Q1 2020 Earnings Call

Dead dead dead dead.

Thursday

Good morning, and welcome to the Waddell & Reed first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to a draw your question, please press * then two, please note this event is being recorded. I would now like to turn the conference over to Mike Daley vice president investor relations, please go ahead.

Thank you on behalf of our management team. I would like to welcome you to our quarterly earnings conference call joining me on our call today or Phil Sanders or CEO or CFO. Right? Well, I'll start President Dan Jansen our CIO Sean me all president of our retail wealth management business Waddell & Reed ink and Amy president of old Distributors Inc. Before we begin I would like to remind you that some of our comments and responses may include forward-looking statements and non-gaap financial measures what we believe these forward-looking statements to be reasonable based on information that is currently available to us actual results could materially differ from those expressed or implied due to a number of factors that we referenced in our public filings with the SEC.

We assume no duty to update any forward-looking statements materials relevant to today's call including a copy of the press release that contains the description of these non-gaap Financial measures and a Reconciliation wage Gap and supplemental schedules have been posted on the investor relations section of our website at I would now like to turn the call over to Phil.

Thanks, Mike. Good morning, everyone and thanks for joining us before we get into the more detailed Financial discussion. I want to take a moment to address the extraordinary environment. We in the world are currently navigating the covid-19 demek has caused one of the most rapid and dramatic global economic downturns in history. We may not fully realize the totality of the tragic human consequences for several months.

The u.s. Stock markets dropped approximately 35% from peak in February to trough in late March global economic activity hit a. Around the world countries and businesses implemented plans to isolate and protect their citizens and employees remarkably within about 30 days. We moved from a relatively strong domestic economy with financial Market indexes hitting record highs to a global recession.

Amid, the unprecedented uncertainty and volatility our company proactively implemented a comprehensive business continuity plan that allowed us to effectively respond to the crisis of maintaining the safety of our employees clients independent advisers and stakeholders in the communities where we live and work we adapted quickly and by late March 9th eight percent of our Workforce was was working remotely with negligible down time. I'll let Brent give highlights of our preparation and response activities in just a moment.

I think it's important.

The note here as well that despite the circumstances and challenges. We remain positioned to execute on our long-term strategic plan are steady and proactive response has allowable asset management and wealth management business has to maintain continuity of service and the access that our clients need and expect.

In short we are actively managing through this acute Global disruption while remaining focused on our long-term growth and competitive position. We maintain a strong financial profile with something against the quiddity.

In addition to a high level of cash reserves and a significant Investment Portfolio The Firm operates with a low level of debt are exceptionally strong balance sheet allows us to continue to execute our long-term growth strategies while retaining our focus on controlling expenses periods of volatility and dislocation May generate additional opportunities for growth accelerators that require a novel approach and we remain prepared to respond.

S the tenants of our long-term strategy remain at the center of our execution of approach as we continue to drive the transformation of our wealth management business to realize full value and growth potential as well as continue the strong tradition of Ivy as an Institutional caliber asset manager.

Baba covid-19 pandemic continues to impact the world in some say it may forever change certain elements of our society. We steadily look ahead as we plan for a return to more normal circumstances, however, and take a moment to relay some of the details around our preparation planning and response to the pandemic right? Thanks. Good morning. Everyone else still noted the extraordinary environment required us to implement business continuity plans and all aspects of our company importantly. Our overall strategic approach life has been proactive and focused on leading for the benefit of all our stakeholders. Our clients independent advisers employees shareholders and Community Bank.

We believe a holistic approach like this will enable us to navigate these unique times in the best way possible and allow us to come out of this current situation took a stronger position as a company. We started transitioning to a work from home environment early in March and have them in lockstep with the CDC and recommendations from a local authorities on safe practices throughout this process. We are operating efficiently and continue to provide all investment and wealth management support services remotely. The shift to have worked from home environment has not altered the comprehensive capability of our investment team or the distribution and service components of our work early in the quarter. We quickly stood up an Enterprise preparedness team and a covid-19 steering committee to assess development and birth.

on the best actions to

Grass business continuity these teams continue to meet on an ongoing basis consistent with the guidance of governmental and public health officials. We have adopted in a business practices including restricting business travel requiring all meetings and take place via remote access tools adopting safety protocols off to one potential exposure adopting social distancing practices implementing a clearly defined approval process for re-entry to any web site advising Personnel preventive measures and offering remote collaboration and productivity tools and training resources.

In addition, we continue to monitor enhance our system capabilities to our remote Workforce to function efficiently and we have continued our educational and model practices to ensure. There are no compromises to confidentiality privacy and cyber security requirements. Given our preparedness. We do not expect any suggestion Empire to our investing trading client servicing or reporting functions, the ivy investment management team transition seamlessly and was a hundred percent remember working as of March 16th.

Our investment teams have a strong Heritage of active collaboration and we've been pleased with our team's transition to a virtual environment while maintaining that collaborative spirit daily morning meeting remotely and meet with company management teams in a virtual thing as well or distribution operations are largely remote workers throughout the year and they have not missed a beat during this transition our investment management distribution and marketing teams have part of my actively connected with our clients during these volatile times delivering ongoing investment in site updates within our wealth management business with the majority of independent advisers are working from temporary locations. We are demonstrating are differentiated service and support model by continuing regular Communications. Yep.

Independent advisers as well as delivering over a hundred and sixty additional adviser and client posting Focus resources to help navigate these unique times.

Or independent advisors, we delivered operations assistance for temporary office closes remote work and business processing in addition. We roll down logs and webinars around market and Industry developments the cares and practice development. We are also offering client-focused resources such as customized email, and social media messaging as well as supporting client Outreach and financial planning for Market volatility.

with respect to our

But you are employees and local community. We have not initiated any layoffs furloughs or reduced hours. In fact, as we implemented our own business continuity plans, we have intentionally maintain continuity or pay practices for all employees based upon their regular work schedule paid spot bonuses to certain Choice implemented a temporary hourly wage increase to designated client service Personnel on both our asset management and wealth management operations increased benefit coverage for specific covid-19 related treatments through May and have increased our philanthropic support for local organizations to help support the covid-19 responses at our community.

In summary, I'm extremely proud of the way. Our entire company has responded to these unprecedented circumstances. There were certainly challenges along the way but these learnings at home in pre-war continuity process going forward and we were confident in our continued ability to do the right thing for our employees science independent advisers share home and our local communities.

Thanks, Brent.

Our teams have done a tremendous have done tremendous work to ensure our business continues to operate seamlessly. Let me now provide a few highlights of our asset management and wealth management businesses before I turn it over to discuss our financial results.

With the recent environment while the recent environment has required a significant amount of operational change in a short amount of time over the last two years. We have been evolving this business more holistically and ensuring we have a solid foundation to grow from in the future.

The overall Enterprise platform and business model is distinct in the industry due to the combination of a highly-capable active fundamental research-based asset manager page reinvigorated wealth manager operating with a fully open architecture with both operations supported by enterprise-wide shared services groups.

This unique Enterprise model enables deeper client relationships in both operations while financially leveraging shared services functions and platforms across the Enterprise.

Having a fully open architecture model for wealth management enables asset retention overtime and enhanced advisor recruiting and broader acquisition opportunities Monday through a lot of hard work and investment we meaningfully increased our institutional caliber investment and distribution capabilities for Ivy Investments as well.

We are already seeing evidence of progress across the Enterprise and feel strongly that our strategic positioning are robust Capital position and most importantly the resilience of our people.

position

this well for growth in the future

now turning to investment performance we replaced to see performance Trends improving across the trailing one hundred and five year periods as measured by the percentage of funds ranked in the back half of their respective Morningstar universes led by improvements in our small and mid-cap franchises

performing says measured by the percentage of assets was mixed as one year records improved while three and five-year performance declined slightly

Broadly speaking. We have seen active managers performed slightly better than benchmarks during this period of volatility and we see our franchise delivering improved relative peer group performance package any of our key strategies.

As an example in the US large-cap growth category 64% of actively managed funds outperform benchmarks and our ID large-cap growth strategy delivered top Colin Powell results adding to a long-term track record of value creation for clients.

It's fine just been featured by Barron's as a top sustainable fun for three consecutive years and we see the current market environment as providing continued opportunities for active fundamental investment approach. We continue to focus on delivering long-term success to our clients through our fundamental research and insights as we have through many Market Cycles.

What was the cross the industry shifted sharply during the quarter as investors moved significant amounts of money to the sidelines reversing the prior trend of strong inflows into fixed-income project Friday Investments. It is notable that while redemptions increased compared to the prior-year first quarter the actually improved compared to the fourth quarter and over all the magnitude of the flows impact at this point has been less significant than the broader Market volatility might suggest

From a sales perspective. We saw an improvement both compared to last year and compared to the fourth quarter of 2019 while there is certainly some seasonality in the first cause we replaced the C sales increase especially in light of the broader Market disruptions. And the fact that we implemented a new sales coverage model only eighteen months ago. I bought a modest increase in sales is encouraging as we look to the future with the diversification of sales coming from multiple channels in client types in an increased threat of investment strategies including positive flows in our large cap value franchise. We have seen an improvement in April flows to date with continued sales momentum and a moderation of redemption.

Additionally within our wealth management business both sales and redemptions improved compared to last year historically this part of our business tends to be more resilient during periods of volatility and the work we've done in transitioning. The business model has certainly helped these Dynamics.

Our advisor Network continues to stabilize and we moved closer to the inflection point of advisor growth this quarter with some recruiting successes. Most notably. We added 10 experienced advisors to our Network this quarter or differentiated service and support model combined with our technology package and full product suite are clearly resonating with these newly added features as well as other advisers in our recruiting pipeline. We also continue to continue to see advisor productivity Trend upward versus the prior quarter.

On the technology front progress continues on the remaining components of our wealth management business administration program, including enhanced reporting improved data analytics and a simplified business process and model.

During the first quarter we completed a pilot launch of the new Salesforce integrated data repository allowing seamless access to data and reports across the business.

We will introduce the integrated data repository wydell One Source to the full network of advisors beginning in the second quarter. These are certainly challenging times wage. I feel confident that our company is prepared to whether the short-term turbulence and we have a lot to be excited about as we start to see some of the early results from our strategic actions emerge the power of business model is an its combination of asset and wealth management in the synergies that it drives and we're looking forward to generating growth across both businesses. Now turn it over to Ben took over the financials. Thank you Phil and good morning, everyone.

As you saw in our release we reported net income of $22 million dollars or thirty two cents per share this quarter given that the market volatility occurred later than the cork average assets and revenues were not as significantly impacted as the outlook for the remainder of the year, which I will cover shortly while operating income for the quarter was down inside of our expectations. We did record eleven million dollars and unrealized losses on our Investment Portfolio compared to unrealized gains at year-end wage in addition the quarter included additional tax expense of one point nine million dollars, which increased are reported effective tax rate.

Wealth management assets under Administration ended the quarter at 51.8 billion and decreased 14% compared to the prior quarter while average assets under Administration decreased only 1% over the same period while absolute asset levels decreased from the market losses net new advisory a support group. Once again this quarter and redemptions improved slightly as well.

IDF

Assets under management ended the quarter at $56 billion a decrease of 20% from the prior quarter while average assets under management of 66.1 billion were down 4%

Still covered the details on flows, but clearly the asset declines will impact our projected revenues for the remainder of the year.

Turning down to the financial results given these unprecedented times. I'm going to provide some additional color around our balance sheet position before covering the income statement. We ended the quarter with cash and investment balances of $766 million dollars with the decrease primarily attributable to declines in our Investment Portfolio and incremental share repurchases within that combined total our cash balance increased modestly from last quarter due to an increase in swap collateral and Invesco maturities partially offset by share repurchases and dividends investment balance has decreased approximately $83 million dollars due to $56 million. I realized losses on our seed portfolio and twenty seven million investment maturities that we redeployed into share repurchases during the first quarter.

During the quarter, we returned capital of $71 to shareholders through dividends and share repurchases. We repurchased 5.5% of our outstanding shares during the quarter and over the trailing twelve months. We've repurchased over 14% of our outstanding shares.

Our investment balance is comprised of a seed Capital portfolio, totaling $293 million dollars and our corporate Investment Portfolio, totaling $312 million dollars, as of quarter-end a reminder that the seed capital is part of our strategic product incubation and development process, which is of course key to our asset management business. We have a conservative hedging program with a majority of the seed portfolio hedged which partially offset the unrealized losses. I mentioned previously known for the corporate Investment Portfolio. It is comprised entirely of investment-grade corporate Bonds commercial paper and us treasuries with an average issuance size of five million and a duration of one and half years.

we continue to believe our balance sheet strength without any significant Leverage is a key differentiator in this industry, especially in the current environment which affords US the wage flexibility to take advantage of dislocations and other opportunities these markets bring

now turning to the income statement total revenue for the quarter was 263.7 million and decreased 2% compared to the prior quarter off the majority of the sequential quarter Revenue decrease occurred in March as asset levels decreased sharply impacting Investment Management fees and shareholder service rep. I was also one last day in the quarter the management fee rate actually improved to 64 basis points do to lower fund fee waivers and a favorable next shift between our institutional and Retail products.

We did add some new.

Fee waivers on our large cap growth and corbond products During the period which were effective April 1st, we expect these fee reductions to have a 1/2. Mm annualized impact on earnings per share and position these products for distribution opportunities into large asset categories where we have competitive products.

Underwriting and distribution revenues were actually slightly higher as over half of our revenues are now comprised of advisory products which are billed based on beginning of month assets. So they were not impacted by the march Market downturn.

Operating expenses totaled $224 million dollars and decreased 16.9 million compared to the prior quarter. However, the prior quarter included a 12.8 million dollar asset impairment charge. The remaining decrease was due to lower compensation and lower G&A expenses compensation was lower than a slight decline in headcount and lower incentives despite the resetting of tax limits and an annual Merit increase.

G&A decreased across a number of categories most notably due to meetings and travel shifting to Virtual formats. In addition. There was a shift and transfer agency transactional processing costs from the technology line.

In light of the market uncertainty caused by the covid-19 pandemic we expect our twenty-twenty controllable expenses to be below our prior guidance. We have been modeling various management actions and the related Financial scenarios for the remainder of the year.

These actions include assessing controllable expenses for savings opportunities evaluating all ongoing projects for strategic alignment and effectiveness of the pro teams consultants and contractors and evaluating are open positions. We will continue to prudently manage our expenses, but I want to be clear we will continue to take a long-term view. Our decisions will focus on those actions that we believe best enable long-term success and sustainability, especially as it relates to those projects that we believe will drive future organic and inorganic growth. Our response will be will be determined by the magnitude and timing of asset levels in the balance of twenty-twenty should market performance declined further. We're prepared to take additional actions as necessary while maintaining our long-term focus and doing the right thing faith.

all of our stakeholders

Finally the effective income tax rate was 32% for the quarter. But as I mentioned it included additional tax expense items of 1.9 million dollars without those items. The tax rate was 25.8% We expect the tax rate to remain higher due to an unfavorable relationship between non deductible items and pre-tax income excluding the impact of any additional non-recurring or discrete items. In addition based on current share prices. We do expect an additional tax charge in the second quarter for the shortfall from vesting of restricted shares of approximately 1.5 million dollars.

overall

As Phil and Brent mentioned, we are leading this company for the benefit of all of our key stakeholders. We believe that will enable the best success over time for shareholders specifically as you have heard, we continue to utilize our strong balance sheet and ample liquidity to invest in key growth opportunities, which we believe will deliver long-term shareholder value.

Operator we would now like to open the call for questions.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two. Please limit your questions to one with a single follow up with you have additional questions. You may re-enter the Queue at this time. We will pause momentarily to assemble our roster.

Our first question comes from Glen Shor with evercore, please. Go ahead.

Mr. Shoreline is open on our end. Do you have it muted on yours? No, I'm good. Thank you. I appreciate it. So curious curious when you talk about growth accelerates that you talk about in your prepared remarks. I'm curious if there are talking about new products that are in the pipeline new Investments on distribution of wonder if you just took out a little bit found it interesting.

Okay. Hey Glen, this is Phil. I think primarily what we're seeing as we've talked in the past about our balance sheet and liquidity could be a real differential in this market place nicely. I think when we see Market dislocations, um, we want to be poised to be opportunistic whether it's on the asset management side of our company or the the management side. So thinking primarily in terms of acquisition opportunities or abilities to accelerate Investments or it could be a new product development areas as well. So it really encompasses a little bit of all of the above. It speaks to being opportunistic at a time when maybe some others are kind of on their on their heels and and Thursdays are a little dicey. Um, you know, we have a conservative balance sheet lots of liquidity and and really the opportunity to take advantage of opportunities wherever we see them.

Okay, and maybe just to follow up on your comments you've done some things like that in the past as as a basically get below the the peer mediator or be more competitive to help Drive growth. I'm assuming that this is the case the case again, but wondering if you could talk about how much reduction and and how that feedback works. Is that come to you from the retail Channel you go out and seek it out for the the best performing funds just curious on how that works. Sure. How long do you want to take that one?

Sure. Good morning Glen.

Thanks for the question. Yeah, so when we are evaluating our fees, you know, it's a piece of our continued effort to really drive the competitiveness of our products. So we're looking at it from a few different standpoints, but it has it specifically relates to the fee reductions that we did in mid 2018. And then these two fee reductions as well. We take a look at our competitors in the marketplace we look at who's winning and where their fees are versus their their assets under management in the strategy. And then we also offer really take a look at what the what the median of the below average category on on the Morning Star. Group is and so we take all of those things combine them together with with what we feel like the opportunity is out in the marketplace and we take that suggestion to our executive team and board for approval.

Thanks, Amy. How much was the reduction in those products this go round?

There was a nine basis-point expense ratio reduction on security and korban in the I share classes. I am in share classes and then I believe it was only around four basis points in large-cap growth cuz that was also part of the original reduction in in mid-july.

Awesome. Thanks so much. I injure. Yep. Hey Glen, I think I think Ben wanted to add one one thing to your prior question. Go ahead.

Thank you. So I just wanted to add to those remarks Glen that we're really thinking about that in terms of birth ganic and inorganic growth organically, you know as we think about our wealth manager, we're continuing to invest in recruiting opportunities which day you heard us mention and Sean could provide additional color on also we are continuing very aggressively our technology efforts in that line of business and beginning to stand up some of the pieces as you heard in our remarks that will continue through this year. And then the other piece would be in organically. We are obviously continuing to look at the marketplace as as you heard Phil say in his comments about opportunities that may arise and opportunities for us to yep.

our capital for growth

Thanks for that ma'am.

The next question is from Dan Fannon with Jeffries, please go ahead I think's just wanted to follow up on the expense commentary you talked about coming in below. Your previous guidance is what needs to be more specific in terms of what you think the new ranges or how we think about the run-rate you're kind of going into next quarter in terms of those controllable expenses.

Okay.

Ben you want to take that?

Sure. Good morning, Dan. We're obviously constantly assessing our expense base and looking at the ways we we do business and we're going to continue to be prudent as we think about that and and you've seen that we've taken a number of actions over the the last couple of years as I mentioned in my prior answer we don't intend to interrupt the Strategic progress that we have underway and particular in some of those some of those items that I mentioned. Generally if we as I am about our expense base, you know, the magnitude and timing of asset levels and the balance of the year are going to determine ultimately the the magnitude of actions we will take long as I think about the composition of our cost base compensation GNA and marketing are are certainly the most variable. I don't think dead.

You'll see us make a lot of movement in technology as that's where a lot of that strategic spending is that I referred to as it relates to the rest of the year. Some items were just naturally lower in q1 such as uh, our equity and Deferred Comp plans that have a mark-to-market component. We also have been very judicious in regards to filling filling vacancies and thinking about that on a case-by-case basis, but again continuing to invest money and talent in those areas that we think it's important to move our strategy forward.

Okay, and then just to follow-up, you know question around the balance sheet in the dividend you guys have obviously highlighted the strength in liquidity that that provides in terms of flexibility, but thinking about the dividend at these levels in your cash flow, you know, how committed I guess or to the dividend. Are you assuming markets are in a word to one another like down and and and you know, how willing would you be to pay that dividend out of excess cash versus ongoing cash-flow from the business?

Maybe this this is Phil and I'll start with a high level, and I'll let then follow up. I think you know we a few years ago when we adjusted our Capital return program thought through this quite extensively about how we wanted to Percy and we feel pretty comfortable with respect to the level of the dividend at this point. There's quite a difference between the cash flows that we generate versus reported. Net income. And at this point we feel very comfortable with the current level of dividend the sustainability of that. Maybe then I'll let you elaborate a little bit off if you want to add something there.

Sure. Thank you, Phil.

Yeah, it would um, uh just remind you as Phil said it was 2017 fourth-quarter. We moderated our our dividend level and adjusted our share buyback program at that time to provide much more flexibility and our Capital allocation structure. And since that time you've seen us returned a significant amount of capital to shareholders through continuing the dividend obviously as well as doing share BuyBacks, uh a door actually beyond the the office or dividend a level when you add those components together, we're going to continue to be opportunistic with BuyBacks, but we can obviously take advantage of that flexibility that I mentioned and move that up or down based on other needs we might have for Capital whether that's um m&a opportunities on the market wage.

Our strategic Investments like we were talking about earlier and then just to reiterate fills other point. We do have cash flow beyond the pure net income level which gives us some additional room there as well.

Okay, thank you. The next question is from Patrick David with autonomous research, please go ahead.

Hey, good morning, guys. You hinted on this in in the prepared remarks, but when you kind of think about where ended one Cube the waivers that came off in 1 Q Plus the waivers that came on in 2 Q. Could you give us a little bit more specificity on what you think the run-rate revenue level is versus one Q kind of at the beginning of you.

Then do you want to take that one?

Sure, good morning Patrick. As I mentioned the the waivers coming on we think are in a range of one to two page two cents impact and we believe just adding to Amy's earlier comments on the market We Believe those are those are both product categories phone number. We have some some distribution opportunity. Again. Our our strategy on thinking about pricing is is to continue to work wage on making sure our our products are well positioned in the market and that pricing is not an inhibitor as Amy's team goes to work on on Dish Nation, um in regard to to waivers coming off that was more. Um, uh timing issue related to asset khong

Position and and movement within our portfolio versus ugh deliberate action or expiration there Patrick. Is it taking it all together? I guess the question is like what what should we wear? Should we think about it's kind of the Baseline for where your total run rate Revenue level is versus one Q right now. Yeah. Yeah taking it all together. I don't know fact a significant change in the fee rate obviously assets are have moved and are moving but are are effective fee rate. I don't anticipate a significant change there.

so just kind of run the

Okay with you know with the the impact I mentioned, you know on the new wavers again one to two cents.

Thank you.

The next question is from my carrier with Bank of America, please go ahead.

Good morning, and thanks for taking the questions first question just on the expenses then realized that the volatile backdrop, but can you provide maybe some color, you know in the controllable expense wage level head in either maybe like a flat Market backdrop, you know or an environment where we're up or down you attempted to I guess just any color to gauge the flexibility in that base, which I think if you're previously was somewhere in like the low for hundreds.

Then you want to take that one. Sure Mike good morning. You are cracked. Our our prior guidance was in a range of 450 to $425 for that that controllable expense base. We came in first quarter at a level of $97 million. So often significantly below as I mentioned, you know, our ultimate response here will be determined by what assets what asset levels look like wage and the balance of the year in regard to our expenditure level the additional color. I could give you maybe would be as well. I think about our strategic project spend. I do believe that will Our intention is for that to continue in the balance of the year and I believe absent other phone number.

There's that would actually drive that controllable rate up slightly in the subsequent quarters. Uh, but we've not yet finalized our intentions on what we will do in regard to other controllable expenses the extreme amount of volatility that we saw in the latter half of March and early April may have made that quite a challenge as you can imagine for us and others as well to ultimately formulate our formulate our plans.

Okay, got it. And then just one more follow-up on the fee waivers and not the the fee waivers in April going forward but more just in the in the quarter some of those fee waivers creasing is that like a significant amount meeting if I look at the the fee rate and like how much these fee waivers, you know can contribute either an increase or a decrease in a a quarter. I guess. I'm just trying to you know kind of Gage or understand, you know, what can like shift that around or move things around, you know from quarter-to-quarter.

And you want to anything to add there?

I would add just one thing which is the primary driver is product composition and that I think was the primary driver in the sequential course. So both as assets have obviously moved around in regard to where investors are going and also, you know, we experienced some shifts in the composition of our assets between institutional and Retail assets, which will also impact that that rate a bit again the truck driver and particular for the quarter was not actions we had taken but as as far more weighted toward composition of the the base within our own products set

Okay. Thanks a lot.

The next question is from Kenneth Lee with RBC, please go ahead.

Hi, good morning, and thanks for taking my question. Just one you mentioned the cash and liquid Securities on balance sheet of 776 summer six six million dollars and as well, the the latest seed Capital. Just wondering what's your best sense of the current Access Capital or Deployable cash on wage sheet if you were to exclude working capital needs as well as the seed Capital. Thanks.

Ben you want to address that I would be happy to good morning Kenneth as I think I've mentioned before our primary need for working capital or is our seed portfolio in the asset management business. We we do not maintain or have a need to maintain significant regulatory capital or anything of that nature in the wealth management business. It's it's quite minimal. So our working capital needs would simply be be running the business and then off our seed portfolio. I don't anticipate we will have significant changes in the seed portfolio in the near-term. We do continue to assess that as products, um, make their way into the marketplace and then we always have opportunities that we are evaluating to pull off.

The the capital out once a product becomes mature and and has enough of a base to begin to fully function on its own. We are certainly cognizant of not impacting products or impacting clients as we think about that seed Capital. So we're cognizant of of those factors, but in the near-term, I don't believe would be significant changes in in that seed Capital portfolio. The balance of our Capital then will be will be utilized for um wage opportunities. And then of course thinking about shareholder return as I talked about in the way of dividends and continued BuyBacks as well as the potential for inorganic opportunities that that may present themselves in the marketplace.

Very helpful and just one follow-up if I may just in terms of the just want to focus on the continued Improvement within the advisor productivity metrics within the management. Um, is this still being driven by the retention and recruitment of higher producing advisors or are there any other factors that that that's driving that that continued productivity Improvement?

Hey Sean, you want to address that question? Yeah. Sure. Good morning, Sean behal. Yeah, primarily. This is really been driven off of that retention of those more productive advisers as well as our scope and change of recruiting focus on those more experienced advisors. So as we have and Gathering momentum of round our recruiting efforts, we have been targeting average overall productivity in that $400,000 range with respect to the visors that we've been onboarding. So, I think that's primarily combination drivers behind that.

Very helpful. Thank you very much.

The next question is from Robert Lee with KBW, please go ahead.

Good morning. Thanks for taking my questions. Hope everyone is doing well tough environment. I guess my first question would be on within wealth management page update is you know, if you're if you look at kind of sales across the platform, you know, what proportion of of that whether it's in to be based products or otherwise Thursday is actually flowing into a Waddell manage product as opposed to the third party strategy.

Okay, so maybe maybe Sean you want to address that first from your perspective then maybe Amy my add-on from kind of the ivy perspective as well.

Yep. Hello. Good morning. Shawn again. Yeah, we we are watching the overall concentration ratios of of are primarily we look at this as on the advisory side of the programs where your clothes are actively going today. So we have our non advisory business advisory business. We're continuing to see the positive flows move into that advisory business in general. We're still continuing to see a a little bit of a reduction in the overall concentration ratio of Affiliated funds with inside of our totality of the wealth management business. The overall ratio ended at about 64.3% Most of this is being driven by those ongoing flows going into a broader scope of products. And as we look at our advisory programs and the overall assets inside those programs from that are open architecture programs. We're seeing about 10% overall of Affiliated assets inside those programs to our mutual fund type programs and advisory that we're seeing overall concentration ratio is about 20% off.

Of those athletes inside those programs.

So that's about the ranges we're seeing on the advisory side of concentration of flows of around that assets of about 10 to 20% depending on the type of program.

Okay, great. And then I don't go ahead sorry. I was Robert. I was just going to add kind of at a higher level, you know, we have a couple of sales and service individuals that focus on our what Ellen and read advisor team and we have seen you know our net outflows for the quarter. We're right around a billion dollars out of that channel and that's down from an average of 1.2 to 1.3 billion not out last year. So we're we can continue to see a nice stable Foundation both of sales and redemptions from one else and maybe is it power to that maybe I mean this is

For you too. I'm not sure but the you know as you look to the you know, I guess you're unaffiliated Channel and I know you've made some strategic pivots there two segments that your town so number one. Can you update us on some of those segments and and giving kind of the

you know, at least the acid scale there be you know about twenty billion and unaffiliated, you know, there are certain. I mean, do you feel like

Maybe it's the wire houses or whatnot that maybe at this point some would subscale for some channels or just kind of update some kind of a third-party strategy and where you see an opportunity.

Yeah. Sure. Go ahead and add. Yep. Yep. I will add to that. So just as a reminder and we walk through this probably about a year-and-half ago, but we divided our distribution sales force into two primary channels one, which we are which we refer to as our professional buyer or institutional Channel and the other is the national channel in the National Channel. That's where we focus on our broker-dealer distribution Partners, the wirehouses the independence and what Allen Reed and then in the professional buyer, we have a insurance and Retirement Group. We have r r i a team and then we have our institutional team. So when I when I think about how we're seeing traction one of the reasons Robert that we would we structured ourselves that way was because of what we saw going on in the market place where there's much more of an Institutional type of buying process that's coming from everywhere else.

Regardless of of what channel it is. And so as I look at the at the quarter and start to see some of the incremental improvements. Um, I'm seeing it in June and really kind of four different areas. There's getting placement on platforms. There's being upgraded on platforms to either the select or recommended list, there's having institutional opportunities and that could be an Institutional like the the standard institutional client that we all know of the and down the foundation public plan corporate plan, It can also be where Consultants have overlaid the the more retailer third-party intermediary part of the marketplace and we are starting to see Traction in all of all of those places. It's still early in our new sales strategy, but we're really starting to see our Pipeline and winds picking up across Channel. I think the other thing that I'm

Says in May of last year you'll recall we introduced.

A series of model delivery portfolios. We thought it would be something around a nine to eighteen months conversation and and beginning to Garner placements and we have recently signed a contract on our large opportunity in that space. So those are non-discretionary assets, but they'll at this nonetheless in a Big Win For Us in in the distribution channel. So I think with that I will I'll pause and I'll see if Dan Jansen our CIO has anything he'd like to add.

Well, I think just in general takes a me just to build on the comment about you know, the traction we're feeling it's it's all about the core of what we r i v as a platform for Quality growth. I've used the platform for for small cab and Global like these are key strengths that that really is our heritage and also our strength and we think it's playing to wage the markets going to go and see where the Puck's going in terms of active management and picking your spots and we're seeing it, you know, we want to be tentative and realize the market can change quickly. But in the first quarter, we saw a 59% a large gap US bank across the board outperform. It's in the in what was the worst quarter I think on the book so you've got the best quarter practice managers in in in a dozen years with white lines pretty well with the the DNA and and core Northstar for our franchise is which which is you know around, you know, not trying to do everything or be everything to everyone but just that that that home

Active managers who are doing fundamentally deep diligence bottom-up work and and picking their spots. That is what what you know, that that's is how we Define active management in our franchise that Ivy. We think our clients increasingly, you know are getting comfortable with the mix and the in the world practice managers in a broader portfolio, and we've got a you know, we've got a nice spot in that so that's the comment I make think well, thank you for taking my questions.

The next question is from Bill cats with Citigroup, please go ahead.

Okay. Thank you very much for taking a question this morning as well. Hope everyone as well with this everything going on just coming back to some of the fee cuts that you had mentioned. It seems to be sort of an ongoing pattern ninja of look at the market and sort of you know, we set your your product line. Where are you today? If you look at maybe your ten to Fifteen top selling funds or largest funds. Where are you relative to a benchmark would be meeting below median in terms of pricing. And is there any sort of other risk here of sort of residual pricing pressure to try and jump-start flat volumes?

This is Phil. Maybe I'll start and I'll turn it over to Amy for some specifics but just as a high-level Bill remember, we did a a more comprehensive view of our page saying across our product line. I don't remember exactly when it is maybe any can recall but it was more extensive and broad-based and we implemented that we've kind of cycled through that and as we moved forward it's going to be as you described more ongoing and tactical and product-specific where we need to be competitive, but it was something it's something that I think Club we're going to be constantly evaluating or it'll probably never end. It's kind of the nature of the industry. But um, it'll be more incremental going forward and product-specific. So Amy, do you want to talk a little bit about kind of where we stand relative to um the rankings and how we go about this process and how we think about it.

Sure. Sure so bill today. We're sitting at about 73%

Of our assets under management for our funds family. Is that comedian or better as it relates to pricing when we look at our top 10 or what we might we might refer to as our focus on nine out of those ten funds right now are sitting in that range of that median of the below-average quintile from a MorningStar standpoint. So we're doing pretty well in the one that isn't it's sitting right around medium just a little bit a little bit more than median. So I still said from the the larger fee reduction that we did it was in July of 2018 effective August of 2018. You know, that's where we really drilled in and and said from a strategic standpoint where we feel like we have a competitive product that we felt like it could get traction today, you know, that's where we made those big moves and these were a couple of incremental strategic moves and like it's yep.

Stuff that I do believe that going forward, they'll probably be um, you know, maybe maybe smaller in nature or um more tactical than strategic.

Okay, it's helpful. And then this is my my fob is a little bit of a two-part. So I apologize for that just as you think about what's coming in the door versus what's going out the door. How do how do you think that that affects the fee rate net of all product changes, and then secondly, I think you would mention that the trends in the wealth management section. I think that's what you're speaking to had gotten a bit better quarter-to-date. Just wonder if you could verify that and then maybe getting back more broadly. Could you talk a little bit about what you're seeing in terms of net flows for the complex in April. Thank you.

Okay, maybe a me. Why don't you address the flow issue? And then I don't know if then you want to think about that fee the first part of those question with respect to fees or if you have any thoughts on the the differentiation of what's going in and leaving and that type of thing, but maybe I think a flow, would certainly be helpful.

Sure. So as we look into the first quarter and address the first quarter first bill and then I'll move a little bit into your question and April in the first quarter. We saw a very large increase in the breadth of strategies that were that were winning. What we would consider to be a large allocations per per our distribution strategy game. So we definitely saw less of a concentration in what had formerly been our highest selling strategy the international core strategy and it is moved across across-the-board. So from small to large cap on the growth side, our small-cap core has been so nice traction mid-cap income opportunities, which is a portfolio. That's held a five-star off Morningstar reading for quite some time continues to flow not positive and then our Emerging Market Equity continues to have strong performance and and good flow patterns as well. So, yep.

What's coming in if that what's going?

Now tends to be our International Corps and high-income both of which have suffered a bit of a performance disruption. And so we continue to see outflows in those two areas as we look at April when we look at a gross sales basis, you know, we're seeing um, uh slight reduction from June March, which I would would attribute to seasonality more than anything but I think the more telling point is that we're seeing a fairly substantial reduction in redemptions across the complex. And so, um, you know, and that's primarily in that International court and high-income space where we've seen redemptions in those two spaces too slow as well. As you know across our institutional business.

Okay, then I don't know if there was anything to add on the fee or any covered it they're not sure so I think Amy Amy did well, I don't have anything to add home. Okay. Thanks for your patience. Answer all the questions guys. Thank you. Yep. The next question is from Michael Cypress with Morgan Stanley, please go ahead.

Hey, good morning. Thanks for taking the question. Just wanted to Circle back on the controllable expenses that came in around $97 million in the quarter or so. Just curious how we should think about some of the page takes as we move into the second quarter here. It sounds like some projects spend accelerating through the year. So that arguably drives a little bit about weird pressure. But how much seasonal expenses should we take it back coming out as we move into the same quarter also markets have recovered about 11% So how does that how should we think about that driving any sort of upward pressure on expenses here? Maybe you can remind us of the portion of expenses that are Market sensitive and that's what portion of the comp plan. Would you describe as variable?

Okay, Ben. You want to offer some context on that question? Sure. Sure. Good morning, Michael in regards to the first quarter. We did have some savings versus fourth quarter or some reduction in compensation as I mentioned and that'll largely driven by lower headcount. Well as well as uh a little bit of deferral on some open positions as we thought through that again, we're not we're not slowing or delaying any strategic hiring but we're of course being very judicious about that. We also saw some impacts already in the first quarter from lower travel expenses as well as lower meeting costs, you know, even some things beginning to move into dead.

virtual formats and some plan

Thing for some of that into um the balance of the year as we think about a uh, slow ramp-up back to work in regard to the rest of the year. I think I mentioned earlier I do expect we'll see some increase in our project spending as some of those items ramp up a bit more fully in the year wage are really centered around strategic technology projects in particular our continued investment in the wealth management platform and you heard in our prepared remarks some of the roll out of that in regard to variability. We certainly have a big portion of our own National cost-based is um,

Is fixed, you know and flows through the distribution line and and varies with asset levels as as we are thinking about our business office dial as you've heard us say in past quarters. We have done a lot of work to move a number of fixed costs operations into more variable structure in particular in the wealth management business, which we believe is more sustainable for the corporation and allows us to to be a little bit more flexible compensation. As you mentioned of course is one item that has um, um, some significant flexibility in that although we we certainly will continue to two packs are good people as we're again taking a long-term View and making sure we can continue to move strategically forward even through this this Interruption that we have had.

Okay, and just as a follow-up if I look at the prior guidance on the control expenses. The $425 is in consensus is around 4:03. So about four to five percent below your prior guidance, I guess do you think that's optimistic or that sort of reduction or what sort of environment do you think would be needed to see that sort of outcome?

Yeah, I definitely believe we will come in below our prior guidance, which you're correct is in the $420 to $425 range based on first month at 97. Obviously that demonstrates the start of that Trend. And as I said, our ultimate actions will really be determined on what asset levels look life for the balance of the year. We have seen of course some recovery of markets in April and and our response will be determined by what that looks like in a rest of the year.

Okay, thank you. The next question is a follow-up from Patrick David with autonomous research, please. Go ahead.

Hey, thanks for the follow up. I hear the thank you for the guidance and kind of how April looks I think probably not surprising to anyone that it's better than March. Could you frame? It may be relative to January and February?

Amy why it take that one

Sure. Yeah relative to January and February. I would say very similar comments. The sales are depending on which month. We're talking about from a growth standpoint. I am in line may be slightly less and the redemptions just continue to improve so from a net basis. Um, April April is looking better.

Thank you Yep. This concludes our question-and-answer session. I would like to turn the conference back over to Phil Sanders for any closing remarks.

Okay, thank you. Listen. Thanks for everybody for your interest in dialing in today. Obviously, these are really challenging times and I just want to say I'm really I'm really proud of the organization and appreciate the hard work and everybody in terms of how we pulled together and transition to kind of this work from home environment really faith in the company balancing the interests of all of our stakeholders, whether it's obviously clients advisors employees shareholders communities. It's been certainly challenging times, but I'm really proud of how everything pulled together and done their part in terms of coming together and and really demonstrating our core values and focusing on the client and collaboration and that type of thing. So anyway, it's been uh-huh challenging to say the least in a lot of respects, but certainly proud of how everybody pulled together. So with that thanks everybody for your interest and look forward to catching up with you.

In a few months. All right. Thank you very much. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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