was offset by one additional day during the current quarter. Compared to the second quarter of 2016, operating revenues declined 10% due primarily to lower average assets under management. The operating margin during the current quarter was 17.8% compared to 18.4% during the previous quarter and 16.8% during the same period last year.
Assets under management ended the second quarter of 2017 at $80.4 billion, decreasing less than 1% compared to the prior quarter and decreasing 7% compared to the second quarter of 2016. Outflows during the current quarter were $2.5 billion, compared to outflows of $3.4 billion during the first quarter of 2017 and outflows of $9.8 billion during the second quarter of 2016.
During the second quarter, gross sales continued to improve and redemption pressure eased. On a net basis, outflows of $2.5 billion during the quarter reflected their best level in three years. We are seeing continued inflows in a few products and are encouraged by the early signs of success more broadly.
Over the past several months, the management team has worked to put an actionable plan around the corporate initiatives we identified last year, said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. Our plan revolves around four pillars: strengthening our investment management resources, processes and results; reinvigorating our product line and sales; continuing the evolution of our broker-dealer to a self-sustaining, fully competitive and profitable entity; and making investments in support of our evolving business model, while improving operating efficiency. We believe this plan will help reposition our firm in an industry undergoing significant change.
Our plan calls for a focused approach to investments in our business, while running a leaner, more efficient operating model. As we execute our strategy, we estimate the impact of our plan to add $30 million to $40 million to pre-tax income over the next 18 to 24 months.
Management Fee Revenue Analysis
Sequentially, management fee revenues were largely unchanged as higher fee waivers and a slight decrease in average assets under management largely offset the benefit of one additional day in the current quarter. Compared to the same period last year, fees declined 7%, while average assets under management declined 11%. A mix-shift in the asset base led revenues to decline at a lesser rate than average assets under management.
Average assets under management were $81 billion in the first and second quarters of 2017, compared to $91 billion during the second quarter of 2016. The effective fee rate for the current quarter was 65.1 basis points compared to 65.0 basis points and 62.4 basis points during the first quarter of 2017 and second quarter of 2016, respectively.
The following information was filed by Waddell Reed Financial Inc (WDR) on Tuesday, August 1, 2017 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
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