Waddell & Reed Financial, Inc. Reports Fourth Quarter Results

Rhea-AI Summary

Waddell & Reed Financial, Inc. (NYSE: WDR) reported a fourth quarter 2020 net loss of $6.9 million, or $0.11 per diluted share, a decline from net income of $30.5 million in the previous quarter. The quarter's results included $39.6 million in merger-related costs tied to Macquarie Asset Management's proposed acquisition for $25.00 per share, totaling approximately $1.7 billion. Despite these challenges, total revenues rose by 4% year-over-year, reaching $278.1 million, with a 5% increase in Average Assets Under Management (AUM) to $74.8 billion. The company also maintained a strong balance sheet with $760.5 million in cash at the end of Q4.

Positive

• Total revenues of $278.1 million increased by 4% year-over-year.
• Average Assets Under Management (AUM) rose to $74.8 billion, a 10% increase from the prior quarter.
• Successful recruitment led to a 2% increase in the number of advisors to 1,333.
• Declared a quarterly dividend of $0.25 per share.

Negative

• Reported a net loss of $6.9 million compared to net income of $30.5 million in the previous quarter.
• Operating margin fell to (2.1)% from 14.1% in the prior quarter, indicating operational challenges.

Waddell & Reed Financial, Inc. (NYSE: WDR) today reported a fourth quarter 2020 net loss¹ of $6.9 million, or $0.11 per diluted share, compared to net income of $30.5 million, or $0.48 per diluted share, during the prior quarter and net income of $15.9 million, or $0.23 per diluted share, during the fourth quarter of 2019. The fourth quarter of 2020 included $39.6 million in costs related to the proposed acquisition of Waddell & Reed Financial, Inc. by Macquarie Asset Management, the asset management division of Macquarie Group (“Macquarie”) pursuant to a merger agreement announced on December 2, 2020. Excluding the merger-related costs, adjusted net income² for the fourth quarter of 2020 was $25.5 million and adjusted net income per diluted share² was $0.41. The fourth quarter of 2019 included non-cash asset impairment charges of $12.8 million in connection with certain assets held for sale, including real property related to our corporate headquarters move and the elimination of our internal aviation operations, an $11.2 million non-cash charge related to the annual revaluation of the pension plan liability and $2.3 million in severance expense related to the outsourcing of our transfer agency transactional processing operations. Excluding the non-cash charges and severance expense, adjusted net income² for the fourth quarter of 2019 was $36.0 million and adjusted net income per diluted share² was $0.51.

Highlights

• Announced execution of a merger agreement under which Macquarie would acquire all the outstanding shares of Waddell & Reed Financial, Inc. for $25.00 per share in cash representing total consideration of approximately $1.7 billion. The transaction is expected to close in the second quarter of 2021 subject to regulatory approvals, Waddell & Reed Financial, Inc. stockholder approval and other customary closing conditions.
• Continued solid financial performance, with a 3.9% increase in revenues compared to the prior quarter led by higher average assets benefiting both Investment Management fees and Wealth Management Advisory fees
• Average Assets Under Management (AUM) increased 5% compared to the prior quarter
  • Both gross sales and the overall redemption rate improved compared to the prior quarter and the same quarter in 2019, with unaffiliated sales notably improving.
  • Investment performance improved broadly across the complex. As measured by percentage of assets, one- and five- year performance improved while three-year performance remained consistent.
• Successful quarter for Wealth Management asset growth
  • Net new Assets Under Administration³ (AUA) grew 1.5%, annualized, on the strength of positive net new Advisory AUA for the 8^th consecutive quarter.
  • Number of advisors and advisor associates increased to 1,333 on strong recruiting results in the fourth quarter. Since January 1, 2020, 51 advisors have affiliated with Waddell & Reed with combined prior firm AUA totaling over $2.8 billion.
• Declared a quarterly dividend of $0.25 per share paid on February 1, 2021 to stockholders of record as of January 11, 2021.
• Balance sheet remains strong with $760.5 million in unrestricted cash and investments at the end of the fourth quarter of 2020; repaid $95.0 million Series B senior unsecured notes in January 2021.

“2020 marked another year of solid progress in transforming our firm into a more diversified and growth-oriented financial services enterprise, with meaningful progress across both of our businesses while successfully navigating a global pandemic,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. Mr. Sanders continued, “We are also well underway in planning a seamless transition for our clients and advisors as we move towards closing our merger agreement with Macquarie Asset Management.”

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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. 

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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		%

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

 

MorningStar Fund Rankings 1		1 Year				3 Years			5 Years
Funds ranked in top half		52		%		48	%		43	%
Assets ranked in top half		51		%		52	%		55	%

MorningStar Ratings 1		Overall			3 Years			5 Years
Funds with 4/5 stars		28	%		30	%		21	%
Assets with 4/5 stars		48	%		44	%		43	%

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1. Based on class I share, which reflects the largest concentration of sales and assets.

		Three Months Ended
Wealth Management		Dec. 31,					Sep. 30,					Dec. 31,					Prior Qtr.							Year-over-Year Qtr.
(in millions)		2020					2020					2019					Change				%			Change				%
AUA
Ending advisory AUA		$	33,100				$	29,330				$	26,947				$	3,770			13	%		$	6,153			23	%
Ending non-advisory AUA			36,605					33,364					33,148					3,241			10	%			3,457			10	%
Ending total AUA			69,705					62,694					60,095					7,011			11	%			9,610			16	%
Average advisory AUA 1		$	30,036				$	28,502				$	25,672				$	1,534			5	%		$	4,364			17	%
Average non-advisory AUA 1			33,956					32,898					32,326					1,058			3	%			1,630			5	%
Average AUA 1			63,992					61,400					57,998					2,592			4	%			5,994			10	%
Net new advisory AUA 2		$	627				$	437				$	470				$	190			43	%		$	157			33	%
Net new non-advisory AUA 2, 3			(399	)				(475	)				(747	)				76			16	%			348			47	%
Total net new AUA 2, 3			228					(38	)				(277	)				266			700	%			505			182	%
Annualized advisory AUA growth 4			8.5		%			6.4		%			7.5		%
Annualized AUA growth 4			1.5		%			(0.3	)	%			(1.9	)	%
Advisors and advisor associates			1,333					1,313					1,327					20			2	%			6			0	%
Avg. trailing 12-month revenue per advisor 5 (in thousands)		$	487				$	474				$	438				$	13			3	%		$	49			11	%

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1. Average AUA are calculated as the average of the beginning of month AUA during each reporting period.
2. Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.
3. Excludes activity related to products held outside of our wealth management platform. These assets represent less than 10% of total AUA.
4. Annualized growth is calculated as annualized quarterly net new AUA divided by beginning AUA.
5. Production per Advisor is calculated as trailing 12- month Total underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of advisors. “Other” underwriting and distribution fees predominantly includes fees paid by advisors for programs and services.

    

Unaudited Consolidated Statements of (Loss) Income (in thousands, except per share data and margin)
		Three Months Ended
		Dec. 31,					Sep. 30,					Dec. 31,					Prior Qtr.									Year-over-Year Qtr.
		2020					2020					2019					Change					%				Change					%
Revenues:
Investment management fees		$	112,068				$	106,617				$	110,706				$	5,451				5		%		$	1,362				1		%
Underwriting and distribution fees			144,408					139,456					136,309					4,952				4		%			8,099				6		%
Shareholder service fees			21,584					21,597					23,056					(13	)			(0	)	%			(1,472	)			(6	)	%
Total			278,060					267,670					270,071					10,390				4		%			7,989				3		%
Operating expenses:
Distribution1			128,474					122,195					117,225					6,279				5		%			11,249				10		%
Compensation and benefits (including share-based compensation of $23,177, $11,080 and $11,142, respectively)			96,007					62,416					62,816					33,591				54		%			33,191				53		%
General and administrative			32,535					19,156					30,061					13,379				70		%			2,474				8		%
Technology			15,077					14,250					15,950					827				6		%			(873	)			(5	)	%
Occupancy			3,399					4,160					5,143					(761	)			(18	)	%			(1,744	)			(34	)	%
Marketing and advertising			1,868					1,370					2,467					498				36		%			(599	)			(24	)	%
Depreciation			3,113					2,998					3,767					115				4		%			(654	)			(17	)	%
Subadvisory fees			3,470					3,490					3,777					(20	)			(1	)	%			(307	)			(8	)	%
Total			283,943					230,035					241,206					53,908				23		%			42,737				18		%
Operating (loss) income			(5,883	)				37,635					28,865					(43,518	)			(116	)	%			(34,748	)			(120	)	%
Investment and other income (loss)			1,391					5,449					(4,804	)				(4,058	)			(74	)	%			6,195				129		%
Interest expense			(1,603	)				(1,542	)				(1,533	)				(61	)			(4	)	%			(70	)			(5	)	%
(Loss) income before provision for income taxes			(6,095	)				41,542					22,528					(47,637	)			(115	)	%			(28,623	)			(127	)	%
Provision for income taxes			782					10,296					6,382					(9,514	)			(92	)	%			(5,600	)			(88	)	%
Net (loss) income			(6,877	)				31,246					16,146					(38,123	)			(122	)	%			(23,023	)			(143	)	%
Net income attributable to redeemable noncontrolling interests			—					723					210					(723	)			(100	)	%			(210	)			(100	)	%
Net (loss) income attributable to Waddell & Reed Financial, Inc.		$	(6,877	)			$	30,523				$	15,936				$	(37,400	)			(123	)	%		$	(22,813	)			(143	)	%
Net (loss) income per share, basic and diluted:		$	(0.11	)			$	0.48				$	0.23
Weighted average shares outstanding - basic and diluted			62,527					64,240					69,896
Operating margin			(2.1	)	%			14.1		%			10.7		%
1 Distribution expense
Unaffiliated			24,213					22,733					23,392
Wealth Management			104,262					99,462					93,833
		$	128,475				$	122,195				$	117,225

Unaudited Consolidated Statements of Income (in thousands, except per share data and margin)
		Year Ended
		Dec. 31,					Dec. 31,
		2020					2019					Change					%
Revenues:
Investment management fees		$	419,728				$	445,144				$	(25,416	)			(6	)	%
Underwriting and distribution fees			544,440					531,836					12,604				2		%
Shareholder service fees			85,329					93,335					(8,006	)			(9	)	%
Total			1,049,497					1,070,315					(20,818	)			(2	)	%
Operating expenses:
Distribution1			478,578					460,921					17,657				4		%
Compensation and benefits (including share-based compensation of $56,772 and $46,613, respectively)			278,711					254,534					24,177				9		%
General and administrative			90,813					77,482					13,331				17		%
Technology			57,066					63,719					(6,653	)			(10	)	%
Occupancy			16,559					24,243					(7,684	)			(32	)	%
Marketing and advertising			6,253					8,964					(2,711	)			(30	)	%
Depreciation			12,833					19,829					(6,996	)			(35	)	%
Subadvisory fees			13,914					14,931					(1,017	)			(7	)	%
Total			954,727					924,623					30,104				3		%
Operating income			94,770					145,692					(50,922	)			(35	)	%
Investment and other income			14,243					18,886					(4,643	)			(25	)	%
Interest expense			(6,233	)				(6,195	)				(38	)			(1	)	%
Income before provision for income taxes			102,780					158,383					(55,603	)			(35	)	%
Provision for income taxes			30,123					41,418					(11,295	)			(27	)	%
Net income			72,657					116,965					(44,308	)			(38	)	%
Net income attributable to redeemable noncontrolling interests			2,200					1,973					227				12		%
Net income attributable to Waddell & Reed Financial, Inc.		$	70,457				$	114,992				$	(44,535	)			(39	)	%
Net income per share, basic and diluted:		$	1.08				$	1.57
Weighted average shares outstanding - basic and diluted			64,974					73,299
Operating margin			9.0		%			13.6		%
1 Distribution expense
Unaffiliated			91,157					96,718
Wealth Management			387,421					364,203
		$	478,578				$	460,921

Underwriting and distribution fees (in thousands)
		For the three months ended Dec. 31, 2020
		Unaffiliated			Wealth Management			Total
Advisory fees		$	—		$	86,721		$	86,721
Service and distribution fees			14,938			16,053			30,991
Sales commissions			17			17,795			17,812
Other revenues			55			8,829			8,884
Total underwriting and distribution fees		$	15,010		$	129,398		$	144,408

		For the three months ended Sep. 30, 2020
		Unaffiliated			Wealth Management			Total
Advisory fees		$	—		$	82,591		$	82,591
Service and distribution fees			14,623			15,305			29,928
Sales commissions			223			17,847			18,070
Other revenues			82			8,785			8,867
Total underwriting and distribution fees		$	14,928		$	124,528		$	139,456

		For the three months ended Dec. 31, 2019
		Unaffiliated			Wealth Management			Total
Advisory fees		$	—		$	75,382		$	75,382
Service and distribution fees			15,860			15,609			31,469
Sales commissions			431			19,826			20,257
Other revenues			48			9,153			9,201
Total underwriting and distribution fees		$	16,339		$	119,970		$	136,309

		For the year ended Dec. 31, 2020
		Unaffiliated			Wealth Management			Total
Advisory fees		$	—		$	318,964		$	318,964
Service and distribution fees			58,507			59,547			118,054
Sales commissions			1,065			71,333			72,399
Other revenues			362			34,662			35,023
Total underwriting and distribution fees		$	59,934		$	484,506		$	544,440

		For the year ended Dec. 31, 2019
		Unaffiliated			Wealth Management			Total
Advisory fees		$	—		$	284,188		$	284,188
Service and distribution fees			65,227			63,197			128,424
Sales commissions			1,730			80,785			82,515
Other revenues			290			36,419			36,709
Total underwriting and distribution fees		$	67,247		$	464,589		$	531,836

Unaudited Condensed Balance Sheet (in thousands)
		Dec. 31,			Dec. 31,
		2020			2019
Assets
Cash & cash equivalents (unrestricted)		$	273,756		$	151,815
Investment securities			486,765			688,346
Other assets			225,538			245,572
Property and equipment, net			21,903			34,726
Goodwill and intangible assets			145,869			145,869
Total assets		$	1,153,831		$	1,266,328
Liabilities, redeemable noncontrolling interests and equity
Short-term notes payable		$	94,997		$	—
Long-term debt			—			94,926
Other liabilities			331,077			343,300
Redeemable noncontrolling interests			—			19,205
Total stockholders’ equity			727,757			808,897
Liabilities, redeemable noncontrolling interests and equity		$	1,153,831		$	1,266,328
Shares outstanding			62,398			68,847

Unaudited Condensed Cash Flow (in thousands)
		Three Months Ended												Year Ended
		Dec. 31,				Sep. 30,				Dec. 31,				Dec. 31,				Dec. 31,
		2020				2020				2019				2020				2019
Cash provided by (used in):
Operating activities		$	96,072			$	63,222			$	89,382			$	188,044			$	165,983
Investing activities			32,452				18,084				11,309				98,660				(6,851	)
Financing activities			(18,366	)			(55,634	)			(52,838	)			(175,494	)			(224,547	)
Net change during period		$	110,158			$	25,672			$	47,853			$	111,210			$	(65,415	)

		Three Months Ended									Year Ended
		Dec. 31,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
(in thousands, except number of shares)		2020			2020			2019			2020			2019
Shares repurchased
Number of shares			102,817			2,617,108			2,315,326			7,995,730			9,164,564
Total cost		$	2,618		$	40,052		$	37,542		$	114,670		$	154,219
Dividend paid
Rate per share		$	0.25		$	0.25		$	0.25		$	1.00		$	1.00
Total paid		$	15,637		$	16,292		$	17,731		$	65,576		$	74,291
Capital returned to stockholders		$	18,255		$	56,344		$	55,273		$	180,246		$	228,510

Non-GAAP Financial Measures

“Adjusted net income attributable to Waddell & Reed Financial, Inc.,” “adjusted net income per share, basic and diluted,” “adjusted controllable expenses,” “adjusted operating expenses,” “adjusted operating income,” and “adjusted operating margin” are non-GAAP financial measures that are not presented in accordance with U.S. generally accepted accounting principles (GAAP). We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding charges and gains that are not indicative of our core operating results, and allow management and investors to better evaluate our performance between periods and compared to other companies in our industry.

These non-GAAP financial measures should not be considered a substitute for financial measures presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance.

A reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures is included in the table below.

		Three Months Ended														Year Ended
		Dec. 31,					Sep. 30,				Dec. 31,					Dec. 31,					Dec. 31,
		2020					2020				2019					2020					2019
Net (loss) income attributable to Waddell & Reed Financial, Inc. (GAAP)		$	(6,877	)			$	30,523			$	15,936				$	70,457				$	114,992
Adjustments
Merger-related costs1			39,606					—				—					39,606					—
Severance			—					—				2,320					—					5,401
Non-cash asset impairments			—					—				12,841					—					12,841
Pension revaluation			—					—				11,217					—					11,217
Tax effect of adjustments			(7,226	)				—				(6,331	)				(7,226	)				(7,070	)
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP)		$	25,503				$	30,523			$	35,983				$	102,837				$	137,381
Weighted average share outstanding-basic and diluted			62,527					64,240				69,896					64,974					73,299
Adjusted net income per share, basic and diluted (non-GAAP)		$	0.41				$	0.48			$	0.51				$	1.58				$	1.87
Controllable expenses (GAAP)		$	148,886				$	101,352			$	116,437				$	449,402				$	428,942
Adjustments
Merger-related costs			39,606					—				—					39,606					—
Severance			—					—				2,320					—					5,401
Non-cash asset impairments			—					—				12,841					—					12,841
Adjusted controllable expenses (non-GAAP)		$	109,280				$	101,352			$	101,276				$	409,796				$	410,700
Operating expenses (GAAP)		$	283,943				$	230,035			$	241,206				$	954,727				$	924,623
Adjustments
Merger-related costs			39,606					—				—					39,606					—
Severance			—					—				2,320					—					5,401
Non-cash asset impairments			—					—				12,841					—					12,841
Adjusted operating expenses (non-GAAP)		$	244,337				$	230,035			$	226,045				$	915,121				$	906,381
Operating (loss) income (GAAP)		$	(5,883	)			$	37,635			$	28,865				$	94,770				$	145,692
Adjustments
Merger-related costs			39,606					—				—					39,606					—
Severance			—					—				2,320					—					5,401
Non-cash asset impairments			—					—				12,841					—					12,841
Adjusted operating income (non-GAAP)		$	33,723				$	37,635			$	44,026				$	134,376				$	163,934
Operating revenue		$	278,060				$	267,670			$	270,071				$	1,049,497				$	1,070,315
Operating margin (GAAP)			(2.1	)	%			14.1	%			10.7		%			9.0		%			13.6		%
Adjusted operating margin (non-GAAP)			12.1		%			14.1	%			16.3		%			12.8		%			15.3		%

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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.

Past performance is no guarantee of future results. Please invest carefully.

About the Company

Through its subsidiaries, Waddell & Reed Financial, Inc. has provided investment management and wealth management services to clients throughout the United States since 1937. Today, we distribute our investment products through the unaffiliated channel under the IVY INVESTMENTS® brand (encompassing broker/dealer, retirement, and registered investment advisors), our wealth management channel (through independent financial advisors associated with WADDELL & REED, INC.), and our institutional channel (including defined benefit plans, pension plans, endowments and subadvisory relationships). For more information, visit ir.waddell.com.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect the current views and assumptions of management with respect to future events regarding our business and industry in general. These forward-looking statements include all statements, other than statements of historical fact, regarding our financial position, business strategy and other plans and objectives for future operations, including statements with respect to our plans, assumptions, expectations, beliefs and objectives with respect to the merger, revenues and earnings, the amount and composition of assets under management and assets under administration, distribution sources, expense levels, redemption rates, stock repurchases and the financial markets and other conditions. These statements are generally identified by the use of such words as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “forecast,” “estimate,” “expect,” “intend,” “plan,” “project,” “outlook,” “will,” “potential” and similar statements of a future or forward-looking nature. Readers are cautioned that any forward-looking information provided by us or on our behalf is not a guarantee of future performance. Actual results may differ materially from those contained in these forward-looking statements as a result of various factors, including but not limited to the impact of the COVID-19 pandemic and related economic conditions, as well as the factors discussed below. If one or more events related to these or other risks, contingencies or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from those forecasted or expected. Important transaction-related and other risk factors that may cause such differences include, without limitation: (i) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (ii) the transaction closing conditions may not be satisfied in a timely manner or at all, including due to the failure to obtain Waddell & Reed Financial, Inc. stockholder approval and regulatory and client approvals or as a result of a decrease in assets under administration or assets under management; (iii) the announcement and pendency of the merger may disrupt our business operations (including the threatened or actual loss of employees, clients, independent financial advisors associated with Waddell & Reed or vendors); (iv) the amount of the costs, fees, expenses and other charges related to the merger, including in the event of any unexpected delays; and (v) we could experience financial or other setbacks if the transaction encounters unanticipated problems. Other important factors that could cause actual results to differ materially from our expectations are disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, which include, without limitation:

• The loss of existing distribution relationships or inability to access new distribution relationships;

• A reduction in assets under administration or assets under our management on short notice;

• The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body;

• Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of evolving fiduciary standards;

• The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes;

• A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds;

• Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our assets under management or our business environment;

• Non-compliance with applicable laws or regulations and changes in current legal, regulatory, accounting, tax or compliance requirements or governmental policies;

• Our inability to attract and retain senior executive management and other key personnel to conduct our wealth management and investment management business;

• A failure in, or breach of, our operational or security systems or our technology infrastructure, or those of third parties on which we rely; and

• Our inability to implement new information technology and systems, or our inability to complete such implementation in a timely or cost effective manner.

The foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports and filings we make with the Securities and Exchange Commission, including the information in Item 1 “Business” and Item 1A “Risk Factors” of Part I and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II to our Annual Report on Form 10‑ K for the year ended December 31, 2019 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2020. All forward-looking statements speak only as of the date on which they are made and we undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210202005245/en/

FAQ

What were Waddell & Reed's fourth quarter 2020 earnings?

Waddell & Reed reported a net loss of $6.9 million, or $0.11 per diluted share, in the fourth quarter of 2020.

How did the proposed Macquarie acquisition affect Waddell & Reed's financials?

The acquisition added $39.6 million in merger-related costs, significantly impacting net income for the quarter.

What is Waddell & Reed's current Average Assets Under Management?

As of the fourth quarter of 2020, Waddell & Reed's Average Assets Under Management were $74.8 billion.

What dividends did Waddell & Reed declare recently?

Waddell & Reed declared a quarterly dividend of $0.25 per share, payable on February 1, 2021.

When is the expected closing date for Waddell & Reed's acquisition by Macquarie?

The transaction is expected to close in the second quarter of 2021, subject to regulatory and shareholder approvals.