UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
WADDELL & REED FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
(Address, including zip code, of Registrant’s principal executive offices)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | ||
Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes
Shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date:
Class | Outstanding as of April 23, 2021 | |
Class A common stock, $.01 par value |
WADDELL & REED FINANCIAL, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
Quarter Ended March 31, 2021
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
March 31, | |||||||
2021 | December 31, | ||||||
(Unaudited) | 2020 | ||||||
Assets: |
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Cash and cash equivalents | $ | |
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Cash and cash equivalents - restricted |
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Investment securities |
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Receivables: | |||||||
Funds and separate accounts |
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Customers and other |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill and identifiable intangible assets |
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Deferred income taxes |
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Other non-current assets |
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Total assets | $ | |
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Liabilities: | |||||||
Accounts payable | $ | |
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Payable to investment companies for securities |
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Payable to third party brokers |
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Payable to customers |
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Short-term notes payable | — | | |||||
Accrued compensation |
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Other current liabilities |
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Total current liabilities |
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Accrued pension and postretirement costs |
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Other non-current liabilities |
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Total liabilities |
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Stockholders’ equity: | |||||||
Preferred stock—$ |
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Class A Common stock—$ |
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Additional paid-in capital |
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Retained earnings |
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Cost of |
| ( |
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Accumulated other comprehensive income |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | |
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See accompanying notes to the unaudited consolidated financial statements.
3
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited, in thousands, except for per share data)
For the three months ended March 31, | |||||||
2021 | 2020 | ||||||
Revenues: |
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Investment management fees | $ | |
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Underwriting and distribution fees | |
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Shareholder service fees | |
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Total | |
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Operating expenses: | |||||||
Distribution | |
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Compensation and benefits (including share-based compensation of $ | |
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General and administrative | |
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Technology | | | |||||
Occupancy | | | |||||
Marketing and advertising | | | |||||
Depreciation | |
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Subadvisory fees | |
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Total | |
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Operating income | |
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Investment and other income (loss) | |
| ( | ||||
Interest expense | ( |
| ( | ||||
Income before provision for income taxes | |
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Provision for income taxes | |
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Net income | |
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Net loss attributable to redeemable noncontrolling interests | — | ( | |||||
Net income attributable to Waddell & Reed Financial, Inc. | $ | | | ||||
Net income per share attributable to Waddell and Reed Financial, Inc. common shareholders, basic and diluted: | $ | | | ||||
Weighted average shares outstanding, basic and diluted: | | |
See accompanying notes to the unaudited consolidated financial statements.
4
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited, in thousands)
For the three months ended March 31, | |||||||
| 2021 |
| 2020 |
| |||
Net income | $ | |
| | |||
Other comprehensive income: | |||||||
Unrealized loss on available for sale investment securities during the period, net of income tax benefit of $( |
| ( |
|
| ( | ||
Postretirement benefit, net of income tax benefit of $( |
| ( |
|
| ( | ||
Comprehensive income | |
| | ||||
Comprehensive loss attributable to redeemable noncontrolling interests | — | ( | |||||
Comprehensive income attributable to Waddell & Reed Financial, Inc. | $ | | |
See accompanying notes to the unaudited consolidated financial statements.
5
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity and Redeemable Noncontrolling Interests
(Unaudited, in thousands)
For the three months ended March 31, | |||||||||||||||||
Accumulated | Redeemable | ||||||||||||||||
Additional | Other | Total | Non | ||||||||||||||
Common Stock | Paid-In | Retained | Treasury | Comprehensive | Stockholders’ | Controlling | |||||||||||
| Shares |
| Amount |
| Capital |
| Earnings |
| Stock |
| Income (Loss) |
| Equity |
| Interests | ||
Balance at December 31, 2019 |
| | $ | |
| |
| |
| ( |
| |
| |
| | |
Net income (loss) |
| — |
| — |
| — |
| |
| — |
| — |
| |
| ( | |
Net subscription of redeemable noncontrolling interests in sponsored funds | — | — | — | — | — | — | — | | |||||||||
Recognition of equity compensation |
| — |
| — |
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| — |
| — |
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| — | |
Net issuance/forfeiture of nonvested shares |
| — |
| — |
| ( |
| — |
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| — |
| — |
| — | |
Dividends accrued, $ |
| — |
| — |
| — |
| ( |
| — |
| — | ( | — | |||
Repurchase of common stock |
| — | — | — | — | ( | — |
| ( |
| — | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — | |
Balance at March 31, 2020 | | $ | |
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| ( |
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Balance at December 31, 2020 |
| | $ | |
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| ( |
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| — | |
Net income |
| — |
| — |
| — |
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| — |
| — |
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| — | |
Recognition of equity compensation |
| — |
| — |
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| — |
| — |
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| — | |
Net issuance/forfeiture of nonvested shares |
| — |
| — |
| |
| — |
| ( |
| — |
| — |
| — | |
Dividends accrued, $ |
| — |
| — |
| — |
| ( |
| — |
| — | ( | — | |||
Repurchase of common stock |
| — | — | — | — | ( | — |
| ( |
| — | ||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| ( |
| ( |
| — | |
Balance at March 31, 2021 | | $ | |
| |
| |
| ( |
| |
| |
| — |
See accompanying notes to the unaudited consolidated financial statements.
6
WADDELL & REED FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| For the three months ended March 31, | ||||||
2021 |
| 2020 |
| ||||
Cash flows from operating activities: | |||||||
Net income | $ | |
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Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization |
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Write-down of impaired assets |
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| — | ||
Amortization of deferred sales commissions |
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Share-based compensation |
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Investments and derivatives (gain) loss, net of collateral |
| ( |
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Net purchases, maturities, and sales of trading and equity securities |
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Deferred income taxes |
| ( |
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| ( | ||
Net change in equity securities and trading debt securities held by consolidated sponsored funds | — | | |||||
Other | | | |||||
Changes in assets and liabilities: | |||||||
Customer and other receivables |
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Payable to investment companies for securities and payable to customers |
| ( |
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| ( | ||
Receivables from funds and separate accounts |
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Other assets |
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Accounts payable and payable to third party brokers |
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| ( | ||
Other liabilities |
| ( |
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| ( | ||
Net cash provided by operating activities | $ | |
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Cash flows from investing activities: | |||||||
Purchases of available for sale and equity method securities | — | ( | |||||
Proceeds from maturities of available for sale securities | | | |||||
Additions to property and equipment |
| ( |
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| ( | ||
Net cash provided by investing activities | $ | |
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Cash flows from financing activities: | |||||||
Dividends paid |
| ( |
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| ( | ||
Repurchase of common stock |
| ( |
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| ( | ||
Repayment of short-term debt, net of debt issuance costs | ( | — | |||||
Net subscriptions (redemptions, distributions and deconsolidations) of redeemable noncontrolling interests in sponsored funds | — | | |||||
Other | ( | ( | |||||
Net cash used in financing activities | $ | ( |
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| ( | ||
Net decrease in cash and cash equivalents |
| ( |
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| ( | ||
Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period | $ | |
| |
See accompanying notes to the unaudited consolidated financial statements.
7
WADDELL & REED FINANCIAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. | Description of Business and Significant Accounting Policies |
Waddell & Reed Financial, Inc. and Subsidiaries
Waddell & Reed Financial, Inc. (hereinafter referred to as the “Company,” “we,” “our” or “us”) is a holding company, incorporated in the state of Delaware in 1981, that conducts business through its subsidiaries. Founded in 1937, we are one of the oldest mutual fund complexes in the United States, having introduced the former Waddell & Reed Advisors group of mutual funds (the “Advisors Funds”) in 1940. Over time, we added additional mutual funds: Ivy Funds (the “Ivy Funds”); Ivy Variable Insurance Portfolios, our variable product offering (“Ivy VIP”); InvestEd Portfolios, our 529 college savings plan (“InvestEd”); and the Ivy High Income Opportunities Fund, a closed-end mutual fund (“IVH”) (collectively, Ivy Funds, Ivy VIP, InvestEd and IVH are referred to as the “Funds”). In addition to the Funds, our assets under management (“AUM”) include institutional managed accounts. As of March 31, 2021, we had $
We derive our revenues from providing investment management and advisory services, investment product underwriting and distribution, and shareholder services administration to the Funds and institutional accounts. We also provide wealth management services, primarily to retail clients through Waddell & Reed, Inc. (“W&R”), and independent financial advisors associated with W&R (“Advisors”), who provide financial planning and advice to their clients. Investment management and advisory fees and certain underwriting and distribution revenues are based on the level of AUM and assets under administration (“AUA”) and are affected by sales levels, financial market conditions, redemptions and the composition of assets. Our underwriting and distribution revenues consist of fees earned on fee-based advisory programs, asset-based service and distribution fees promulgated under Rule 12b-1 of the Investment Company Act of 1940 (“Rule 12b-1”), distribution fees on certain variable products, and commissions derived from sales of investment and insurance products. The products sold have various commission structures and the revenues received from those sales vary based on the type and dollar amount sold. Shareholder service fee revenue includes transfer agency fees, custodian fees from retirement plan accounts, portfolio accounting and administration fees, and is earned based on client AUM or number of client accounts. Our major expenses are for distribution of our products, compensation related costs, occupancy, general and administrative, and information technology.
The Company continues to proactively manage business continuity and safety considerations as circumstances of the coronavirus disease 2019 (“COVID-19”) evolve. Our leadership team’s priority is on ensuring the health and safety of all employees, clients, Advisors and communities, while also ensuring full continuity of service and access. The Company started transitioning to a work from home environment early in March 2020 and has been following the Centers for Disease Control and Prevention and local authorities’ recommendations on safe practices throughout this process. We have undertaken a number of steps to facilitate safety, security and full continuity of service, including:
● | Our Enterprise Preparedness Team and COVID-19 steering committee continue to meet regularly to assess developments and determine the best action to ensure business continuity and the safety of our employees and partners. |
● | We have adopted interim business practices, including restricting business travel, requiring meetings to take place via remote access tools, adopting safety protocols to limit the potential for exposure, adopting social distancing practices, implementing a clearly-defined approval process for reentry to any worksite, advising personnel on preventive measures and offering remote collaboration and productivity tools and training resources to our employees. |
● | We enhanced monitoring and capabilities of our systems to allow our remote workforce to function efficiently and have continued our educational and monitoring practices to ensure there are no compromises to confidentiality, privacy and cybersecurity requirements. |
● | The Ivy investment management and distribution teams transitioned seamlessly to remote working. Our teams have a strong heritage of active collaboration which has migrated to a virtual environment without compromise. |
8
● | Within our wealth management business, approximately 25% of Advisors are working from temporary locations. We are demonstrating our differentiated service and support model by continuing regular communications with Advisors as well as delivering additional advisor and client focused resources. |
● | We have not initiated any layoffs, furloughs or reduced hours due to COVID-19. As we implemented our business continuity plans, we have intentionally maintained the same pay practices for all of our employees based upon their regular work schedule, paid spot bonuses to certain employees, implemented a temporary hourly wage increase to designated client services personnel, increased certain benefit coverages for specific COVID-19 related treatments and made targeted philanthropic contributions to local organizations to help support the COVID-19 responses in our community. |
Basis of Presentation
We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented. The information in this Quarterly Report on Form 10-Q should be read in conjunction with Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Form 10-K”).
The accompanying unaudited consolidated financial statements are prepared consistent with the accounting policies described in Note 1 to the consolidated financial statements included in our 2020 Form 10-K with the exception of the adoption of Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which became effective January 1, 2021.
In our opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only a normal and recurring nature) necessary to present fairly our financial position at March 31, 2021 and the results of operations and cash flows for the three months ended March 31, 2021 and 2020 in conformity with accounting principles generally accepted in the United States.
Proposed Acquisition of Waddell & Reed Financial, Inc. by Macquarie
On December 2, 2020, the Company announced a merger agreement with Macquarie Asset Management, the asset management division of Macquarie Group. Subject to the terms and conditions of the Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Macquarie Management Holdings, Inc. (“Macquarie”), Merry Merger Sub, Inc. (“Merger Sub”) and (solely for limited purposes) Macquarie Financial Holdings Pty Ltd, Merger Sub will be merged with and into the Company (the “merger”), with the Company surviving the merger as a wholly owned subsidiary of Macquarie. Pursuant to the Merger Agreement, at the effective time of the merger, each share of the Company’s Class A common stock (“common stock”) issued and outstanding immediately prior to the effective time will be converted into the right to receive $
The closing of the merger remains subject to the satisfaction or waiver of the remaining conditions to the merger set forth in the Merger Agreement. The Company expects the closing of the merger to occur on April 30, 2021.
9
Assets Held for Sale
Assets held for sale included real property and fractional aircraft ownership. The three months ended March 31, 2021 included asset impairment charges of $
Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
As of March 31, 2021 and December 31, 2020, the Company had $
2. | New Accounting Guidance |
Accounting Guidance Adopted During the First Quarter of 2021
10
3. | Revenue Recognition |
All revenue recognized in the consolidated statements of income is considered to be revenue from contracts with customers. The vast majority of revenue is determined based on average assets and is earned daily or monthly or is transactional and is earned on the trade date. As such, revenue from remaining performance obligations is not significant. The following table depicts the disaggregation of revenue by product and distribution channel:
Three months ended | |||||
2021 | 2020 | ||||
(in thousands) | |||||
Investment management fees: |
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Funds | $ | |
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Institutional |
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Total investment management fees | $ | |
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Underwriting and distribution fees: | |||||
Unaffiliated | |||||
Service and distribution fees | $ | | | ||
Sales commissions | | | |||
Other revenues | | | |||
Total unaffiliated distribution fees | $ | | | ||
Wealth Management | |||||
Advisory fees | $ | | | ||
Service and distribution fees | | | |||
Sales commissions | | | |||
Other revenues | | | |||
Total wealth management distribution fees | | | |||
Total underwriting and distribution fees | $ | | | ||
Shareholder service fees: | |||||
Total shareholder service fees | $ | |
| | |
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Total revenues | $ | |
| |
11
4. | Investment Securities |
Investment securities at March 31, 2021 and December 31, 2020 were as follows:
March 31, | December 31, | |||||
| 2021 |
| 2020 | |||
(in thousands) | ||||||
Available for sale securities: | ||||||
Commercial paper | $ | — | | |||
Corporate bonds | | | ||||
Total available for sale securities |
| | | |||
Trading debt securities: | ||||||
Commercial paper | | | ||||
Corporate bonds |
| | | |||
Mortgage-backed securities |
| — | | |||
Term loans | | | ||||
Total trading securities |
| | | |||
Equity securities: | ||||||
Common stock |
| | | |||
Sponsored funds | | | ||||
Sponsored privately offered funds |
| | | |||
Total equity securities | | | ||||
Equity method securities: | ||||||
Sponsored funds |
| | | |||
Total securities | $ | | |
Corporate bonds accounted for as available for sale and held as of March 31, 2021 mature as follows:
Amortized | ||||
cost |
| Fair value | ||
| (in thousands) | |||
Within one year | $ | | | |
After one year but within five years | | | ||
$ | | |
Commercial paper, corporate bonds and term loans accounted for as trading and held as of March 31, 2021 mature as follows:
Fair value | ||||
| (in thousands) | |||
Within one year | $ | | ||
After one year but within five years | | |||
After five years but within 10 years | | |||
$ | |
The following is a summary of the gross unrealized gains related to securities classified as available for sale at March 31, 2021:
| Amortized |
| Unrealized |
| Unrealized |
|
| |||
cost | gains | losses | Fair value |
| ||||||
|
| (in thousands) | ||||||||
Available for sale securities: | ||||||||||
Corporate bonds | $ | |
| | — |
| |
12
The following is a summary of the gross unrealized gains (losses) related to securities classified as available for sale at December 31, 2020:
| Amortized |
| Unrealized |
| Unrealized |
|
| |||
cost | gains | losses | Fair value |
| ||||||
(in thousands) | ||||||||||
Available for sale securities: | ||||||||||
Commercial paper | $ | | — | ( | | |||||
Corporate bonds | |
| | — |
| | ||||
$ | |
| |
| ( |
| |
There are no available for sale investment securities with fair values below carrying values at March 31, 2021. A summary of available for sale investment securities with fair values below carrying values at December 31, 2020 is as follows:
Less than 12 months | 12 months or longer | Total | |||||||||||
Unrealized | Unrealized | Unrealized | |||||||||||
| Fair value |
| losses |
| Fair value |
| losses |
| Fair value |
| losses | ||
(in thousands) | |||||||||||||
Corporate bonds | $ | | ( | — | — | | ( |
The Company’s investment portfolio included
For equity securities held at the end of the period, net unrealized gains of $
Sponsored Funds
The Company has classified its equity investments in the Funds as equity method investments (when the Company owns between 20% and 50% of the fund) or equity securities measured at fair value through net income (when the Company owns less than 20% of the fund). These entities do not meet the criteria of a variable interest entity (“VIE”) and are considered to be voting interest entities (“VOE”). The Company has determined the Funds are VOEs because the structure of the investment products is such that the voting rights held by the equity holders provide for equality among equity investors.
Sponsored Privately Offered Funds
The Company holds an interest in a privately offered fund structured in the form of a limited liability company. The members of this entity have the substantive ability to remove the Company as managing member or dissolve the entity upon a simple majority vote. This entity does not meet the criteria of a VIE and is considered to be a VOE.
Fair Value
Accounting standards establish a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset. An individual investment’s fair value measurement is assigned a level based upon the observability of the inputs that are significant to the overall valuation. The three-level hierarchy of inputs is summarized as follows:
● | Level 1 – Investments are valued using quoted prices in active markets for identical securities. |
● | Level 2 – Investments are valued using other significant observable inputs, including quoted prices in active markets for similar securities. |
13
● | Level 3 – Investments are valued using significant unobservable inputs, including the Company’s own assumptions in determining the fair value of investments. |
Assets classified as Level 2 can have a variety of observable inputs. These observable inputs are collected and utilized, primarily by an independent pricing service, in different evaluated pricing approaches depending upon the specific asset to determine a value. The carrying amounts of certificates of deposit and commercial paper are measured at amortized cost, which approximates fair value due to the short time between purchase and expected maturity of the investments. Depending on the nature of the inputs, these investments are generally classified as Level 1 or 2 within the fair value hierarchy. U.S. Treasury bills are valued upon quoted market prices for similar assets in active markets, quoted prices for identical or similar assets that are not active and inputs other than quoted prices that are observable or corroborated by observable market data. The fair value of corporate bonds is measured using various techniques, which consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (where observable), bond spreads and fundamental data relating to the issuer. Term loans are valued using a price or composite price from one or more brokers or dealers as obtained from an independent pricing service. The fair value of loans is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Term loans are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable in which case they would be categorized as Level 3. The fair value of equity derivatives is measured based on active market broker quotes, evaluated broker quotes and evaluated prices from vendors.
The following tables summarize our investment securities as of March 31, 2021 and December 31, 2020 that are recognized in our consolidated balance sheets using fair value measurements based on the differing levels of inputs.
March 31, 2021 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Held at Net Asset Value | Total |
| ||
(in thousands) |
| |||||||||||
Cash equivalents: (1) | ||||||||||||
Money market funds | $ | | — | — | — | | ||||||
Commercial paper | — | | — | — | | |||||||
Total cash equivalents | $ | | | — | — | | ||||||
Available for sale securities: | ||||||||||||
Corporate bonds | $ | — | | — | — | | ||||||
Trading debt securities: | ||||||||||||
Commercial paper | — | | — | — | | |||||||
Corporate bonds | — | | — | | ||||||||
Term loans |
| — |
| |
| |
| — | | |||
Equity securities: | ||||||||||||
Common stock | | — | | — | | |||||||
Sponsored funds | | — | — | — | | |||||||
Sponsored privately offered funds measured at net asset value (2) | — | — | — | | | |||||||
Equity method securities: (3) | ||||||||||||
Sponsored funds | | — | — | — | | |||||||
Total investment securities | $ | | | | | |
14
December 31, 2020 |
| Level 1 |
| Level 2 |
| Level 3 |
| Other Assets Held at Net Asset Value | Total |
| ||
(in thousands) |
| |||||||||||
Cash equivalents: (1) | ||||||||||||
Money market funds | $ | | — | — | — | | ||||||
Commercial paper | — | | — | — | | |||||||
Total cash equivalents | $ | | | — | — | | ||||||
Available for sale securities: | ||||||||||||
Commercial paper | $ | — | | — | — | | ||||||
Corporate bonds | — | | — | — | | |||||||
Trading debt securities: | ||||||||||||
Commercial paper | — | | — | — | | |||||||
Corporate bonds | — | | — | | ||||||||
Mortgage-backed securities |
| — |
| |
| — |
| — | | |||
Term loans |
| — |
| |
| |
| — | | |||
Equity securities: | ||||||||||||
Common stock |
| | — | | — | | ||||||
Sponsored funds |
| | — | — | — | | ||||||
Sponsored privately offered funds measured at net asset value (2) | — | — | — | | | |||||||
Equity method securities: (3) | ||||||||||||
Sponsored funds | | — | — | — | | |||||||
Total investment securities | $ | | | | | |
(1) | Cash equivalents include highly liquid investments with original maturities of 90 days or less. Cash investments in actively traded money market funds are measured at net asset value and are classified as Level 1. Cash investments in commercial paper are measured at cost, which approximates fair value because of the short time between purchase of the instrument and its expected realization and are classified as Level 2. |
(2) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets. |
(3) | The Company’s equity method investments are investment companies that record their underlying investments at fair value. |
15
The following table summarizes the activity of investments categorized as Level 3 for the three months ended March 31, 2021:
| For the three months ended | ||
March 31, 2021 | |||
(in thousands) | |||
Level 3 assets at December 31, 2020 | $ | | |
Transfers into level 3 | | ||
Transfers out of level 3 | ( | ||
| | ||
Redemptions and paydowns | ( | ||
Level 3 assets at March 31, 2021 | $ | | |
Change in unrealized losses for Level 3 assets held at March 31, 2021 | $ | ( |
5. | Derivative Financial Instruments |
The Company has in place an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in certain sponsored funds. Certain of the consolidated sponsored funds may utilize derivative financial instruments within their portfolios in pursuit of their stated investment objectives. We do not hedge for speculative purposes.
The Company was party to
The counterparties of the total return swap contracts posted $
The following table presents the fair value of the derivative financial instruments as of March 31, 2021 and December 31, 2020 and is calculated based on Level 2 inputs:
March 31, | December 31, | |||||||
Balance sheet | 2021 | 2020 | ||||||
| location |
| Fair value |
| Fair value | |||
| (in thousands) | |||||||
Total return swap contracts |
| Prepaid expenses and other current assets | $ | | — | |||
Total return swap contracts | Other current liabilities | $ | | | ||||
Net total return swap asset (liability) |
| $ | | ( |
The following is a summary of net (losses) gains recognized in income for the three months ended March 31, 2021 and March 31, 2020:
Three months ended | |||||||
Income statement | March 31, | ||||||
| location |
| 2021 | 2020 | |||
| (in thousands) | ||||||
Total return swap contracts |
| Investment and other income |
| $ | ( | |
16
6. | Goodwill and Identifiable Intangible Assets |
Goodwill represents the excess of purchase price over the tangible assets and identifiable intangible assets of an acquired business. Our goodwill is not deductible for tax purposes. The Company performs an annual goodwill impairment assessment during the second quarter of each year and identified
March 31, | December 31, |
| ||||
2021 | 2020 | |||||
(in thousands) | ||||||
Goodwill |
| $ | |
| |
|
Mutual fund management advisory contracts |
| |
| | ||
Other |
| |
| | ||
Total identifiable intangible assets |
| |
| | ||
Total | $ | |
| |
7. | Indebtedness |
During the first quarter of 2021, the Company repaid our senior unsecured notes that matured January 13, 2021.
8. | Income Tax Uncertainties |
In the accompanying consolidated balance sheets, unrecognized tax benefits that are not expected to be settled within the next 12 months are included in other liabilities; unrecognized tax benefits that are expected to be settled within the next 12 months are included in income taxes payable; unrecognized tax benefits that reduce a net operating loss, similar tax loss, or tax credit carryforward are presented as a reduction to non-current deferred income taxes. As of March 31, 2021 and December 31, 2020, the Company’s consolidated balance sheets included unrecognized tax benefits, including penalties and interest, of $
In the ordinary course of business, many transactions occur for which the ultimate tax outcome is uncertain. In addition, respective tax authorities periodically audit our income tax returns. These audits examine our significant tax filing positions, including the timing and amounts of deductions and the allocation of income among tax jurisdictions. The Company does not expect the resolution or settlement of any open audits, federal or state, to materially impact the consolidated financial statements.
Our 2017-2020 federal income tax returns are open tax years that remain subject to potential future audit. Our state income tax returns for all years after 2016 and, in certain states, income tax returns for 2016, are subject to potential future audit by tax authorities in the Company’s major state tax jurisdictions.
17
9. | Stockholders’ Equity |
Earnings per Share
The components of basic and diluted earnings per share were as follows:
Three months ended | ||||||
March 31, | ||||||
2021 | 2020 | |||||
Net income attributable to Waddell & Reed Financial, Inc. |
| $ | |
| |
|
Weighted average shares outstanding, basic and diluted |
| | | |||
Earnings per share, basic and diluted | $ | | |
Dividends
During the quarter, the Board of Directors declared a quarterly dividend on our common stock in the amount of $
Common Stock Repurchases
The Board of Directors has authorized the repurchase of our common stock in the open market and/or private purchases. The acquired shares may be used for corporate purposes, including issuing shares to employees in our stock-based compensation programs. The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares.
There were
18
Accumulated Other Comprehensive Income
The following tables summarize accumulated other comprehensive income (loss) activity for the three months ended March 31, 2021 and March 31, 2020.
| ||||||||
For the three months ended March 31, |
| |||||||
Total |
| |||||||
Unrealized | Postretirement | accumulated |
| |||||
gains (losses) on | benefits | other |
| |||||
AFS investment | unrealized | comprehensive |
| |||||
securities | gains (losses) | income (loss) |
| |||||
(in thousands) | ||||||||
Balance at December 31, 2020 |
| $ | |
| |
| |
|
Other comprehensive loss before reclassification |
|
| ( |
| — |
| ( | |
Amount reclassified from accumulated other comprehensive income |
|
| ( |
| ( |
| ( | |
Net current period other comprehensive loss |
|
| ( | ( |
| ( | ||
Balance at March 31, 2021 | $ | |
| |
| | ||
Balance at December 31, 2019 |
| $ | |
| |
| |
|
Other comprehensive loss before reclassification |
|
| ( |
| — |
| ( | |
Amount reclassified from accumulated other comprehensive income |
|
| ( |
| ( |
| ( | |
Net current period other comprehensive loss |
|
| ( | ( |
| ( | ||
Balance at March 31, 2020 | $ | |
| |
| |
Reclassifications from accumulated other comprehensive income (loss) and included in net income are summarized in the tables that follow.
For the three months ended March 31, 2021 | ||||||||||
Tax |
| |||||||||
Pre-tax | expense | Net of tax | Statement of income line item |
| ||||||
(in thousands) | ||||||||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
| |
Gains on available for sale debt securities | $ | |
| ( |
| |
| Investment and other income (loss) | ||
Amortization of postretirement benefits | |
| ( |
| |
| Compensation and benefits | |||
Total | $ | |
| ( |
| |
For the three months ended March 31, 2020 | ||||||||||
Tax | ||||||||||
Pre-tax | expense | Net of tax | Statement of income line item |
| ||||||
(in thousands) | ||||||||||
Reclassifications included in net income: |
|
|
|
|
|
|
|
|
| |
Gains on available for sale debt securities | $ | |
| ( |
| |
| Investment and other income (loss) | ||
Amortization of postretirement benefits | |
| ( |
| |
| Compensation and benefits | |||
Total | $ | |
| ( |
| |
19
10. | Leases |
The Company has operating and finance leases for corporate office space and equipment. Our leases have remaining lease terms of less than
Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the commencement date (or the effective date of ASU 2016-02, Leases) based on the present value of lease payments over the lease term. The Company uses an incremental borrowing rate based on the information available at the commencement date (or the effective date of ASU 2016-02, Leases) in determining the present value of lease payments. The ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which we have elected not to separate.
During January 2020, we signed a
The components of lease expense were as follows:
For the three months ended March 31, | ||||||
2021 | 2020 | |||||
(in thousands) | ||||||
Operating Lease Cost | $ | |
| $ | | |
Finance Lease Cost: | ||||||
Amortization of ROU assets | $ | |
| $ | | |
Interest on lease liabilities | |
| | |||
Total | $ | | $ | | ||
Supplemental cash flow information related to leases was as follows:
For the three months ended March 31, | ||||||
2021 | 2020 | |||||
(in thousands) | ||||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
| ||
Operating cash flows from operating leases | $ | |
| $ | | |
Operating cash flows from finance leases |
| |
|
| | |
Financing cash flows from finance leases | | | ||||
ROU assets obtained in exchange for lease obligations: | ||||||
Operating leases | — | | ||||
Finance leases | — | — |
20
Supplemental balance sheet information related to leases was as follows:
March 31, 2021 | December 31, 2020 | |||||
(in thousands, except lease term and discount rate) | ||||||
Operating Leases: |
|
|
|
| ||
$ | |
| $ | | ||
$ | | $ | | |||
| | |||||
Total operating lease liabilities | $ | | $ | | ||
Finance Leases: | ||||||
Property and equipment, gross | $ | | $ | | ||
Accumulated depreciation | ( | ( | ||||
$ | | $ | | |||
$ | | $ | | |||
| | |||||
Total finance lease liabilities | $ | | $ | | ||
Weighted average remaining lease term: | ||||||
Operating leases | ||||||
Finance leases | ||||||
Weighted average discount rate: | ||||||
Operating leases | ||||||
Finance leases |
Maturities of lease liabilities are as follows:
Operating | Finance | |||||
Leases | Leases | |||||
(in thousands) | ||||||
Year ended December 31, | ||||||
2021 (excluding the three months ended March 31, 2021) |
| $ | |
| | |
2022 | | | ||||
2023 |
| |
| — | ||
2024 |
| |
| — | ||
Thereafter |
| |
| — | ||
Total lease payments |
| |
| | ||
Less imputed interest | ( | ( | ||||
Total | $ | |
| |
11. | Contingencies |
The Company is involved from time to time in various legal proceedings, regulatory investigations and claims incident to the normal conduct of business, which may include proceedings that are specific to us and others generally applicable to business practices within the industries in which we operate. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our business, financial condition and on the results of operations in a particular quarter or year.
The Company establishes reserves for litigation and similar matters when those matters present material loss contingencies that management determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies.” These amounts are not reduced by amounts that may be recovered under insurance or claims against
21
third parties, but undiscounted receivables from insurers or other third parties may be accrued separately. The Company regularly revises such accruals in light of new information. The Company discloses the nature of the contingency when management believes it is reasonably possible the outcome may be significant to the Company’s consolidated financial statements and, where feasible, an estimate of the possible loss. For purposes of our litigation contingency disclosures, “significant” includes material matters as well as other items that management believes should be disclosed. Management’s judgment is required related to contingent liabilities because the outcomes are difficult to predict.
Litigation Relating to the Merger —
12. | Subsequent Events |
Investment Portfolio – During April 2021, the Company liquidated a portion of our investment portfolio. Net gains of $
22
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and notes to the unaudited consolidated financial statements included elsewhere in this report. Unless otherwise indicated or the context otherwise requires all references to the “Company,” “we,” “our” or “is” refer to Waddell & Reed Financial, Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q 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 AUM and AUA, distribution sources, expense levels, redemption rates, our proposed merger with Macquarie Management Holdings, Inc. (“Macquarie”), 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. 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, 2020, which include, without limitation:
● | The loss of existing distribution relationships or inability to access new distribution relationships; |
● | A reduction in our AUM on short notice, through increased redemptions in our distribution channels or our Funds, particularly those Funds with a high concentration of assets, or investors terminating their relationship with us or shifting their funds to other types of accounts with different rate structures; |
● | The adverse ruling or resolution of any litigation, regulatory investigations and proceedings, or securities arbitrations by a federal or state court or regulatory body; |
● | Changes in our business model, operations and procedures, including our methods of distributing our proprietary products, as a result of evolving fiduciary standards; |
● | The introduction of legislative or regulatory proposals or judicial rulings that change the independent contractor classification of our financial advisors at the federal or state level for employment tax or other employee benefit purposes; |
● | A decline in the securities markets or in the relative investment performance of our Funds and other investment portfolios and products as compared to competing funds; |
● | Our inability to reduce expenses rapidly enough to align with declines in our revenues due to various factors, including fee pressure, the level of our AUM 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 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. |
23
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 (the “SEC”), 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, 2020 and as updated in our quarterly reports on Form 10-Q for the year ending December 31, 2021. 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.
Overview
We are one of the oldest mutual fund and asset management firms in the country, with expertise in a broad range of investment styles and across a variety of market environments. Our earnings and cash flows are heavily dependent on financial market conditions and client activity. Significant increases or decreases in the various securities markets can have a material impact on our results of operations, financial condition and cash flows.
Our products are distributed through our unaffiliated channel, or through our wealth management channel by Advisors. Through our institutional channel, we distribute an array of investment styles to a variety of clients.
Through our unaffiliated channel, we distribute mutual funds through broker-dealers, retirement platforms and registered investment advisers through a team of external and internal wholesalers.
In our wealth management channel, we had 916 Advisors and 382 licensed advisor associates as of March 31, 2021, for a total of 1,298 licensed individuals associated with W&R who operate out of offices located throughout the United States and provide financial advice for retirement, education funding, estate planning and other financial needs for clients.
We manage assets in a variety of investment styles in our institutional channel. Most of the clients in this channel are other asset managers that hire us to act as a subadviser for their branded products; they are typically domestic and foreign distributors of investment products who lack scale or the track record to manage internally, or choose to market multi-manager styles. Our diverse client list also includes pension funds, Taft Hartley plans and endowments.
Proposed Acquisition of Waddell & Reed Financial, Inc. by Macquarie
For information related to the proposed merger with Macquarie, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.
Please see the Risks Related to the Proposed Merger included in Part 1, Item 1A—“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of certain risks related to our proposed merger with Macquarie. Please see the Company’s definitive proxy statement filed with the SEC on February 17, 2021, for additional information on the merger.
Impact of COVID-19
We transitioned most of our workforce to a work from home environment early in March 2020 as part of our response to the COVID-19 pandemic. By late March 2020, 98% of our employees were working remotely, with negligible downtime. The remote work environment has largely continued through the end of 2020 and into 2021. Our steady and proactive response has allowed our asset management and wealth management businesses to maintain full continuity of service and the access that our clients need and expect. With a successful transition to a remote working environment, we plan to closely monitor developments and reintroduce employees to the workplace only when it is safe to do so. The transition of employees to a work from home environment did not result in any material incremental expenses during 2020 or in the first quarter of 2021. For additional discussion regarding steps we have taken to facilitate safety, security and full continuity of service, please see Part I – Item 1 – “Financial Statements (unaudited), Note 1 – Description of Business and Accounting Policies”, of this Quarterly Report on Form 10-Q.
24
For additional discussion regarding the risks that can impact our business, results of operations and financial condition due to COVID-19 and the related economic conditions, please see Part 1, Item 1A—“Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020.
Operating Results
● | Net income attributable to Waddell & Reed Financial, Inc. for the first quarter of 2021 was $1.6 million, or $0.03 per diluted share, compared to $22.0 million, or $0.32 per diluted share, during the first quarter of 2020. The first quarter of 2021 included $51.6 million in costs related to the proposed merger with Macquarie. Excluding the merger-related costs, adjusted net income(1) for the first quarter of 2021 was $43.7 million and adjusted net income per diluted share(1) was $0.70. |
● | Revenues of $295.4 million during the first quarter of 2021 increased 12% compared to the first quarter of 2020. Operating expenses of $293.3 million during the first quarter of 2021 increased 31% compared to the same quarter in 2020. The operating margin was 0.7% during the first quarter of 2021, compared to 14.9% during the first quarter of 2020. Excluding merger-related costs during the first quarter of 2021, adjusted operating expenses(1) were $241.6 million and the adjusted operating margin(1) was 18.2%. |
● | Asset Management Highlights |
o | Sales improved compared to the same quarter in 2020, particularly in the institutional and unaffiliated channels. Redemptions also improved, particularly in our unaffiliated channel. |
o | AUM ended the quarter at $76.0 billion, an increase of 36% compared to the first quarter of 2020 due to market appreciation partially offset by net outflows. |
o | Investment performance improved from the prior quarter in trailing one-, three- and five-year performance as measured by the percentage of assets ranked in the top half of their respective Morningstar universes. |
● | Wealth Management Highlights |
o | AUA ended the quarter at $70.8 billion, a 37% increase compared to the first quarter of 2020 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by an ongoing migration away from Non-advisory AUA. |
o | Net new AUA continue to improve, and net new Advisory AUA were positive for the 9th consecutive quarter. |
o | $507 thousand average trailing 12-month productivity per Advisor for the first quarter of 2021 improved 10% compared to the first quarter of 2020. |
● | Balance sheet remains strong with $645.9 million in cash and investments at the end of the first quarter of 2021, excluding restricted cash. |
______________
(1) | Adjusted net income, adjusted net income per diluted share, adjusted operating expenses and adjusted operating margin are non-GAAP financial measures. See Non-GAAP Financial Measures and Reconciliation of GAAP to non-GAAP Financial Measures on pages 33 and 34. |
25
Assets Under Management
During the first quarter of 2021, AUM increased 2% to $76.0 billion from $74.8 billion at December 31, 2020 due to market appreciation of $2.4 billion, partially offset by net outflows of $1.2 billion. Sales of $3.0 billion during the current quarter increased 17% compared to the first quarter of 2020. Redemptions decreased 14% compared to the first quarter of 2020.
Change in Assets Under Management (1)
Three months ended March 31, 2021 |
| |||||||||
Wealth |
| |||||||||
| Unaffiliated(2) | Institutional | Management | Total | ||||||
| (in millions) | |||||||||
Beginning Assets |
| $ | 27,977 |
| 3,570 |
| 43,275 |
| 74,822 | |
Sales (3) |
| 1,960 |
| 303 |
| 688 |
| 2,951 | ||
Redemptions |
| (2,328) |
| (222) |
| (1,588) |
| (4,138) | ||
Net Exchanges |
| 290 |
| — |
| (290) |
| — | ||
Net Flows |
| (78) |
| 81 |
| (1,190) |
| (1,187) | ||
Market Action |
| 985 |
| 115 |
| 1,294 |
| 2,394 | ||
Ending Assets |
| $ | 28,884 |
| 3,766 |
| 43,379 |
| 76,029 |
Three months ended March 31, 2020 |
| |||||||||
Wealth |
| |||||||||
| Unaffiliated(2) | Institutional | Management | Total | ||||||
| (in millions) | |||||||||
Beginning Assets |
| $ | 26,264 |
| 3,096 |
| 40,598 |
| 69,958 | |
Sales (3) |
| 1,581 | 43 |
| 895 |
| 2,519 | |||
Redemptions |
| (3,019) |
| (179) |
| (1,588) |
| (4,786) | ||
Net Exchanges |
| 326 |
| — |
| (326) |
| — | ||
Net Flows |
| (1,112) |
| (136) |
| (1,019) |
| (2,267) | ||
Market Action |
| (4,908) |
| (533) |
| (6,240) |
| (11,681) | ||
Ending Assets |
| $ | 20,244 |
| 2,427 |
| 33,339 |
| 56,010 |
(1) | Includes all activity of the Funds and institutional and separate accounts, including money market funds and transactions at net asset value, accounts for which we receive no commissions. |
(2) | Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity. |
(3) | Sales consists of gross sales and includes net reinvested dividends, capital gains and investment income. |
26
Average Assets Under Management
Average AUM, which are generally more indicative of trends in revenue from investment management services than the change in ending AUM, are presented below.
Three months ended March 31, 2021 |
| ||||||||||
Wealth |
| ||||||||||
| Unaffiliated | Institutional | Management | Total | |||||||
| (in millions) | ||||||||||
Asset Class: | |||||||||||
Equity |
| $ | 23,477 |
| 3,600 |
| 33,558 |
| $ | 60,635 | |
Fixed Income |
| 4,588 |
| — |
| 8,915 |
| 13,503 | |||
Money Market |
| 148 |
| — |
| 1,779 |
| 1,927 | |||
Total |
| $ | 28,213 |
| 3,600 |
| 44,252 |
| $ | 76,065 |
Three months ended March 31, 2020 | |||||||||||
Wealth | |||||||||||
Unaffiliated | Institutional | Management | Total | ||||||||
(in millions) | |||||||||||
Asset Class: | |||||||||||
Equity |
| $ | 19,181 |
| 2,897 |
| 28,612 |
| $ | 50,690 | |
Fixed Income |
| 4,874 |
| — |
| 8,894 |
| 13,768 | |||
Money Market |
| 98 |
| — |
| 1,568 |
| 1,666 | |||
Total |
| $ | 24,153 |
| 2,897 |
| 39,074 |
| $ | 66,124 |
Performance
We have seen an increase from the prior quarter in trailing three- and five-year performance, while trailing one-year performance decreased slightly as measured by the percentage of funds ranked in the top half of their respective Morningstar universes. As measured by percentage of assets, one-, three- and five-year performance improved compared to the prior quarter. Our commitment to institutional caliber processes means that while we are mindful of short-term market dynamics, we remain focused on the long term and on maintaining discipline and consistency across multiple market cycles.
The following table is a summary of Morningstar rankings and ratings as of March 31, 2021:
MorningStar Fund Rankings (1) |
| 1 Year |
| 3 Years |
| 5 Years |
|
Funds ranked in top half |
| 48 | % | 57 | % | 46 | % |
Assets ranked in top half |
| 54 | % | 65 | % | 62 | % |
MorningStar Ratings (1) |
| Overall |
| 3 Years |
| 5 Years |
|
Funds with 4/5 stars |
| 35 | % | 37 | % | 35 | % |
Assets with 4/5 stars |
| 56 | % | 51 | % | 53 | % |
(1) Based on class I shares, which reflects the largest concentration of sales and assets.
27
Assets Under Administration
AUA includes both client assets invested in the Funds and in other companies’ products that are distributed through W&R and held in direct to fund accounts, brokerage accounts or within our fee-based advisory programs. AUA as of March 31, 2021 increased 37% as compared to March 31, 2020 primarily due to market appreciation and growth in net new Advisory AUA, partially offset by outflows in Non-advisory AUA. Average AUA increased 18% for the three months ended March 31, 2021, compared to the same period in 2020. This quarter marked the 9th straight quarter of positive Advisory AUA net flows. We continue to see increased average productivity per Advisor due to our efforts to transform W&R into a fully competitive and profitable aspect of our business model, with a focus on higher producing Advisors.
March 31, 2021 | March 31, 2020 | |||||||
(in millions) | ||||||||
Ending AUA | ||||||||
Advisory AUA | $ | 34,418 | 23,192 | |||||
Non-advisory AUA |
| 36,431 | 28,644 | |||||
Total ending AUA | $ | 70,849 | 51,836 |
Three months ended March 31, | ||||||||
2021 | 2020 | |||||||
(in millions) | ||||||||
Average AUA (1) | ||||||||
Advisory AUA (1) | $ | 33,489 | 26,680 | |||||
Non-advisory AUA (1) |
| 36,555 | 32,488 | |||||
Total average AUA (1) | $ | 70,044 | 59,168 | |||||
Net new Advisory AUA (2) | $ | 501 | 442 | |||||
Net new Non-advisory AUA (2), (3) |
| (619) | (658) | |||||
Total net new AUA (2), (3) | $ | (118) | (216) | |||||
Annualized Advisory AUA growth (4) | 6.1 | % | 6.6 | % | ||||
Annualized AUA growth (4) | (0.7) | % | (1.4) | % | ||||
Advisors and advisor associates |
| 1,298 | 1,316 | |||||
Average trailing 12-month production per Advisor (5) (in thousands) | $ | 507 | 462 | |||||
(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 total 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 include fees paid by Advisors for programs and services. |
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Results of Operations — Three Months Ended March 31, 2021 as Compared with Three Months Ended March 31, 2020
Total Revenues
Total revenues increased 12% to $295.4 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 due to increases in investment management fees, underwriting and distribution fees and shareholder service fees.
Three months ended | ||||||||
March 31, | ||||||||
| 2021 |
| 2020 |
| Variance |
| ||
(in thousands, except percentage data) | ||||||||
Investment management fees | $ | 118,016 |
| 105,219 |
| 12 | % | |
Underwriting and distribution fees |
| 154,795 |
| 136,943 |
| 13 | % | |
Shareholder service fees |
| 22,540 |
| 21,571 |
| 4 | % | |
Total revenues | $ | 295,351 |
| 263,733 |
| 12 | % |
Investment Management Fee Revenues
Investment management fee revenues for the first quarter of 2021 increased $12.8 million, or 12%, from the first quarter of 2020 due to an increase in average AUM, partially offset by a lower effective management fee rate, which was primarily due to targeted pricing reductions on certain products made in previous periods and money market fee waivers.
The following tables summarize investment management fee revenues, related average AUM, fee waivers and investment management fee rates for the three months ended March 31, 2021 and 2020.
Three months ended March 31, | ||||||||||
| 2021 |
| 2020 |
| Variance |
| ||||
(in thousands, except for management fee rate and average assets) | ||||||||||
Investment management fees (net) | $ | 114,395 | 102,293 | 12 | % | |||||
Average assets (in millions) | $ | 72,465 | 63,227 | 15 | % | |||||
Management fee rate (net) |
| 0.6402 | % | 0.6507 | % | |||||
Total fee waivers | $ | 9,591 | 6,479 | 48 | % | |||||
Institutional investment management fees (net) | $ | 3,621 | 2,926 | 24 | % | |||||
Institutional average assets (in millions) | $ | 3,600 |
| 2,897 |
| 24 | % | |||
Institutional management fee rate (net) |
| 0.4078 | % |
| 0.4063 | % |
|
Revenues from investment management services provided to our retail mutual funds, which are distributed through the unaffiliated and wealth management channels, increased 12% in the first quarter of 2021 compared to the same period in 2020. The increase was due to an increase in average AUM, partially offset by a lower effective management fee rate due to fee reductions on our large cap growth and core bond products that were effective in April 2020 and increased money market fee waivers due to the low interest rate environment.
Institutional account revenues in the first quarter of 2021 increased 24% compared to the first quarter of 2020 primarily due to an increase in average AUM.
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Annualized long-term redemption rates | |||||
(excludes money market redemptions) | |||||
Three months ended | |||||
March 31, | |||||
| 2021 |
| 2020 |
| |
Unaffiliated channel |
| 33.6 | % | 50.9 | % |
Institutional channel |
| 24.9 | % | 24.9 | % |
Wealth Management channel |
| 12.8 | % | 14.6 | % |
Total |
| 21.2 | % | 28.5 | % |
The long-term redemption rate for the three months ended March 31, 2021 decreased in the unaffiliated channel and the wealth management channel as compared to the three months ended March 31, 2020. Redemptions decreased during the quarter, particularly in our International Core Equity and High Income funds. The redemption rate in the institutional channel was unchanged. Prolonged redemptions in any of our distribution channels could negatively affect revenues in future periods.
The year-to-date industry average redemption rate, based on data provided by the Investment Company Institute, was 26.1%, versus our rate of 21.2%.
Underwriting and Distribution Fee Revenues
The following tables summarize the significant components of underwriting and distribution fee revenues by distribution channel:
For the three months ended March 31, 2021 | |||||||
|
| Wealth | |||||
| Unaffiliated |
| Management | Total | |||
| (in thousands) | ||||||
Underwriting and distribution fee revenues | |||||||
Advisory Fees | $ | — |
| 94,280 |
| 94,280 | |
Service and distribution fees |
| 14,642 |
| 16,763 |
| 31,405 | |
Sales commissions |
| 15 |
| 19,423 |
| 19,438 | |
Other revenues |
| 44 |
| 9,628 |
| 9,672 | |
Total |
| $ | 14,701 |
| 140,094 |
| 154,795 |
For the three months ended March 31, 2020 | |||||||
| Wealth | ||||||
Unaffiliated |
| Management | Total | ||||
(in thousands) | |||||||
Underwriting and distribution fee revenues | |||||||
Advisory Fees |
| $ | — |
| 77,118 |
| 77,118 |
Service and distribution fees |
| 15,276 |
| 14,589 |
| 29,865 | |
Sales commissions |
| 451 |
| 20,657 |
| 21,108 | |
Other revenues |
| 135 |
| 8,717 |
| 8,852 | |
Total |
| $ | 15,862 |
| 121,081 |
| 136,943 |
Underwriting and distribution revenues earned in the first quarter of 2021 increased by $17.9 million, or 13%, compared to the first quarter of 2020 primarily due to increases in average Advisory AUA and service and distribution assets, partially offset by a decrease in sales commissions due to lower sales volume.
Shareholder Service Fee Revenue
During the first quarter of 2021, shareholder service fee revenue increased $1.0 million, or 4%, compared to the first quarter of 2020 primarily due to an increase in assets, partially offset by a decrease in the number of accounts on which these fees are based.
Total Operating Expenses
Operating expenses for the first quarter of 2021 increased by $68.9 million, or 31%, compared to the first quarter of
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2020, due to an increase in distribution costs due to increased revenue from higher assets and an increase in compensation and benefits, general and administrative and technology primarily related to merger costs, partially offset by decreases in occupancy, marketing and advertising and depreciation.
Three months ended | ||||||||
March 31, | ||||||||
| 2021 |
| 2020 |
| Variance |
| ||
(in thousands) | ||||||||
Distribution | $ | 136,692 |
| 120,033 |
| 14 | % | |
Compensation and benefits |
| 100,498 |
| 58,425 |
| 72 | % | |
General and administrative |
| 30,290 |
| 18,598 |
| 63 | % | |
Technology |
| 17,384 |
| 13,502 |
| 29 | % | |
Occupancy |
| 2,283 |
| 4,709 |
| (52) | % | |
Marketing and advertising |
| 301 |
| 1,896 |
| (84) | % | |
Depreciation | 2,396 | 3,513 | (32) | % | ||||
Subadvisory fees | 3,447 | 3,666 | (6) | % | ||||
Total operating expenses | $ | 293,291 |
| 224,342 |
| 31 | % |
Distribution expenses for the first quarter of 2021 increased by $16.7 million, or 14%, compared to the first quarter of 2020 due to increases in underwriting and distribution revenue primarily in our advisory fee programs and service and distribution fees due to increases in AUA and AUM.
Compensation and benefits during the first quarter of 2021 increased $42.1 million, or 72% compared to the same period of 2020 primarily due to merger-related compensation expenses of $35.9 million, which included retention award accruals, as well as an increase in deferred compensation plan valuation adjustments and an increase in share-based compensation expense on outstanding restricted share units as a result of the increase in share price of our common stock.
General and administrative expenses for the first quarter of 2021 increased $11.7 million, or 63%, compared to the first quarter of 2020 entirely due to merger-related costs of $13.7 million, including legal fees and expenses related to the Funds for special meetings and proxy solicitation costs, partially offset by lower travel and meeting costs due to restricted travel and a transition to virtual meetings during the pandemic.
Technology expense for the first quarter of 2021 increased $3.9 million, or 29%, compared to the same period of 2020 primarily due to merger-related contract termination fees of $2.0 million and software costs for new technologies.
Occupancy expense decreased $2.4 million, or 52%, for the first quarter of 2021 compared to the first quarter of 2020 primarily as a result of the planned transition from Advisors leasing space from the Company to Advisors utilizing personal branch offices.
Marketing and advertising expense decreased $1.6 million, or 84%, for the first quarter of 2021 compared to the first quarter of 2020 primarily due to lower sponsorship fees in connection with the shift to virtual industry conferences.
Depreciation expense decreased $1.1 million, or 32%, for the first quarter of 2021 compared to the first quarter of 2020 primarily due to certain assets becoming fully depreciated.
Investment and Other Income
Investment and other income for the three months ended March 31, 2021 increased $9.6 million, compared to the same period in 2020 primarily due to unrealized gains, net of hedging activity, on the seed investment portfolios in the current period compared to unrealized losses, net of hedging activity, for the prior year comparative period. In addition, there were lower unrealized losses on our corporate fixed income portfolio for the first quarter of 2021, compared to the first quarter of 2020 and unrealized losses in the first quarter of 2020 on our consolidated sponsored fund that was deconsolidated during 2020 and therefore did not reoccur. These increases were partially offset by a decline in interest income due to lower interest rates and redemptions in our corporate fixed income portfolio.
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Taxes
The following table reconciles the statutory federal income tax rate with our effective income tax rate from continuing operations for the three months ended March 31, 2021 and 2020:
| Three months ended | ||||
March 31, | |||||
2021 |
| 2020 | |||
Statutory federal income tax rate |
| 21.0 | % | 21.0 | % |
State income taxes, net of federal tax benefit |
| 19.0 | 4.5 | ||
Permanent differences | 69.6 | 4.0 | |||
Share-based compensation | (57.7) | 1.4 | |||
Losses attributable to redeemable noncontrolling interests | — | 1.1 | |||
Uncertain tax positions |
| 1.1 | — | ||
Other items |
| 0.1 | — | ||
Effective income tax rate |
| 53.1 | % | 32.0 | % |
Our effective income tax rate was 53.1% for the three months ended March 31, 2021, as compared to 32.0% for the same period in 2020, an increase of 21.1%. Merger-related non-deductible compensation increased the tax rate impact of state income taxes and permanent differences. This increase was partially offset by a tax benefit on share-based payments, as compared to a tax shortfall in the comparable period, resulting from changes in the Company’s share price. Lower pre-tax book income in 2021 as compared to 2020 magnified the impact of all items on the tax rate.
Liquidity and Capital Resources
The Merger Agreement limits our ability to take certain actions while the merger is pending, including, among other things, actions related to acquiring businesses or investment securities, making seed capital investments, repurchasing our common stock, entering into or amending material contracts, incurring capital expenditures and incurring additional debt.
Management believes its available cash, marketable securities and expected cash flow from operations will be sufficient to fund the Company’s operating and capital requirements. Subject to the terms and conditions of the Merger Agreement, expected uses of cash include dividend payments, costs related to our proposed merger with Macquarie, income tax payments, seed capital investments, ongoing technology enhancements, capital expenditures, collateral funding for margin accounts established to support derivative positions and operating expenses of our business.
Our operations provide much of the cash necessary to fund our priorities, which historically have been as follows:
● | Pay dividends |
● | Repurchase our stock |
● | Finance growth objectives |
Pay Dividends
We paid quarterly dividends on our common stock that resulted in financing cash outflows of $15.6 million and $17.1 million for the first three months of 2021 and 2020, respectively.
The Board of Directors approved a dividend on our common stock of $0.25 per share with an April 30, 2021 payment date and an April 9, 2021 record date. The total dividend to be paid on April 30, 2021 is $15.8 million.
Repurchase Our Stock
We repurchased 353,909 shares and 3,807,438 shares of our common stock in the open market or privately during the three months ended March 31, 2021 and 2020, respectively, resulting in share repurchases of $8.9 million and $53.9 million, respectively.
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The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares.
Finance Growth Objectives
We use cash to fund growth in our distribution channels. We continue to invest in our wealth management channel by offering home office resources, wholesaling efforts, enhanced technology tools, including the modernization of our wealth management platforms. Our unaffiliated channel requires cash outlays for wholesaler commissions and commissions to third parties on deferred-load product sales and technology enhancements for asset management and distribution. We also provide seed money for new products to further enhance our product offerings and distribution efforts. The Merger Agreement limits our ability to take certain actions while the merger is pending, including making seed capital investments, entering into or amending material contracts and incurring capital expenditures.
Cash Flows
Cash from operations is our primary source of funds. Cash from operations decreased $23.7 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to lower net income.
The payable to investment companies for securities, payable to customers and other receivables accounts can fluctuate significantly based on trading activity at the end of a reporting period. Changes in these accounts resulted in variances within cash from operations on the statement of cash flows; however, there is no impact to the Company’s liquidity and operations due to the variances in these accounts.
Investing activities consist primarily of the seeding and sale of sponsored investment securities, purchases and maturities of investments held in our corporate investment portfolio and capital expenditures. Future investing cash flows will be impacted by limitations on our ability to acquire investment securities and make seed capital investments pursuant to the terms of the Merger Agreement.
Financing activities include payment of dividends and repurchases of our common stock. The first quarter of 2021 also included the repayment of our Series B senior unsecured notes at maturity. Future financing cash outflows will be affected by the existing capital return policy, subject to the terms of the Merger Agreement.
Critical Accounting Policies and Estimates
There have been no material changes in the critical accounting policies and estimates disclosed in the “Critical Accounting Policies and Estimates” section of our 2020 Form 10-K.
Non-GAAP Financial Measures
“Adjusted net income attributable to Waddell & Reed Financial, Inc.,” “adjusted net income per share, basic and diluted,” “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.
33
Reconciliation of GAAP to non-GAAP Financial Measures
(in thousands, except per share and percentage data)
Three months ended March 31, | |||||||
2021 | 2020 | ||||||
Net income attributable to Waddell & Reed Financial, Inc. (GAAP) | $ | 1,612 | $ | 21,986 | |||
Adjustments | |||||||
Merger-related costs (1) | 51,643 | — | |||||
Tax effect of adjustments | (9,536) | — | |||||
Adjusted net income attributable to Waddell & Reed Financial, Inc. (non-GAAP) | $ | 43,719 | $ | 21,986 | |||
Weighted average shares outstanding-basic and diluted | 62,485 | 67,675 | |||||
Adjusted net income per share, basic and diluted (non-GAAP) | $ | 0.70 | $ | 0.32 | |||
Operating expenses (GAAP) | $ | 293,291 | $ | 224,342 | |||
Adjustments | |||||||
Merger-related costs (1) | 51,643 | — | |||||
Adjusted operating expenses (non-GAAP) | $ | 241,648 | $ | 224,342 | |||
Operating income (GAAP) | $ | 2,060 | $ | 39,391 | |||
Adjustments | |||||||
Merger-related costs (1) | 51,643 | — | |||||
Adjusted operating income (non-GAAP) | $ | 53,703 | $ | 39,391 | |||
Operating revenue | $ | 295,351 | $ | 263,733 | |||
Operating margin (GAAP) | 0.7 | % | 14.9 | % | |||
Adjusted operating margin (non-GAAP) | 18.2 | % | 14.9 | % |
___________
(1) | Primarily represents retention award accruals, expenses related to the Funds for special meetings and proxy solicitation costs, legal fees and contract termination fees all related to our proposed merger with Macquarie. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are primarily exposed to market risk associated with unfavorable movements in interest rates and securities prices for both our corporate investments and our AUM and AUA, on which our revenues are based, and credit risk related to collateral on our economic hedge program derivative trading. The Company has had no material changes in its market risk policies or its market risk sensitive instruments and positions since December 31, 2020 other than the changes to the investment and derivative portfolios disclosed in Note 4 and Note 5 to the unaudited consolidated financial statements and changes to AUM and AUA in Part I – Item 2 – "Management’s Discussion and Analysis of Financial Condition and Results of Operations”. As further described in Note 5, the Company has an economic hedge program that uses total return swap contracts to hedge market risk related to its investments in sponsored funds.
Item 4. | Controls and Procedures |
The Company maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in
34
Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2021, have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2021.
The Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. During the fiscal quarter ended March 31, 2021, the Company completed a human capital management system conversion. This system conversion resulted in changes to processes and controls as we migrated from the legacy system to the new system. The system change was undertaken to enhance our operating platform and was not undertaken in response to any actual or perceived deficiencies in our internal control over financial reporting.
Part II. | Other Information |
Item 1. | Legal Proceedings |
See Part I, Item 1, Notes to the Unaudited Consolidated Financial Statements, Note 11 – Contingencies, of this Quarterly Report on Form 10-Q.
Item 1A. | Risk Factors |
There have been no material changes to the Company’s Risk Factors from those previously reported in the Company’s 2020 Form 10-K.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
The following table sets forth certain information about the shares of common stock we repurchased during the first quarter of 2021.
|
|
| Total Number of |
| Maximum Number (or | ||||
Shares | Approximate Dollar | ||||||||
Purchased as | Value) of Shares That | ||||||||
Total Number | Average | Part of Publicly | May Yet Be | ||||||
of Shares | Price Paid | Announced | Purchased Under The | ||||||
Period | Purchased | per Share | Program (1) | Program (1) | |||||
January 1 - January 31 |
| 218,616 | $ | 25.03 |
| — |
| n/a | |
February 1 - February 28 |
| 496 |
| 25.07 |
| — |
| n/a | |
March 1 - March 31 |
| 134,797 |
| 25.02 |
| — |
| n/a | |
Total |
| 353,909 | $ | 25.03 |
| — |
(1) | In October 2012, our Board of Directors approved a program to repurchase shares of our common stock on the open market. Under the repurchase program, we are authorized to repurchase, in any seven-day period, the greater of (i) 3% of our outstanding common stock or (ii) $50 million of our common stock. We may repurchase our common stock in privately negotiated transactions or through the New York Stock Exchange, other national or regional market systems, electronic communication networks or alternative trading systems. Our stock repurchase program does not have an expiration date or an aggregate maximum number or dollar value of shares that may be repurchased. The terms of the Merger Agreement restrict our ability to repurchase shares of our common stock while the merger is pending; however, we may continue to repurchase shares of our common stock from employees to cover their tax withholdings in connection with the vesting of restricted shares. |
During the first quarter of 2021, 353,909 shares were purchased in connection with funding employee income tax withholding obligations arising from the vesting of restricted shares.
35
Item 6. | Exhibits |
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101* | Materials from the Waddell & Reed Financial, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) related Notes to the Unaudited Consolidated Financial Statements, tagged in detail. | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 29th day of April 2021.
WADDELL & REED FINANCIAL, INC. | ||
By: | /s/ Philip J. Sanders | |
Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
By: | /s/ Benjamin R. Clouse | |
Senior Vice President and Chief Financial Officer (Principal Financial Officer) | ||
By: | /s/ Michael J. Daley | |
Vice President, Chief Accounting Officer, Investor Relations and Treasurer (Principal Accounting Officer) |
37