Waddell & Reed Financial, Inc. Reports Second Quarter Results
Jul. 31, 2018
OVERLAND PARK, Kan.--(BUSINESS WIRE)--Jul 31, 2018--Waddell & Reed Financial, Inc. (NYSE: WDR) today reported second quarter 2018 net income 1 of $44.5 million, or $0.55 per diluted share, compared to net income of $46.3 million, or $0.56 per diluted share, during the prior quarter and net income of $24.1 million, or $0.29 per diluted share, during the second quarter of 2017.
Revenues of $295.3 million during the quarter declined 1% sequentially and increased 3% compared to the second quarter of 2017. Operating expenses of $237.1 million during the quarter remained largely unchanged compared to the prior quarter and increased less than 1% compared to the same quarter in 2017. The operating margin was 19.7% during the current quarter, compared to 20.1% and 17.8% during the first quarter of 2018 and the second quarter of 2017, respectively.
Assets under management ended the quarter at $78.7 billion, declining 2% compared to the prior quarter and 2% compared to the second quarter of 2017. Sales of $2.9 billion during the current quarter declined 23% compared to the first quarter of 2018 and were 11% lower than the second quarter of 2017. Net outflows were $3.1 billion during the current quarter, compared to net outflows of $1.5 billion during the prior quarter and $2.5 billion during the second quarter of 2017, with the current quarter redemption increase driven primarily by the Institutional channel. A sequential improvement in market return helped offset some of the outflows during the current quarter.
Broker-dealer assets under administration ended the quarter at $57.1 billion, increasing 1% compared to the first quarter of 2018 and 6% compared to the second quarter of 2017. Average productivity per advisor, as measured by average trailing twelve-month revenue per advisor, was $314 thousand for the twelve-month period ended June 30, 2018; improving 10% compared to the twelve-month period ended March 31, 2018. Average productivity per advisor continues to rise as we focus our programs and support on high-performing financial advisors.
“We continue to be focused on managing our product line to ensure its competitiveness. Strengthening our investment performance and dynamically managing our products and their distribution are key steps in our progress,” said Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. “We believe in the value we provide as active managers, and our recent results have borne that out, with performance improvement across a majority of our key strategies.”
_____________________ 1 Net income represents net income attributable to Waddell & Reed Financial, Inc.
Investment management fee revenues decreased $3.3 million, or 2%, sequentially, or slightly less than the decrease in average assets under management due to an additional day in the current quarter. Compared to the second quarter of 2017, fees declined less than 1%. During the current quarter, the effective management fee rate was 65.4 basis points, compared to 65.8 basis points during the first quarter of 2018 and 65.1 basis points during the second quarter of 2017. Average assets under management were $80.0 billion during the current quarter, compared to $82.4 billion during the prior quarter and $80.6 billion during the second quarter of 2017.
Underwriting and distribution fees decreased $0.2 million, or less than 1%, sequentially. A decrease in distribution fees due to lower assets in unaffiliated distribution was partially offset by higher asset-based advisory fee revenues in the broker-dealer. Compared to the second quarter of 2017, fees increased $9.1 million, or 7% due to higher asset-based advisory fees in the broker-dealer and new revenues from independent financial advisors for services, which were partially offset by lower distribution fees.
Operating Expenses Analysis
Distribution expenses decreased $0.2 million, or less than 1% sequentially, in correlation with the decrease in underwriting and distribution revenues. Compared to the second quarter of 2017, distribution expenses increased $5.3 million, or 5% due to higher commissions paid to independent financial advisors under the new commission structure that became effective on January 1, 2018 and higher commissions on our asset-based advisory products due to advisory asset growth. The increase was partly offset by lower commissions paid to third-party distributors.
Compensation and benefits expenses declined $3.0 million, or 4% sequentially, due to lower payroll taxes, savings plan costs and equity compensation, which were partially offset by severance costs of $4.4 million during the current quarter. Compared to the second quarter of 2017, expenses rose $0.5 million, or less than 1%, as severance costs and the annual merit increase were partly offset by lower pension costs due to the prior year plan freeze.
General and administrative expenses declined $0.4 million, or 2%, sequentially due to lower usage of consultants following the completion of various projects and lower fund waiver costs. Compared to the second quarter of 2017, expenses declined $4.1 million, or 18%, due to a combination of lower usage of consultants during the current quarter, primarily for Project E, the Department of Labor fiduciary rule, and to fund merger costs in 2017.
Technology expenses increased $0.6 million, or 4%, sequentially due to a combination of higher data service costs and consulting costs. Compared to the second quarter of 2017, expenses declined $0.5 million, or 3% due to lower software licensing costs.
The current quarter includes an intangible impairment charge of $1.2 million related to a terminated subadvisory agreement.
During the second quarter, we resolved and closed an outstanding state tax liability resulting in a benefit of $6.4 million, which was largely offset by the tax shortfall on restricted stock vesting.
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